Annual Report • Nov 11, 2021
Annual Report
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Annual Report — For the period ended 31 August 2021
Contributing to the alleviation of homelessness in the UK.
87 Glossary
88 Company information
90 Notice of Annual General Meeting 91 Notes to the notice of Annual General Meeting
Images of people throughout this report are sourced from iStockphoto and Unsplash.
The Board of Home REIT plc (ticker: HOME) is pleased to report its maiden annual results for the period from incorporation on 19 August 2020 to 31 August 2021.
The Company seeks to contribute responsibly to the alleviation of homelessness in the UK, delivering a tangible social impact 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, tailored accommodation for vulnerable, homeless people, providing critical and sustainable housing solutions for people 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 homeless people 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 homeless people 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 that are expected to deliver savings to local authorities and other providers of accommodation to homeless people via lower rents versus more expensive alternative accommodation.
| • | TheCompany and its subsidiaries (the "Group") acquired |
|---|---|
| 711 investment properties within the period, which were |
|
| independently valued on 31 August 2021 at £328 million, |
|
| representing an increase of approximately 4.5 per cent |
|
| abovetheaggregateacquisitionprice(includingacquisition | |
| costs). The properties have been valued on an individual |
|
| basis. No portfolio premium has been applied |
Source: Shelter
• The Company paid its third interim dividend of 0.84 pence per Share on 22 October 2021. Dividends distributed in relation to the financial yearto August 2021 equal 2.5 pence per share, in line with initial targets. The Board is targeting 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.
• In September 2021,the Company raised gross proceeds of £350 million through a significantly oversubscribed issue of new ordinary shares.
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 measures and the IFRS financial statements can be found in Note 22.
Definitions of alternative performance measures are given in the key performance indicators and EPRA performance measures sections.
Oct 20 Nov 20 Dec 20 Jan 21 Feb 21 Mar 21 Apr 21 May 21 Jun 21 Jul 21 Aug 21
Monthly Deployment
Number of Assets
Total Deployment
Acquisition of new beds to 31 August 2021
Beds Acquired Total Beds
I am pleased to presentthe maiden annualresults forthe Group forthe period from its incorporation to 31 August 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, followed by an oversubscribed follow-on equity issue in September 2021 raising gross proceeds of £350 million from a broad range of investors.
Source: Shelter
The Company has performed strongly since its launch despite the constraints created by the COVID-19 pandemic, delivering on our stated objectives 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 strong network ofrelationships, extensive experience and marketintelligence.
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 impactfor 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 properties let on very long, inflation-linked leases to a wide range of tenants 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 homeless people. Crucially,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 oftenure to Home REIT's tenants is essentialto rehabilitating vulnerable individuals and helping to break the cycle of homelessness seen in shortterm accommodation, a fundamental pillar of our social impact strategy.
All ofthe rent payable by Home REIT's tenants is funded through support from 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 31 August 2021,the Group's portfolio consisted of 3,846 beds across 711 properties letto 21 tenants. Across the Group's assets,the average net initial purchase yield was 5.85 per cent,the WAULT was 24.3 years and 100 per cent ofthe income was index linked. The portfolio is 100 per centlet and income producing.
Lynne Fennah Chair
The Group's portfolio has been independently valued by Knight Frank LLP in accordance with the RICS Valuation Professional Standards.As at 31August 2021,the Group's portfolio had a market value of £328 million,representing an increase of approximately 4.5 per cent 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 increased to 105.0 pence as at 31 August 2021, an increase of 7.2 per centfrom 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 £21 million.
The Company paid its third interim dividend of 0.84 pence per Share on 22 October 2021. Dividends distributed in relation to the financial yearto August 2021 equal 2.5 pence per share, in line with initialtargets. The Board is targeting 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 711 properties at 31 August 2021 provides 3,846 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.
On 11 December 2020,the Group entered into a new, 12-year, interest only, £120 million (35 per cent LTV) loan agreement with Scottish Widows at an all-in fixed rate of 2.07 per cent per annum, expiring in December 2032. This provides a wide spread (378 basis points) between the current average netinitial property yield of 5.85 per cent and the 2.07 per cent per annum fixed rate. The loan was fully drawn down on 26 February 2021.
The Group is in the process of finalising the terms of an additional fixed rate, fixed term, interest only debt £130m facility with an annuity lender. We look forward to updating Shareholders on this in due course.
The Group benefits from a strong board with substantial real estate, financial, commercial and sector experience and has established appropriate committees (including Audit Committee and Management Engagement Committee), which 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 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.
Chairman's statement — continued
Since 31 August 2021,the Company has acquired 539 new assets totalling £229 million (net of purchase costs) across various geographical locations in London, North West, South West, South East, East, Midlands, Yorkshire, North Eastregions of England and North Wales region.
These properties provide over 2,679 further beds for vulnerable homeless people whose circumstances cover a range of sectors, including drug and alcohol abuse, domestic abuse, general needs poverty and those with mental health issues.
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 setforthe 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 has not seen any impactto its own rent collection levels and rates ofrecovery through the Period were 100 per cent.
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 high-quality accommodation to those amongstthe most vulnerable in our society.
The resulting economic downturn in the UK due to COVID-19, and the end of government support measures, means that a greater number of individuals will likely 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 deploying further pipeline assets to ensure this increased demand can be met.
The Investment Adviseris reassured thatthe UK Government has put supporting vulnerable people at the top ofthe political and financial agenda as ittackles 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 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 commitment from care workers and housing managers for which the Company is extremely grateful.
6 bedrooms in Gloucester
The Investment Adviser notes that many ofthe Company's peer group in the long income space have made announcements or written to theirinvestors regarding rent collection levels,reflecting the unprecedented impactthat COVID-19 has had and continues to have on many commercialtenants.
As stated above,the Company has not seen any impact to its own rent collection levels and rates ofrecovery through the Period were 100 per cent.
The Board has been encouraged by the strong performance since the Company's IPO in October 2020, deploying the proceeds into 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.
Alongside this deployment,the Investment Adviser has leveraged its network ofrelationships to develop an attractive pipeline of further potential acquisitions. This has already led to the oversubscribed follow-on issue of shares in September 2021 and we look forward to updating Shareholders on the deployment ofthis capital into new acquisitions. The Company has putin place a Placing Programme until 1 September 2022 in orderto give the Investment Adviserthe flexibility to pursue the Company's investment objective.
The Group is already delivering excellentreturns to shareholders through a secure, diversified and growing index-linked income stream as well as attractive capital appreciation across its long-let portfolio,reflecting the Investment Adviser's disciplined and value-led approach to investments.
What matters mostis thatthe Company is helping to improve the lives of homeless people orthose atrisk of homelessness and therefore I am pleased to be able to reflect on the tangible social impactthatthe Company has made to some ofthe most vulnerable in society. Working with ourtenant partners to provide critically needed accommodation for people atrisk of homelessness,the Company now provides homes for almost 4,000 people across the UK. In July 2021, The Good Economy Partnership Limited independently explored the Company's positive social impactin a report published on our website. We look forward to Good Economy's nextreport, where it will deepen its assessments of partner organisations and the outcomes experienced by the Company's residents.
The Company is continuing to build responsibly on this sustainable growth momentum and we remain confident about delivering further value for shareholders and wider stakeholders and achieving significant positive social impactin the next financial period to 31 August 2022 and beyond and fulfilling our longer-term ambitions.
Finally, I would like to thank all our shareholders fortheir support since the Company's launch and I look forward to updating you on the Company's further progress in due course.
Chair ofthe Board of Directors
10 November 2021
4 bedrooms in Leeds
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.
TGE spoke to Elaine, a residentfor one month at Lotus Sanctuary, living in a shared flat.Coming out of prison and having previously been placed in very poor accommodation, she found Lotus Sanctuary to be a refreshing surprise,the type of place she was hoping for but didn't expectto get.
Her previous experience ofresettlement was completely different, being moved around a lot and placed in a poor quality city guest house with a toxic environment of widespread drug use and violence – somewhere she "never should have been put". In contrast, Elaine has appreciated the increased stability and support her home at Lotus has provided, allowing herto feel safe and secure.
The quality of accommodation was a pleasant surprise for Elaine, having her own space and shower, and even a TV. She spoke ofthe flat as "lovely and homely" and highlighted the care that goes into selecting a mix ofresidents with different backgrounds for each flat, which she has found helpful as an ex-drug user.
The city centre location is also highly convenient. Elaine described the support she's received since moving in as 'brilliant', as the Lotus Sanctuary staff held the room for her and foughtfor herto be somewhere that would work for her.
Having a welcoming and stable home has allowed Elaine to startthinking about moving to a single flat(also within Lotus Sanctuary) before living independently, and to feel like she's able to work towards something.
Source: Crisis
Home REIT plc is a real estate investmenttrust(REIT)targeting attractive inflation-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 other regulated organisations thatreceive housing benefit or comparable funding from local or central government, on very long-term and index-linked leases.
The Company is listed on the Official List ofthe Financial Conduct Authority and was admitted to trading on the premium segment ofthe main marketforlisted securities ofthe London Stock Exchange in October 2020.
The Group has effectively executed its investment strategy with the dual objectives of delivering inflation-protected income and capitalreturns underpinned by a portfolio of secure, long-let and index-linked property assets, diversified by sub-sectors within homelessness,tenant and
geography, whilst achieving significant positive social impact.
As at 31 August 2021,the Group's portfolio consisted of 3,846 beds across 711 properties letto 21 tenants. Across the Group's assets,the average net initial purchase yield was 5.85 per cent,the WAULT to first break was 24.3 years and 100 per cent ofthe income was index linked. The portfolio is 100 per centlet 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 ourrobust, long established 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. 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; Homelessness Reduction Act 2017 and Domestic Abuse Act 2021
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 tenants.
While we have a close and engaged relationship with ourtenant partners,the Company 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 per cent 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 cent per annum) on the inflation linked annualrentreviews 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 per cent 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, over 90,000 people have called the charity's free national helpline with 65 per cent of callers already experiencing homelessness or atrisk of becoming homeless, 19 per centrequiring urgent help to find temporary homeless accommodation and 18 per cent seeking help to stay in their current home. In Q1 2021,there were 632 mortgage repossessions and rental evictions, meaning that a household was made homeless every three-and-a-half hours. In Q3 2021, it was reported that 564,000 people are in rent arrears, 190,000 owner-occupied homes are in financial difficulty and 4.3 million people are behind on household bills, drastically highlighting the number of people who are at risk of homelessness as government supports such as furlough end.6
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
6 The Big Issue's urgent plan to stop mass homelessness
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 per cent since 2010, with an estimated 2,688 people sleeping on the streets on a single nightin Q3 2020.7 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 per cent increase on the same period in 2019.8 Rough sleeping in London has risen year-on-year and is continuing to rise despite the Government's 'Everyone In' scheme which provided emergency accommodation during the COVID-19 pandemic. During Q2 2021,rough sleeping increased by 25 per centin London.9
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 per cent of homeless households in England are hidden from view;trapped in insecure,temporary accommodation or moving from sofa to sofa.10 There is no national figure for how many people are homeless in theUK due to the devolved nations' differing recording methods. Many homeless people are not picked up by these recording methods andCrisis estimates that as many as 62 per cent of single homeless people do not show up in official homeless statistics.11
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.12
The Office for National Statistics ("ONS")recently published figures revealing that homeless deaths in England and Wales increased by 7.2 per cent between 2018 and 2019 with 778 homeless people dying on the streets orin temporary accommodation in 2019. This represents a 61.4 per centincrease in deaths among homeless people since the ONS started recording in 2013.13 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.14 Separately,the Museum of Homelessness recently estimated that 976 homeless people died on the streets orin temporary accommodation in theUK in 2020,representing a 37 per centincrease on the number of deaths noted in the same study carried outin 2019.15
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 201916 and there was an 11 per centincrease in the number of people sleeping rough orin temporary accommodation in England from Q2 2016 to Q1 2019.17 In a two-year period,the number of households residing in temporary accommodation in England has increased by 18 per centto exceed 95,000.18
The number of families with dependent children placed in B&B-style accommodation increased from 630 at the end of March 2010 to 1,440 atthe end of Q2 2020.19 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 3,846 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 2019
7 https://www.bigissue.com/news/housing/britains-homelessness-shame-cold-hard-facts/
8 https://www.london.gov.uk/press-releases/assembly/third-more-rough-sleepers-on-londonsstreets#:~:text=Our%20data%20analysis%20found%3A,increase%20from%20two%20 years%20ago
15 https://www.bigissue.com/news/housing/britains-homelessness-shame-cold-hard-facts/
9 https://inews.co.uk/news/uk/homelessness-back-rise-covid-emergency-measures-wear-off-1195138
12 https://www.crisis.org.uk/ending-homelessness/about-homelessness/
13 Office for National Statistics: Deaths of Homeless People in England and Wales: 2019: 14 December 2020
14 Office for National Statistics: Deaths of Homeless People in England and Wales: 2019: 14 December 2020
16 https://england.shelter.org.uk/media/press_releases/articles/a_household_became_homeless_every_4_minutes_in_england_in_the_last_year
Investment Adviser's report — continued
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 per cent ofthose surveyed had a mental health vulnerability, 83 per cent had a physical health need, and 60 per cent had a substance misuse need. Before experiencing rough sleeping, 91 per cent had stayed in a form of short-term homeless accommodation and 71 per cent had sofa surfed.21
Between 2018 and 2019, 11,483 people were released from prison into homelessness and in Q2 2020, an estimated 13 per cent of people released from prison did not have a home to go to.22 In a 2019 paper,the Ministry of Justice estimated thatthe social and economic cost of re-offending is in excess of £18 billion a year.23
41 per cent of single homeless people surveyed by Crisis had previously served a prison sentence24 and data obtained by the Guardian newspaperfrom the Ministry of Justice shows that 66.6 per cent of prisoners who identify as homeless reoffend within a year ofrelease.25 The Institute for Policy Research has estimated that a 20 per centreduction in reoffending could be achieved via the provision of stable housing to a prison leaver.26
Local 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.27Current accommodation for homeless people 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 per cent28 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 per cent.29
The currentlack of purpose-built accommodation for homeless people is felt acutely by local authorities. A research project commissioned by Crisis,reveals thatthe fastest-growing component of homelessness is households living in unsuitable temporary accommodation;the proportion of homeless situations attributable to such accommodation increased 260 per cent between 2010 and 2018.30
30 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
| Homeless Households | Number of households in B&Bs | 10,330 |
|---|---|---|
| at Q3 2020 | Increase since Q3 2011 | 206 per cent |
| Amount spent on B&B accommodation | £410,380,000 | |
| Q1 2019 – Q1 2020 | Proportion of overall spending on temporary accommodation | 34 per cent |
| Q1 2015 – Q1 2020 | Increase in amount spent on B&B accommodation over five years | 123 per cent |
Local Authority spending on Bed & Breakfast and temporary accommodation in England32
This reflects the growing pressure on local authorities as increased demand has faced a static orfalling supply of accommodation. Analysis published by Shelter reveals 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 per cent since 2014.31
Figures released by the Ministry of Housing, Communities & Local Governmentin October 2020 show a further 16 per cent 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 2020.33
The Group's investment properties acquired within the period were independently valued on 31 August 2021 Knight Frank LLP at £328 million,representing an increase of approximately 4.5 per cent 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 105.0 pence as at 31 August 2021, an increase of 7.2 per centfrom the 98.0 pence (net of share issue costs) at the time ofthe Company's IPO in October 2020.
