Company Announcements

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THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION

FOR IMMEDIATE RELEASE

20 December 2023

Home REIT plc

Property valuation and portfolio update

Home REIT plc (LSE: HOME) ("HOME" or the "Company"), today announces an updated property valuation and associated property portfolio update.

On 28 July 2023, the Company announced that Jones Lang LaSalle Limited ("JLL") had been appointed to carry out a valuation of the portfolio as at 31 August 2022, 28 February 2023 and 31 August 2023 on the basis of Fair Value.  In addition, the Company announced that Vibrant Energy Matters Limited ("Vibrant"), a subsidiary of Connells Limited ("Connells"), had been appointed to inspect all properties and report on condition, and that Countrywide Surveyors Limited ("Countrywide"), also a subsidiary of Connells, had been appointed to provide building surveys in respect of required repairs and refurbishment on a selection of the Company's properties.

Following the substantial completion by JLL of external inspections of 2,391 properties, comprising 97 per cent. of the Company's property portfolio, in addition to 195 internal inspections, together with the preliminary findings of the inspections of both Vibrant and Countrywide, the former of which has completed 884 internal inspections, JLL has today issued the Company with its draft valuation reports on the Company's property portfolio. The valuations for the periods referred to above were prepared in accordance with the current Royal Institution of Chartered Surveyors' Valuation - Global Standards, effective from January 2022, incorporating the IVS, and the RICS Valuation - Global Standards 2017 UK national supplement (the "RICS Red Book"). JLL expects to report values in the region of those set out in the table below.  They may be subject to further amendment due to the ongoing inspection programme and subject to completion of the formal valuation process.  These valuations are unaudited.

The Board of the Company acknowledges that there has been a very material reduction in the valuation of the Company's property portfolio with the August 2023 valuation representing 42.26% of the unaudited historical acquisition costs of £977.0m (excluding purchase costs). The reduction in the property valuation is principally a result of a re-assessment of the quality of the assets through the on-going inspection programme, and of the covenant strength of the tenants, several of which have gone into liquidation in 2023. 

The majority of properties are now valued on a vacant possession basis and where a valuation has continued to be prepared on an investment basis, limitations on the duration of the income streams have been applied to account for the covenant strengths of the tenants, and the  rent levels demanded under the leases. In all cases, JLL has considered the rental value for the existing uses of the properties and Local Housing Allowance rates. 

The comprehensive inspection programme has also led to a significant re-assessment of the quality of the property assets. This has resulted in many properties found to be in need of extensive renovation before they can be occupied or properties that may need to be reconfigured to provide an appropriate number of rooms to suit the local market.  JLL has considered the quality of the assets in reaching its assessment of value.

In addition to the above, the valuation of the assets has also been impacted by a deterioration in the housing market and an increase in property yields more generally following a rise in interest rates.

¹ The difference between the percentage of properties valued on a vacant possession basis for 31 August 2023, 28 February 2023 and 31 August 2022, reflects the assessment of the tenant covenant strength as indicated by prevailing data available at the respective periods.

Additional property information

Initial evidence from AEW's ongoing asset management initiatives indicates a larger than expected proportion of the portfolio is private rented sector ("PRS") rather than homeless accommodation backed by exempt rents from local authorities.  As AEW works to stabilise and assume direct control of the portfolio, the Company expects to quantify a higher proportion of PRS but is unable to provide definitive percentages at this stage.    It is worth noting however, that the occupiers of these properties could meet the criteria of broader Social Use, as defined in the Current Investment Policy, based on the location of the properties and the type of accommodation they provide, but this remains to be determined over the stabilisation period.

As part of the stabilisation strategy, AEW has been undertaking a comprehensive review and data collection exercise of the property portfolio. Analysis of the underlying property condition is paramount as part of an exercise to determine suitability, capital expenditure requirements, and the prospects for income and capital returns prospects as AEW works to rationalise and re-tenant the portfolio.

The valuation report for the August 2023 period is a key step in the stabilisation strategy, and AEW continues to make progress in obtaining control of Home REIT's assets in respect of non-performing tenants. AEW is pursuing all strategies available to the Company including taking legal action on selected tenants that are not engaging constructively and continue to withhold payment of rent.

The issuance of the valuation reports is a key step in the process for the audit and publication of the Company's annual results for the periods ending 31 August 2022 and 31 August 2023. However, the audit process remains on-going and is subject, amongst other things, to the completion of the valuation process, the continuing internal inspection programme (which requires significant co-ordination with multiple parties), and the application of revised accounting policies back to inception. Accordingly, the Company is not in a position to publish an estimated net asset value at this time. The Board and AEW are committed to continuing to work at pace with BDO to publish the audited results in a timely manner. 

The Board and AEW remain committed to the restoration of trading in the Company's ordinary shares and fulfilling Home REIT's mission of providing accommodation to vulnerable people as soon as is practically possible.

Lynne Fennah, Chair of Home REIT, commented:

"The Board is extremely disappointed by the significant value reduction announced today which reflects the information that has come to light regarding the quality of the Company's assets and tenants. This information is in contradiction to reporting provided to the Board during these periods.  The Company reserves all of its rights in respect of the matters referred to in today's announcement and is still considering the conclusions and implications of the revaluation exercise with its advisers, and what consequential actions it may take.¹

"The publication of the Company's portfolio valuation marks an important step in the stabilisation strategy and ongoing work being done to publish the Company's annual results for the periods ending 31 August 2022 and 31 August 2023."

¹ The Company does not wish to prejudice its position in respect of any further action which may follow and so is unable to comment further at this time.

FOR FURTHER INFORMATION, PLEASE CONTACT:

The Company's LEI is: 213800A53AOVH3FCGG44.

For more information, please visit the Company's website: www.homereituk.com