The majority of Home REIT’s board will be replaced over the next 12 months, the company said in the first of its monthly updates since its stabilisation period commenced.
The board – made up of Lynne Fennah, chairman, Simon Moore, Peter Cardwell and Marlene Wood – oversaw the tumultuous period of wrongdoing at the REIT’s former investment manager from inception in 2020.
AEW was appointed the new manager and a new investment strategy was implemented in August. As part of its commitment to shareholders, the company will give monthly updates on progress (on the first Monday of every month) as well as quarterly presentations.
In its first monthly update announced today, the board said it had initiated a formal and phased succession process. An individual with “significant listed company expertise” is being considered for the role of senior independent director and is expected to join the board in the coming weeks and to lead the succession process.
It is expected that the majority of the current board will have departed at or around the point of restoration of trading in the company’s shares (hopefully by the end of 2023), and that the board will transition entirely within 12 months, allowing a period of handover.
Other updates – publication of accounts
The company hopes to publish accounts for the year to August 2022 by the end of 2023 at the earliest. It has appointed JLL as the company’s valuer and Vibrant and Countrywide to provide condition reports and quantification of capital expenditure required to bring properties up to specification.
Independent valuations for August 2022, February 2023 and August 2023 will then be reported. The board and AEW have determined that revised accounting policies for revenue recognition (lease) and acquisition accounting are required in order to better reflect the substance of historical acquisitions and lease arrangements. These revised policies are being presented to the company’s auditor BDO LLP, which may also result in restatement of 2021 accounts.
With inspections not scheduled to complete until mid-November 2023 and the revised accounting policies being applied back to inception, the board currently anticipates publication of the outstanding accounts by the end of 2023 at the earliest.
Tenant engagement, rent collection, portfolio sales
AEW has engaged with all of HOME’s tenants. The company collected just 7% of rent for the quarter to the end of August 2023. Several of HOME’s tenants have entered liquidation and AEW expects more to follow.
AEW will look to re-tenant these properties, as well as other properties where it deems the tenant as unsuitable. It said it would seek “quality providers” with Local Authority support, as well as relationships directly with Local Authorities and/or governmental departments. The removal of lease length and index-linked restrictions and the flexibility to include any form of residential use during the stabilisation period (which is part of the amended Investment Policy) allows AEW to consider tenants from the private rental sector, and other social housing occupier groups. It said stringent covenant analysis and due diligence will be undertaken on all proposed tenants .
AEW added that those tenants who are paying rent, providing a good quality service and are able to satisfy due diligence requirements will remain within the portfolio.
On 4 August 2023, the company announced it had exchanged on the sale of 40 properties at auction, representing 1.6% of the portfolio by number, for £4.8m. The average sale price at 39.4% of purchase price reflected the vacant status of the majority of the properties (73%) and condition of the properties. The property sales are expected to complete in early September. AEW is assessing the remaining portfolio which is expected to vary in terms of overall condition and suitability for occupancy and will provide further detail in future monthly updates.
Cash position
As at 31 August 2023, the company had cash balances of £13.5m including amounts held on account with the company’s lender and subject to certain restrictions regarding its availability. The company has £0.8m of unrestricted cash (not including the proceeds from the portfolio sale, which are due early September). The company has incurred one-off exceptional expenses which relate to valuation, inspection and professional advisers of £8.2m for the calendar year to date, which is expected to significantly decrease in the subsequent period. The exceptional costs of £8.2m include £3.0m for valuation and inspections, £2.0m for legal advisers, £1.8m for strategic advisers and £1.0m for advisers and additional audit fees in relation to the 2022 annual accounts.
The company has total borrowings of £220m, comprising a £120m interest-only term loan, repayable in 2032, with a fixed all-in rate of 2.07% and a £100m interest-only term loan, repayable on 2036, with a fixed all-in rate of 2.53%. The company has continued to service interest payments in full as they fall due.
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