Annual Report • Apr 28, 2021
Annual Report
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Half Year Report — For the Period Ended 28 February 2021
Contributing to the alleviation of homelessness in the UK.
The Board of Home REIT plc (ticker: HOME) is pleased to report its maiden interim results for the period from incorporation on 19 August 2020 to 28 February 2021.
The Company seeks to contribute responsibly to the alleviation of homelessness in the UK, whilst targeting inflation-protected income and capital returns, by funding the acquisition and creation of a diversified portfolio of high-quality, well located accommodation assets across the UK.
The Company's portfolio delivers much needed accommodation for vulnerable, homeless people, providing critical and sustainable housing solutions for women fleeing from domestic abuse, those faced with homelessness due to poverty, people suffering from drug and alcohol abuse and mental health issues, prison leavers and ex-servicemen.
There is a critical need for further accommodation for the homeless in the UK, due to an increasing homeless population and a lack of available and affordable highquality, fit-for-purpose stock to address the problem. Local housing authorities are under a statutory duty to secure accommodation for individuals who are unintentionally homeless and in priority need but current accommodation for the homeless is limited in quantum and often sub-standard and uneconomical.
The Company focuses on responsibly investing in and creating well-located properties that provide a sustainable low level of rent for the tenant and savings are expected to be made to local authorities and other providers of accommodation to the homeless via lower rents versus more expensive alternative accommodation.
A household becomes homeless every four minutes in England.
Source: Shelter
The Group uses alternative performance measures including the European Public Real Estate Association ("EPRA") best practice recommendations to supplementIFRS as the Board considers thatthese measures give users ofthe financial statements a better understanding ofthe underlying performance of the Group's property portfolio.
The EPRA measures are widely recognised and used by public real estate companies and investors and seek to improve transparency, comparability and relevance of published results in the sector.
Reconciliations between EPRA and other alternative performance measures and the IFRS financial statements can be found in Notes 20 and 21.
Definitions of alternative performance measures are given in the key performance indicators and EPRA performance measures sections.
Households homeless as a result of domestic abuse in the last year Q2 2019 – Q2 20202
homeless households in England between Q2 2019 and Q2 20202
people have called Shelter's free national helpline since the outbreak ofthe Covid-19 pandemic atthe end of Q1 2020
*includes four assets exchanged pursuant to unconditional contracts
*includes four assets exchanged pursuant to unconditional contracts
1 Source: Crisis
2 Source: Ministry of Housing, Communities & Local Government
I am pleased to presentthe maiden interim results forthe Group forthe period from its incorporation to 28 February 2021 (the "Period"). Home REIT plc (the "Company" or "Home REIT") commenced business operations on 12 October 2020 when its ordinary shares ("Shares") were admitted to trading on the premium segment ofthe main market ofthe London Stock Exchange, with gross proceeds of £240 million having been raised in the Company's IPO from a broad range of investors.
Almost 70,000 households approached their local council in Q3 2020 and were found to be homeless or at risk of homelessness.
Source: Shelter
The Company has performed strongly since its launch despite COVID constraints, delivering on our stated objectives and meeting and in many areas exceeding our original expectations atIPO. The Company is advised by Alvarium Home REIT Advisors Limited (the "Investment Adviser"), whose principals have built a successfultrack record in this sector and they continue to draw on their excellent network ofrelationships, experience and market intelligence. This allows the Company to source attractive investments, and coupled with the Investment Adviser's robust capital discipline, create value for our shareholders whilst also achieving significant positive social impact for some ofthe most vulnerable members of society,
through providing critically needed accommodation to those atrisk of homelessness.
In accordance with the Company's investment policy,the net proceeds ofthe IPO have been carefully invested in a portfolio of high quality well located property assets let on very long, inflation-linked leases to a wide range oftenants across a diverse range of sub-sectors within homelessness.
Our high quality properties are let at a low and sustainable rental level, on new, long term, fullrepairing and insuring ("FRI") leases to specialist registered homeless charities, housing associations, community interest companies and otherregulated organisations, which have a proven operating track record in providing low-cost accommodation to the homeless. They also provide care, support,training and rehabilitation atthe properties to provide vulnerable homeless people with the skills and confidence to find long-term accommodation and enable them to reintegrate back into society. Providing long term security of tenure to Home REIT's tenants is crucialto rehabilitating vulnerable individuals and helping to break the cycle of homelessness seen in short term accommodation.
All ofthe rent payable by Home REIT's tenants is funded by supportfrom local and central government and the rents received underthese leases are subjectto annual upward-only rentreviews, index-linked to the Consumer Prices Index, subjectto an annual collar and cap of one per cent. and four per cent.,respectively.
As at 28 February 2021,the Group's portfolio consisted of 3,019 beds across 572 properties letto 15 charities and one housing association. Across the Group's assets,the average netinitial purchase yield was 5.83%,the WAULT was 25 years and 100% ofthe income was index linked.
Lynne Fennah Chair
The portfolio is 100% let and income producing.
The Group's portfolio has been independently valued by Knight Frank LLP in accordance with the RICS Valuation – Professional Standards. As at 28 February 2021,the Group's portfolio had a market value of £243 million, representing an increase of approximately 4.4% above the aggregate acquisition price (including acquisition costs). The properties have been valued on an individual basis. No portfolio premium has been applied.
The NAV and EPRA NTA per share has increased to 102.8 pence as at 28 February 2021, an increase of 4.9% from the 98.0 pence (after share issue expenses) atthe time ofthe Company's IPO in October 2020.
The asset value growth reflects: (i)the discount achieved on off market acquisitions, (ii) early mover advantage in this sector and (iii) yield compression in the widerlong-lease sector.
The profit before tax ofthe Group forthe Period was £11.4 million.
The Company paid its firstinterim dividend of 0.83 pence per Share on 19 March 2021 and the Board is currently targeting an aggregate dividend of atleast 2.5 pence per Share forthe firstfull financial period to 31 August 2021 and a minimum total dividend of 5.5 pence per Share forthe financial year ending 31 August 2022, in line with the Company's stated target atlaunch.
The Company's portfolio of 572 properties as at 28 February 2021 provides 3,019 beds for people who would otherwise be homeless, atrental levels that are low and sustainable forthe Company's tenants. All ofthe Company's properties make a genuine impact to the people they house and forthe communities in which they are located.
The Company's assets provide a safe and comfortable environmentfor vulnerable people whose circumstances cover a range of sectors, including drug and alcohol abuse, domestic abuse, prison leavers, general needs poverty and those with mental health issues. By offering stable housing and pastoral care to these vulnerable people,they have the opportunity to develop the necessary confidence and skills ultimately to reintegrate back into society.
The tragic reality ofthe knock-on economic effects caused by COVID-19, means there is expected to be a greater number of individuals who will become homeless (the Office for Budget Responsibility is currently forecasting an additionaltwo million unemployed in the UK). As a result,the underlying demand, and indeed the need, within society forthe Company and its properties will very likely only increase.
We look forward to sharing a full impactreport which will be carried out by the Good Economy Partnership later in the year and will be included in the Annual Reportin relation to the financial period ending 31 August 2021.
On 11 December 2020,the Group entered into a new, 12-year, interest only, £120 million (35% LTV) loan agreement with Scottish Widows at an all-in fixed rate of 2.07% per annum, expiring in December 2032. This provides a wide spread (376 basis points) between the current average netinitial property yield of 5.83% and the 2.07% per annum fixed rate. The loan was fully drawn down on 26 February 2021.
The Group benefits from a strong board with substantialreal estate, financial, commercial and sector experience and has established appropriate committees (including Audit Committee and Management Engagement Committee), which meet, or will meet, on a regular basis.
The Board is responsible forleading and controlling the Company and has overall authority forthe management and conduct ofthe Company's business, strategy and development.
Home REIT has appointed Alvarium Fund Managers (UK) Limited as its alternative investmentfund manager (the "AIFM"). Home REIT and the AIFM have appointed the Investment Adviserto provide certain services in relation to Home REIT and its portfolio, including sourcing and advising on investments for acquisition by Home REIT and due diligence in relation to proposed investments.
The Investment Adviser has provided the Group with access to investment opportunities at attractive pricing through the Investment Adviser's long-established industry contacts and extensive knowledge ofthe sector. The Investment Adviser has achieved a prominent position in developing and acquiring long income properties and this expertise and network of contacts provides the Group with access to off-market transactions and specialised funding opportunities.
Since 28 February 2021,the Company has acquired 21 new assets totalling £33.1m (net of purchase costs) across various geographical locations in London and the North West, South West, East and West Midlands regions of England.
In these uncertain times,the Company's portfolio remains robust with secure long-dated inflation linked income underpinned by built property assets with a low spread to vacant possession value. This is a factor of low and sustainable starting rents setfor the Company's housing providertenants, often below rental levels for alternative uses, such as private rented sector or student accommodation, yielding low capital values on entry.
The Company's income stream is covered by statutory protected housing benefitthatis paid by local authorities which have a legal obligation to house individuals that are homeless or vulnerable to homelessness and is ultimately funded from central UK Government.
Each ofthe Company's assets provides safe and highquality accommodation to those most vulnerable in our society. The tragic reality ofthe resulting economic downturn the UK is likely to face means that a greater number of individuals will become homeless and, as a result,the underlying demand and indeed the need within society forthe Company and its properties will increase. The Company is working hard on further pipeline assets to ensure this increased demand can be met.
The Investment Adviseris reassured thatthe UK Government has put supporting vulnerable people atthe top ofthe political and financial agenda as it tackles the current disruption and impact on the nation's health.
This centralresponse has been reflected at a community level and the Company has seen inspiring action and collaboration between its tenants, care providers and local authorities as they ensure thatthe people living in the Company's properties continue to receive responsible care and support with the minimum of disruption. This has required huge levels of personal commitmentfrom care workers and housing managers for which the Company is extremely grateful.
Half of households found to be homeless by their local council in Q3 2020 were not helped to find a home – showing the impact of a lack of suitable social housing.
Source: Shelter
The Investment Adviser notes that many ofthe Company's peer group in the long income space have made announcements or written to their investors regarding rent collection levels,reflecting the unprecedented impactthat Covid-19 is having on many commercialtenants.
The Company has not seen any impactto its own rent collection levels and rates ofrecovery through the period were 100%.
The Company operates effectively within the confines ofthe UK Government's guidance. Its business continuity plan is working well and prioritises the health and safety of staff and colleagues as well as those ofthe Company's tenants and other counterparties.
The Company remains in regular contact with its tenants, all of which have a proven operating track record in providing low-cost accommodation to the homeless and focus on care, support,training and rehabilitation to provide vulnerable homeless people with the skills and confidence to reintegrate back into society. All such tenants have issued Covid-19 related guidance and are communicating regularly with the people atthe Company's properties, explaining the importance of appropriate hygiene and social distancing to protect againstthe virus.
The managementteams ofthe Company's tenants hold regular meetings to evaluate the effects ofthe virus and take positive steps to reduce any spread to either staff or people who are housed and supported atthe Company's properties. They carry outfrequent and intensive cleaning of communal areas atthe Company's properties, including areas which are exposed to the touch of multiple people, such as door handles and light switches. The people who are housed and supported atthe Company's properties, especially those living in self-contained units where there are no communal areas are provided with cleaning advice together with the necessary cleaning materials.