The asset value growth reflects, inter alia:
31 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)
32 Shelter; Homelessness crisis costs councils over £1bn in just one year; 14 November 2019 (updated via UK Government live homelessness statistics; Q1 2021). Source contains full details of Shelter's calculation methods
33 Ministry of Housing, Communities & Local Government: Statutory Homelessness Annual Report 2019-2020, England; 1 October 2020
The headline statistics forthe Period are:
| Contracted rent | ||
|---|---|---|
| Top 10 tenants | Rental exposure | £m |
| Lotus Sanctuary CIC | 12.6% | £2.3 |
| Dawson Housing Limited | 9.5% | £1.7 |
| Big Help Project | 9.2% | £1.7 |
| CG Community Council | 8.3% | £1.5 |
| Circle Housing and | ||
| Support CIC | 7.5% | £1.4 |
| Noble Tree | 7.1% | £1.3 |
| Gen Liv UK CIC | 7.1% | £1.3 |
| One CIC | 6.9% | £1.3 |
| Bloom Social Housing CIC | 6.6% | £1.2 |
| Dovecot and Princess Drive | ||
| Community Association | 6.2% | £1.1 |
| Beds | 3,846 |
|---|---|
| Properties | 711 |
| Average netinitial yield | 5.85% |
| WAULT to first break | 24.3 years |
| Index-linked income or fixed uplifts | 100% |
| Tenants | 21 |
| Sub sectors | 6 |
| Local authority diversification | 81 |
Home REIT fully deployed the net proceeds of its £240 million IPO within five months of listing, acquiring high quality, well located assets with a long WAULT to first break of 24.3 years – one ofthe longestin the real estate sector. The assets have been letto a wide range oftenants with robust financials and a proven longterm operating track record across a diverse range of homeless sub sectors and locations.
100 per cent ofthe Group's assets contain rentreviews linked to CPI inflation thus providing strong inflationprotected income across the Group's portfolio.
As at 31 August 2021:
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 711 properties across 81 local authority areas. The typical building in the portfolio comprises 3 to 4 bed houses or small 7 bed blocks of apartments.
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, including proximity to public transport, layout/suitability and/or reputation 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 oftechniques to secure assets forthe Group at an attractive initial yield, without compromising on the asset quality, security ofincome orlease length, including:
4 bedrooms in Leeds
Victims of domestic violence made homeless last year
Source: Ministry of Housing, Communities and Local Government
Anna has experienced a huge positive difference in her mental health and wellbeing since moving to her Home REIT home – 5 months prior. Before moving in, Anna experienced street homelessness and drug problems. She spoke ofthis time as the lowest point of herlife and herself as 'close to giving up'. Anna initially lived in a shared apartment, before progressing recently to a studio flat. She described her new home and the supportfrom staff as 'life-saving', now feeling safe and at home in her flat, which she spoke of as not only a nice building but also as having allthe amenities needed.
The support Anna has received has been invaluable in helping her health improve. TGE heard that her previous experiences had made it more difficult for herto open up and trust staff, as she felt she had lostthe flow of being around people. Anna has benefitted from the persistence and accessibility of staff and how support has been tailored to meet her needs. She described the staff as 'helping to break her walls down and to trust', and her selfassessment of outcomes has improved from low when initially moving in to 'top ofthe scale'.
Having a stable home and increased mental wellbeing has allowed Anna to reconnect with her family and kids again and startto look forward to transitioning into her own house with her children again once she is ready. The city-centre location has been convenientto see her brother and family locally, who are letting her back into theirlives and proud of her progress. As she didn't finish school, she has been using this time to increase her education and training, with courses in English, Maths and IT as well as soon learning to drive. Anna hopes to start an apprenticeship soon, and is making the most ofthis time to increase her career opportunities before becoming a mother again
Big Help Project
In addition to robusttenants and long, index-linked leases,the Group targets assets underpinned by 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, August 2021) shows an average CPI growth forecast of 2.3 per cent per annum from 2020 to 2025 (see below). The Investment Property Forum UK Consensus Forecasts Report(Summer, 2021) shows an average open marketrental growth forecast of 1.1 per cent per annum from 2021 to 2025 (see below), which is materially lowerthan the above mentioned HM Treasury RPI and CPI growth forecasts.
| Year | Open market rental growth p.a. |
|---|---|
| 2021 | -0.7% |
| 2022 | 1.2% |
| 2023 | 1.6% |
| 2024 | 1.6% |
| 2025 | 1.6% |
| Average growth forecast p.a. | 1.1% |
Source: Investment Property Forum UK Consensus Forecasts (Summer 2021)
| Year | CPI p.a. |
|---|---|
| 2021 | 2.2% |
| 2022 | 2.8% |
| 2023 | 2.2% |
| 2024 | 2.1% |
| 2025 | 2.0% |
| Average growth forecast p.a. | 2.3% |
Source: HM Treasury Forecasts for the UK Economy (Medium term forecasts, August 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 per cent ofthe Company's rental income is linked to CPI. This allows for higherrental 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 cent per annum, for the duration ofthe 12-yearloan term.
This fixed interestrate is 378 basis points lowerthan the Group's average netinitial purchase yield on property acquisitions of 5.85 per cent and this spread is expected to rise to approximately 536 bps by expiry of the 12-yearloan facility (see below). The rate of 2.07 per centis 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 per cent. 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 per cent ofthe Group's gross assets.
As atthe date ofthis report,the Group is in the process of finalising the terms of an additional fixed rate, fixed term, interest only debt £130 million facility with an annuity lender.
In July 2021,the Company instructed The Good Economy Partnership Limited, a leading social advisory firm specialising in impact measurement, management and reporting,to carry outthe first annual independent assessment ofthe Company's performance againstits impact objectives and expected outcomes and to report its findings to the Board (the "Good Economy Report").
See the Company's website (https://www.homereituk.com/) forthe full Good Economy Report.
The Company's impact objectives are to:
| Address the social need of those experiencing homelessness |
Fund high quality homes | Form quality partnerships |
|---|---|---|
| Increase supply of accommodation |
Provide good value for money |
Based on the findings ofthe Good Economy Report,the Board is satisfied thatthe Company has,to date, metits impact objectives as follows:
The Company provides long-term accommodation to address the social need ofthose who are unintentionally homeless or atrisk of homelessness. As at May 2021,the Company's properties provided homes for 3,035 people. Residents include people fleeing domestic violence, in poverty and suffering from mental health issues, as well as prison leavers.
The Company's growth is based on local need, as identified by local authorities and their not-for-profit housing partners. As atthe date ofthe Good Economy Report, 79 per cent. ofthe Company's properties were in the 40 per cent. of local authorities with the highest rates of statutory homelessness in England.
The Company invests in both self-contained flats and Houses of Multiple Occupancy ("HMOs"). However, it willtypically only investin HMOs with fewerthan 10 beds and rejects properties thatit considers too large and not fit-for-purpose. The Company ensures thatits homes are of good quality. As atthe date ofthe Good Economy Report,the Company had invested £18.7 million in repurposing and redeveloping its properties (such costs being included within the purchase price paid).
In addition,the Company ensures that schemes are located centrally. As atthe date ofthe Good Economy Report,the Company's properties were on average 196 metres from the nearesttransport hub.
All ofthe Company's properties meetthe Minimum Level of Energy Efficiency (EPC E). Even so,the Company aims to improve their energy efficiency and plans to improve all EPC E-graded properties within six months of acquisition and will monitor whether this is achieved.
The quality and strength ofthe Company's operating partners is criticalto its positive impact creation. The managementteam ofthe Investment Adviser has assessed the market and decided to partner with and supportthe growth of organisations that have strong local authority support and which welcome the leasing model as a means of expanding their provision of homelessness accommodation.
As atthe date ofthe Good Economy Report,the Company worked with 17 not-for-profit partners. Most ofthese are relatively small organisations and some have scaled up significantly since working with the Company and have now expanded into new locations.
The managementteam ofthe Investment Adviseris fully aware of difficulties that some specialist supported housing organisations encountered after scaling up rapidly using lease-based models and has putin place measures to mitigate this type ofrisk. The Investment Adviser's policies and processes ensure rigorous due diligence and ongoing monitoring and support of partners. Partners provide a minimum ofthree hours of support perresident per week. This aims to help residents'transition into living independently.
All ofthe Company's homes have been newly repurposed as social sector housing and are typically converted from private housing.
The Company has been able to grow by working with dynamic housing partners who have been able to scale up their housing provision significantly since starting partnering with the Company.
The Board believes thatthe Company provides excellent value for money forits housing partners and good value for money forthe taxpayer.
Historically,the Company's housing partners have rented properties at private marketrates before leasing them to local authorities. Since the Company charges at or nearthe Local Housing Allowance (LHA), its housing is significantly more affordable forits partners.
Placing residents in the Company's properties is significantly cheaperforlocal authorities than B&B alternatives. For example, as atthe date ofthe Good Economy Report, in Nottingham,the average rent charged to housing partners was £90 per week per bed, which compared to an average of £225 per week for a B&B.
What matters mostis thatthe Company is helping to improve the lives ofthose who are homeless or atrisk of homelessness. The Good Economy will deepen its assessment of partner organisations and the outcomes experienced by the Company's residents in the next impactreport. To date,the residents that The Good Economy have spoken to were very satisfied with the quality of accommodation and the supportfrom the housing partners is helpful and valued.
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 index-linked property assets leased to robusttenants, while also meeting a critical social need thatis unfortunately ongoing.
We remain confident about continuing to deliver both a tangible 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, our growing pipeline of attractive investments and our expanding partnership base.
8 bedrooms in Sunderland
The Investment Adviser comprises property, legal and finance professionals with significant experience in real estate. The team has capitalised and transacted over £2 billion of commercial and residential property assets with a particularfocus on accessing secure, long-let and index-linked UK real estate through both forward funding and built asset structures.
The core managementteam (whose details are set out below) is supported by a team of other finance, legal, property and compliance professionals and administrative support staff. The key individuals responsible for executing the Company's investment strategy are:
Jamie has significant experience in both public and private real estate markets, specialising in the long income, social housing and forward funding commercial real estate space.
Priorto joining Alvarium, Jamie spent six years in the City of London as a real estate lawyer where he acted forleading developers and property funds on a variety of deals,ranging from large scale residential developments to substantial commercial property transactions.
Jamie co-founded a private social impactreal estate fund in 2018, which has grown to become one ofthe largest social impactfunds in Europe.
Gareth has been active across various disciplines across UK equities and fund management marketfor over 10 years after beginning his career qualifying as a chartered accountant with Ernst & Young.
Having performed as a CFO for both public and private companies Gareth wentinto fund managementin 2014, overseeing the finance function for a newly established social housing private equity fund. Priorto joining Alvarium in 2018, he was a director at a listed social housing fund.
Charlotte is a qualified solicitor with responsibility for managing and implementing transactions. Priorto joining the team, Charlotte trained and practised within the commercialreal estate team at Travers Smith LLP, where she advised property funds, developers and lenders on a range of matters, including commercial and residential development and forward funding, acquisitions and disposal,re-financing and landlord and tenant work
14 bedrooms in Liverpool
Between 2018 and 2019, 11,435 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.
Source: Ministry of Housing, Communities and Local Government
Coming out of care, Esme was sofa-surfing for a year and moving around a lot after being kicked out by her carer. Her experience of her new home has been highly positive. The supportfrom staff has helped her start applying forfurthertraining and jobs. Esme spoke ofthe staff as able to "help me with anything – it's crazy how much they can help", and has appreciated their accessibility. She has started applying forjobs and hopes to work in the care sector.
Esme described her home as a "beautiful place" thatis nice, friendly and clean. The relationships she has built have been importantto her, speaking of the support as "a big family where everyone cares for each other". The other accommodation options offered to her had a very differentfeel, whereas she noted that "people are happy" in her current building. She has been pleased with the progress she has made with her cooking and hopes to move into her own flat or house when she is able.
Lotus Sanctuary
The Company willtargetinflation-protected income and capitalreturns by investing in a diversified portfolio of accommodation for people facing homelessness, 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 willtargetinflation-protected income and capitalreturns by investing in a diversified portfolio of accommodation for people facing homelessness, 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 subsectors within homelessness including, but not limited to, women fleeing domestic violence, 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 rent 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:
The Company may utilise derivative instruments for efficient portfolio management. The Company may engage in full or partial interestrate hedging or otherwise seek to mitigate the risk of interest rate increases as part ofthe Company's portfolio management.
The Company will notinvestin otherinvestmentfunds.
The Company will invest and manage its assets with the objective of spreading risk. In orderto achieve a portfolio thatis diversified by property,tenant and location,the Company will be subjectto the following investmentrestrictions:
The investmentlimits detailed above will apply once the Gross Issue Proceeds are fully invested and will be calculated atthe time of investment.
The Directors are focused on delivering capital growth overthe medium term and intend to reinvest proceeds from future potential disposals in assets in accordance with the Company's investment policy. However, should the Company failto re-investthe proceeds or part
proceeds from any disposal within 12 months ofreceipt ofthe net proceeds,the Directors intend to return those proceeds or part proceeds to shareholders in a tax efficient manner as determined by the Directors from time to time.
Cash held for working capital purposes orreceived by the Company pending reinvestment or distribution will be held in sterling only and invested in cash, cash equivalents, near cash instruments and money market instruments.
The Directors currently intend at alltimes to conduct the affairs ofthe Company so as to enable itto qualify as a REIT forthe purposes of Part 12 ofthe CTA 2010 (and the regulations made thereunder).
The Company will at alltimes invest and manage its assets in a way thatis consistent with its objective of spreading investmentrisk and in accordance with its published investment policy and will not at any time conduct any trading activity which is significantin the context ofthe business ofthe Company as a whole.
The Company will seek to utilise borrowings to enhance equity returns.
The level of borrowing will be on a prudent basis forthe asset class, and will seek to achieve a low cost of funds, whilst maintaining flexibility in the underlying security requirements and the structure ofthe Company.
The Directors intend thatthe Company will maintain a conservative level of aggregate borrowings with a maximum level of aggregate borrowings of 35 per cent. ofthe Company's Gross Asset Value atthe time of drawdown ofthe relevant borrowings.
Debt will be secured atthe assetlevel and potentially atthe Company or SPV level, depending on the optimal structure forthe Company and having consideration to key metrics including lender diversity, debttype and maturity profiles.
In the event of a breach ofthe investment policy and investmentrestrictions set out above,the Directors, upon becoming aware of such breach, will consider whetherthe breach is material, and if itis, notification will be made to a Regulatory Information Service.
No material change will be made to the investment policy withoutthe approval of shareholders by ordinary resolution at a general meeting, which will also be notified by a regulatory information service announcement.
This Environmental, Social and Governance Policy applies to Home REIT plc (the "Company") and all its subsidiary companies (both directly and indirectly held) (together,the "Group").
The Board of Directors,together with the Investment Adviser(together, "we") have a responsibility to conduct the Company's investment business in a socially responsible way and, in managing a social impactfund, we recognise that ourinvestors may have the same values.
We seek to provide shareholders with regular, attractive income,together with capital growth overthe medium term in accordance with the Company's investment policy and objective which this policy does not alter or supersede. This policy documents the Company's commitmentto and process of carrying outinvesting activity atthe lowest possible costto, orindeed to the benefit of,the environment whilstfulfilling the key objective of providing housing for homeless people.
We recognise that ourinvestment activities directly and indirectly impactthe environment. We are committed to managing those environmental impacts in the most effective and responsible manner and seek continuously to improve ourlevel of environmental performance.
Where consistent with the Board's fiduciary responsibilities, we will encourage the Company's tenants to reduce the carbon footprint of assets coming undertheir control by virtue oftheirleases and will explore ways in which the Company can supportits tenants to meetthis objective.
Where appropriate, we engage specialist consultants to evaluate the sustainable characteristics of properties as part of our pre-acquisition due diligence, identifying risks to future financial performance and exploring opportunities to create additional value orto improve environmental performance. We will also endeavour to assess the impact of new acquisitions on the overall environmental performance ofthe Company.
We will not ordinarily acquire buildings thatfall short of our minimum standards unless we are able to demonstrate that affordable improvements can be made. We will not ordinarily acquire buildings, for example, with an Energy Performance Certificate rating of less than D without having an affordable plan in place to improve the rating during the period ofthe Company's ownership.
