Scandal-hit Home REIT is proposing changes to its investment policy as it looks to stabilise its business following the appointment of AEW as investment manager.
The changes will be put to shareholders at a general meeting on 21 August.
A summary of the changes
- Introduction of a stabilisation period
A stabilisation period will commence on 22 August (if the proposal is passed by shareholders) for two years. It will allow AEW to carry out a detailed assessment of the existing portfolio and tenant engagement, with a focus on understanding any tenant issues with properties, the identification of underlying occupancy of leased properties and an assessment of tenants’ abilities to meet rental payments with a view to improving rent collection (for the period 1 May to 30 June the company billed £8.77m of rent and only received 7% of this!).
The company will undertake a programme of re-tenanting and will “rationalise” the portfolio – sell properties that are deemed underperforming.
The stabilisation period can be extended for an additional year and will end if: (i) the portfolio is capable of being operated according to the post-stabilisation period investment policy; (ii) rent collection has stabilised; (iii) the company has recommenced dividend payments; (iv) the company’s annual and interim reports and accounts are being approved and published in accordance with its regulatory obligations; (v) trading of the company’s shares has resumed; (vi) the sale of any non-core assets has completed; and (vii) the company is in a position to raise equity or debt finance.
- amendment to lease approach
Lease lengths will no longer be long (20-30 years) but depend on rent, nature of accommodation, tenant, and needs of residents/local authority.
Rent review mechanisms will vary depending on the accommodation, tenant and local authority need and not be purely inflation-linked.
Leases will be a combination of triple net, full repairing and insuring (FRI) and/or have a service charge element. At present all leases are triple net or FRI.
The company said that the changes to the lease approach “will better align with the interests of Local Authorities, Charities, Registered Providers, the Company and the underlying occupants to provide a more sustainable long-term model to address homelessness and other social issues”, and avoid the rent collection struggles it has encountered.
- Diversify permitted use of properties
The company proposes to introduce flexibility to the use of its properties during the stabilisation period to include any form of residential use. Post-stabilisation, the company shall invest in residential accommodation assets having any Social Use but which are predominantly homeless accommodation assets. By adopting a definition of Social Use real estate, the Company expects to benefit from the full extent of demand for specialist residential accommodation, align its provision of real estate with underlying needs of tenants and occupiers and underpin relationships with high-quality operators. Where it can be done responsibly, the company may consider letting properties to organisations appointed by the Home Office to provide housing and support services to asylum seekers.
- appoint third-party specialists
The company will appoint specialist third-party service providers to carry out repairs, refurbishment, building maintenance and health and safety work to ensure properties meet the required standards of quality, safety and compliance.
Other news
The company has appointed JLL as its new valuer.
The publications of its annual results to 31 August 2022, and therefore the recommencement of trading in its shares, will not be made until at least late 2023. The company said that the inspection and valuation process is expected to take a number of months given the number of properties in the company’s portfolio and, accordingly, it does not expect to publish its audited results for the period to 31 August 2022 until late 2023 at the earliest.
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