The steps to preventthe spread ofthe virus outlined above are in line with the UK Government's current advice. The health and general wellbeing of all staff and people who are housed and supported atthe Company's properties are monitored on a regular basis and are of paramountimportance to the Company and its housing providertenants.
The Investment Adviser continues to monitor NHS and UK Government advice relating to the virus and has discussed the threats posed by the virus and the relevant safeguards in place with all ofthe Company's key service providers. The Investment Adviser has worked with the Company's key service providers to putin place proactive measures and stringent plans to mitigate the impact of Covid-19, which underpin the continuing operations ofthe Company. All have the ability fortheir entire office to work remotely and have implemented proactive measures to safeguard their business service provision as well as their staff's wellbeing.
The Group has performed strongly since the Company's IPO in October 2020, effectively and responsibly executing on its stated objectives and in many areas exceeding its original expectations. The Group has acquired a high quality sustainable portfolio of assets, diversified by sub sector, strong tenants and geography, at attractive yields and in line with the Company's investment policy.
The Group is already delivering excellentreturns to our shareholders together with significant'on the ground' social impactthrough a secure, diversified and growing index-linked income stream as well as attractive capital appreciation from across ourlong-let portfolio, reflecting the Investment Adviser's disciplined and value-led approach to investments.
The Company is continuing to build responsibly on this sustainable growth momentum and expects its pipeline of attractive investment opportunities to further enhance its portfolio. We remain confident about delivering further value for our shareholders and wider stakeholders and achieving significant positive social impactin the final six months ofthe firstfull financial period to 31 August 2021 and beyond and fulfilling our longer-term ambitions.
Finally, I would like to thank shareholders, my fellow Directors,the Investment Adviser and the Company's other service providers fortheir support since the Company's launch.
Lynne Fennah Chair
27 April 2021
13 bedrooms in Exeter
9 bedrooms in London
Shelter's emergency helpline received 25,000 calls from people in England in Q4 2020 with a new person calling every minute during October and November. Since the outbreak ofthe Covid-19 pandemic atthe end of Q1 2020, 90,000 people have called the charity's helpline with 65% of callers already experiencing homelessness or atrisk of becoming homeless.
KV was in a very abusive relationship. She was scared and apprehensive aboutleaving the family home but did so with her 8-year-old son;they waited until her partner had gone to work and fled with just a carfull oftheir belongings.
KV and her son were moved into a secure, clean and safe Home REIT property and provided with supplies such as food packs and new bedding. KV and her son settled in quickly.
Through the pastoral care and support provided at the property, KV secured herself work within the local community. Her son settled well into the local school and his grades have improved significantly.
KV's confidence levels are high and she feels back in control of herlife. She enjoys contributing to her local community and feels able to support herfamily.
Home REIT plc is a real estate investmenttrusttargeting attractive inflationprotected income and capitalreturns by investing in a diversified portfolio of homeless accommodation assets, let or pre-letto registered charities, housing associations, community interest companies and otherregulated organisations thatreceive housing benefit or comparable funding from local or central government, on very long-term and index-linked leases.
Source: Ministry of Housing, Communities & Local Government
The Company is listed on the premium listing segment of the Official List ofthe Financial Conduct Authority and was admitted to trading on the main marketforlisted securities ofthe London Stock Exchange in October 2020.
The Group has effectively executed its investment strategy of delivering inflation-protected income and capitalreturns underpinned by a portfolio of secure, longlet and index-linked property assets, diversified by subsectors within homelessness,tenant and geography whilst achieving significant positive social impact.
As at 28 February 2021,the Group's portfolio consisted of 3,019 beds across 572 properties letto 15 charities and one housing association. Across the Group's assets,the average netinitial purchase yield was 5.83%,the WAULT to first break was 25 years and 100% ofthe income was index linked. The portfolio is 100% let and income producing.
This has been a successful and active period forthe Group, and we are well positioned to continue to deliver on the Company's investment strategy and targetreturns to the Company's investors through ourrobustlongestablished relationships and experience in the sector underpinned by our value-led approach to investments.
The fundamentals driving the continued growth and performance ofthe Company are:
The Company's pipeline has been developed principally through relationships with charities, local authorities, housing associations and high-quality developers of social housing assets. The Company will continue to identify the areas in the UK where the need for more homeless accommodation is most acute and work with its contacts to source and develop new high-quality assets in these areas.
1 Housing (Homeless Persons) Act 1977, Housing Act 1996; Homelessness Act 2002 and Homelessness Reduction Act 2017
Governmentfunding for each individual user generally represents the full cost of care and housing benefit and is paid from the Department of Work and Pensions to the relevantlocal authority, which then passes funds directly to the Company's housing association tenants.
The Company is a passive landlord and does not undertake responsibility forthe operations ofthe care forthe individual user, which is provided by a professional care providerin this sector.
The income flow to the Company is funded through the provision of 'exempt' housing benefit paid directly to the tenants from the relevantlocal authority. Such exempt status prevents local authorities from restricting the level ofrentrecoverable by tenants via housing benefit and enables such tenants to recoverthe full costs of providing additional support and services to residents.
Rental levels are set at a sustainable level with significant headroom between property rent and housing benefit allowance received from the local authority. The headroom between core lease rent and housing benefit is represented by the management charge and the cost of intensive housing management/buildings upkeep associated with homelessness provision.
Across the Company's portfolio to date,the average rent payable by the charity is circa 45% ofthe total housing benefitreceived per property providing a robust 2.25x portfolio rent coverfor ourtenants.
In addition,rents are pre-agreed with local authorities and the leases provide for a cap (at 4% per annum) on the inflation linked annualrent reviews to ensure thatrents grow in a sustainable manner.
The UK is in the grip of a housing emergency according to the housing and homelessness charity, Shelter.2
Recent figures published by the Ministry of Housing, Communities & Local Government show thatlocal authorities in England owed a statutory duty to prevent orrelieve homelessness to over 288,000 households in England between Q2 2019 and Q2 2020. These figures are 15% higherthan the year before.3 In Q4 2020,the homeless charity Crisis estimated that 1 in 185 people in England were living without a home.4
Shelter's emergency helpline received 25,000 calls from people in England in Q4 2020 with a new person calling every minute during October and November.5 Since the outbreak ofthe Covid-19 pandemic atthe end of Q1 2020, 90,000 people have called the charity's free national helpline with 65% of callers already experiencing homelessness or atrisk of becoming homeless, 19% requiring urgent help to find temporary homeless accommodation and 18% seeking help to stay in their current home.
4 https://www.crisis.org.uk/about-us/media-centre/more-than-200-000-households-across-england-will-be-homeless-this-christmas/
2 The Independent: We are in a housing emergency – from 'sex for rent' to evictions, the government needs to act by Polly Neate; 10 January 2021
3 Ministry of Housing, Communities & Local Government: Statutory Homelessness Annual Report 2019-2020, England; 1 October 2020
5 https://england.shelter.org.uk/media/press_release/shelter_issues_winter_warning_as_someone_calls_its_emergency_helpline_every_minute_
The number ofrough sleepers identified across England has increased by 52% since 2010, with an estimated 2,688 people sleeping on the streets on a single night in Q3 2020.6 There is widespread debate as to the true accuracy ofrough sleeping statistics;the Mayor of London published figures estimating that as many as 4,227 people were seen sleeping on the streets in London in Q2 2020,representing a 33% increase on the same period in 2019.7
Many people only associate homelessness with "rough" sleeping on the streets. The reality, however, is that sleeping rough is the most extreme form of homelessness. Most homeless people, although not sleeping rough, have no permanent home, stay with relatives and friends orreside in temporary accommodation, such as bed and breakfast hotels, hostels, night shelters and refuges. Crisis recently estimated that 95% of homeless households in England are hidden from view;trapped in insecure,temporary accommodation or moving from sofa to sofa.8
There is no national figure for how many people are homeless in the UK due to the devolved nations' differing recording methods. Many homeless people are not picked up by these recording methods and Crisis estimates that as many as 62% of single homeless people do not show up in official homeless statistics.9
Homelessness has a devastating impact on individuals' lives, significantly affecting their physical and mental health. Compared to the general population, homeless people are 17 times more likely to experience abuse and violence and nine times more likely to take their own life.10
The Office for National Statistics ("ONS")recently published figures revealing that homeless deaths in England and Wales increased by 7.2% between 2018 and 2019 with 778 homeless people dying on the streets or in temporary accommodation in 2019. This represents a 61.4% increase in deaths among homeless people since the ONS started recording in 2013.11 The majority of deaths were attributed to drug-related poisoning, suicide and alcohol-specific causes. The average age at death was 46 years for men and 43 years for women. Separately,the Museum of Homelessness recently
estimated that 976 homeless people died on the streets orin temporary accommodation in the UK in 2020, representing a 37% increase on the number of deaths noted in the same study carried outin 2019.12
Forthe last five years homelessness has been rising year on yearin England. A household became homeless in England every four minutes between Q1 2018 and Q1 201913 and there was an 11% increase in the number of people sleeping rough orin temporary accommodation in England from Q2 2016 to Q1 2019.14 Atthe end of Q2 2020,the number of households residing in temporary accommodation in England was 14% higherthan the year before,totalling 98,300.15 The number of families with dependent children placed in B&B-style accommodation increased from 630 atthe end of March 2010 to 1,440 atthe end of Q2 2020.16
As shown below,the biggestregional increase in homelessness in England has been in the North West. In this region alone,the Company has provided over 388 beds atthe reporting date, offering safe, clean, modern and suitable accommodation to otherwise homeless individuals. The Company aims to continue to significantly investin areas where homelessness is a growing problem in orderto increase the availability of high quality, fitfor purpose housing stock.
| Homelessness | ||
|---|---|---|
| in England at | % change since | |
| Regional Trends | Q2 2019 | Q2 2016 |
| South East | 24,195 | 27% |
| South West | 7,127 | 0% |
| East | 16,696 | 18% |
| East Midlands | 4,818 | 50% |
| West Midlands | 23,715 | 64% |
| Yorks & Humber | 2,654 | 16% |
| North East | 1,061 | 4% |
| North West | 9,038 | 117% |
| London | 170,068 | 4% |
Source: Shelter; This is England: A Picture of Homelessness; December 201917
6 https://www.gov.uk/government/statistics/rough-sleeping-snapshot-in-england-autumn-2020/rough-sleeping-snapshot-in-england-autumn-2020 published 25th Feb 2021 & https://
www.homeless.org.uk/facts/homelessness-in-numbers/rough-sleeping/rough-sleeping-our-analysis 7 https://www.london.gov.uk/press-releases/assembly/third-more-rough-sleepers-on-londons-streets#:~:text=Our%20data%20analysis%20found%3A,increase%20from%20two%20 years%20ago.
