https://www.lse.co.uk/rns/HOME/update-r ... ekifd.htmlUpdate and Review of Strategic Options, Including Possible Sale of Company
Following the announcement on 19 January 2023, the Board has been working with its advisers on a number of critical workstreams which are summarised below.
This has been hampered by the unexpected recent resignations of its two brokers, Alvarium Securities and Jefferies International. Immediately following those resignations, the Board undertook a beauty parade for a financial adviser and appointed Smith Square Partners on Monday 13 February 2023.
The Board yesterday received a report (the "Report") from Alvarium Home REIT Advisors Limited (the "Investment Adviser") on rent collection and the operational performance of the Company's portfolio following a detailed review undertaken by Simpact Group ("Simpact"), a specialist social housing property manager engaged by the Investment Adviser. Simpact has completed its first period of engagement with the Company's tenants during January and February 2023. This has highlighted a serious deterioration in rent collections for the quarter to November 2022 and identified serious challenges in rent collection for December 2022 and January 2023. For the quarter ending November 2022, only 23% of rent has been collected, meaning that out of a £14,827,147 quarterly rent roll, only £3,401,615 has been paid. In addition, the rent forecast to be collected for the coming months is highly uncertain as the Investment Adviser deals with a combination of issues surrounding the tenants' ability, or willingness, to pay. It is not possible to quantify the future amounts of rent to be collected with certainty as the issues are not straightforward.
The Board understands that statutory demands have been served on seven of the defaulting tenants. The Company retains its right to forfeit leases of defaulting tenants, and should the Company choose to do so, it would not prejudice its ability to pursue arrears. The Board has asked the Investment Adviser, assisted by Simpact, to assess the impact of its report in terms of rental and capital values going forward.
The Report has indicated that, based on information provided by tenants for approximately 67% of the portfolio (by beds), approximately 25% (by beds) of this sample requires at least some level of refurbishment. The cost of refurbishing these properties is estimated to be between £15 million - £20 million. The Investment Adviser, alongside Simpact, is undertaking further reviews to verify these estimates that have been provided by tenants.
Vendors are contractually responsible for the refurbishment of properties, and so it is therefore hard to quantify the net exposure to the Company, however the Investment Adviser is working with Simpact to further investigate the full level of refurbishments required across the entire portfolio. The Investment Adviser notes that there is approximately £10 million of retentions held by solicitors which may become available to the Company if the required refurbishment works are not undertaken by certain vendors.
In light of this information from the Report, the Board is considering all strategic options including the possible sale of the Company with Smith Square Partners and its other advisers whilst at the same time not losing sight of the paramount importance of preserving shareholder value. In this regard, as required pursuant to Rule 2.4(a) of the Code, the Company announces that it has received an unsolicited approach from Bluestar Group Limited ("Bluestar") regarding a possible offer for the entire issued share capital of the Company. Any offer by Bluestar would likely be in cash.
Shareholders should note that there can be no certainty that an offer will ultimately be made for the Company, nor as to the terms on which any firm offer might be made. A further statement will be made as and when appropriate.
In accordance with Rule 2.6(a) of the Code, Bluestar is required, by not later than 5.00 p.m. (London time) on 16 March 2023, to do one of the following: (i) announce a firm intention to make an offer for the Company in accordance with Rule 2.7 of the Code; or (ii) announce that it does not intend to make an offer for the Company, in which case the announcement will be treated as a statement to which Rule 2.8 of the Code applies. This deadline can only be extended with the consent of the Takeover Panel in accordance with Rule 2.6(c) of the Code and the requirement to make an announcement in accordance with Rule 2.6(a) will cease to apply in the circumstances set out in Rule 2.6(b) of the Code (if a firm intention to make an offer for the Company in accordance with Rule 2.7 of the Code is announced by another offeror prior to the deadline).
The Board has also noted media speculation of allegations of wrongdoing. The Board confirms that it instructed Alvarez & Marsal, independent forensic accounting experts, to investigate these allegations in early January 2023. This investigation is ongoing and it is not possible to confirm its outcome at this stage.
The Board continues with its advisers to engage with BDO for the purposes of finalising the enhanced audit of its accounts for the year ended 31 August 2022. The Company is also engaging with its lender, Scottish Widows.
Save for the payment of any distributions which may be required for the Company to maintain compliance with its obligations as a UK REIT, the Board has suspended the payment of quarterly dividend payments for the foreseeable future.
Whilst the Board will endeavour to be as open as possible at the forthcoming AGM, there will be a limit to what it can say due to ongoing investigations.
Lynne Fennah, Chair of the Board, said: "We recognise the serious issues facing the Company and are examining all options to preserve shareholder value, and the interests of all stakeholders."