Where making a forward commitmentto acquire new developments, we will use ourinfluence to encourage the tenant, developer and its contractors to consider sustainability-related issues in the design, construction and fit-out of buildings. We expectthe environmental performance of new developments to exceed the minimum standards laid down by building regulations and planning policy.
We expect all new buildings to have Energy Performance Certificates rated at C or higher and thatthe design will incorporate enhanced insulation, advanced energy efficiency and a suitable range of water-saving features.
Aside from managing assets in an environmentally responsible manner, we see sustainability as both a threat and as an opportunity. There is a risk thatthe future value of some properties may be adversely affected by issues of sustainability. We have systems in place to enable us to monitor and then manage these emerging risks as part of our overall approach to risk management.
Conversely, we believe that some assets may experience a positive change in value as a result ofthe move towards a lower carbon economy and we are always looking for opportunities to create added value through the creation of more sustainable assets when considering asset allocation and stock selection.
Sustainability is considered underthese key headings:
Some ofthese issues may have implications forthe future financial performance ofthe Group. Others relate to "best practice" and socialresponsibility but we would not expectthem to have an impact on the Group's financial performance. Our policy is intended to:
Due to the ever-changing nature of sustainability we will continue to improve and update the relevant criteria that are used within the investment process.
While keeping ourfocus on maximising individual assets' financial performance, we accountfor our sustainability objectives by incorporating them into our business planning and reporting. By integrating such issues into the investment appraisal process we aim to minimise downside risks and capitalise on opportunities for enhancing returns wherever possible.
We assess the likely implications of climate change related government policies on each individual asset and on the overall performance ofthe Group.
We identify properties where there is a risk of losing income from existing tenants through migration to properties with better environmental qualities and quantify the potential impact of lowerthan average tenantretention rates, longer voids and higher costs on projected income returns.
We ensure thatrisks from sustainability-related issues are consistent with our defensive strategy forinvesting and reducing over-exposure to sustainability-related risk, during asset allocation and stock selection decisions and in the day to day management ofthe portfolio.
We identify the cost of improvements that may be required, eitherto protectthe future quality of an asset or as a result of statutory interventions and ensure thatthey are properly reflected in individual asset management plans.
We monitorthe emerging impact of sustainabilityrelated issues on values and will amend performance projections and offers forfuture transactions in the light of hard evidence as it emerges.
Energy is the most significant contributorto CO2 emissions from the built environment and during the building of new forward-funded assets we are committed to promoting reduction of consumption.
The Company does not directly operate or manage its assets. Therefore, we have no direct control overthe way that energy is used by ourtenants and have no ability to improve energy efficiency as responsibility for buildings has been devolved to ourtenants. Despite this, we will engage with ourtenants to encourage the more efficient use of energy and to promote energy efficiency improvements.
Few tenants are obliged to provide details of consumption and large organisations are often unable to identify consumption atindividual buildings where they are part of a large operational estate. Where appropriate, we undertake a high-level assessment of energy efficiency and identify ways in which energy efficiency can be improved. Where analysis suggests that energy savings are proportionate to costs, we invite tenants to undertake a more detailed assessment and identify ways in which energy efficiency can be improved.
We recognise that, afterthe consumption of energy, the most significant source of CO2 emissions is from transport and that assets which are less accessible, based on the criteria set out below, may prove less desirable to occupiers for whom energy costis a consideration and/orto those that share our values.
We considerthe accessibility of all assets as part of our investment due diligence.
There is no common measure of accessibility, but our analysis is based on three factors:
• Car parking: The adequate provision of car parking can be a major contributorto the value of properties. Under-provision, displacing vehicles into neighbouring streets, will have a negative impact on the quality ofthe surrounding area. Over-provision may encourage the unnecessary use of private transport. Buildings which differ +/- 20 per centfrom local standards may be considered "inaccessible".
We recognise that some properties are atrisk of flooding and that, in some locations,the risk of flooding may worsen overtime as a result of climate changerelated issues. In some cases,the risk is notreflected in current market values butthat may change.
We identify which assets are atrisk from flooding and forecastthe extentto which values may be compromised. We can then ensure thatthe exposure of the Group is consistent with our appetite forrisk.
On acquiring new assets, we have regard both to the impact of flood issues on the future performance of each asset and its impact on the overall exposure of the Group to flood-related risks.
We recognise that wateris a scarce commodity in some regions and that, overtime, scarcity is likely to affect an increasing number ofterritories. We consider ourselves to be under an obligation to use all naturalresources, including water,responsibly.
To this end, we promote the use of water-saving measures in buildings devolved to ourtenants. We encourage ourtenants to identify water saving measures that can be achieved atlittle or no cost.
We also have regard to water saving opportunities during the regularrepair,refurbishment and replacement of water-related services.
We supportthe principle of "re-use,recycle,reduce" and its application to waste.
We encourage ourtenants to recycle waste and to reduce waste sentto landfill sites.
We recognise thatthe largestimpact we can make on the environmentis through influencing the behaviour of others – our developers, our service providers and ourtenants.
We ensure all our counterparties are aware of our policy, objectives and targets and thatrelevantindividuals have the knowledge and skills necessary to implement the strategy in their day-to-day roles. We provide appropriate training to our staff.
Through our procurement policies and practices, we encourage our counterparties to minimise the negative impact oftheir operations on the environment.
We engage with ourtenants to encourage the sustainable management of areas undertheir direct control and in the way that common parts and shared services are used. We encourage tenants to make improvements to energy efficiency and, where appropriate, prepare high level "sustainable design guides" fortenants'reference in preparing plans for fit outs and periodic refurbishments.
We identify tenants whose businesses are most influenced by sustainability-related issues and who have the most advanced Environmental Policies and explore ways in which tenants' aspirations to reduce carbon emissions can be supported and encouraged.
The Company is dedicated to fighting homelessness through addressing the severe shortage of suitable housing for homeless people and willtarget investments exclusively in the UK, focussing on the delivery of high-quality homeless accommodation. Each asset will be letto a specialist housing association/ registered charity on fullrepairing and insuring leases and we will not be responsible for any repairing, management or maintenance obligations.
We have identified the major stakeholders in the Company's business and endeavourto considerthe impact of our decisions upon these.
Shareholders: As a public company listed on the London Stock Exchange,the Company is subjectto the Listing Rules and the Disclosure Guidance and Transparency Rules. The Listing Rules include a listing principle that a listed company must ensure thatittreats all holders of the same class of shares that are in the same position equally in respect ofthe rights attaching to such shares. We use our best endeavours to abide by the Listing Rules at alltimes.
Employees: As a real estate investmenttrust,the Company does not have any employees as all its functions are carried out by third party service providers. However,the Company has a Board of Directors comprised of non- executive directors who receive fixed fee remuneration. The Company's Board receive regular market and regulatory updates from its professional advisors such as the Investment Adviser, Broker and Company Secretary and attend seminars where required. Diversity is atthe centre of the Company's recruitment policy and future director recruitment processes willreflectthis.
Tenants: The Investment Adviser performs extensive due diligence before a tenantis selected, and during the tenancy agreement we maintain a constructive relationship. We take into account ourtenants' changing needs and we use our expertise to assistthem in any way within our ability.
Service Providers: A list ofthe Company's key service providers can be found in the Company's Prospectus. The Company conducts all its business through its key service providers. Before the engagement of a service provider, we ensure that our business outlook as well as our values are similar. The Company performs an annual evaluation of all of its key service providers to ensure inter alia that our values remain aligned.
Ourinvesting activities are overseen by the Investment Adviser,the Company's Board of Directors and the Company's AIFM, who work togetherto ensure proper execution of ourinvestment strategy, consistent application of our policies, compliance with our procedures and compliance with local and regional regulatory requirements.
The Company was incorporated and registered in England and Wales as a public company limited by shares. The Company is not authorised orregulated as a collective investment scheme by the FCA, however itis subjectto the Listing Rules and the Disclosure Guidance and Transparency Rules. The principal legislation under which the Company operates is the Companies Act 2006. The Directors intend, at alltimes, to continue to conductthe affairs ofthe Company to enable to continue to qualify as a REIT forthe purposes of Part 12 ofthe CTA 2010 (and the regulations made thereunder).
The Company seeks to comply with the AIC Code of Corporate Governance (the "AIC Code") and willreport on its compliance with the AIC Code each yearin its Annual Report.
Our governance model is designed to manage investmentrisk and operationalrisk.
The Company at alltimes invests and manages its assets in a way thatis consistent with its objective of spreading investmentrisk and in accordance with its published investment policy and will not at any time conduct any trading activity which is significantin the context ofthe business ofthe Company as a whole.
The Investment Adviser endeavours to follow best practice recommendations as established by EPRA and assess operationalrisk on a continuous basis and report regularly to the Company's Board.
9 bedrooms in London
The Investment Adviser has commissioned The Good Economy, a leading social impact advisory firm, specialising in impact measurement, management and reporting to (i) further supportthe Company in developing its impact assessment methodology and (ii) carry out an independentreview ofthe impact performance ofthe Company on an annual basis and publish a report detailing this review.
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 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:
The United Nations Sustainable Development Goals were adopted by all UN Member States in 2015, as part ofthe 2030 Agenda for Sustainable Development. These goals are designed to act as a blueprintto achieve a better and more sustainable future for all.
As part of its investment objective,the Company is committed to contributing (whether directly or indirectly)to the implementation ofthe following goals:
The Company's Investment Adviseris the owner of this policy. It shall be subjectto annualreview. The Investment Adviser, in consultation with the Board of Directors ofthe Company, shall have authority to vary this policy whenever necessary or appropriate.
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 | Results |
|---|---|---|---|
| 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 at the start ofthe period. We are targeting a minimum of 8 per cent per annum over the 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. |
8.9 per cent | Performance ahead of expectations with medium term target of 8 per cent exceeded. |
| 2. Dividend per share Dividends paid to shareholders and proposed in relation to a period. Dividends declared post period end not included. |
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. |
1.66 pence | Performance in line with expectations. Post period end dividend declared of 0.84 pence per share takes total dividend paid in relation to period end of 2.5 pence per share. |
| 3. Adjusted earnings per share Post-tax Adjusted earnings per share attributable to shareholders. Calculation takes into account average shares in issue from listing in October 2020 to period end. |
The Adjusted earnings per share reflects our ability to generate income from our portfolio, which ultimately underpins our dividend payments. |
2.9 pence | Performance ahead of expectations as initial target of 2.5 pence per share exceeded. |
| 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. |
1.41 per cent | Performance in line with expectations with total expense ratio being below 1.5 per cent. |
| 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. |
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| 5. EPRA NTA The value of our assets (based on an independent valuation) less the book value of ourliabilities, attributable to shareholders andcalculatedinaccordance with EPRA guidelines. 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. |
105.0 pence | Performance ahead of expectations with a 7.2 per cent upliftin the period being the reason Total NAV return KPI was exceeded. |
| 6. Pro-forma LTV The proportion of ourtotal assets that is funded by borrowings.Calculated as gross borrowings as proportion oftotal assets adjusted for working capital. Our target maximum LTV is 35 per cent. |
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. |
32.4 per cent | Performance marginally ahead of expectations coming in below 35 per cent. |
| KPI and definition | Relevance to strategy | Performance | Results |
|---|---|---|---|
| 7. Weighted average unexpired lease term The average unexpired lease term ofthe property portfolio weighted by annual passing rents. Ourtarget 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. |
24.3 years | Performance in line with expectations given the shorttimeframe between IPO and period end. |
| 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 per cent | Performance in line with expectations. |
| 9. Homeless beds created This takes into accountthe number of bed spaces created by Home REIT since inception. |
This measures the extent of the impact ourinvestment has on the homelessness issue in the UK. |
3,846 beds | Performance in line with expectations. |
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 21 and 22 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. |
2.9 pence |
| 2. EPRA Net Tangible Assets ("NTA") | Assumes that entities buy and sell assets,thereby crystallising certain levels of unavoidable deferred tax. |
105.0 pence |
| 3. EPRA Net Reinstatement Value ("NRV") | Assumes that entities never sell assets and aims to representthe value required to rebuild the entity. |
111.5 pence |
| 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. |
107.8 pence |
| 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. |
5.32 per cent |
| 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). |
6.4 per cent |
| 7. EPRA Vacancy | A 'pure' (per cent) measure of investment property space thatis vacant, based on ERV. |
0 per cent |
| 8. EPRA Cost Ratio | A key measure to enable meaningful measurement ofthe changes in a company's operating costs. |
27.0 per cent |
This section ofthe Annual Report covers the Board's considerations and activities in discharging their duties under s.172(1) ofthe Companies Act 2006, in promoting the success ofthe Company forthe benefit of members as a whole.
This statementincludes consideration ofthe likely consequences ofthe decisions ofthe Board in the longerterm and how the Board has taken wider stakeholders' needs into account.
The Board has identified the major stakeholders in the Company's business. On an ongoing basis the Board monitors both potential and actual impacts ofthe decisions it makes in respect ofthe Company upon those major stakeholders identified.
The Board believes thattransparent communication with shareholders is important.
As a public company listed on the London Stock Exchange,the Company is subjectto the Listing Rules and the Disclosure Guidance and Transparency Rules. The Listing Rules include a listing principle that a listed company must ensure thatittreats all holders ofthe same class of shares that are in the same position equally in respect ofthe rights attaching to such shares.
The Investment Adviser along with the Company's corporate brokerregularly meets with the Company's shareholders to provide Company updates and to fosterregular dialogue. Feedback from shareholders is reported to the Board on a regular basis.
The Investment Advisor performs extensive due diligence before a tenantis selected, and during the tenancy agreementthey maintain a constructive relationship through ongoing engagement. The Investment Advisortakes into accountthe tenants' changing needs and uses their expertise to assistthem in any way within their ability. On a regular basis the Investment Advisor will meet with tenants to assess performance and stability in addition to analysing operational/financial information provided.
The Group's acquisition strategy is focussed towards new leases being agreed with tenants providing new beds forthe sector. This puts us in a stronger position to generate and fosterrelationships with ourtenants. We also focus on asset managementinitiatives to assist ourtenant partners in achieving the maximum value from the sites that we own and thereby, increasing their strategic importance to the tenants and in doing so increasing the security of our own income.
The Investment Adviser has a fundamentalrole in promoting the long-term success ofthe Company. The Board regularly reviews the performance ofthe investment portfolio at quarterly board meetings and performs a formal annual evaluation ofthe performance ofthe Investment Adviser. This contact enables constructive regular dialogue between the Investment Adviser and the Board.
The board believes that strong relationships with its other key service providers (Company Secretary, Administrator, Depositary and Registrar) are also importantforthe long-term success ofthe Company. There is regular contact between the board and the Company's other key service providers. The Board performs an annualreview ofthe services provided by the Company Secretary, Administrator, Depositary and Registrarto ensure thatthese are in line with the Company's requirements.
5 bedrooms in Exeter
As a real estate investmenttrust,the Company does not have any employees as all of its functions are carried out by third party service providers. However, the Company has a Board of Directors who are nonexecutive. The Company's Board is comprised oftwo male and two female directors. The Company has a policy on diversity which is disclosed in the Governance section ofthis report.
The Group uses conservative leverage to gear shareholderreturns in line with the Company's borrowing policy. The Group works closely with lenders to maintain a constructive relationship through ongoing engagement. The Investment Advisortakes into accountthe terms of its loan agreements when implementing the investment strategy and regularly discusses ongoing initiatives and portfolio matters with its lenders.
As an investorin real estate,the Company's assets have an impact on the built environment. The Company has an ESG policy which is published on the Company's website and is included on pages 26 to 30 ofthis Annual Report.