8 https://www.crisis.org.uk/about-us/media-centre/more-than-200-000-households-across-england-will-be-homeless-this-christmas/
9 https://www.crisis.org.uk/media/236816/the_hidden_truth_about_homelessness_es.pdf
10 https://www.crisis.org.uk/ending-homelessness/about-homelessness/
11 Office for National Statistics: Deaths of Homeless People in England and Wales: 2019: 14 December 2020
Asset location by percentage weight by property value
14.3% 13.1% 14.8% 15.3% 7.0% 12.0% 4.9% 6.7% 11.8%
Homelessness is caused by a complex interplay between a person's individual circumstances and adverse external factors. Examples ofthese factors are:
A December 2020 report published by the Ministry of Housing, Communities and Local Government provides insights into the experiences of people sleeping rough. The findings are based on interviews with over 550 respondents, all of whom who had slept rough within the last year. The reportfound that 82% of those surveyed had a mental health vulnerability, 83% had a physical health need, and 60% had a substance misuse need. Before experiencing rough sleeping, 91% had stayed in a form of short-term homeless accommodation and 71% had sofa surfed.19
Between 2018 and 2019, 11,483 people were released from prison into homelessness and in Q2 2020, an estimated 13% of people released from prison did not have a home to go to.20 In a 2019 paper,the Ministry of Justice estimated thatthe social and economic cost ofre-offending is in excess of £18 billion a year.21 41% of single homeless people surveyed by Crisis had previously served a prison sentence22 and data obtained by the Guardian Newspaperfrom the Ministry of Justice shows that 66.6% of prisoners who identify
as homeless reoffend within a year ofrelease.23 The Institute for Policy Research has estimated that a 20% reduction in reoffending could be achieved via the provision of stable housing to a prison leaver.24
Local housing authorities are under a statutory duty to secure accommodation forfamilies orindividuals who are unintentionally homeless and in priority need. They also have a duty to provide meaningful help to any person who is homeless or atrisk of becoming homeless irrespective oftheir priority need status.25
Current accommodation forthe homeless is limited in quantum and often sub-standard and uneconomical. Poor quality privately rented housing stock or expensive bed and breakfast hotels are frequently being utilised by local authorities to manage increasing demands for accommodation. Between Q1 2011 and Q2 2018 the number of households placed in temporary accommodation in England increased by 65%26 and between Q3 2019 and the end of Q2 2020,the total number of households accommodated in bed and breakfasts in England increased by 60%.27
The currentlack of purpose-built accommodation forthe homeless is felt acutely by local authorities. A research project commissioned by Crisis,reveals that the fastest-growing component of homelessness is households living in unsuitable temporary accommodation;the proportion of homeless situations attributable to such accommodation increased 260% between 2010 and 2018.28 This reflects the growing pressure on local authorities as increased demand has faced a static orfalling supply of accommodation.
18 https://www.womensaid.org.uk/women-escaping-domestic-abuse-left-at-risk-of-homelessness/
19 Ministry of Housing, Communities and Local Government: Understanding the Multiple Vulnerabilities, Support Needs and Experiences of People who Sleep Rough in England; December 2020
20 https://www.theguardian.com/uk-news/2020/jul/08/thousands-of-high-risk-offenders-in-uk-freed-into-homelessness and https://insidetime.org/2000-leave-prison-homelessduring-lockdown and https://insidetime.org/2000-leave-prison-homeless-during-lockdown
21 Alexander Newton, Xennor May, Steven Eames & Maryam Ahmad (Ministry of Justice); https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/ file/814650/economic-social-costs-reoffending.pdf ; 2019
22 https://www.crisis.org.uk/ending-homelessness/law-and-rights/prison-leavers/
23 https://www.theguardian.com/society/2019/aug/12/two-thirds-of-homeless-ex-prisoners-reoffend-within-a-year
24 https://www.prisonstudies.org/sites/default/files/resources/downloads/reducing_report20pdf.pdf
27 https://commonslibrary.parliament.uk/research-briefings/sn02110
28 Suzanne Fitzpatrick, Hal Pawson, Glen Bramley, Jenny Wood, Beth Watts, Mark Stephens & Janice Blenkinsopp. Institute for Social Policy, Housing and Equalities Research (I-SPHERE), and The Urban Institute, Heriot-Watt University; City Futures Research Centre, University of New South Wales: Crisis' Homeless Monitor 2019: May 2019
Analysis published by Shelterreveals thatlocal authorities across England spent over £1bn on temporary accommodation (such as hostels, bed and breakfast hotels and private rentals) in 2018-19, with spending on bed and breakfast accommodation increasing 111% since 2014.29
| Homeless Households | Number of households in B&Bs | 10,330 |
|---|---|---|
| at Q3 2020 | Increase since Q3 2011 | 206% |
| Amount spent on B&B accommodation | £410,380,000 | |
| Q1 2019 – Q1 2020 | Proportion of overall spending on temporary accommodation | 34% |
| Q1 2015 – Q1 2020 | Increase in amount spent on B&B accommodation over five years | 123% |
Figures released by the Ministry of Housing,
Communities & Local Governmentin October 2020 show a further 16% annual increase in the number of households accommodated in B&Bs with 8,180 households living in bed and breakfast accommodation atthe end of Q1 2020.31
Homeless individuals housed in accommodation letto housing associations (as opposed to private landlords) have been found to be substantially less likely to return to homelessness as shown below:
Tenants in housing association accommodation are c.4 times more likely to stay in their original property than tenants in privately rented accommodation.32 Tenants in housing association accommodation are over 2.5 times less likely than tenants in private rented accommodation to become homeless again.33
The Group's investment properties acquired within the period were independently valued on 28 February 2021 by Knight Frank LLP at £243 million,representing an increase of approximately 4.4% above the aggregate acquisition price (including acquisition costs). The properties have been valued on an individual basis. No portfolio premium has been applied.
The NAV and EPRA NTA per share has increased to 102.8 pence as at 28 February 2021, an increase of 4.9% from the 98.0 pence (net of share issue costs) atthe time ofthe Company's IPO in October 2020.
The asset value growth reflects, inter alia:
29 https://england.shelter.org.uk/media/press_releases/articles/homelessness_crisis_costs_councils_over_1bn_in_ just_one_year (Source contains full details of Shelter's calculation methods)
30 https://www.gov.uk/government/statistical-data-sets/live-tables-on-homelessness (Statutory homelessness live tables (revised)); https://www.gov.uk/government/statistics/localauthority-revenue-expenditure-and-financing-england-2019-to-2020-individual-local-authority-data-outturn (Revenue outturn housing services (RO4) 2019 to 2020; Revenue outturn (RO4) data 2014 to 2015)
The headline statistics forthe Period are:
| Top 10 tenants | Rental exposure | Contracted rent |
|---|---|---|
| Lotus Sanctuary CIC | 15.4% | £2.1m |
| Dawson Housing Limited | 12.9% | £1.7m |
| Big Help Project | 10.3% | £1.4m |
| Circle Housing and Support CIC |
10.1% | £1.4m |
| Gen Liv UK CIC | 9.5% | £1.3m |
| One CIC | 9.3% | £1.3m |
| Noble Tree | 8.4% | £1.1m |
| Bloom Social Housing CIC | 7.3% | £0.9m |
| Dovecot and Princess Drive Community Association |
6.5% | £0.9m |
| Redemption Project CIC | 3.8% | £0.5m |
| 6 othertenants | 6.5% | £0.9m |
| 100.0% | £13.5m |
| Beds | 3019 |
|---|---|
| Properties | 572 |
| Average netinitial yield | 5.83% |
| WAULT to first break | 25 years |
| Index-linked income or fixed uplifts | 100% |
| Tenants | 16 |
| Sub sectors | 6 |
| Local authority diversification | 66 |
Home REIT fully deployed the net proceeds of its £240 million IPO within five months of listing.
Home REIT has acquired high quality, well located assets with a long WAULT to first break of 25 years – which is one ofthe longestin the real estate sector. The assets have been letto a wide range oftenants with robust financials and a proven long-term operating track record across a diverse range of homeless sub sectors and locations.
100% ofthe Group's assets contain rentreviews linked to CPI inflation thus providing strong inflationprotected income across the Group's portfolio. As at 28 February 2021:
• 100% of assets, by value, had caps and collars of 1% and 4%
All ofthe assets acquired by the Group benefitfrom triple net, fullrepairing and insuring leases. These lease agreements oblige the tenants to pay alltaxes, building insurance, other outgoings and repair and maintenance costs on the property, in addition to the rent and service charge,therefore avoiding any property costleakage forthe Group.
Home REIT has 572 properties across 66 local authority areas. The average building in the portfolio comprises five bed spaces and is either a house or small block of apartments with individual front doors.
As with all properties Home REIT acquires, a full independent building condition survey is carried out priorto acquisition. As a result, over £100 million of transactions have been rejected by the Investment Adviserfor not meeting the Company's standards with regards to the rentlevels, building location, layout/ suitability and/orreputation ofthe selling party.
All ofthe buildings in the Company's portfolio are of traditional construction with no system built or clad properties. All ofthe Company's assets are suitable for alltypes ofresidential accommodation, ensuring strong residual land value and alternative use options.
The Investment Adviser employs a number of techniques to secure assets forthe Group at an attractive initial yield, without compromising on the asset quality, security of income orlease length, including:
13%
in Q2 2020, an estimated 13% of people released from prison did not have a home to go to.
Source: Ministry of Justice
C was referred to Big Help Project by his probation worker. He struggled with drug addiction and was due to be released from HMP Berwyn without any secured accommodation. Since being supported by Big Help's Fresh Start programme whilst housed in a Home REIT property he has made significant progress mentally and physically. He has fully abstained from drugs since his release from prison despite still facing personal challenges which previously would have exacerbated his addiction.
C has taken positive steps to address his mental health issues with the supportfrom his key worker. He was supported to engage with his GP to manage his anxiety which has had a positive impact on his engagement with Big Help Project and his probation officer. He has recently completed a course as part ofthe Construction Skills Certification Scheme and passed his exam with an impressive score of 49/50. C is excited about his future as he continues to live in his Home REIT property whilst being supported in his search for employment within a sector he is keen to work in.
Big Help Project
In addition to robusttenants and long, index-linked leases,the Group targets assets possessing strong residual land value and alternative use options which will preserve capital values. For example,the Group has acquired properties:
Inflation has historically outpaced open-marketrent reviews and it has been steadily increasing since 2016. As set out below,the anticipated continuing outperformance of inflation over open marketrental growth forecasts is expected to prove advantageous to the Group's rental growth.
The HM Treasury Forecasts forthe Economy Medium term forecasts (February 2021) shows an average CPI growth forecast of 1.8% per annum from 2020 to 2025 (see below). The Investment Property Forum UK Consensus Forecasts Report(Winter, 2020) shows an average open marketrental growth forecast of 0.4% per annum from 2021 to 2025 (see below), which is materially lowerthan the above mentioned HM Treasury RPI and CPI growth forecasts.
| Open market | |
|---|---|
| Year | rental growth p.a. |
| 2021 | -2.7% |
| 2022 | 0.4% |
| 2023 | 1.4% |
| 2024 | 1.6% |
| 2025 | 1.5% |
| Average growth forecast p.a. | -0.4% |
Source: Investment Property Forum UK Consensus Forecasts (Winter 2020)
| Year | CPI p.a. |
|---|---|
| 2021 | 1.5% |
| 2022 | 1.9% |
| 2023 | 1.8% |
| 2024 | 1.8% |
| 2025 | 1.9% |
| Average growth forecast p.a. | 1.8% |
Source: HM Treasury Forecasts for the UK Economy (Medium term forecasts, February 2021)
With higherinflation and more subdued open market rental growth, strategically the Company has taken advantage ofthis economic reality through acquiring inflation-linked leases. To date 100% ofthe Company's rental income is linked to CPI. This allows for higher rental growth via rental increases in line with inflation.
