Home REIT is attempting to move on from its recent troubles with a comprehensive reset, which will see it focus less on homelessness.
The REIT said stabilisation must come first, after it only managed to collect 7% of rents owed for the last quarter.
A general meeting for shareholders, who have been locked in since the REIT suspended its shares in January, has been called for 21 August. The REIT said it will present a new investment plan, but warned of at least three years of further pain for investors.
The REIT acknowledged that, for the period 1 May to 30 June, only 7% of the £8.77m rent demanded had been collected.
It said it needed to make changes to its investment policy to enable newly appointed investment manager AEW “to take steps to assess and stabilise the property portfolio and improve rent collection through extensive tenant engagement and asset management initiatives”.
AEW, which was appointed in May, is now “taking steps to assess and stabilise the property portfolio and the financial condition of the company and will seek to maximise income and capital returns”.
This will include “an assessment of tenants’ abilities to meet rental payments with a view to improving rent collection and maximising shareholder value”.
Home REIT acknowledged that this would take some time. Changes to the investment policy include the introduction of a stabilisation period, which Home REIT says could last between two and three years.
The REIT said the changes would “ensure that the company is able to continue to operate in the sector and preserve its long-term social objective of helping to alleviate homelessness in the UK”.
However, it will effectively end its focus as a provider of homes for the homeless, as it becomes a generalist residential investor. The REIT said its investment objective during the stabilisation period would be “to maximise income and capital returns by investing in a portfolio of UK residential real estate”.
This will include designating properties within its portfolio “for any residential use”.
After the stabilisation period, AEW wants the right to extend investments to “residential accommodation assets having any social use”.
By social use, the REIT said it means real estate used to house vulnerable individuals, including, but not limited to, “homelessness, ex-service men and women, individuals fleeing domestic abuse, vulnerable women, people leaving prison, asylum seekers and refugees, foster care leavers, substance misuse, care leavers, mental illness, disability, specialist supported living and general needs social housing”.
The REIT sees “greater diversification of permitted uses” as the key to “generate sustainable cash flows and meet its on-going liabilities”.
The REIT has appointed JLL as its new property valuer, replacing Knight Frank. It has also appointed a third party to complete inspections of each of the properties in its portfolio.
The REIT said: “This is a key step towards the completion of the annual and interim accounts and the subsequent restoration of trading in the company’s shares.”
The shares have been suspended since January after it failed to publish overdue accounts for 2022. Since then tenants have failed to pay rents and questions have mounted over possible conflicts of interest with its former investment adviser.
The REIT initially said allegations levelled by shortseller Viceroy Capital were unfounded, but has subsequently admitted that almost all of them were correct, but levelled the blame at its former investment adviser Alvarium Home REIT Advisers.
However, those accounts will not be released any time soon, with Home REIT saying the “inspection and valuation process is expected to take a number of months given the number of properties in the company’s portfolio”.
As a result, it “does not expect to publish its audited results for the period to 31 August 2022 until late 2023 at the earliest”.
While it said that the company was “in constructive dialogue with the Financial Conduct Authority regarding restoration of trading”, that will depend on it publishing not only the annual report, but a half-year report to 28 February 2023.
That means that shares are unlikely to be tradable until next year.
The REIT said it would also amend its lease model, scrapping the 20 to 30-year long leases in favour of shorter, more flexible lease lengths determined by rent levels, the nature of the tenant and accommodation and the needs of the local authority.
The REIT acknowledged that this would reduce long-term inflation-linked income for the company, but said it would better align with the interests of its tenants.
Other measures include ensuring that no one tenant accounts for more than 30% of the portfolio during the stabilisation period, and 15% after that. However, it gives itself the wiggle room to allow 50% exposure in “exceptional circumstances”. It is aiming to set borrowing at 35% LTV.
While it hopes to reinstate dividends at 5.5% – which was promised at the REIT’s IPO – Home REIT said this would need to be reviewed.
The REIT added that if shareholders do not give the plans their blessing, AEW will not take up the role as investment manager “and the board will need to consider an alternative strategy”.
Home said: “It is the ultimate belief of the board and AEW that the company can deliver a sustainable business model whilst retaining the longer-term social objective of helping to alleviate homelessness in the UK.”
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