On 11 December 2020,the Group entered into a new, 12-year, interest only, £120 million (35 per cent LTV) loan agreement with Scottish Widows at an all-in fixed rate of 2.07 per cent per annum, expiring in December 2032. This provides a wide spread (378 basis points) between the current average netinitial property yield of 5.85 per cent and the 2.07 per cent per annum fixed rate. The loan was fully drawn down on 26 February 2021.
Having successfully established a strong and diversified portfolio since its launch, on 31 August 2021,the Company announced thatit would publish a prospectus in connection with the launch of an Open Offer, Initial Placing, Intermediaries Offer and Offerfor Subscription of new ordinary shares in the capital ofthe Company (the "New Ordinary Shares"),together with the implementation of a new 12 month placing programme of New Ordinary Shares (the "Placing Programme"). The Company also announced thatit would publish atthe same time a shareholder circularto convene a general meeting in connection with the proposals (the "General Meeting").
The Board believes thatthe Initial Issue and Placing Programme will have the following benefits forthe Company:
The Prospectus issued in September 2021 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 theCompany. |
| 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 managementteam 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 yields |
| The Company has a limited operating history and targeted returns are based on estimates and |
achieved, debt finance costs/availability, dividends, and total shareholder return. |
| 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 | to that ofthe Company. |
| of proceeds and may not be able to find suitable investments on acceptable terms. |
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's cash flows underpinned by central government support means volatility is keptto a minimum which is further underpinned by 100 per cent ofthe Company's leases being indexed linked with a minimum uplift per annum of 1 per cent. |
| The Company's current LTV is 32.4 per cent(against a maximum target of 35%) giving significant head room in relation to the default LTV banking covenant of 50 per cent. |
| Risk | Mitigation |
|---|---|
| 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 short-term requirements. |
|
| Current conditions and valuation, supported by recenttransactions point to disposals at holding value or betterifrequired. |
|
| 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 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 againstthe Company's investment objective and investor expectations. |
| the Company is to a large extent dependent on the performance ofthe Investment Adviser and its other key service providers. |
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. |
| Risk | Mitigation |
|---|---|
| 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 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 earnings and amounts available for distribution to shareholders. |
The AIFM and the Investment Adviser monitor compliance with the REIT regime. The Group has appointed experienced third-party tax advisers to assist with tax compliance matters with appropriate relevant experience. Calculation of dividends is carried out by the Group's Administrator before review by the AIFM and/orInvestment Adviser. The performance ofthird party service providers is regularly reviewed by the Board. |
| Interestrate risk – returns targeted by the company are predicated on a modestlevel of debt being available on terms that are accretive to shareholderreturns. If debtisn't available it will impactthe ability forthe Company to hittargets. |
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 is repayable in December 2032 and has a fixed all-in rate payable of 2.07 per cent per annum, forthe duration ofthe 12-yearloan term. This long-term facility will provide the Company with stability during periods of interestrate fluctuation. |
| In relation to the new equity raise the Company is final legal due diligence to putin place a fixed rate, interest only facility on terms that will enable the Company to hittargets. This long-term facility will provide the Company with stability during periods of interestrate fluctuation. |
|
| Inflation risk – returns targeted by the Company are intended to broadly track inflation |
100 per cent ofthe Company's rental income is linked to CPI annualrent reviews with caps and collars of 1 per cent and 4 per centrespectively. Rental income willtherefore track inflation up to the 4 per cent cap. |
| In times of deflation the 1 per cent collar will provide continuation of upward only rental growth. |
The Directors ofthe Company have made an assessment ofthe Group's ability to continue as a going concern and are satisfied thatthe Group 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.
In accordance with the AIC Code of Corporate Governance,the Board must assess the prospects ofthe Group over a longer period than the 12 months required by the 'Going Concern' provision.
Five years is considered to be an appropriate period as it is consistent with the Company's long-term investment strategy and is covered by the Group's longerterm financial projections.
The Investment Adviser has considered the sensitivity of the financial projections to a range of key assumptions impacting compliance with secured debt covenants.
The sensitivities performed were designed to be severe but plausible; and to take full account ofthe availability of mitigating actions that could be taken to avoid or reduce the impact or occurrence ofthe underlying risks.
Key assumptions including tenant default, income growth,rising costs and softening valuation yields were sensitised to reflectreasonably likely levels associated with a longerterm economic downturn.
The Group has a fixed rate 12-year debtfacility that runs through the viability period assessed. Leverage is required in relation to the new equity raise for which the Company has begun legal completion. The model has been sensitised to reflectthe effect ofthis facility not being completed, if for whateverreason,this debt offer is withdrawn.
Based on the work performed,the Board has a reasonable expectation thatthe Group will be able to continue in business overthe five year period of its assessment.
The Strategic Report was approved by the Board of Directors.
Chair ofthe Board of Directors
10 November 2021
The Directors presenttheirreportforthe period from incorporation on 19 August 2020 to 31 August 2021.
On 15 February 2021,the Company declared a 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 was paid as an ordinary dividend.
On 20 May 2021,the Company declared a dividend of 0.83 pence per ordinary share, which was paid on 25 June 2021 to shareholders on the register as at 4 June 2021. This dividend was paid as a property income distribution.
On 15 September 2021,the Company declared a dividend of 0.84 pence per ordinary share, which was paid on 22 October 2021 to shareholders on the register as at 24 September 2021. This dividend was paid as a property income distribution.
Therefore,the Company's total dividends in respect of the period ended 31 August 2021 were 2.5p pence per ordinary share.
The names ofthe Directors are set out on page 48, together with their biographical details and other information. The Directors were appointed on 3 September 2020.
The Company maintains Directors' and Officers' liability insurance cover atits expense and on the Directors' behalf.
Alvarium Fund Managers (UK) Limited is the Company's AIFM. The Company and the AIFM have appointed Alvarium Home REIT Advisors Limited as Investment Adviserto provide certain services in relation to the Company and its portfolio. The Management Engagement Committee reportincludes details ofthe remuneration ofthe AIFM and the Investment Adviser. The AIFM is regulated in the conduct of investment business by the FCA. The AIFM is, forthe purposes of the AIFMD and the rules ofthe FCA, a 'full scope' UK alternative investmentfund manager with a Part 4A permission for managing AIFs, such as the Company.
Apex Depositary (UK) Limited has been appointed as Depositary to provide cash monitoring, safekeeping and asset verification and oversightfunctions as prescribed by the AIFMD.
Apex Fund and Corporate Services (UK) Limited has been appointed as the Company Secretary ofthe Company and provides company secretarial and administration services to the Company.
As at 31 August 2021,the Company's issued share capital comprised 240,570,465 ordinary shares, each of 1p nominal value. Each ordinary share held entitles the holderto one vote and there are no restrictions on those voting rights. Voting deadlines are stated in the Notice and Form of Proxy and are in accordance with the Companies Act 2006.
There are no restrictions on the transfer of ordinary shares, nor are there any limitations or specialrights associated with the ordinary shares.
The Company did not purchase any of its ordinary shares during the year, nor did any nominee orthirdparty with the Company's assistance acquire any shares on behalf ofthe Company.
A prospectus and circular were issued by the Company on 2 September 2021 in respect of an Open Offer, Initial Placing, Intermediaries Offer and Offerfor Subscription and Placing Programme and to dis-apply pre-emption rights when allotting those shares. The authority granted underthese resolutions shall expire on 2 September 2022.
At a General Meeting held on 20 September 2021, shareholders approved resolutions to authorise the allotment of shares pursuantto the Open Offer, Initial Placing, Intermediaries Offer and Offerfor Subscription and Placing Programme.
The Company subsequently issued 321,100,917 ordinary shares at an issue price of 109 pence per share on 27 September 2021. The ordinary shares were issued at a premium to net asset value. The Placing Programme is available for use for a period of 12 months from the date of issuance ofthe prospectus. Any new ordinary share issues will be issued at a premium to net asset value.
The issuance of new ordinary shares is entirely atthe discretion ofthe Board, and no expectation orreliance should be placed on such discretion being exercised on any one or more occasions.
The maximum number of ordinary shares which can be admitted to trading on the London Stock Exchange withoutthe publication of a prospectus is 20 per cent ofthe ordinary share capital on a rolling previous 12-month basis atthe time of admission ofthe shares.
Any new ordinary share issues would be issued at a premium to net asset value. The Board believes that there are benefits in the Company having general authority to issue new shares. However, as the Company has the existing authorities detailed above, no additional general authority to issue new shares will be sought at the forthcoming Annual General Meeting ("AGM").
The Companies Act 2006 allows companies to hold shares acquired by way of market purchase as treasury shares,ratherthan having to cancelthem. This gives the Company the ability to re-sell ordinary shares quickly and cost effectively thereby improving liquidity and providing the Company with additional flexibility in the management of its capital base.
No ordinary shares have been bought back since the Company's launch. No ordinary shares will be sold from treasury at a price less than the net asset value per existing ordinary share atthe time oftheir sale.
The Company may seek to address any significant discountto net asset value at which its ordinary shares may be trading by purchasing its own ordinary shares in the market on an ad hoc basis.
The Directors currently have the authority to make market purchases of up to 36,062,262 ordinary shares. The maximum price (exclusive of expenses which may be paid for an ordinary share must not be more than the higher of:
Ordinary shares will only be repurchased at prices below the prevailing net asset value per ordinary share, which should have the effect of increasing the net asset value per ordinary share for other shareholders.
Itis intended that a renewal ofthe authority to make market purchases will be soughtfrom shareholders at each AGM ofthe Company and a resolution to provide authority forthe Company to make market purchases of up to 14.99 per cent ofthe Company's issued ordinary share capital will be putforward atthe Company's forthcoming AGM. Purchases of ordinary shares will be made within guidelines established from time to time by the Board. Any purchase of ordinary shares would be made only out ofthe available uncommitted cash resources ofthe Group.
Ordinary shares repurchased by the Company may be held in treasury or cancelled.
The Directors will have regard to the Company's REIT status when making any repurchase, and purchases of ordinary shares may be made only in accordance with Companies Act 2006,the Listing Rules and the Disclosure Guidance and Transparency Rules.
Investors should note thatthe repurchase of ordinary shares is entirely atthe discretion ofthe Board and no expectation orreliance should be placed on such discretion being exercised on any one or more occasions or as to the proportion of ordinary shares that may be repurchased.
A resolution to renew the Company's authority to purchase its own shares will be putforward for approval atthe Company's forthcoming AGM.
Settlement of ordinary share transactions ordinary Share transactions in the Company are settled by the CREST share settlement system.
As at 31 August 2021,the Directors had been notified ofthe following shareholdings comprising 3 per cent or more ofthe issued share capital ofthe Company:
| Name | Holding at date of notification |
Percentage as at date of notification |
Date of notification |
|---|---|---|---|
| Sarasin & Partners LLP | 16,769,499 | 6.97 | 18 May 2021 |
| LiontrustInvestment Partners | 12,768,339 | 5.31 | 4 January 2021 |
| Newton Investment Management Limited | 20,557,916 | 8.55 | 14 October 2020 |
| Rathbone Investment Management Ltd | 20,466,505 | 8.51 | 13 October 2020 |
| M&G Plc | 15,955,000 | 6.63 | 13 October 2020 |
| Mattioli Woods plc | 8,375,000 | 3.48 | 13 October 2020 |
| J.M. Finn & Co Ltd | 14,851,550 | 6.17 | 13 October 2020 |
Since 31 August 2021,the Directors have been notified ofthe following shareholdings comprising 3 per cent or more ofthe issued share capital ofthe Company:
| Name | Holding at date of notification |
Percentage as at date of notification |
Date of notification |
|---|---|---|---|
| BlackRock, Inc. | 62,001,856 | 11.02 | 29 October 2021 |
| J.M. Finn & Co Ltd | 24,031,160 | 4.28 | 29 September 2021 |
| Newton Investment Management Limited | 23,369,061 | 4.16 | 29 September 2021 |
| M&G Plc | 58,821,833 | 10.47 | 28 September 2021 |
| Rathbone Investment Management Ltd | 37229497 | 6.63 | 28 September 2021 |
The Company has no employees and no share schemes.
The Directors are satisfied that,to the best oftheir knowledge,the Company's principal suppliers comply with the provisions ofthe Modern Slavery Act 2015 and maintain adequate safeguards in keeping with the provisions ofthe Bribery Act 2010 and Criminal Financed Act 2017.
The Group's energy use during the yearis below 40MWh, therefore the Group is exemptfrom reporting underthe Streamlined Energy & Carbon Reporting framework.
The Group uses financial derivatives to hedge its exposure to interestrate risks on its variable rate borrowings.
The Group's financialrisk management objectives and policies are included in the consolidated financial statements.
Company will hold an Annual General Meeting on 27 January 2022 to considerthe resolutions laid out in the Notice of Meeting.
The Board strongly recommend that shareholders do not attend the AGM due to the ongoing unpredictable circumstances caused by the pandemic,though shareholder attendance will not be prevented. There will be no presentation by the Investment Adviser atthe AGM.
Shareholders are strongly encouraged to vote by proxy. Full details ofthe Annual General Meeting,the resolutions proposed and information on how to vote by proxy are described in the Notice of Meeting and supporting explanatory notes.
The Board ask that shareholders who have questions thatthey would have otherwise raised atthe Annual General Meeting, should submitthem by 25 January 2022 to the Company's email address, [email protected]. Answers will be published on the Company's website following the meeting.
BDO LLP has expressed its willingness to continue in office as Independent Auditor and a resolution to reappointthem will be putto shareholders atthe AGM.
Each ofthe Directors atthe date ofthe approval ofthis report confirms that:
This confirmation is given and should be interpreted in accordance with the provisions of Section 418 ofthe Companies Act 2006.
In accordance with Section 489 ofthe Companies Act 2006, a resolution to re-appoint BDO LLP as the Company's Independent Auditor will be putforward at the forthcoming AGM.
By order ofthe Board
Apex Fund and Corporate Services (UK) Limited 10 November 2021
The Board is committed to high standards of corporate governance.
The Board has considered the Principles and Provisions ofthe AIC Code of Corporate Governance (the 'AIC Code'). The AIC Code addresses the Principles and Provisions set outin the UK Corporate Governance Code 2018 (the 'UK Code'), as well as setting out additional Provisions on issues that are of specific relevance to the Company.
The Board considers thatreporting againstthe Principles and Provisions ofthe AIC Code, which has been endorsed by the Financial Reporting Council, provides more relevantinformation to shareholders. The Company has complied with the Principles and Provisions ofthe AIC Code since its listing on the London Stock Exchange on 12 October 2020
The AIC Code is available on the AIC website (www. theaic.co.uk). Itincludes an explanation of how the AIC Code adapts the Principles and Provisions set out in the UK Code to make them relevantfor investment companies.
The Company has complied with the recommendations ofthe AIC Code and the relevant provisions ofthe UK Code, except as set out below.
| The UK Corporate Governance Code includes provisions relating to: | |
|---|---|
| UK Code provision Explanation |
|
|---|---|
| Remuneration of executive directors | As an externally managed investment company,the Board does not include any executive Directors. As such,the UK Code's principles in respect of executive Directors'remuneration are not applicable. |
| The role ofthe chief executive | As an externally managed investment company,the Board does notinclude any executive Directors. As such,the UK Corporate Governance Code's principles in respect ofthe role ofthe chief executive are not applicable. |
| The need for an internal auditfunction | As explained in the Report ofthe Audit Committee,this is not considered to be appropriate given the nature and circumstances of the Company. The Audit Committee keeps the needs for an internal function under periodic review. |
The Company is an externally managed investment company. Allthe Company's day-to-day management and administrative functions are outsourced to third parties. Forthe reasons set outin the AIC Code,the Board considers these provisions are notrelevantto the position ofthe Company, being an externally managed investment company and the Company does not therefore comply with them.