This climate of continuing inflation together with the fixed low cost of debt(as detailed below) which the Group has secured, is expected to allow for:
The Group entered into a new, 12-yearinterest-only, fixed-rate, £120 million term loan agreement with Scottish Widows on 11 December 2020 (the "Facility"). The loan was fully drawn down on 26 February 2021.
The Facility is repayable in December 2032 and has a fixed all-in rate payable of 2.07% per annum, forthe duration ofthe 12-yearloan term.
This fixed interestrate is 376 basis points lowerthan the Group's average netinitial purchase yield on property acquisitions of 5.83% and this spread is expected to rise to approximately 524 bps by expiry ofthe 12-yearloan facility (see below). The rate of 2.07% is highly accretive to the Group's anticipated future dividend and mitigates potential interestrate and refinancing risks forthe 12-year period.
The Facility is secured againstthe assets acquired by the Group utilising the equity raised on admission in October 2020 and debt drawn down from the Facility.
The full drawing ofthe Facility reflects a loan-to-value ratio of 33%. As set outin the Group's investment policy, the Group will maintain a conservative level of aggregate borrowings with a maximum level of aggregate borrowings of 35% ofthe Group's gross assets.
The Investment Adviseris a signatory to the UNsupported Principles of Responsible Investment ("PRI") which represent a global standard for asset owners, investment advisers and service providers to incorporate environmental, social, and corporate governance ("ESG") policies into investment practice.
As a signatory to the PRI,the Investment Adviseris also required to report annually on its responsible investment activities and in accordance with the PRI's reporting framework. These reporting requirements aim to ensure signatories' accountability and transparency and facilitate feedback from which signatories can then develop and learn.
Signatories to the PRIrecognise thatthey have a duty to actin the bestlong-term interests oftheirinvestors and, by applying the PRI, aim to align theirinvestors with broader objectives of society. Therefore, where consistent with its fiduciary responsibilities,the Investment Adviser has committed to:
Incorporate ESG issues into its investment analysis and decision-making processes
Be an active owner and to incorporate ESG issues into ownership policies and practices
Promote acceptance and implementation of the PRI within the investment industry Work with the PRI Secretariat and other signatories to enhance their effectiveness in implementing the PRI
Seek appropriate disclosure on ESG issues by any entities in which it invests
Report on activities and progress towards implementing the PRI
100% ofthe Company's assets are let on "green leases". In these leases,the Company and its charity tenants agree to cooperate to identify and implement appropriate strategies forthe improvement ofthe relevant properties' environmental performance. This includes the improvement of energy consumption, water consumption and discharge, waste generation and management, generation and/or emission of greenhouse gases and other adverse environmental impacts arising from the operation or use of the properties.
We also look forward to carrying out with the Good Economy Partnership a full impactreportforthe Company which will be included in the Annual Reportfor the financial yearto 31 August 2021.
We are very pleased with the Group's strong performance during what was a very active period, underlining our ability to successfully source and execute on attractively priced, very long-let and indexlinked property assets leased to robusttenants.
We remain confident about continuing to deliver both significant social impact and attractive inflationprotected income and capital growth to the Company's shareholders sustainable overthe short and longer term through our diversified high quality portfolio as well as from our growing pipeline of attractive investments.
Alvarium Home REIT Advisors Limited 27 April 2021
9 bedrooms in London
The investment objective ofthe Company is to deliver inflation-protected income and capital growth over the medium term for shareholders through funding the acquisition and creation of high-quality homeless accommodation across the UK let on long-term indexlinked leases.
The Company willtargetinflation-protected income and capitalreturns by investing in a diversified portfolio of homeless accommodation assets, let or pre-letto registered charities, housing associations, community interest companies and otherregulated organisations thatreceive housing benefit or comparable funding from local or central government, on very long-term and index-linked leases.
The Company will investin these assets directly or through holdings in special purpose vehicles and will seek to acquire high-quality properties,taking into accountthe following key investment considerations:
The Company will be dedicated to tackling homelessness in the UK and willtarget a wide range of sub-sectors within homelessness including, but notlimited to, women fleeing domestic abuse, people leaving prison, individuals suffering from mental health or drug and alcohol issues and foster care leavers.
The Company will seek to only acquire assets let or preletto robusttenants on long leases (typically 20 to 30 years to expiry or first break), with index-linked or fixed rental uplifts, in orderto provide security of income and low cost of debt. The Company will only investin assets with leases containing regular upward-only rental reviews. These reviews willtypically link the growth in rents to an inflation index such as CPI (with potentially a minimum and maximum level) or alternatively may have a fixed annual growth rate.
The Company will neither undertake any direct development activity nor assume direct development risk. However,the Company may investin fixed-price forward funded developments, provided they are preletto an acceptable tenant and full planning permission is in place. In such circumstances,the Company will seek to negotiate the receipt of immediate income from the asset, such thatthe developeris paying the Company a return on its investment during the construction phase and priorto the tenant commencing rental payments underthe terms ofthe lease.
Where the Company invests in forward funded developments:
TheCompany's full investment policy can be found in the Company's prospectus issued on 22 September 2020.
Victims of domestic violence made homeless last year.
Source: Ministry of Housing, Communities and Local Government
J had been rough sleeping for some time after suffering years of domestic abuse . Her situation was worsened by drug addiction which she had developed as a coping mechanism to the physical and financial abuse she had been victim to. When J moved into a Home REIT property operated by the charity, Lotus Sanctuary, she was looking forward to a new beginning.
J found the initialtransition into accommodation extremely difficult. She did not know anyone in the area and did not have access to a personal bank account. She found it difficultto trust others due to her previous experiences and challenged the Lotus Sanctuary staff on many occasions butthe Lotus Sanctuary team remained patient and supportive. Positive engagement and building relations with J was a slow process; ittook six weeks for Lotus Sanctuary to gain hertrust.
Having given J the space and time she needed, Lotus Sanctuary now has a positive working relationship with her and she is utilising their support service to its full potential. She often knocks on the office doorto have a coffee and a chat with the team.
J has a clean and safe Home REIT apartment which she calls home and is engaging well with the Lotus Sanctuary team, accepting their help and support. She has opened her own bank account and is drug free.
Lotus Sanctuary
The Company's objective is to deliver attractive, low risk returns and positive social impactto shareholders, by executing its investment policy.
Set out below are the key performance indicators ("KPIs")that are used to track the Group's performance.
| KPI and definition | Relevance to strategy | Performance |
|---|---|---|
| 1. Total NAV return Total NAV return measures the change in the EPRA NTA and dividends during the period as a percentage of EPRA NTA atthe start ofthe period. We are targeting a minimum of 8% per annum overthe medium term. |
Total NAV return measures the ultimate outcome of our strategy, which is to deliver value to our shareholders through our portfolio and to deliver a secure and growing income stream. As the first interim dividend was paid post period end this is simply the upliftfrom opening NAV of 98p to period end NAV of 102.8p. |
4.9% |
| 2. Dividend per share Dividends paid to shareholders and proposed in relation to a period. |
The dividend reflects our ability to deliver a low risk but growing income stream from our portfolio and is a key element of ourtotal NAV return. As the firstinterim dividend was paid post period end itis notreflected in this assessment. |
Nil |
| 3. Adjusted earnings per share Post-tax Adjusted earnings per share attributable to shareholders. |
The Adjusted earnings per share reflects our ability to generate income from our portfolio, which ultimately underpins our dividend payments. A reconciliation of Adjusted earnings is included in Note 20 to the consolidated financial statements. |
0.6p |
| 4. Total expense ratio The ratio oftotal operating expenses, including managementfees expressed as a percentage of the average net asset value. |
The total expense ratio is a key measure of our operational excellence. Maintaining a low-cost base supports our ability to pay dividends. Note:this calculation excludes £75,000 of costs relating to the share premium cancellation as non-recurring. The annualised figure has been calculated commencing from the IPO date. |
1.47% (annualised) |
| 5. EPRA NTA The value of our assets (based on an independent valuation) less the book value of ourliabilities, attributable to shareholders and calculated in accordance with EPRAguidelines.Atthe period end there were no differences between EPRA NTA and IFRS NAV. |
The NTA reflects our ability to grow the portfolio and to add value to itthroughoutthe life cycle of our assets. |
102.8p |
| 6. Pro-forma LTV The proportion of ourtotal assets thatis funded by borrowings.Calculated as gross borrowings as proportion oftotal assets adjusted for working capital. Ourtarget maximum LTV is 35%. |
The LTV measures the prudence of our financing strategy, balancing the additionalreturns and portfolio diversification that come with using debt againstthe need to successfully manage risk. |
32.8% |
| 7. Weighted average unexpired lease term The average unexpired lease term ofthe property portfolio weighted by annual passing rents. Our target WAULT is a minimum of 20-years. |
The WAULT is a key measure ofthe quality of our portfolio. Long lease terms underpin the security and predictability of ourincome stream. |
24.6 years |
| 8. Percentage of contracted rents index-linked or fixed This takes the total value of contracted rents that contain rentreviews linked to inflation or fixed uplifts. |
This measures the extentto which we are investing in line with ourinvestment objective, to provide inflation-linked returns. |
100% |
| 9. Homeless beds created This takes into accountthe number of bed spaces created by Home REIT since inception. |
This measures the extent ofthe impact our investment has on the homelessness issue in the UK. |
3,019 beds |
The table below shows additional performance measures, calculated in accordance with the Best Practices Recommendations of EPRA. We provide these measures to aid comparison with other European real estate businesses.
Reconciliations of EPRA Earnings and NAV measures are included in Notes 20 and 21 to the consolidated financial statements respectively.
| Measure and Definition | Purpose | Performance |
|---|---|---|
| 1. EPRA Earnings | A key measure of a company's underlying operating results and an indication ofthe extentto which current dividend payments are supported by earnings. |
0.6p |
| 2. EPRA Net Tangible Assets ("NTA") | Assumes that entities buy and sell assets,thereby crystallising certain levels of unavoidable deferred tax. |
102.8p |
| 3. EPRA Net Reinstatement Value ("NRV") | Assumes that entities never sell assets and aims to representthe value required to rebuild the entity. |
107.4p |
| 4. EPRA Net Disposal Value ("NDV") | Represents the shareholders' value under a disposal scenario, where deferred tax, financial instruments and certain other adjustments are calculated to the full extent oftheirliability, net of any resulting tax. |
106.4p |
| 5. EPRA Net Initial Yield ("NIY") | EPRA NIY is annualised netrents on investment properties as a percentage ofthe investment property valuation, less purchaser's costs. |
5.33% |
| 6. EPRA 'Topped-Up' NIY | The 'topped-up' measure incorporates an adjustment to the EPRA NIY in respect ofthe expiration ofrent-free periods (or other unexpired lease incentives such as discounted rent periods and step rents). |
6.44% |
| 7. EPRA Vacancy | A 'pure' (%) measure of investment property space that is vacant, based on ERV. |
0% |
| 8. EPRA Cost Ratio | A key measure to enable meaningful measurement ofthe changes in a company's operating costs. |
44.7% |
The Prospectus issued in September 2020 includes details ofrisks faced by the business. The Board considers that the principalrisks and uncertainties faced by the Group are as follows:
| Risk | Mitigation | ||
|---|---|---|---|
| Global pandemic | |||
| Covid-19 global pandemic – rapid spread of infectious disease has caused governments to implement policies to restricttravel and take |
The Board monitors the business continuity position of each of our key service providers to ensure adequate procedures are in place to limitthe impact on the Company. |
||
| other measures to preventits spread,resulting in a slowdown to the economy, significant share price volatility, changes to the working habits for our key service providers, and unprecedented disruption to many of ourtenants' businesses. |
The Board, Investment Adviser and key members ofthe management team have been working remotely since inception. Regular communication is maintained between the Board,the Investment Adviser,tenants and key service providers. |
||
| The Investment Adviseris closely monitoring the impact on our assets and on ourtenants' ability to meetrent obligations and regularly reports the position to the Board. |
|||
| The Board is committed to providing allrelevantinformation to the market on a timely basis to foster good communication with our shareholders and other stakeholders. |
|||
| Further detail ofthis is given in the going concern section ofthis report. | |||
| Investment strategy and operations | |||
| The Company may not achieve its investment objective orreturn objective. |
The Board regularly reviews the Company's investment performance againstits stated objective in relation to deployment, purchase |
||
| The Company has a limited operating history | yields achieved, debt finance costs/availability, dividends and total shareholder return. |
||
| and targeted returns are based on estimates and assumptions subjectto significant uncertainties and contingencies. |
The Investment Adviser's senior managementteam has extensive experience in executing real estate investments in strategies similar |
||
| The Company may face delays in deployment of proceeds and may not be able to find suitable investments on acceptable terms. |
to that ofthe Company. The Investment Adviser has identified a strong pipeline of opportunities and continues to deploy capital well within originaltimescales and expected yields. |
||
| Real estate | |||
| Performance will be subjectto the condition of property markets in the UK – a significant |
The Investment Adviser and the Board monitorthe position on a regular basis. |
||
| downturn in the underlying value ofthe Company's investment property would impact shareholderreturns and ability to meet |
Performance in terms of underlying Investment Property valuation and rent collection has remained robustthroughoutthe Covid-19 pandemic. |
||
| banking covenants. | The long-term nature ofthe asset class' cash flows underpinned by central government support means volatility is keptto a minimum which is further underpinned by 100% ofthe Company's leases being indexed linked with a minimum uplift per annum of 1%. |
||
| The Company's current LTV is 32.8% giving significant head room in relation to the default LTV banking covenant of 50%. |
|||
| The Group's investments are illiquid and may be difficultto realise at a particulartime which could putthe Company's Balance Sheet under strain. |
TheCompany is expected and has planned to hold its investments on a long-term basis, and therefore itis unlikely that quick disposals will be required. |
||
| The Investment Adviser and the Board monitorthe position on a regular basis maintaining a cash buffer on the Balance Sheetfor any shortterm requirements. |
|||
| Current conditions and valuation, supported by recenttransactions point to disposals at holding value or betterifrequired. |
| Risk | Mitigation |
|---|---|
| Risk oftenants defaulting – dividends payable by the Group and its ability to service the Group's debt will be dependent on the income from the properties it owns. Failure by one or more tenants to comply with theirrental obligations could affect |
The Group undertakes thorough due diligence before acquisition and acquires assets letto strong tenants with track records in servicing the sector giving confidence thatthey will be able to pay the rents as and when they are due. In addition as part ofthe transaction, contingencies are putin place to further strengthen tenant balance sheets. |
| the ability ofthe Company to secure dividends and meet banking covenants associated with its borrowings. |
The credit quality ofthe tenants is assessed by the Investment Adviser on an initial and an ongoing basis. |
| The Investment Adviser and the Administrator monitor payments received to ensure any difficulties are raised in a timely fashion. |
|
| Property valuation is inherently subjective and uncertain – Valuations are subjectto uncertainty and there can be no assurance thatthe estimates resulting from the valuation process willreflect |
The Group generally acquires properties with strong fundamentals that are of strategic importance to theirtenants. The Group aims to hold assets forlong-term income and embeds income growth into leases which contributes toward positive valuation movements. |
| actual sales prices that could be realised by the Company in future. |
An experienced Independent Valuer has been appointed to carry out bi-annual property valuations. |
| The performance of allthird party service providers is regularly reviewed by the Board. |
|
| Other risks | |
| The Company is reliant on the AIFM,the Investment Adviser and the Company's other key services providers – The Company relies on its key service providers, marketintelligence, relationships and expertise. The performance of the Company is to a large extent dependent on the performance ofthe Investment Adviser and its other key service providers. |
The Board has executed a long-term Investment Advisory Agreement securing the services of Investment Adviser until October 2025. The Board meets regularly with the Investment Adviserto promote a positive working relationship with its performance monitored against the Company's investment objective and investor expectations. |
| The Investment Advisory fee is based on a sliding scale ofthe Company's net asset value to align the Investment Adviser's interests with those of the shareholders. |
|
| The Board has appointed experienced service providers to provide key services to the Company. |
|
| Performance ofthe key service providers is also monitored by the Board and the Management Engagement Committee. |
|
| The Management Engagement committee will perform a formal periodic review process to considerthe ongoing performance ofthe AIFM,the Investment Adviser and other key service providers. |
|
| Failure to comply with the REIT rules and other regulations may have a negative impact on the Company – Ifthe Group fails to remain qualified as |
The Investment Adviser monitors compliance with the REIT regime. The Group has appointed experienced third-party tax advisors to assist with tax compliance matters with appropriate relevant experience. |
| a REIT,the Group will be subjectto UK corporation tax on some or all its property rental income and chargeable gains, which would reduce the |
Calculation of dividends is carried out by the Group's Administrator before review by the AIFM and/orInvestment Adviser. |
| earnings and amounts available for distribution to shareholders. |
The performance ofthird party service providers is regularly reviewed by the Board. |
9 bedrooms in Brighton
Between 2018 and 2019, 11,483 people were released from prison into homelessness and in Q2 2020, an estimated 13% of people released from prison did not have a home to go to.
D had no fixed abode and was spending nights sleeping anywhere she could find and often sleeping rough on the streets. Big Help Project contacted D's probation officerto prioritise a referral and assessment which resulted in her moving into a Home REIT property within the same week.
D's mental health and drug addiction issues were immediately addressed when she moved into her Home REIT accommodation as they were negatively impacting everything else in herlife. She worked with Big Help Project's Fresh Start team and their wellbeing team to improve her mental and physical health which gave herthe skills and confidence to recently move into her own independent accommodation.
Big Help Project
The Directors confirm thatto the best oftheir knowledge this condensed set of financial statements has been prepared in accordance with IAS 34 as adopted by the European Union and thatthe operating and financialreview comprising this reportincludes a fairreview ofthe information required by DTR 4.2.7 and DTR 4.2.8 ofthe Disclosure Guidance and Transparency Rules ofthe United Kingdom's Financial Conduct Authority namely:
A list ofthe Directors is shown atthe rear ofthe Interim Report.
For and on behalf ofthe Board
Lynne Fennah Chair 27 April 2021
14 bedrooms in Liverpool
We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financialreportfor period from 19 August 2020 to 28 February 2021 which comprises the condensed consolidated statement of comprehensive income, condensed consolidated statement of financial position, condensed consolidated statement of changes in equity, condensed consolidated cash flow statement and notes to the condensed consolidated financial statements.
We have read the otherinformation contained in the half-yearly financial report and considered whetherit contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
The half-yearly financialreportis the responsibility of and has been approved by the directors. The directors are responsible for preparing the half-yearly financialreportin accordance with the Disclosure Guidance and Transparency Rules ofthe United Kingdom's Financial Conduct Authority.
As disclosed in note 2,the annual financial statements ofthe group will be prepared in accordance with international accounting standards in conformity with the Companies Act 2006 and international financial reporting standards adopted pursuantto Regulation (EC) No 1606/2002 as it applies in the European Union. The condensed set of financial statements included in this half-yearly financialreport has been prepared in accordance with International Accounting Standard 34, ''Interim Financial Reporting'', as adopted by the European Union.
Ourresponsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financialreport based on ourreview.
We conducted ourreview in accordance with International Standard on Review Engagements (UK and Ireland) 2410, ''Review of Interim Financial Information Performed by the Independent Auditor ofthe Entity'', issued by the Financial Reporting Council for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and otherreview procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Based on ourreview, nothing has come to our attention that causes us to believe thatthe condensed set of financial statements in the half-yearly financialreportforthe period from 19 August 2020 to 28 February 2021 is not prepared, in all materialrespects, in accordance with International Accounting Standard 34, as adopted by the European Union, and the Disclosure Guidance and Transparency Rules ofthe United Kingdom's Financial Conduct Authority.
Ourreport has been prepared in accordance with the terms of our engagementto assistthe Company in meeting its responsibilities in respect of half-yearly financialreporting in accordance with the Disclosure Guidance and Transparency Rules ofthe United Kingdom's Financial Conduct Authority and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and forthe purpose of ourterms of engagement or has been expressly authorised to do so by our prior written consent. Save as above, we do not acceptresponsibility forthis reportto any other person orfor any other purpose and we hereby expressly disclaim any and all such liability.
Chartered Accountants London
27 April 2021
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
12 bedrooms in London
| 19 August 2020 to 28 February 2021 |
|
|---|---|
| Note | £'000 |
| Income | |
| Rental income 3 |
3,060 |
| Total income | 3,060 |
| Operating expenses | |
| General and administrative expenses 4 |
1,443 |
| Total expenses | 1,443 |
| Change in fair value of investment property 7 |
10,052 |
| Operating profit for the period | 11,669 |
| Finance costs 5 |
235 |
| Profit before taxation | 11,434 |
| Taxation 6 |
– |
| Comprehensive income for the period | 11,434 |
| Earnings per share – basic and diluted (pence per share)* 20 |
4.75 |
*Based on the weighted average number of ordinary shares in issue in the period from the commencement of the Company's operations on 12 October 2020 to 28 February 2021.