The Board is responsible forthe effective stewardship ofthe Company's affairs. Investment policy and strategy are determined by the Board. Itis also responsible forthe borrowing policy, dividend policy, public documents such as the reports and financial statements and corporate governance matters. In orderto enable them to discharge theirresponsibilities, the Board has full and timely access to relevant information. A formal schedule of matters reserved to the Board has been adopted. Simon Moore is the Senior Independent Director.
The biographies ofthe Directors are set out on page 48.
Atthe date ofthis report,the Board consists of four non-executive Directors including the Chairman, of whom two are male and two are female. All Directors have served since their appointment on 3 September 2021.
The Board believes that during the period ended 31 August 2021 its composition was appropriate for an investment company ofthe Company's nature and size. All ofthe Directors are independent ofthe Investment Adviser and AIFM. All ofthe Directors are able to allocate sufficienttime to the Company to discharge theirresponsibilities effectively.
The Directors have a broad range ofrelevant experience to meetthe Company's requirements and their biographies are given in The Board of Directors section ofthis Annual Report. The Board recognises the benefits to the Company of having longer serving Directors together with progressive refreshment ofthe Board in line with corporate governance best practice. There is no fixed policy regarding tenure of directorships. The Board is in the process of developing a succession plan.
In accordance with the AIC Code, allthe Directors will retire and offerthemselves forre-election atthe AGM ofthe Company to be held on 27 January 2022. The Board recommends allthe Directors forre-election for the reasons highlighted above and in the performance appraisal section ofthis report.
The Directors have appointmentletters which do not provide for any specific term. Copies ofthe Directors' appointmentletters are available on requestfrom the Company Secretary. Upon joining the Board, any new Directorreceives an induction and relevanttraining is available to Directors on an ongoing basis.
A procedure has been adopted for Directors, in the furtherance oftheir duties,to take independent professional advice atthe expense ofthe Company. All Directors have access to the advice ofthe Company Secretary on an ongoing basis.
A policy of insurance against Directors' and officers' liabilities is maintained by the Company.
The Company has established an Audit Committee which is chaired by Marlene Wood and consists of all the Directors. The Board considers thatthe members ofthe Audit Committee have the requisite skills and experience to fulfilthe responsibilities ofthe Audit Committee. A report ofthe Audit Committee is included in this Annual Report. The Audit Committee examine the effectiveness ofthe Company's risk management and internal control systems and reviews the Interim Report and the Annual Report. It also reviews the scope,results, cost effectiveness,
independence, and objectivity ofthe Independent Auditor. During the year, four Audit Committee meetings were held.
The Management Engagement Committee's principal duties are to considerthe terms of appointment of the Investment Adviser and the AIFM and it annually reviews those appointments and the main terms ofthe Investment Management Agreement and the Investment Advisory Agreement. In addition, the Management Engagement Committee reviews the performance and fees payable to the other key service providers to the Company and makes recommendations to the Board regarding those fees. During the year one Management Engagement Committee meeting was held.
The Company has established a Nomination Committee which is chaired by Lynne Fennah and consists of all ofthe Directors. The Nomination Committee has been established forthe purpose ofreviewing the Company's succession plan and identifying and nominating candidates forthe office of director ofthe Company. The Nomination Committee considers job specifications and assesses whether candidates have the necessary skills and time available to devote to the role and is mindful ofthe need and significant benefit of diversity. During the year, one Nomination Committee meeting was held.
Each Committee has adopted formalterms of reference, which are reviewed atleast annually, and copies ofthese are available on the Company's website or on requestfrom the Company Secretary.
During the period from the Company's listing on 12 October 2020 to 31 August 2021,the Directors attended the following meetings.
| Board | Audit Committee |
Management Engagement Committee |
Nomination Committee |
|
|---|---|---|---|---|
| Number of formal meetings held | 10 | 4 | 1 | 1 |
| Lynne Fennah | 10 | 4 | 1 | 1 |
| Peter Cardwell | 10 | 4 | 1 | 1 |
| Simon Moore | 10 | 4 | 1 | 1 |
| Marlene Wood | 10 | 4 | 1 | 1 |
In addition to the above there were two ad hoc committee meetings to deal with approval of documentation and administrative matters.
The Directors have declared any conflicts or potential conflict of interestto the Board which has the authority to approve such situations. The Company Secretary maintains the Register of Directors' Conflicts of
Interests which is reviewed at each quarterly board meeting and when changes are notified. The Directors advise the Company Secretary and Board as soon as they become aware of any conflicts of interest. Directors who have conflicts of interest do nottake part in discussions which relate to any oftheir conflicts.
Itis the responsibility of each individual Directorto avoid an unauthorised conflict arising. Directors must request authorisation from the Board as soon as they become aware ofthe possibility that a conflict may arise. The Board is responsible for considering Directors'requests for authorisation of conflicts and for deciding whether or notthe relevant conflict should be authorised. When the Board is deciding whetherto authorise a conflict or potential conflict, only Directors who have no interestin the matter being considered are able to participate in the relevant decision, and in taking the decision the Directors must actin a way they consider, in good faith, will be mostlikely to promote the Company's success. The Board are able to impose limits or conditions when giving authorisation ifthey think this is appropriate in the circumstances. The Directors must also comply with the statutory rules requiring company directors to declare any interestin an actual or proposed transaction or arrangement with the Company.
A formal annual performance appraisal process is performed on the Board,the committees,the individual Directors and the Company's main service providers on an annual basis.
A Board evaluation has been completed priorto the publication ofthis Annual Report. The evaluation was performed by the Nomination Committee. The results ofthe evaluation were reviewed by the Chairman and discussed with the Board. An evaluation ofthe Chairman was also performed. The results ofthe evaluation were reviewed by the SeniorIndependent Director and discussed with the Chairman. The conclusions from the board evaluation demonstrated thatthe Directors and the Chairman showed the necessary commitmentfor effective fulfilment of their duties.
A review ofthe Company's key service providers has been undertaken. The review comprised open and closed ended questions. Following the review process, the Board agreed thatthe performance and fees of each service provider was satisfactory and thatit was in the Company's bestinterestthatthe engagement of each service providers continues forthe foreseeable future.
The Board's policy is based on its beliefthatthe Board should have a diverse range of experience, skills and backgrounds. When making recommendations for new appointments to the Board and planning for Board succession,the Nomination Committee will take into consideration the recommendations ofthe AIC Code and other guidance on boardroom diversity and inclusion.
The Board currently comprises two female and two male Directors.
The AIC Code requires the Board to review the effectiveness ofthe Company's system of internal controls. The Board recognises its ultimate responsibility forthe Company's system of internal controls and for monitoring its effectiveness. The system of internal controls is designed to manage ratherthan eliminate the risk of failure to achieve business objectives. It can provide only reasonable assurance against material misstatement orloss. The Board has undertaken a review ofthe Company's internal controls framework. The Board believes that the existing arrangements present an appropriate framework to meetthe internal controlrequirements. By these procedures the Directors have kept under review the effectiveness ofthe internal control system throughoutthe year and up to the date ofthis report.
The risk managementframework established by the Board has been designed to identify, evaluate and mitigate the significantrisks faced by the Company. A risk managementframework can only provide reasonable, not absolute, assurance. The Board has contractually delegated the management of the investment portfolio,the registration services, administrative services and other services to third party service providers and reliance is therefore placed on the internal controls ofthose service providers. A formal risk assessmentis performed on atleast an annual basis which includes the use of a detailed risk assessment programme. The principalrisks identified and the mitigation ofthose risks are disclosed in the Strategic Reportin this Annual Report.
The Board's risk appetite is low. This is aligned with the Company's investment objective and policy for which the Board has ultimate responsibility. The full investment objective and policy is included in the Strategic Reportin this Annual Report.
The Directors are responsible forthe internal financial control systems ofthe Company and forreviewing their effectiveness.
These controls aim to ensure the maintenance of proper accounting records,the reliability ofthe financial information upon which business decisions are taken,reports are published and the assets ofthe Company are safeguarded. As stated above,the Board has contractually delegated to external agencies the services the Company requires, butitis fully informed of the internal control framework established by the AIFM, the Investment Adviser,the Administrator and the Company's Depositary to provide reasonable assurance
on the effectiveness of internal financial controls.
The key procedures include review of management accounts, monitoring of performance at quarterly Board meetings, segregation ofthe administrative function from investment management, maintenance of appropriate insurance and adherence to physical and computer security procedures.
The Board holds quarterly meetings, plus additional meetings as required. Between these meetings there is regular contact with the AIFM,the Investment Adviser, the Company Secretary and the Administrator.
The Company's key service providers reportto the Board on operational and compliance issues. The AIFM provides reports to the Board, which are reviewed atthe quarterly Board meetings.
The Administrator provides management accounts to the Board, which enables the Board to assess the financial position ofthe Company. Additional ad hoc reports are received as required and Directors have access at alltimes to the advice and services ofthe Company Secretary, which is responsible to the Board for ensuring that Board procedures are followed.
This contact with the key service providers enables the Board to monitorthe Company's progress towards its objectives and encompasses an analysis ofthe risks involved. The effectiveness ofthe Company's risk management and internal controls systems is monitored and a formalreview, utilising a detailed risk assessment programme, has been completed. This has included consideration ofthe Administrator's and the Registrar's internal controls report. There are no significant findings to reportfrom the review.
The Directors confirm thatthey have carried out a robust assessment ofthe principal and emerging risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. The principalrisks and how they are being managed is set outin the Strategic Report. As part of its risk process,the Board seeks to identify emerging risks to ensure thatthey are effectively managed as they develop and recorded in the risk matrix.
The Board and the Investment Adviser continues to develop relationships with shareholders through regular updates to the market, including the publication of quarterly fact sheets. At Board meetings,regular investorfeedback is provided by the Investment Adviser and the Broker and the views of existing or potential shareholders aboutthe Company are discussed.
If any shareholder wishes to contactthe Chairman directly,they should contactthe Company Secretary whose details are given in the Company Information.
Atleasttwenty-one days' notice shall be given to all the members and to the Independent Auditor. All other general meetings shall also be convened by notless than twenty-one days' notice to allthose members and to the Independent Auditor unless the Company offers members an electronic voting facility and a special resolution reducing the period of notice to notless than fourteen days has been passed, in which case a general meeting may be convened by notless than fourteen days' notice in writing.
A specialresolution will be proposed atthe AGM to reduce the period of notice for general meetings other than the Annual General Meeting to notless than fourteen days.
The Notice sets outthe business ofthe AGM and any item not of an entirely routine nature is explained in this Annual Report.
Separate resolutions are proposed for each substantive issue. The Company's AGM will be held on 27 January 2022.
Relations with other stakeholders are described in the s.172 statement on page 34.
The Directors are responsible forthe determination ofthe Company's investment policy and have overall responsibility forthe Company's activities, including the review of investment activity and performance and the control and supervision ofthe Company's service providers. Allthe Directors are non-executive and are independent ofthe AIFM and the Investment Adviser.
Lynne joined Empiric Student Property plc in June 2017 and holds the position of Chief Financial and Operating Officer. During hertenure at Empiric, she has overseen all financial and taxation matters and has led on the operationaltransformation ofthe business including an extensive in-sourcing program. Lynne is also Vice Chair ofthe Student Accommodation Committee ofthe British Property Federation. In 2012, Lynne joined Palmer Capital, an FCA authorised real estate investment management company, as CFO with responsibility for overseeing the company's financial and taxation matters. Lynne became European CFO forthe Toga Group in 2008, with responsibility forthe development of hotels and management of commercial property investments. Lynne joined The Goodwood Estate being promoted to Finance and IT Director in 2005, a board position with responsibility forthe finances of all group companies across a portfolio of primarily hospitality focused operations. In 1995, Lynne joined American Express and during hertenure held positions in corporate audit and travel business reporting, both roles covering the EMEA region, and a globally focused process re-engineering projectrole. After obtaining a degree in finance at Liverpool John Moores University, Lynne joined Moore Stephens and qualified as a Chartered Accountant, where she covered all aspects of general practice with a particularfocus on audit.
Marlene Wood is a chartered accountant with a broad range of experience in both the private and public sectors and is currently a non-executive director and chair ofthe audit committee of GCP Student Living plc and RM Infrastructure Income PLC and a non-executive director of RM ZDP PLC. Until 2019, she was deputy chair and chair ofthe finance committee ofthe Scottish Funding Council for Further and Higher Education. She spent 20 years with the Miller Group, a major UK property business, predominantly as finance director for Miller Developments,the property development and investment arm, and latterly as group accounting and treasury director. Ms Wood is currently non-executive director and treasurerfor One Parent Families Scotland.
Peter Cardwell served as a Special Adviserin the UK governmentfrom 2016 to 2020. He worked forfour Cabinet ministers in four departments:the Northern Ireland Office;the Home Office;the Ministry of Housing, Communities & Local Government; and the Ministry of Justice. Atthe Ministry of Housing, he advised Housing Secretary Rt Hon James Brokenshire MP on homelessness. Rough sleeping dropped by two per cent and then nine per cent annually as a result ofthe policies on which Peter advised. Peter also undertook outreach shifts with sector charities whilst advising on homelessness, and had frequentinteractions with organisations such as Shelter, Thames Reach and Crisis.
After being educated in Northern Ireland, Peter studied at St Hugh's College, Oxford, before winning a Fulbright Scholarship to Columbia School of Journalism, New York. Now Political Editor and presenter at Talk Radio, he has worked forthe BBC in London, Washington DC, New York and Belfast, as well as for Sky News, Channel 5 News, UTV and ITV.
He lives in London and Richhill, County Armagh.
Simon Moore has over 30 years' experience in the UK financial sectorincluding at NatWest Bank, Williams de Broë, Teather & Greenwood and Collins Stewart. He was SeniorInvestment Manager at Seven Investment Management and Head of Research at Tilney Bestinvest.
Simon is a long standing member oftwo important committees atthe Association of Investment Companies:the Statistics Committee and the Property and Infrastructure Forum (he is Chairman ofthe latter). He has been a Director of Athelney Trust(LSE:ATY) since 2015.
He has a Biochemistry BSc from Imperial College and an MSc in Computer Modelling of Molecules from Birkbeck College. He is a member ofthe UK Society of Investment Professionals and the CFA Institute.
The AIC Code recommends that Boards should establish Audit Committees consisting of atleastthree, orin the case of smaller companies,two independent non-executive directors. The Board is required to satisfy itselfthatthe Audit Committee has recent and relevant experience.
The role ofthe Audit Committee is to ensure that the Company maintains the highest standards of integrity in financialreporting,risk management and internal controls. The role and responsibility ofthe Audit Committee is set outin formal, written terms of reference covering certain matters in line with the AIC Code. Copies ofthe terms ofreference are available from the Company Secretary.
The Audit Committee meets formally atleasttwice a yearforthe purpose of performing its main roles and of considering the appointment, independence and objectivity, and remuneration ofthe Independent Auditor and to review the annual accounts, half-yearly financialreport and the audit plan forthe financial year.
The Audit Committee also reviews the Company's internal financial controls and its internal control and risk management systems. Where non-audit services are provided by the Independent Auditor, full consideration ofthe financial and otherimplications on the independence ofthe Independent Auditor arising from any such engagement are considered before proceeding. The Audit Committee has considered the non-audit work ofthe Independent Auditor during the period and does not considerthatthis compromises its independence.
The Company complies with the AIC Code. The following points apply to the particular circumstances ofthe Company:
The Audit Committee periodically reviews the need for an internal auditfunction and considers thatthis is not appropriate given the nature and circumstances ofthe Company. The Audit Committee keeps the needs for an internal auditfunction under periodic review.
The Chairman ofthe Company is a member ofthe Audit Committee. The Board and the Audit Committee believe thatthis is appropriate as the Board's Chairman has recent and relevant financial experience and she remains independent.
All ofthe Directors ofthe Company are members ofthe Audit Committee. The Chairman ofthe Committee is Marlene Wood.