All items in the above statement derive from continuing operations.
| Note | As at 28 February 2021 £'000 |
|---|---|
| Non-current assets | |
| Investment property 7 |
242,995 |
| Total non-current assets | 242,995 |
| Current assets | |
| Trade and otherreceivables 9 |
1,520 |
| Restricted cash 10 |
120,000 |
| Cash and cash equivalents 10 |
12,451 |
| Total current assets | 133,971 |
| Total assets | 376,966 |
| Non-current liabilities | |
| Bank borrowings 8 |
118,693 |
| Total non-currentliabilities | 118,693 |
| Current liabilities Trade and other payables 11 |
11,080 |
| Total current liabilities | 11,080 |
| Total liabilities | 129,773 |
| Net assets | 247,193 |
| Capital and reserves | |
| Share capital 14 |
2,406 |
| Special distributable reserve 16 |
233,353 |
| Retained earnings | 11,434 |
| Total capital and reserves attributable to equity holders of the company | 247,193 |
| Balance at 28 February 2021 | 2,406 | – | 233,353 | 11,434 | 247,193 | |
|---|---|---|---|---|---|---|
| Cancellation of share premium | 16 | – | (233,353) | 233,353 | – | – |
| Share issue costs | 15 | – | (4,811) | – | – | (4,811) |
| Share capital issued | 14 | 2,406 | 238,164 | – | – | 240,570 |
| Transaction with owners: | ||||||
| Profit and total comprehensive income attributable to shareholders |
– | – | – | 11,434 | 11,434 | |
| Forthe period from 19 August 2020 to 28 February 2021 |
Note | Share capital account £'000 |
Share premium account £'000 |
Distributable reserve £'000 |
Retained earnings £'000 |
Total equity attributable to owners ofthe company £'000 |
| Forthe period from 19 August 2020 to 28 February 2021 |
|
|---|---|
| Note | £'000 |
| Cash flows from operating activities | |
| Profit before tax | 11,434 |
| Less: Change in fair value of investment property 7 |
(10,052) |
| Operating result before working capital changes | 1,382 |
| Increase in trade and otherreceivables 9 |
(1,520) |
| Increase in trade and other payables 11 |
1,030 |
| Net cash flow used in operating activities | 892 |
| Cash flows from investing activities | |
| Purchase of investment properties 7 |
(222,893) |
| Net cash used in investing activities | (222,893) |
| Cash flows from financing activities | |
| Proceeds from issue of share capital 14 |
2,406 |
| Proceeds from issue of share premium 15 |
238,164 |
| Share issue costs 15 |
(4,811) |
| Unamortised loan arrangementfee | (1,307) |
| Net cash generated from financing activities | 234,452 |
| Net increase in cash and cash equivalents | 12,451 |
| Cash and cash equivalents at beginning ofthe period | – |
| Cash and cash equivalents at end of the period 10 |
12,451 |
Home REIT PLC (the "Company") is a closed-ended investment company, incorporated in England and Wales on 19 August 2020 and is registered as a public company limited by shares underthe Companies Act 2006 with registered number 12822709. The company commenced operations on 12 October 2020 when its shares commenced trading on the London Stock Exchange.
The Company intends to carry on business as a REIT with an investment objective to deliverinflationprotected income and capital growth overthe mediumterm for Shareholders through funding the acquisition and creation of high quality homeless accommodation across the UK let on long-term index-linked leases.
The principal accounting policies applied in the preparation ofthe financial statements are set out below. The policies have been consistently applied throughoutthe period.
This consolidated set of condensed financial statements has been prepared in accordance with the Disclosure Guidance and Transparency Rules ofthe UK Financial Conduct Authority and IAS 34 Interim Financial Reporting, as adopted by the European Union.
The condensed consolidated financial statements for the period from 19 August 2020 to 28 February 2021 have been reviewed by the Company's Independent Auditor, BDO LLP, in accordance with the International Standard on Review Engagements 240 Review of Interim Financial Information Performed by the Independent Auditor ofthee Entity and were approved forissue on 27 April 2021. The condensed consolidated financial statements are unaudited and do not constitute statutory accounts forthe purposes ofthe Companies Act 2006.
As this is the Company's first accounting period, annual statutory financial statements have not yet been filed with the Registrar of Companies. The Company will prepare its first statutory financial statements in accordance with international accounting standards in conformity with the requirements ofthe Companies Act 2006 and in accordance with international financial reporting standards adopted pursuantto Regulation (EC) No 1606/2002 as it applies in the European Union.
The comparative presentation is notrequired in the current period of commencement of operations.
The condensed consolidated financial statements forthe period ended 28 February 2021 have been prepared on a historical cost basis, as modified forthe Group's investment properties which are carried at fair value with changes presented in the statement of comprehensive income.
The condensed consolidated financial statements are presented in Sterling, which is the Company's presentation and functional currency, and values are rounded to the nearestthousand pounds, except where indicated otherwise.
Changes to accounting standards and interpretations
Atthe date of authorisation ofthe financial statements, there were a number of standards and interpretations which were in issue but not yet effective. The Company has assessed the impact ofthese amendments and has determined thatthe application ofthese amendments and interpretations in current and future periods will not have a significantimpact on its financial statements.
| Description | Effective Date |
|---|---|
| Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 Interest Rate Benchmark Reform – Phase 2 |
1 January 2021 |
| Amendments to IFRS 3 Business Combinations; IAS 16 Property, Plant and Equipment; IAS 37 Provisions, Contingent Liabilities and Contingent Assets |
1 January 2022 |
| Annual Improvements to IFRSs (2018-2020 Cycle) – IFRS 1, IFRS 9, Illustrative Examples accompanying IFRS 16, IAS 41 |
1 January 2022 |
| Amendments to IAS 1: Classification of Liabilities as Current or Non-current |
1 January 2023 |
The Directors ofthe Company have made an assessment ofthe Group's ability to continue as a going concern and are satisfied thatthe Groups has the resources to continue in business for atleast a period of 12 months from the date when the financial statements are authorised forissue. Furthermore, as the Group has a robust Statement of Financial Position and lets properties on long-term index-linked leases which give rise to strong current and projected future cash flows, the Directors considerthat any negative impact on the Group's financial position as a result of Covid 19 will be minimal.
The Directors have reviewed the current and projected financial position ofthe Group, making reasonable assumptions aboutits future trading performance including the impact of Covid-19. Various forms of sensitivity analysis have been performed having a particularregard to the financial performance of its tenants,taking into account any discussions held with tenants surrounding operating performance and the current and ongoing rent collection levels achieved by the Group.
The Group's financial covenants have been complied with for all loans throughoutthe period and up to the date of approval ofthese financial statements.
The Directors are not aware of any material uncertainties that may cast significant doubt upon the Group's ability to continue as a going concern. Therefore,the financial statements have been prepared on the going concern basis.
The preparation of financial statements requires the Directors ofthe Company to make judgements, estimates and assumptions that affectthe reported amounts recognised in the financial statements. However, uncertainty aboutthese assumptions and estimates could resultin outcomes thatrequire a material adjustmentto the carrying amount ofthe asset orliability in the future. Estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. The estimates and associated assumptions that have a significantrisk of causing a material adjustmentto the carrying amounts of assets and liabilities within the next financial year are outlined below:
The investment properties have been independently valued atfair value by Knight Frank LLP,the Independent Valuer, an accredited external valuer with recognised and relevant professional qualifications and recent
experience ofthe location and category ofthe investment properties being valued. The valuations are the ultimate responsibility ofthe Board; please see note 7 forfurtherinformation.
The principal accounting policies applied in the presentation ofthese financial statements are set out below.
The primary objective ofthe Company is to generate returns in Sterling, its capital-raising currency. The Company and the Group's performance is evaluated in Sterling. Therefore,the Directors consider Sterling as the currency that appropriately represents the economic effects ofthe underlying transactions, events, and conditions and the Company has therefore adopted it as the presentation and functional currency forits consolidated financial statements.
Cash and short-term deposits in the balance sheet comprise cash at bank, cash held by lawyers and shortterm deposits with an original maturity ofthree months orless.
Restricted cash represents cash withheld by the lender on drawdown borrowings, as referred to in note 10, until certain security is provided to release the funds and, in consequence, does notform an integral part ofthe Group's cash as atthe reporting date.
The Company's objectives when managing capital are to safeguard the Company's ability to continue as a going concern in orderto provide returns for shareholders and to maintain an optimal capital structure. The Company aims to ensure that sufficient capital is available for a programme of investmentin a pipeline of assets and thatthese investments generate sufficientforecasted income such that dividends may be maintained to shareholders atthe appropriate rate to ensure REIT status is preserved.
Other payables and accrued expenses are initially recognised atfair value and subsequently held at amortised cost.
Taxation on the profit orloss forthe period not exempt under UK REIT regulations would comprise of current and deferred tax. Tax would be recognised in the statement of comprehensive income except to the extentthatitrelates to items recognised as direct movementin equity in which case it would be recognised as a direct movementin equity. Currenttax is expected tax payable on any non-REIT taxable income forthe period, using tax rates enacted or substantively enacted atthe balance sheet date.
Dividends to the Company's shareholders are recognised as a reduction in equity in the financial statements atthe earlier ofthe date they are paid and, if applicable,the date they are approved atthe AGM.
The costs of issuing orreacquiring equity instruments ofthe Company are accounted for as a deduction from equity.
Leases are classified as finance leases wheneverthe terms ofthe lease transfer substantially allthe risks and rewards of ownership to the lessee. All otherleases are classified as operating leases. The Company has determined thatitretains allthe significantrisks and rewards of ownership ofthe properties and accounts forthe contracts as operating leases. Properties leased out under operating leases are included in investment property in the statement of financial position. Rental income from operating leases is recognised on a straightline basis overthe expected term ofthe relevantleases.
The Company adopted the amendments to IFRS 3 (effective 1 January 2020) in the current period. Under the amendments of IFRS 3,to be considered a business, an acquired set of activities and assets mustinclude, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. An optional concentration testthat permits a simplified assessment of whether an acquired set of activities and assets is a business has been added. The Company opted to apply the concentration testin the period to all of its corporate acquisitions, concluding these to be treated as asset purchases ratherthan business combinations because they are considered to be acquisitions of properties ratherthan businesses.
Rental income arising from operating leases on investment property is accounted for on a straight-line basis overthe lease term afterthe spreading of indexbased rental increases on such leases and is included in rental income in the statement of comprehensive income due to its operating nature. The Group's main source ofrevenue is rental income earned from its investment properties, which is excluded from the scope of IFRS 15.
The Company classifies its financial assets as fair value through profit orloss or amortised cost, depending on the purpose for which the asset was acquired and based on the business modeltest. There are no financial assets held atfair value through profit orloss. The Company's accounting policy for financial assets classified as amortised costis as follows:
These assets arise principally from the provision of goods and services to customers (e.g.rentreceivables), but also incorporate othertypes of financial assets where the objective is to hold these assets in orderto collect contractual cash flows and contractual cash flows are solely payments of principal and interest. They are initially recognised atfair value plus transaction costs that are directly attributable to their acquisition orissue and are subsequently carried at amortised cost being the effective interestrate method, less provision forimpairment.
Impairment provisions fortrade receivables (rental income) are recognised based on the simplified approach within IFRS 9 using a provision matrix in the determination ofthe lifetime expected creditlosses. During this process the probability ofthe non-payment ofthe rentreceivables is assessed. This probability is then multiplied by the amount ofthe expected loss arising from defaultto determine the lifetime expected creditloss forthe rentreceivables.
Impairment provisions for otherreceivables are recognised based on the general approach within IFRS 9 and a loss allowance forlifetime expected creditlosses is recognized ifthere has been a significantincrease in creditrisk since initialrecognition ofthe financial asset.
The Company's financial assets measured at amortised cost comprise rentreceivable,restricted cash and cash and cash equivalents in the statementof financial position. Cash and cash equivalents comprise cash in hand and deposits held at call with banks, it also includes cash held by lawyers for subsequent completions.
The Company's accounting policy for financial liabilities is as follows:
Trade and other payables that are financial liabilities are initially recognised atfair value. Where a financing componentis identified in respect of long term payables the fair value is calculated with reference to an imputed interestrate and subsequently amortised using the effective interestrate method. Shortterm financial liabilities are carried attheir expected settlement value.
Bank borrowings are initially recognised atfair value net of any transaction costs directly attributable to the issue ofthe instrument. Such interest bearing liabilities are subsequently measured at amortised cost using the effective interestrate method, which ensure that any interest expense overthe period to repaymentis at a constantrate on the balance ofthe liability carried in the Group Statement of Financial Position. Forthe purposes of each financial liability, interest expense includes initialtransaction costs and any premium payable on redemption, as well as any interest or coupon payment while the liability is outstanding.
The Company's financial liabilities comprise oftrade and other payables and borrowings.
The Company writes off a financial asset when there is information indicating thatthe counterparty is in severe financial difficulty and there is no realistic prospect ofrecovery, and allthe efforts for collection ofthe receivables are exhausted. Financial assets written off may still be subjectto enforcement activities underthe Company's recovery procedures,taking into account legal advice where appropriate. Any recoveries made are recognised in profit orloss.
The measurement of expected creditlosses is a function ofthe probability of default, loss given default (i.e.the magnitude ofthe loss ifthere is a default) and the exposure at default. Forthe interim accounts,the assessment ofthe probability of default and loss given default has been based on current and forward-looking information. As forthe exposure at default, for financial assets,this is represented by the assets' gross carrying amount atthe reporting date. Expected creditlosses are recognised in other expenses in the statement of comprehensive income.
Investment property, which is property held to earn rentals and/orfor capital appreciation, is initially held at cost and then subsequently held atfair value. This valuation includes reference to the initial consideration given, including expenditure thatis directly attributable to the acquisition ofthe investment property, and independent expert guidance. At mid-year and yearend, investment property is valued by an independent valuer and is stated atits fair value as atthe reporting date. Gains and losses arising from changes in the fair value of investment property are included in profit or loss forthe period in which they arise in the statement of comprehensive income.
Investment property additions in the period include £10.0 million relating to the acquisition of four properties that had unconditionally exchanged at the balance sheet date butthat did not complete until March 2021. The Group's accounting policy is to recognise acquisitions on the date of unconditional exchange, and the outstanding amount payable to the seller at completion is included on the condensed consolidated statement of financial position as a liability in trade and other payables.
Subsequent expenditure is capitalised only when itis probable thatfuture economic benefits are associated with the expenditure. An investment property is derecognised upon disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from the disposal. Any gain orloss arising on derecognition of the property (calculated as the difference between the net disposal proceeds and the carrying amount ofthe asset) is incurred in profit orloss in the period in which the property is derecognised.
In accordance with IFRS 13,the Company recognises investment properties atfair value at each balance sheet date in accordance with IFRS 13 which recognises a variety of fair value inputs depending upon the nature ofthe investment. Specifically:
Level 1: Quoted (unadjusted) market prices in active markets foridentical assets orliabilities.
Level 2: Valuation techniques for which the lowestlevel inputthatis significantto the fair value measurementis directly orindirectly observable.
Level 3: Valuation techniques for which the lowestlevel inputthatis significantto the fair value measurement is unobservable.
For assets and liabilities that are recognised in the financial statements on a recurring basis,the Company determines whethertransfers have occurred between levels in the hierarchy by reassessing categorisation at the end of each reporting period. Please see note 7.
| 19 August 2020 to 28 February 2021 |
|
|---|---|
| Rental income from investment property | £'000 2,780 |
| Accretion effect of straight-lining rent | 280 |
| Total | 3,060 |
Includes amounts receivable in respect of property rental income and is measured atthe fair value of the consideration received orreceivable. The future minimum rents receivable under non-cancellable operating leases are:
| Total | 286,492 |
|---|---|
| > 5 years | 220,123 |
| Year 5 | 13,539 |
| Year 4 | 13,405 |
| Year 3 | 13,273 |
| Year 2 | 13,141 |
| Year 1 | 13,011 |
| Future minimum rents receivable in the period: |
|
| £'000 |
20 yearleases (with an option to renew for a further 5 years) were granted on the date of acquisition of the properties, with an annual CPI-linked rentreview scheduled on the annual anniversary ofthe lease being granted. A collar of 1% and a cap of 4% is applicable to these reviews. Rental income is recognised on a straight line basis overthe expected term ofthe relevantlease.
| Total general and administrative expenses |
1,443 |
|---|---|
| Other administrative expenses | 460 |
| Board and Directors fee | 66 |
| Auditor's fee | 139 |
| Investment adviserfee | 778 |
| 19 August 2020 to 28 February 2021 £'000 |
Fees payable to the auditor ofthe Company relate to the Initial Accounts auditfees of £42,000 (including VAT) and an accrual forfees payable for audit procedures at the mid-year and the year-end of £97,000 (including VAT). The Company also incurred additional nonauditfees of £75,000 from the auditorrelated to the admission on the London Stock Exchange which have been treated as a reduction in Equity as share issue costs (see note 15).
| Total finance costs | 235 |
|---|---|
| Amortisation of loan arrangementfees | 25 |
| Non-utilisation fees | 190 |
| Loan interest | 20 |
| 19 August 2020 to 28 February 2021 £'000 |
The Company is a real estate investmenttrust("REIT") and as a resultthe profit and gains arising from the Company's property rental business are exemptfrom UK corporation tax provided it meets certain conditions as set outin the UK REIT regulations. Profits arising from any residual activities (e.g.trading activities and interestincome), afterthe utilisation of any available residualtax losses, are subjectto corporation tax atthe main rate of 19% forthe year.
| 19 August 2020 to 28 February 2021 £'000 |
|
|---|---|
| Currenttax | – |
| Origination and reversal of temporary differences |
– |
| Total deferred tax | – |
| Tax charge | – |
The reconciliation of profit before tax multiplied by the standard rate of corporation tax forthe half-year of 19% to the totaltax charge in the statement of comprehensive income is as follows:
| 19 August 2020 to 28 February 2021 £'000 |
|
|---|---|
| Profit before tax | 11,434 |
| Tax atthe standard rate of UK corporation tax of 19% Effect of: |
2,172 |
| REIT exemptincome and gains | (262) |
| Revaluation of investment properties | (1,910) |
| Tax charge | – |
UK REIT exemptincome includes property rental income thatis exemptfrom UK Corporation Tax in accordance with Part 12 ofthe Corporation Tax Act 2010.
| Fair value at 28 February 2021 | 242,995 |
|---|---|
| investment property | 10,052 |
| Change in fair value of | |
| Property acquisitions in the period | 232,943 |
| Investment Property £'000 |
|
| Freehold |
The properties are held atfair value as determined by the independent valuer as at 28 February 2021. All corporate acquisitions during the period have been treated as asset purchases ratherthan business combinations because they are considered to be acquisitions of properties ratherthan businesses (see note 2(j)).
The Company's investment policy targets inflationprotected income and capitalreturns by investing in a diversified portfolio of homeless accommodation assets, let or pre-letto registered charities, housing associations, community interest companies and other regulated organisations thatreceive housing benefit or comparable funding from local or central government, on long-term and index-linked leases. The Company will neither undertake any direct development activity nor assume direct developmentrisk.
The Company will focus on delivering capital growth by holding assets overthe long term and therefore it is unlikely thatthe Company will dispose of any part of its portfolio. In the unlikely eventthat a part ofthe
The Company classifies all assets measured atfair value as below:
portfolio is disposed of,the Directors intend to reinvest proceeds from such disposals in assets in accordance with the Company's investment policy.
The following descriptions and definitions relating to valuation techniques and key observable inputs may also be used in determining fair values:
Underthe market value method the estimated amount for which an asset orliability should exchange on the date of valuation between a willing buyer and a willing sellerin an arm's length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.
The rent at which space could be letin the market conditions prevailing atthe date of valuation. Passing rents are dependent upon a number of variables in relation to the Company's property. These include; size, location,tenant covenant strength and terms of the lease.
The estimated average increase in rent based on both market estimations and contractual arrangements. A reduction ofthe estimated future rental growth in the valuation model would lead to a decrease in the fair value ofthe investment property and an inflation ofthe estimated future rental growth would lead to an increase in the fair value. No quantitative sensitivity analysis has been provided for estimated rental growth as a reasonable range would notresultin a significant movementin fair value.
Fair value hierarchy
| Quoted prices in active |
Significant observable |
Significant unobservable |
||
|---|---|---|---|---|
| markets | inputs | inputs | ||
| Total | (level 1) | (level 2) | (level 3) | |
| As at 28 February 2021 | £'000 | £'000 | £'000 | £'000 |
| Assets measured at fair value: | ||||
| Investment property | 242,995 | – | – | 242,995 |
| Residential | 13,544 | 3-311 | 242,995 | 4.94-5.56 |
|---|---|---|---|---|
| Sector | £'000 | £'000 | £'000 | % |
| 28 February 2021 | rent pa range | 28 February 2021 | yield range | |
| Passing rent pa | Passing | Valuation | Valuation |
The table below shows the sensitivities of measurement ofthe Group's investment property to certain inputs:
| As at 28 February 2021 | -5% in passing | +5% in passing | +25bps in net | -25bps in net |
|---|---|---|---|---|
| rent | rent | initial yield | initial yield | |
| £'000 | £'000 | £'000 | £'000 | |
| Investment property | (12,150) | 12,150 | (10,431) | 11,411 |
The netinitial yield is defined as the initial gross income as a percentage ofthe market value (or purchase price as appropriate) plus standard costs of purchase.
As set out within significant accounting estimates and judgements above,the Company's property portfolio valuation is open to judgements and is inherently subjective by nature.
Set out below is a comparison ofthe book value and fair value ofthe Group's financial instruments where a difference exists. The fair value of financial instruments notincluded in the comparison is equalto book value.
| Bank borrowings | Book value £'000 |
Fair value £'000 |
|---|---|---|
| Term loan | 120,000 | 111,130 |
| Unamortised loan arrangementfees |
(1,307) | – |
| Bank borrowings | 118,693 | 111,130 |
The Group's borrowings comprise a £120 million fixed term loan facility with Scottish Widows Limited. The facility has an all-in rate of 2.07% per annum forthe duration ofthe loan term and is due forrepaymentin December 2032.
| Trade and other receivables | 1,520 |
|---|---|
| Prepaid expenses | 50 |
| Tenantreceivables | 1,470 |
| As at 28 February 2021 £'000 |
The Directors analysed the expected creditloss and concluded there was no material exposure forthe period ended 28 February 2021.
| Total cash at bank | 132,451 |
|---|---|
| Restricted cash | 120,000 |
| Cash and cash equivalents | 12,451 |
| Cash at bank | 12,451 |
| As at 28 February 2021 £'000 |
Restricted cash is money held in accounts to which the Group does not have immediate access and as such do notform part ofthe Group's short-term cash management. These amounts arise both when initially drawing on term-loans priorto the bank taking adequate security and where a securitised assetis disposed priorto the bank replacing the asset with adequate security.
| Total other payables and accrued expenses |
11,080 |
|---|---|
| Property purchases exchanged unconditionally atthe reporting date |
10,050 |
| Accrued expenses | 1,030 |
| As at 28 February 2021 £'000 |
|
The Directors considerthe carrying amount oftrade and other payables match theirfair value.
On 11 December 2020 the Group entered into a 12-year fixed-rate loan facility for £120 million with Scottish Widows;the Company acts as a guarantor to the loan facility. The Group considers and accounts for all guarantees as insurance contracts. A financial guarantee is recognised where a contractrequires the issuerto make specified payments to reimburse the holderfor a loss itincurs because a specified debtorfails to make a payment when due. The loan was fully drawn on 26 February 2021 and was held in a restricted cash account at 28 February 2021.