The members ofthe Audit Committee have recent and relevant financial experience. The Audit Committee membership includes individuals with substantial experience ofthe financial matters of listed companies and substantial experience ofthe property sector as described in detail in the Board of Directors section. This blend of skills and experience enables the Audit Committee to fulfil its responsibilities effectively.
During the period underreview four Audit Committee meetings were held.
During the period,theAuditCommittee carriedoutits responsibilities in accordancewith the termsofreference.
| Item | Activities |
|---|---|
| Financial statements | The Audit Committee has met with the Independent Auditor and reviewed the Annual Reportin orderto advise the Board on the contents. In particularthe Audit Committee has advised the Board thattaken as a whole,the Annual Reportis fair and balanced and provides the information necessary for shareholders to assess the Company's performance, business model, strategy and going concern statement. The Audit Committee has recommended the approval ofthe Annual Reportto the Board. |
| Valuations | The Audit Committee has reviewed both the interim and full year valuation reports from BDO and recommended to the Board the valuations to be included in both the Interim and Annual Report. In doing so,the Audit Committee has monitored the effectiveness ofthe Company's valuation policies and methods. |
| Internal control | The Audit Committee has reviewed the Company's internal control framework. |
The Audit Committee monitors the integrity of the financial information published in the Interim and Annual Report and considers whether suitable and appropriate judgments in respect of areas which could have a material impact on the financial statements, have been made. It actively engages with the Independent Auditorto assess these significant judgments and the systems and processes in place to form these judgements. The Audit Committee considered the valuation of investment property to be a significant area of judgment which could materially impactthe financial statements forthe period ended 31 August 2021.
The valuation of investment property is the most material matterin the production ofthe financial statements. Knight Frank LLP has been appointed to value the Company's property investments in accordance with the RICS requirements on a bi-annual basis. The Audit Committee reviewed a copy ofthe valuation once it had been completed and has received a detailed reportfrom the Independent Valuer. The Audit Committee has reviewed the assumptions underlying the property valuations and concluded thatthe valuation atthe Company's period end is appropriate.
BDO LLP was selected as the Company's Independent Auditor atthe time ofthe Company's launch following a formaltender process and review ofthe Independent Auditor's credentials. The appointment ofthe Independent Auditoris reviewed annually by the Audit Committee and the Board and is subjectto approval by shareholders. In accordance with the FRC guidance,the audit will be put outto tender within ten years ofthe
The Audit Committee is responsible forreviewing the effectiveness ofthe external audit process. The Audit Committee received a presentation ofthe audit plan from the Independent Auditorin respect ofthe year underreview and a presentation ofthe results ofthe auditfollowing completion ofthe main audittesting.
The Audit Committee performed a review ofthe Independent Auditorfollowing the presentation ofthe results ofthe audit. The review included a discussion ofthe audit process and the ability ofthe Independent Auditorto fulfil its role. Following the above review,the Audit Committee has agreed thatthe re-appointment ofthe Independent Auditor should be recommended to the Board and the shareholders ofthe Company.
During the year,the Audit Committee met key members ofthe senior auditteam and BDO LLP formally confirmed its independence, as part ofthe annualreporting process. The Audit Committee liaises regularly with the lead audit partner,to discuss any issues arising from the audit as well as its cost effectiveness.
The Audit Committee has put a policy in place on the supply of any non-audit services provided by the Independent Auditor.
Such services are considered on a case-by-case basis and may only be provided to the Company if the provision of such services is at a reasonable and competitive cost and does not constitute a conflict of interest or potential conflict of interest which would preventthe Independent Auditorfrom remaining objective and independent.
BDO LLP was paid fees in respect ofthe following non-audit services in the year:
| Non-audit service provided | Rationale for using the Independent Auditor | Fee |
|---|---|---|
| Initial Accounts | Detailed knowledge and understanding ofthe business is required to adequately perform an audit of Initial Accounts prepared in accordance with section 839 Companies Act 2006. It is standard market practice to use the Independent Auditor for this service. |
£42,000 |
| Interim Review | Detailed knowledge and understanding ofthe business is required to adequately perform an interim review ofthe half-yearly report. Itis standard market practice to use the Independent Auditorforthis service. |
£30,000 |
| Reporting accountant services re: the Company's London Stock Exchange admission |
Non-recurring service provided priorto the Company's commencement of operations. The work was performed by a team independent ofthe auditteam. |
£90,000 |
| Reporting accountant services re: the Company's prospectus and share issuance in September 2021 |
Non-recurring service provided forthe Company's prospectus and share issuance in September 2021. The work was performed by a team independent ofthe auditteam. |
£78,000 |
The independence ofthe Independent Auditor was considered priorto the provision ofthese services. The Committee periodically monitors the ratio of non-audit to audit services to ensure that any fees for permissible non-audit services do not exceed 70 per cent ofthe average auditfees paid in the lastthree years.
The Audit Committee do not believe thatthe provision ofthe above services affects the independence of BDO LLP.
The Audit Committee has concluded thatthe Annual Reportforthe period ended 31 August 2021,taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's business model, strategy and performance. The Audit Committee has reported its conclusions to the Board of Directors. The Audit Committee reached this conclusion through a process ofreview ofthe document and enquiries to the various parties involved in the production ofthe Annual Report.
Chair ofthe Audit Committee
10 November 2021
5 bedrooms in Brighton
The Management Engagement Committee meets formally atleast once a yearforthe purpose, amongst otherthings, ofreviewing the performance ofthe Investment Adviser,the AIFM and the Company's other key service providers overthe year and to make appropriate recommendations to the Board. The Chairman ofthe Committee is Simon Moore.
Forthe purposes ofthis report,the key service providers whose performance is reviewed by the Management EngagementCommittee are those listed in the Directors' Report as Principal Professional Advisers.
The Management Engagement Committee has conducted a comprehensive review ofthe performance ofthe AIFM,the Investment Adviser and the Company's other key service providers. This has included an assessment ofthe services provided as well as the fees paid forthe provision of such services.
There has been one Management Engagement Committee meeting in the year. Attendance is included in the Directors'report.
The Company has appointed Alvarium Fund Managers (UK) Limited as the Alternative Investment Fund Manager(the "AIFM"). The Company and the AIFM have appointed Alvarium Home REIT Advisors Limited (the "Investment Adviser")to provide certain services in relation to the Company and its portfolio.
The Board has delegated the day-to-day running ofthe Company to the Investment Adviser pursuantto the terms ofthe Investment Advisory Agreement.
Underthe terms ofthe Investment Advisory Agreement,the Investment Adviser, amongst otherthings, is responsible for sourcing investment opportunities in line with the Company's Investment Policy,the monitoring and management ofthe Company's portfolio and negotiation and supervision of the Company's borrowing facilities.
The Investment Adviser has diligently invested available funds during the year, in line with the Company's investment policy,to build a diverse portfolio of highquality assets that should provide growing and secure returns to the Company's shareholders. Details of the Investment Adviser's activity and the Company's performance in the year have been included in the Strategic Report.
The collective skillset ofthe Investment Adviser's team contains allthe necessary skills and experience to best serve the interests ofthe shareholders in performing its delegated responsibilities.
have the suitable skills and experience tomanage the Company's investments and believe thatthe continuing appointmentofthe InvestmentAdviser and theAIFMis in the bestinterestsof shareholders as a whole.
In addition, following ourreview and analysis, we have concluded thatthe performance of allthe Company's key service providers has been satisfactory and recommend that each be retained untilthe nextreview.
No performance fee is payable to the AIFM. Underthe terms ofthe Investment Advisory Agreement,the Investment Adviseris entitled to a fee payable monthly in arrears calculated as below:
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:
No performance fee is payable to the InvestmentAdviser.
The Management Engagement Committee reviews the performance and appointment ofthe Investment Adviser and the AIFM on atleast an annual basis to ensure thattheir continuing appointments are in the bestinterest ofthe Company's shareholders. Following the review process the Board agreed that the performance and fees of each service provider was satisfactory and thatit was in the Company's bestinterestthatthe engagement ofthe Investment Adviser and the AIFM continue.
A review ofthe Company's key service providers has been undertaken. The review comprised open and closed ended questions and included a review of the quality oftheir services and fees to ensure they remained competitive and a review of each service provider's policies and procedures to ensure that each service provider had adequate controls and procedures in place. Following the review process the Board agreed thatthe performance and fees of each service provider was satisfactory.
Chairman ofthe Management Engagement Committee
10 November 2021
In accordance with the requirements of Schedule 8 of the Large and Medium Sized Companies and Groups (Accounts and Reports) Regulations 2008, as amended, (the Regulations), itis proposed to table an ordinary resolution to approve the Directors' Remuneration Policy, as set outin this Section, atthe Company's AGM to be held on 27 January 2022. The provisions set outin this policy shall continue untilthey are next putforward for shareholder approval. The remuneration policy must be putforward for shareholder approval at a maximum interval ofthree years. In the event of any proposed material variation to the policy, shareholder approval will be soughtforthe proposed new policy priorto its implementation. If approved by shareholders,the remuneration policy willremain in force untilthe Annual General Meeting ofthe Company in 2025, at which time a furtherresolution will be proposed.
Current and future policy
The Directors' fees are determined within the limits set outin the Company's Articles of Association and they are not eligible for bonuses, pension benefits, share benefits share options, long-term incentive schemes or other benefits.
The Directors' fees are paid at fixed annualrates and do not have any variable or performance related elements. The Board may determine that additionalremuneration may be paid, from time to time,to any one or more Directors in the event such Director or Directors are requested by the Board to perform extra or special services on behalf ofthe Company.
The non-executive Directors shall be entitled to fees at such rates as determined by the Board subjectto the maximum aggregate fee limit of £500,000 set outin the Company's Articles of Association.
The Directors shall also be entitled to be reimbursed for all expenses incurred in performance oftheir duties. These expenses are unlikely to be of a significant amount. Fees are payable from the date of appointment as a Director ofthe Company and cease on date of termination of appointment.
The Board will not pay any incentive fees to any person to encourage them to become a Director ofthe Company. The Board may, however, pay fees to external agencies to assistthe Board in the search and selection of Directors.
| Component | Director | Purpose ofreward | Operation |
|---|---|---|---|
| Annual fee | Chair of Board | Fees for services as chair of a plc |
Determined by the Board |
| Annual fee | Other Directors | Fees for services as non executive directors of a plc |
Determined by the Board |
| Additional fee | Chair of Audit Committee | For additionalresponsibilities and time commitment |
Determined by the Board |
| Expenses | All Directors | Reimbursement of expenses incurred in the performance of duties |
Submission of appropriate supporting documentation |
No Directoris involved in setting their own remuneration and the Company's conflict of interest policy and procedures (see page 45) apply to the Board when undertaking their duties.
The company has no employees. Therefore,the process of consulting with employees on the setting of the remuneration policy is not applicable.
The Directors'remuneration will be reviewed on an annual basis by the Board and any changes are subject to approval by the Board. The Board agreed notto increase theirfees during the year.
The remuneration payable to the Directors willtake into account a number of factors, inter alia,the experience ofthe Directors,the complexity ofthe Company and prevailing marketrates forthe real estate investment trust sector.
The Directors do not have service contracts with the Company.
The Directors are not entitled to compensation on loss of office. The Directors have appointmentletters which do not provide for any specific term. However, in accordance with the AIC Code,they are subjectto annualre-election.
The Company is committed to ongoing shareholder dialogue and takes an active interestin voting outcomes. Ifthere are substantial votes against resolutions in relation to Directors'remuneration, the Company will seek the reasons for any such vote and will detail any resulting actions in the next Directors' remuneration report.
The above remuneration policy will be putto shareholders atthe forthcoming Annual General Meeting and, if passed, will be effective from that date.
As this will be the first AGM at which the remuneration policy and report will be putforward for shareholder approval,there is nothing to reportin this Annual Reportin respect of voting on remuneration matters.
The Directors'remuneration report will be putforward for shareholder approval atthe AGM to be held on 27 January 2022.
As the Board consists only of four non-executive Directors, it does not considerit necessary to establish a separate remuneration committee. The Board as a whole considerthe pay awards forthe Directors.
TheCompany currently has four non-executiveDirectors.
The rates of Directors'remuneration can be found below:
| Role | Remuneration (£) |
|---|---|
| Chair | 50,000 |
| Director | 36,000 |
| Audit Committee Chair additional fee | 5,000 |
The Board's fees are fixed with no variable element. The Board believes thatthis fee structure appropriately reflects the prevailing marketrates forthe Company's complexity and size and will also enable the Company to attract appropriately experienced additional Directors in the future.
The following graph compares, since IPO,the total shareholderreturn ofthe Company's ordinary shares relative to a return on a hypothetical holding over the same period in the FTSE EPRA/ NAREIT UK Index and the FTSE All share Index. These indices have been chosen by the Board as the most appropriate to compare the Company's performance.
Total shareholderreturn is the measure ofreturns provided by a company to shareholders reflecting share price movements and assuming reinvestment of dividends.
There are no othertaxable benefits payable by the Company otherthan certain expenses which may be deemed to be taxable. None ofthe above fees was paid to third parties.
A non-binding ordinary resolution to approve the Directors' Remuneration Report contained in the Annual Reportforthe year ended August 2021 will be putforward for approval atthe Company's AGM to be held on 27 January 2022.
| Directors | Date of appointment to the board |
Fixed fees for the period ended 31 August 2021 £ |
|---|---|---|
| Lynne Fennah | 3 September 2020 | 44,551 |
| Peter Cardwell | 3 September 2020 | 32,077 |
| Simon Moore | 3 September 2020 | 32,077 |
| Marlene Wood | 3 September 2020 | 36,532 |
The following table sets outthe total level of Directors' remuneration compared to the distributions to shareholders by way of dividends, and the management fees and other expenses incurred by the Company.
| Period ended 31 August 2021 £'000 |
|
|---|---|
| Directors' fees | 145 |
| Investment Adviser's Fee | 1,828 |
| Dividends Paid and Proposed | 6,014 |
The Directors had the following shareholdings in the Company all of which are beneficially owned.
| Directors | Ordinary shares as at 31 August 2021 |
|---|---|
| Lynne Fennah | 50,000 |
| Peter Cardwell | 10,000 |
| Simon Moore | 36,000 |
| Marlene Wood | 20,000 |
The shareholdings ofthe Directors are not significant and therefore do not compromise theirindependence as non-executive directors.
The law requires the Company's Independent Auditor to audit certain disclosures provided in the annual report on remuneration. Where disclosures are audited they are indicated as such. The Independent Auditor's opinion is given in the Independent Auditor's Report.
On behalf ofthe Board and in accordance with Part 2 of Schedule 8 ofthe Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013, I confirm thatthe above Report on Remuneration Policy and Remuneration Implementation summarises, as applicable, forthe financial period to 31 August 2021:
Chair ofthe Board of Directors
10 November 2021
The Directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Underthatlaw the Directors are required to prepare the Group financial statements in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and in accordance with international financialreporting standards adopted pursuantto Regulation (EC) No 1606/2002 as it applies in the European Union, and have elected to prepare the company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law).Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view ofthe state of affairs ofthe Group and the Company and ofthe profit orloss forthe Group and the Company forthat period.
In preparing these financial statements,the Directors are required to:
The Directors are responsible for keeping adequate accounting records that are sufficientto show and explain the company's transactions and disclose with reasonable accuracy at any time the financial position ofthe company and enable them to ensure thatthe financial statements comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 ofthe IAS Regulation. They are also responsible for safeguarding the assets of the Company and hence fortaking reasonable steps forthe prevention and detection of fraud and other irregularities. The Directors are responsible for ensuring thatthe annualreport and accounts,taken as a whole, are fair, balanced, and understandable and provides the information necessary for shareholders to assess the Group's performance, business model and strategy.
The Directors are responsible for ensuring the annual report and the financial statements are made available on a website. Financial statements are published on the company's website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in otherjurisdictions. The maintenance and integrity ofthe company's website is the responsibility ofthe Directors. The Directors' responsibility also extends to the ongoing integrity of the financial statements contained therein.