The Company's activities expose itto a variety of financialrisks: marketrisk, creditrisk and liquidity risk.
The AIFM and the Investment Adviser have risk management procedures and processes in place which enable them to monitorthe risks ofthe Company. The objective in managing risk is the creation and protection of shareholderincome and value. Risk is inherentin the Company's activities, butitis managed through a process of ongoing identification, impact assessment, and monitoring and subjectto risk limits and other controls.
The principal financialrisks facing the Company in the management of its portfolio are as follows:
Creditrisk is the risk that a tenant or other counterparty will cause financial loss to the Company by failing to meet a commitmentit has entered into with the Company.
Itis the Company's policy to enterinto banking arrangements with reputable financial institutions. The AIFM monitors the credit worthiness of banks used by the Company by review of creditratings, financial statements and other public records and news on a regular basis.
In respect of investment property, in the event of a default by a tenant,the Company may suffer an income shortfall and additional costs in reletting the property. The distributions payable by the Company are dependent on the income from the underlying investment property. The receipt of any rental income due and payable in respect ofthe underlying property, and the possibility thattenants may default on theirrental obligations, creates a consequential risk forthe Company in thatit could cause a decline in the Company's income available for distribution to shareholders. The Investment Adviserreviews the position of new tenants and monitors tenant exposure in accordance with the investment policy.
The table below shows the Company's exposure to creditrisk:
| As at 28 February 2021 £'000 |
|
|---|---|
| Cash and cash equivalents | 12,451 |
| Restricted cash | 120,000 |
| Tenantreceivables | 1,470 |
| 133,921 |
The Group manages its liquidity and funding risks by considering cash flow forecasts and ensuring sufficient cash balances are held within the Group to meetfuture needs. Prudentliquidity risk managementimplies maintaining sufficient cash and marketable securities,the availability of financing through appropriate and adequate credit lines, and the ability oftenants to settle obligations within normalterms of credit. The Group ensures,through forecasting of capitalrequirements,that adequate cash is available.
The following table details the Group's liquidity analysis in respect of its financial liabilities on contractual undiscounted payments:
| 11,633 | 1,948 | 9,950 | 136,908 | 160,439 | |
|---|---|---|---|---|---|
| Trade and other payables | 11,013 | 67 | – | – | 11,080 |
| Bank borrowings and interest(Note 12) | 620 | 1,881 | 9,950 | 136,908 | 149,359 |
| 28 February 2021 | < 3 months £'000 |
3-12 months £'000 |
1-5 years £'000 |
5 years + £'000 |
Total £'000 |
The Board of Directors oversees the management ofthese risks and agrees policies for managing each ofthese risks.
| As at 28 February 2021 |
|
|---|---|
| £'000 | |
| Issued and Allotted: | |
| 240,570,465 ordinary shares of £0.01 each | 2,406 |
The Company was incorporated on 19 August 2020 when one ordinary share of £0.01 nominal value was issued for £1. On 3 September 2020, a further 50,000 redeemable preference shares of £1 each were issued at £1 per share (quarter paid up). The Company achieved admission to the premium listing segment ofthe Official List ofthe London Stock Exchange (the "IPO") on 12 October 2020.
Atthe date ofthe Company's IPO,the Company issued and allotted a further 240,570,464 ordinary shares of 1 pence nominal value each at £1 per share. Therefore, 240,570,465 ordinary shares have been issued and fully paid. The redeemable preference shares were redeemed at par and cancelled on the date ofthe IPO.
| (233,353) |
|---|
| (4,811) |
| 238,164 |
| As at 28 February 2021 £'000 |
In orderto increase distributable reserves available forthe payment of future dividends,the Company resolved on 3 September 2020 that, conditional upon Admission and the approval ofthe Court,the amount standing to the credit ofthe share premium account ofthe Company immediately following completion ofthe Issue be cancelled and transferred to a special distributable reserve.
The Court approved the cancellation ofthe share premium account on 8 December 2020 and the cancellation was registered with the Registrar of Companies on 9 December 2020 following which the cancellation ofthe share premium account became effective. Accordingly,the amount of £233,353,351 previously held in the share premium account has been cancelled and credited to a special distributable reserve. The Company may, atthe discretion ofthe Board, pay all or any part of any future dividends out of this special distributable reserve,taking into account the Company's investment objective.
| As at 28 February 2021 £'000 |
|
|---|---|
| Balance at beginning of period | – |
| Transferfrom share premium account (note 15) |
233,353 |
| Balance at end of period | 233,353 |
On 15 February 2021,the Company declared an ordinary dividend of 0.83 pence per ordinary share, which was paid on 19 March 2021 to shareholders on the register as at 26 February 2021. This dividend has not been included in the condensed consolidated statement of changes in shareholders' equity forthe period underreview.
Underthe terms ofthe Investment Management Agreement dated 22 September 2020, Alvarium Fund Managers (UK) Limited was appointed as the Alternative Investment Fund Manager(AIFM)to the Company. The AIFM acts as investment manager with responsibility forthe management ofthe assets ofthe Company in accordance with the investment policy ofthe Company and the policies and directions ofthe Board and is regulated in the conduct of investment business by the FCA. Alvarium Fund Managers (UK) Limited is a subsidiary of Alvarium Investments Limited,the ultimate parent company ofthe Broker and the Investment Adviserto the Company. Underthe Investment Management Agreement,the AIFM receives a fee of £40,000 per annum. No performance fee is payable to the AIFM.
Alvarium Securities Limited ("Alvarium Securities") was appointed on 22 September 2020 to provide corporate broking services to the Company and is a subsidiary of Alvarium Investments Limited,the ultimate parent company ofthe AIFM and the Investment Adviser. Alvarium Securities is paid an annualretainerfee in the amount of £50,000 by the Company;the Company also incurred additional fees of £3,878,000 from Alvarium Securities in relation to the initial public offering and subsequent admission to the London Stock Exchange. These costs have been treated as a reduction in Equity as share issue costs as shown in note 13.
On 22 September 2020 Alvarium Home REIT Advisors Ltd was appointed as the investment adviserto the Company by entering into the Investment Advisory Agreement with the Company. Underthis agreement, the Investment Adviser will advise the Company in relation to the management, investment and reinvestment ofthe assets ofthe Company. Alvarium Home REIT Advisors Ltd is a subsidiary of Alvarium Investments Limited,the ultimate parent company of the AIFM and the Brokerto the Company.
The investment advisory fees shall be an amount calculated in arrears in respect of each month, in each case based upon the net asset value ofthe Company on the following basis:
The Investment Advisory Agreement may be terminated on 12 months' written notice, such notice to expire on or at any time afterthe fifth anniversary of 12 October 2020. The Investment Advisory Agreement may be terminated with immediate effect on the occurrence of certain events, including insolvency or in the event of a material and continuing breach.
Directors are entitled to receive a fee from the Company at such rate as may be determined in accordance with the Articles. The initial fees are £36,000 for each Director and £50,000 forthe Chairman per annum. The Chair ofthe Audit Committee receives an additional fee of £5,000 per annum. During the period ended 28 February 2021, Directors fees of £66,200 were paid, of which none was payable atthe period end.
As detailed in the Prospectus,the Directors subscribed forthe below Ordinary Shares at 100p per share during the Company's initial public offering and have therefore held (and continue to hold) beneficial interests in these shares since Admission.
| Number of Ordinary Shares held |
% of Ordinary Shares in issue |
|
|---|---|---|
| Lynne Fennah | 50,000 | 0.021 |
| Simon Moore | 36,000 | 0.015 |
| Marlene Wood | 20,000 | 0.008 |
| Peter Cardwell | 10,000 | 0.004 |
The above Directors were appointed on 3 September 2020. On incorporation on 19 August 2020 William Saunders and Alan Sauvain were appointed as Directors, and subsequently resigned as Directors on 3 September 2020.
At 28 February 2021 the Group had no contingent liabilities.
Earnings per share is calculated by dividing profitforthe period attributable to ordinary equity holders ofthe Company by the weighted average number of ordinary shares in issue since the Company commenced its operations on 12 October 2020. Amounts shown below are both basic and diluted measures as there were no dilutive instruments in issue throughoutthe current or comparative periods.
| Period ended 28 February 2021 £'000 |
|
|---|---|
| Earnings | 11,434 |
| Weighted average number of ordinary shares | 240,570,465 |
| EPS (pence) | 4.75 |
| Adjustments to remove: | |
| Change in fair value of investment property | 10,052 |
| (Loss)/gain on disposal of investment property | – |
| EPRA earnings/Adjusted earnings | 1,381 |
| Weighted average number of ordinary shares | 240,570,465 |
| EPRA EPS/Adjusted EPS (pence) | 0.57 |
| Adjustments to remove: | |
| Effect ofrent straight-lining | (281) |
| Adjusted cash earnings | 1,100 |
| Weighted average number of ordinary shares (million) | 240,570,465 |
| Adjusted cash EPS (pence) | 0.46 |
Adjusted EPS is a performance measure used by the Board to assess the Company's dividend payments and therefore the Board considers itto be relevantinformation forinvestors. The Adjusted EPS reflects the Company's ability to generate income from its portfolio.
The Board considers disclosure of Adjusted Cash EPS to be relevantinformation forinvestors.
Net asset value per share is calculated by dividing the consolidated net assets attributable to ordinary equity holders ofthe Company by the number of ordinary shares outstanding atthe reporting date. Amounts shown below are both basic and diluted measures as there were no dilutive instruments in issue throughoutthe current or comparative periods.
| Period ended 28 February 2021 £m |
||
|---|---|---|
| NAV | 247.19 | |
| Number of ordinary shares (million) | 240.57 | |
| NAV per share | 102.75p |
A reconciliation of IFRS NAV per share to the three EPRA NAV measures is shown below.
| As at 28 February 2021 | EPRA NTA £'000 |
EPRA NRV £'000 |
EPRA NDV £'000 |
|---|---|---|---|
| Net asset value | 247,193 | 247,193 | 247,193 |
| Fair value of debt | – | – | 8,870 |
| Real estate transfertax | – | 11,118 | – |
| At 28 February 2021 | 247,193 | 258,311 | 256,063 |
| Number of ordinary shares | 240,570 | 240,570 | 240,570 |
| Per share | 102.75p | 107.37p | 106.44p |
The Group consider EPRA NTA to be the mostrelevant NAV measure forthe Group, EPRA NTA excludes the cumulative fair value adjustments for debt-related derivatives which are unlikely to be realised.
On 15 February 2021,the Company declared an ordinary dividend of 0.83 pence per ordinary share, which was paid on 19 March 2021 to shareholders on the register as at 26 February 2021.
Since 28 February 2021,the Company has acquired 21 new assets totalling £33.1m (net of purchase costs) across various geographical locations in London and the North West, South West, East and West Midlands regions of England.
There is no ultimate controlling party ofthe Group.
Company number: 12822709 Country of incorporation: England and Wales
Lynne Fennah (Chairman) Peter Cardwell Simon Moore Marlene Wood
6th Floor, Bastion House 140 London Wall London EC2Y 5DN
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