The Directors confirm to the best oftheir knowledge:
Having taken advice from the Audit Committee,the Directors considerthatthe Annual Report and financial statements taken as a whole are fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy.
This Directors'responsibilities statement was approved by the Board of Directors and signed on its behalf by:
Chair ofthe Board of Directors
10 November 2021
In our opinion:
We have audited the financial statements of Home REIT plc (the 'Parent Company') and its subsidiaries (the 'Group') forthe period from incorporation on 19 August 2020 to 31 August 2021 which comprise the Consolidated statement of comprehensive income, the Consolidated and Company statement of financial position,the Consolidated and Company statement of changes in equity,the Consolidated cash flow statement and notes to the financial statements, including a summary of significant accounting policies. The financialreporting framework that has been applied in their preparation is applicable law and international accounting standards in conformity with the requirements ofthe Companies Act 2006 and international financialreporting standards adopted pursuantto Regulation (EC) No 1606/2002 as it applies in the European Union. The financialreporting framework that has been applied in the preparation of the Parent Company financial statements is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 101, Reduced Disclosure Framework (United Kingdom Generally Accepted Accounting Practice).
We conducted our auditin accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Ourresponsibilities underthose standards are further described in the Auditor's responsibilities for the audit ofthe financial statements section of our report. We believe thatthe audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our audit opinion is consistent with the additionalreportto the audit committee.
Following the recommendation ofthe audit committee, we were appointed by the Directors on 17 September 2020 to auditthe financial statements forthe period from incorporation to 31 August 2021 and subsequent financial periods. We remain independent ofthe Group and the Parent Company in accordance with the ethicalrequirements that are relevantto our audit ofthe financial statements in the UK, including the FRC's Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. The non-audit services prohibited by that standard were not provided to the Group orthe Parent Company.
In auditing the financial statements, we have concluded thatthe Directors' use ofthe going concern basis of accounting in the preparation ofthe financial statements is appropriate. Our evaluation ofthe Directors' assessment ofthe Group and the Parent Company's ability to continue to adoptthe going concern basis of accounting included the following considerations.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Group's orthe Parent Company's ability to continue as a going concern for a period of atleasttwelve months from when the financial statements are authorised forissue.
In relation to the Parent Company's reporting on how it has applied the UK Corporate Governance Code, we have nothing materialto add or draw attention to in relation to the Directors' statementin the financial statements about whetherthe Directors considered it appropriate to adoptthe going concern basis of accounting.
Ourresponsibilities and the responsibilities ofthe Directors with respectto going concern are described in the relevant sections ofthis report.
Overview
| Coverage1 | 100 per cent of Group profit before tax |
|---|---|
| 100 per cent of Group revenue | |
| 100 per cent of Group total assets | |
| 100 per cent of Group investment property |
|
| Key audit matters | Investment property valuations |
| Materiality | We determined materiality for the Group financial statements as a whole to be £3,700,000, which was set at 1 per cent of Group total assets. |
Our Group audit was scoped by obtaining an understanding ofthe Group and its environment, including the Group's system of internal control, and assessing the risks of material misstatementin the financial statements. We also addressed the risk of management override of internal controls, including assessing whetherthere was evidence of bias by the Directors that may have represented a risk of material misstatement.
The Group operates solely in the United Kingdom and operates through one segment, investment property, structured through a number of subsidiary special purpose vehicle ("SPV") companies. The Group audit team performed allthe work necessary to issue the Group and Parent Company audit opinions. Out of the five components, we identified one significant component, being Home Holdings 1 Limited, in addition to the Parent Company.
All significant components were subjectto full scope audits by the Group auditteam. Due to the requirements of statutory audits forthe insignificant components, full scope audits were also performed concurrently with the group audit.
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit ofthe financial statements ofthe current period and include the most significant assessed risks of material misstatement(whether or not due to fraud)that we identified, including those which had the greatest effect on:the overall audit strategy,the allocation ofresources in the audit, and directing the efforts ofthe engagementteam. This matter was addressed in the context of our audit ofthe financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on this matter.
1 These are areas which have been subject to a full scope audit by the group engagement team
Referto notes 2 and 3 in relation to significant estimates and accounting policies.
Referto note 7 in relation investment property
The valuation of investment property requires significant judgement and estimation by the Directors and the independent valuer appointed by management and is therefore considered a key audit matter due to the subjective nature of certain assumptions inherentin each valuation.
Any inputinaccuracies or unreasonable bases used in the valuation judgements (such as in respect of estimated rental value and yield profile applied) could resultin a material misstatement ofthe consolidated statement of comprehensive income,the consolidated statement of financial position.
There is also a risk of fraud in relation to the valuation ofthe property portfolio where the Directors may influence the significantjudgements and estimates in respect of property valuations in orderto achieve property valuation and other performance targets.
• We validated the underlying data provided to the valuer by the Manager. This data included inputs such as currentrent and lease term, which we agreed to the executed lease agreements as part of our audit work.
• Based on our work we have not noted any material instance which may indicate that the assumptions adopted by the Directors in the valuation were notreasonable orthatthe methodology applied was inappropriate.
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. We consider materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions ofreasonable users that are taken on the basis ofthe financial statements.
In orderto reduce to an appropriately low levelthe probability that any misstatements exceed materiality, we use a lower materiality level, performance
materiality,to determine the extent oftesting needed. Importantly, misstatements below these levels will not necessarily be evaluated as immaterial as we also take account ofthe nature of identified misstatements, and the particular circumstances oftheir occurrence, when evaluating their effect on the financial statements as a whole.
Based on our professional judgement, we determined materiality forthe financial statements as a whole and performance materiality as follows:
| Group financial statements | Parent company financial statements | |
|---|---|---|
| Materiality | £3.7m | £2.2m |
| Basis for determining materiality |
and determining the nature and extent of further audit procedures. | Materiality forthe Group and Parent Company's financial statements was set at 1 per cent oftotal assets. This provides a basis for determining the nature and extent of our risk assessment procedures, identifying and assessing the risk of material misstatement |
| Rationale for the benchmark applied |
We determined thattotal assets would be the most appropriate basis for determining overall materiality as we consideritto be the principal considerations forthe users of the financial statements in assessing the financial performance ofthe Group. |
|
| Performance materiality | £2.4m £1.4m |
|
| Basis for determining performance materiality |
Performance materiality is set at an amountto reduce to an appropriate low levelthe probability thatthe aggregate of uncorrected and undetected misstatements exceeds materiality. |
|
| On the basis of ourrisk assessment,together with our assessment ofthe Group's overall control environment, ourjudgement was that overall performance materiality for the Group should be 65 per cent of materiality. We determined thatthe same measure as the Group was appropriate forthe Parent Company. |
We also determined thatfor other account balances, classes oftransactions and disclosures notrelated to investment properties, a misstatement of less than materiality forthe financial statements as a whole, specific materiality, could influence the economic decisions of users. As a result, we determined that specific materiality forthe measurement ofthese areas should be £340,000. This was set at 5 per cent of European Public Real Estate Association ("EPRA") earnings. EPRA earnings excludes the impact ofthe net surplus on revaluation of investment properties and profit on disposal of investment properties. We further applied a performance materiality level of 65 per cent of specific materiality to ensure thatthe risk of errors exceeding specific materiality was appropriately mitigated.
We set materiality for each significant component of the Group on the same basis as Group materiality, being 1 per cent ofthe total assets of each significant component and represents a percentage of between 58 per cent and 90 per cent of Group materiality dependent on the size and our assessment ofthe risk of material misstatement ofthat significant component. Significant component materiality ranged from £2,150,000 to £3,400,000. In the audit of each significant component, we further applied performance materiality levels of 65 per cent ofthe significant component materiality to ourtesting to ensure that the risk of errors exceeding significant component materiality was appropriately mitigated.
We agreed with the Audit Committee that we would reportto them all individual audit differences in excess of £74,000 foritems audited to financial statement materiality, and £7,000 foritems audited to specific materiality. We also agreed to report differences below this threshold that, in our view, warranted reporting on qualitative grounds.
The directors are responsible forthe otherinformation. The otherinformation comprises the information included in the annualreport, otherthan the financial statements and our auditor's reportthereon. Our opinion on the financial statements does not cover the otherinformation and, exceptto the extent otherwise explicitly stated in ourreport, we do not express any form of assurance conclusion thereon. Ourresponsibility is to read the otherinformation and, in doing so, consider whetherthe otherinformation is materially inconsistent with the financial statements or our knowledge obtained in the course ofthe audit, or otherwise appears to be materially misstated. If
we identify such material inconsistencies or apparent material misstatements, we are required to determine whetherthis gives rise to a material misstatementin the financial statements themselves. If, based on the work we have performed, we conclude thatthere is a material misstatement ofthis otherinformation, we are required to reportthatfact.
We have nothing to reportin this regard.
The Listing Rules require us to review the Directors' statementin relation to going concern, longer-term viability and that part ofthe Corporate Governance Statementrelating to the parent company's compliance with the provisions ofthe UK Corporate Governance Statement specified for ourreview.
Based on the work undertaken as part of our audit, we have concluded that each ofthe following elements ofthe Corporate Governance Statementis materially consistent with the financial statements or our knowledge obtained during the audit.
| Going concern and longer-term viability |
• The Directors' statement with regards to the appropriateness of adopting the going concern basis of accounting and any material uncertainties identified set out on page 39; and |
|---|---|
| • The Directors' explanation as to its assessment ofthe entity's prospects,the period this assessment covers and why the period is appropriate set out on page 39. |
|
| Other Code provisions | • Directors' statement on fair, balanced and understandable set out on page 56; |
| • Board's confirmation thatit has carried out a robust assessment ofthe emerging and principalrisks set out on page 47; |
|
| • The section ofthe annualreportthat describes the review of effectiveness ofrisk management and internal control systems set out on pages 46 and 47; and |
|
| • The section describing the work ofthe audit committee set out on page 49. |
Based on the responsibilities described below and our work performed during the course ofthe audit, we are required by the Companies Act 2006 and ISAs (UK)to report on certain opinions and matters as described below.
| Strategic report and | In our opinion, based on the work undertaken in the course ofthe audit: |
|---|---|
| Directors' report | • the information given in the Strategic report and the Directors'reportforthe financial period for which the financial statements are prepared is consistent with the financial statements; and |
| • the Strategic report and the Directors'report have been prepared in accordance with applicable legalrequirements. |
|
| In the light ofthe knowledge and understanding ofthe Group and Parent Company and its environment obtained in the course ofthe audit, we have notidentified material misstatements in the strategic report orthe Directors'report. |
|
| Directors' remuneration | In our opinion,the part ofthe Directors'remuneration reportto be audited has been properly prepared in accordance with the Companies Act 2006. |
| Matters on which we are required to report |
We have nothing to reportin respect ofthe following matters in relation to which the Companies Act 2006 requires us to reportto you if, in our opinion: |
| by exception | • adequate accounting records have not been kept by the Parent Company, orreturns adequate for our audit have not been received from branches not visited by us; or |
| • the Parent Company financial statements and the part ofthe Directors'remuneration reportto be audited are notin agreement with the accounting records and returns; or |
|
| • certain disclosures of Directors'remuneration specified by law are not made; or |
|
| • we have notreceived allthe information and explanations we require for our audit. |
As explained more fully in the Statement of Directors' responsibilities,the Directors are responsible forthe preparation ofthe financial statements and for being satisfied thatthey give a true and fair view, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements,the Directors are responsible for assessing the Group's and the Parent Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors eitherintend to liquidate the Group orthe Parent Company orto cease operations, or have no realistic alternative butto do so.
Our objectives are to obtain reasonable assurance about whetherthe financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report thatincludes our opinion. Reasonable assurance is a high level of assurance, butis not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are
considered material if, individually orin aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
Irregularities, including fraud, are instances of noncompliance with laws and regulations. We design procedures in line with ourresponsibilities, outlined above,to detect material misstatements in respect of irregularities, including fraud. The extentto which our procedures are capable of detecting irregularities, including fraud is detailed below:
In orderto address the risk of non-compliance with the REIT regime, we considered a reportfrom the Group's external adviser, detailing the actions that the Group has undertaken to ensure compliance. This paper was reviewed, and the assumptions challenged, by our own internal expert.
Ourtests included, but were notlimited to, agreeing the financial statement disclosures to underlying supporting documentation where relevant, review of Board and Committee meeting minutes, enquiries with management and the Directors as to the risks of non-compliance and any instances thereof, and we considered the appropriateness of the design and implementation of controls around procurement fraud.
There is also a risk of fraud in relation to the valuation ofthe property portfolio where the Directors may influence the significantjudgements and estimates in respect of property valuations in orderto achieve property valuation and other performance targets. Procedures conducted in relation to the valuation of investment properties are documented in the key audit matters section ofthis report.
We also communicated relevantidentified laws and regulations and potential fraud risks to all engagement team members and remained alertto any indications of fraud or non-compliance with laws and regulations throughoutthe audit.
Our audit procedures were designed to respond to risks of material misstatementin the financial statements, recognising thatthe risk of not detecting a material misstatement due to fraud is higherthan the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery, misrepresentations orthrough collusion. There are inherentlimitations in the audit procedures performed and the furtherremoved non-compliance with laws and regulations is from the events and transactions reflected in the financial statements,the less likely we are to become aware of it.
A further description of ourresponsibilities is available on the Financial Reporting Council's website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
This reportis made solely to the Parent Company's members, as a body, in accordance with Chapter 3 of Part 16 ofthe Companies Act 2006. Our audit work has been undertaken so that we might state to the Parent Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Parent Company and the Parent Company's members as a body, for our audit work, forthis report, orforthe opinions we have formed.
For and on behalf of BDO LLP, Statutory Auditor London United Kingdom
10 November 2021
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
| 19 August 2020 to 31 August 2021 |
||
|---|---|---|
| Note | £'000 | |
| Income | ||
| Rental income | 3 | 11,755 |
| Total income | 11,755 | |
| Operating expenses | ||
| General and administrative expenses | 4 | (3,255) |
| Total expenses | (3,255) | |
| Change in fair value of investment property | 7 | 14,012 |
| Operating profit for the period | 22,512 | |
| Finance costs | 5 | (1,580) |
| Profit before taxation | 20,932 | |
| Taxation | 6 | – |
| Comprehensive income for the period | 20,932 | |
| Earnings per share – basic and diluted (pence per share)* | 21 | 10.15 |
* Based on the weighted average number of ordinary shares in issue in the period from incorporation of the Company on 19 August 2020 to 31 August 2021.
All items in the above statement derive from continuing operations.
The notes on pages 69 to 81 form part ofthese financial statements.
Consolidated financial statements — continued
| Note | As at 31 August 2021 £'000 |
|---|---|
| Non-current assets | |
| Investment property 7 |
327,860 |
| Total non-current assets | 327,860 |
| Current assets | |
| Trade and otherreceivables 9 |
1,406 |
| Restricted cash 10 |
35,872 |
| Cash and cash equivalents 10 |
6,218 |
| Total current assets | 43,496 |
| Total assets | 371,356 |
| Non-current liabilities | |
| Bank borrowings 8 |
117,528 |
| Total non-current liabilities | 117,528 |
| Current liabilities | |
| Trade and other payables 11 |
1,130 |
| Total current liabilities | 1,130 |
| Total liabilities | 118,658 |
| Net assets | 252,698 |
| Capital and reserves | |
| Share capital 14 |
2,406 |
| Special distributable reserve 16 |
229,360 |
| Retained earnings | 20,932 |
| Total capital and reserves attributable to equity holders of the company | 252,698 |
The notes on pages 69 to 81 form part ofthese financial statements.
The consolidated financial statements were approved and authorised forissue by the Board of directors on 10 November 2021 and signed on its behalf by:
Director
| Balance at 31 August 2021 | 2,406 | – | 229,360 | 20,932 | 252,698 | |
|---|---|---|---|---|---|---|
| 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 |
| Dividend distribution | – | – | (3,993) | – | (3,993) | |
| Transaction with owners: | ||||||
| Profit and total comprehensive income attributable to shareholders |
– | – | – | 20,932 | 20,932 | |
| Forthe period from 19 August 2020 to 31 August 2021 |
Note | Share capital account £'000 |
Share premium account £'000 |
Distributable reserve £'000 |
Retained earnings £'000 |
Total equity attributable to owners ofthe company £'000 |
The notes on pages 69 to 81 form part ofthese financial statements.
Consolidated financial statements — continued
| Note | Forthe period from 19 August 2020 to 31 August 2021 £'000 |
|
|---|---|---|
| Cash flows from operating activities | ||
| Profit before tax | 20,932 | |
| Less: Change in fair value of investment property | 7 | (14,012) |
| Operating result before working capital changes | 6,920 | |
| (Increase) in trade and otherreceivables | 9 | (1,406) |
| Increase in trade and other payables | 11 | 1,130 |
| Net cash flow from operating activities | 6,644 | |
| Cash flows from investing activities | ||
| Purchase of investment properties | 7 | (313,848) |
| Net cash used in investing activities | (313,848) | |
| 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) |
| Dividend distribution | 17 | (3,993) |
| Unamortised loan arrangementfee | 8 | (2,472) |
| Cash released from restricted cash account | 84,128 | |
| Net cash generated from financing activities | 313,422 | |
| Net increase in cash and cash equivalents | 6,218 | |
| Cash and cash equivalents at beginning ofthe period | – | |
| Cash and cash equivalents at end of the period | 10 | 6,218 |
The notes on pages 69 to 81 form part ofthese financial statements.
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 financial statements has been prepared in accordance with international financial reporting standards adopted pursuantto Regulation (EC) No 1606/2002 as it applies in the European Union.
The consolidated financial statements forthe period from 19 August 2020 to 31 August 2021 have been audited by the Company's Independent Auditor, BDO LLP.
The comparative presentation is notrequired in the current period of commencement of operations.
The consolidated financial statements forthe period ended 31 August 2021 have been prepared on a historical cost basis, as modified forthe Group's investment properties which are carried atfair value with changes presented in the statement of comprehensive income.
The 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.
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 preparationof financial statements requires theDirectorsoftheCompany tomake judgements, estimates and assumptions that affectthe reported amounts recognised in the financial statements.However, uncertainty aboutthese assumptions and estimates could resultinoutcomes thatrequire a material adjustmentto the carrying amountofthe assetorliability in the future. Estimates and underlying assumptions are reviewedon anon-going basis.Revisions toaccounting estimates are recognised in the period inwhich the estimates are revised and in any future periods affected.The estimates and associated assumptions that have a significantrisk of causing a material adjustmenttothe carrying amounts of assets and liabilitieswithin 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.
Final dividend distribution to the Company's shareholders is recognised as a liability in the Group's financial statements in the period in which the dividends are approved by the Company's shareholders. Interim dividends are recognised when paid.
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 straight-line 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 expected term ofthe relevantleases and is included in rental income in the statement of comprehensive income due to its operating nature.
Forleases, which contain fixed or minimum uplifts,the rental income arising from such uplifts is recognised on a straightline basis overthe lease term.
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 recognised 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 statement of 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. Short term 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.
The Group's accounting policy is to recognise acquisitions on the date of unconditional exchange, as the directors considerthis to be the point where substantially allthe risks and rewards of ownership of the properties have transferred and the outstanding amount payable to the seller at completion is included on the 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 measurement is 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 31 August 2021 £'000 |
|
|---|---|
| Rental income from investment property | 10,677 |
| Accretion effect of straight-lining rent | 1,078 |
| Total | 11,755 |
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:
| £'000 | |
|---|---|
| Future minimum rents receivable in the period: |
|
| Year 1 | 18,275 |
| Year 2 | 18,458 |
| Year 3 | 18,643 |
| Year 4 | 18,829 |
| Year 5 | 19,018 |
| > 5 years | 422,935 |
| Total | 516,518 |
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 per cent and a cap of 4 per centis applicable to these reviews. Rental income is recognised on a straight-line basis overthe expected term ofthe relevantlease.
| Total general and administrative expenses |
3,255 |
|---|---|
| Other administrative expenses | 711 |
| Board and Directors fee | 150 |
| Non-auditfees | 240 |
| Auditor's fee for audit at 31 August | 200 |
| Auditor's fee for audit at 28 February | 126 |
| Investment adviserfee | 1,828 |
| £'000 |
Fees payable to the auditor ofthe Company relate to the Initial Accounts auditfees of £42,000 (including VAT). Fees payable to the interim review atthe mid-year amounted to £30,000 (including VAT). Fees payable to the auditor ofthe Company in relation to the audit at 28 February 2021 amounted to £126,000 (including of VAT). The Company also incurred additional nonauditfees of £90,000 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).
In addition to the above,the auditor's fee in respect of the audit ofthese consolidated financial statements is £199,800 (including VAT).
| Total finance costs | 1,580 |
|---|---|
| Amortisation of loan arrangementfees | 116 |
| Non-utilisation fees | 190 |
| Loan interest | 1,274 |
| 2021 £'000 |
|
| to 31 August | |
| 19 August 2020 |
The Group is a real estate investmenttrust("REIT") and as a resultthe profit and gains arising from the Group'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 interest income), afterthe utilisation of any available residualtax losses, are subjectto corporation tax atthe main rate of 19 per centforthe year.
| differences Total deferred tax |
– |
|---|---|
| Currenttax Origination and reversal oftemporary |
– |
| 19 August 2020 to 31 August 2021 £'000 |
The reconciliation of profit before tax multiplied by the standard rate of corporation tax forthe half-year of 19 per centto the totaltax charge in the statement of comprehensive income is as follows:
| 19 August 2020 to 31 August 2021 £'000 |
|
|---|---|
| Profit before tax | 20,932 |
| Tax atthe standard rate of UK corporation tax of 19 per cent Effect of: |
3,977 |
| REIT exemptincome and gains | (1,315) |
| Revaluation of investment properties | (2,662) |
| Tax charge | – |
UK REIT exemptincome includes property rental income thatis exemptfrom UKCorporation Tax in accordance with Part 12 oftheCorporation Tax Act 2010.
| 1,078 14,012 |
|---|
| 312,770 |
| Freehold Investment Property £'000 |
The properties are held atfair value as determined by the independent valuer as at 31 August 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 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 amountfor 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 several variables in relation to the Company's property. These include size, location, tenant covenant strength and terms ofthe 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.
The Company classifies all assets measured atfair value as below:
| Quoted prices in active markets |
Significant observable inputs |
Significant unobservable inputs |
||
|---|---|---|---|---|
| Total | (level 1) | (level 2) | (level 3) | |
| As at 31 August 2021 | £'000 | £'000 | £'000 | £'000 |
| Assets measured at fair value: | ||||
| Investment property | 327,860 | – | – | 327,860 |
| Passing rent pa 31 August 2021 |
Passing rent pa range |
Valuation 31 August 2021 |
Valuation yield range |
|
|---|---|---|---|---|
| Sector | £'000 | £'000 | £'000 | % |
| Residential | 18,275 | 3-365 | 327,860 5.25%-5.78% |
The table below shows the sensitivities of measurement ofthe Group's investment property to certain inputs:
| As at 31 August 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 | (16,393) | 16,393 | 14,073 | (15,395) |
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 | 117,528 | 113,468 |
|---|---|---|
| Unamortised loan arrangementfees | (2,472) | – |
| Term loan | 120,000 | 113,468 |
| Bank borrowings | Book value £'000 |
Fair value £'000 |
The following table sets outthe fair value ofthose financial liabilities measured at amortised cost where there is a difference between book value and fair value.
| Quoted prices in active |
Significant observable |
Significant unobservable |
|||
|---|---|---|---|---|---|
| markets | inputs | inputs | |||
| Total | (level 1) | (level 2) | (level 3) | ||
| Borrowings | Date of valuation | £'000 | £'000 | £'000 | £'000 |
| Borrowings | 31 August 2021 | 113,468 | – | 113,468 | – |
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 cent per annum forthe duration ofthe loan term and is due forrepaymentin December 2032. The fair value ofthe loan is determined by comparing the discounted future cashflows using the mid-market swap rate on 31 August 2021 of 0.9456 per cent plus the implied margin thatis unchanged since the date of fixing. The loan is considered to be a level 2 fair value measurement.
| Trade and other receivables | 1,406 |
|---|---|
| Prepaid expenses | 215 |
| Tenantreceivables | 1,191 |
| As at 31 August 2021 £'000 |
Alltrade and otherreceivable amounts are due within one year. The carrying value oftrade and other receivables classified at amortised cost approximates fair value.
The Directors analysed the expected creditloss and concluded there was no material exposure forthe period ended 31 August 2021.
The following table sets outthe maturity profile oftrade and otherreceivables that are financial assets:
| As at 31 August 2021 £'000 |
|
|---|---|
| 30 days orfewer | 742 |
| 31 to 60 days | 234 |
| 61 to 90 days | 408 |
| 91 days or more | 22 |
| Over one year | – |
| 1,406 |
| Restricted cash (Note 12) Total cash at bank |
35,872 42,090 |
|---|---|
| Cash and cash equivalents | 6,218 |
| Cash at bank | 6,218 |
| As at 31 August 2021 £'000 |
Restricted cash is money held in accounts to which the Group does not have immediate access and as such does 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. Security over owned properties is required to be provided before access to restricted cash is given. The purpose ofthe restricted cash is for furtherinvestmentin the portfolio.
| As at 31 August 2021 £'000 |
|
|---|---|
| Trade creditors | 353 |
| Accrued expenses | 777 |
| Total trade creditors and accrued expenses |
1,130 |
Alltrade and other payables are due within one year. The Directors considerthatthe carrying amount oftrade and other payables matches 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 31 August 2021 of which a balance of £35.9m and was held in a restricted cash account at 31 August 2021.
TheCompany's activities expose ittoa varietyof financial risks: creditrisk, liquidity risk and interestrate 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 theCompany by failing to meet a commitmentit has entered into with theCompany.
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 31 August 2021 £'000 |
|
|---|---|
| Cash and cash equivalents | 6,218 |
| Restricted cash | 35,872 |
| Tenantreceivables | 1,191 |
| 43,281 |
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 creditlines, 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:
| 1,750 | 1,881 | 9,950 | 135,640 | 149,221 | |
|---|---|---|---|---|---|
| Trade and other payables | 1,130 | – | – | – | 1,130 |
| Bank borrowings and interest(Note 12) | 620 | 1,881 | 9,950 | 135,640 | 148,091 |
| 31 August 2021 | < 3 months £'000 |
3-12 months £'000 |
1-5 years £'000 |
5 years + £'000 |
Total £'000 |
Interestrate risk is the risk thatthe fair value orfuture cash flows of a financial instrument will fluctuate because of changes in marketinterestrates.
The Group has reduced the interestrate risk on its external borrowing by fixing the rate of interest payable.
The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in orderto provide returns for shareholders and to maintain an optimal capital structure to reduce the cost of capital.
The Group considers proceeds from share issuance, bank borrowings and retained earnings as capital. The Group will maintain a conservative level of aggregate borrowings with a maximum level of aggregate borrowings of 35 per cent ofthe Group's gross assets.
The Group has remained compliant with its banking covenants during the period and since the period end.
| As at | As at | |
|---|---|---|
| 31 August 2021 | 31 August 2021 | |
| Ordinary shares of £0.01 each | Number | £'000 |
| On incorporation | 1 | – |
| Further shares issued | ||
| during the period | 240,570,464 | 2,406 |
| Issued and fully paid at | ||
| period end | 240,570,465 | 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.
| Balance at end of period | – |
|---|---|
| (note 16) | (233,353) |
| Transferto special distributable reserve | |
| Share issue costs | (4,811) |
| Share premium arising on ordinary shares issued in relation to equity issuance |
238,164 |
| As at 31 August 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 ofthis special distributable reserve,taking into accountthe Company's investment objective.
| Balance at end of period | 229,360 |
|---|---|
| Dividends distribution | (3,993) |
| Transferfrom share premium account (note 15) |
233,353 |
| Balance at beginning of period | – |
| As at 31 August 2021 £'000 |
On 15 February 2021,the Company declared an interim 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 was paid as a property income distribution.
On 20 May 2021,the Company declared a dividend of 0.83 pence per ordinary share, which was paid on 25 June 2021 to shareholders on the register as at 4 June 2021. This dividend was paid as a property income distribution.
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.
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:
a One-twelfth of 0.85 per cent, per calendar month of net asset value up to and including £500 million;
b One-twelfth of 0.75 per cent per calendar month of net asset value above £500 million up to and including £750 million; and
c One-twelfth of 0.65 per cent per calendar month of net asset value above £750 million.
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 theCompany at such rate as may be determined in accordance with the Articles. The initialfees are £36,000 for each Director and £50,000 fortheChairman per annum. TheChair of the AuditCommittee receives an additionalfee of £5,000 per annum. During the period ended 31 August 2021, Directors fees of £150,068 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.
| Borrowing (£m)s | Total (£m) | |
|---|---|---|
| Balance on 19 August 2020 | – | – |
| Bank borrowings drawn down | 84.1 | 84.1 |
| Bank borrowing held in restricted account |
35.9 | 35.9 |
| Loan arrangementfees paid | (2.6) | (2.6) |
| Amortisation of loan arrangementfees |
0.1 | 0.1 |
| Balance at 31 August 2021 | 117.5 | 117.5 |
At 31 August 2021 the Group had no contingentliabilities.
Earnings per share perIFRS is calculated by dividing profitforthe period attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares in issue since the Company was incorporated on 19 August 2020 to 31 August 2021. Amounts shown below are both basic and diluted measures as there were no dilutive instruments in issue throughoutthe period.
| EPS (pence) | 10.15 |
|---|---|
| Weighted average number of ordinary shares in issue from 19 August 2020 to 31 August 2021 | 206,203,256 |
| Earnings (£'000) | 20,932 |
| Period ended 31 August 2021 |
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 portfolioand the Board considers disclosure of Adjusted EPS to be relevant information forinvestors (see key performance indicators on page 31).
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 31 August 2021 £m |
|
|---|---|
| NAV | 252.70 |
| Number of ordinary shares (million) | 240.57 |
| NAV per share | 105.04p |
A reconciliation of IFRS NAV per share to the three EPRA NAV measures is shown below.
| As at 31 August 2021 | EPRA NTA £'000 |
EPRA NRV £'000 |
EPRA NDV £'000 |
|---|---|---|---|
| Net asset value | 252,698 | 252,698 | 252,698 |
| Fair value of debt | – | – | 6,532 |
| Real estate transfertax | – | 15,636 | – |
| At 31 August 2021 | 252,698 | 268,334 | 259,230 |
| Number of ordinary shares | 240,570 | 240,570 | 240,570 |
| Per share | 105.04p | 111.54p | 107.76p |
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.
Operating segments are identified on the basis of internal financialreports about components ofthe Group that are regularly reviewed by the chief operating decision maker(which in the Group's case is the Board of Directors of the Company) in orderto allocate resources to the segments and to assess their performance.
The internal financialreports contain financial information at a Group level as a whole and there are no reconciling items between the results contained in these reports and the amounts reported in the consolidated financial statements.
The Group's property portfolio comprises investment property. The Board considers that allthe properties have similar economic characteristics. Therefore, in the view ofthe Board,there is one reportable segment.
All ofthe Group's properties are based in the UK and as such no geographical grouping is considered appropriate for segmental analysis.
During the period the Group had 1 tenant, which was considered to be a major customer, contributing more than 10 per cent ofthe Group's contractual annual passing rent.
| Rental income | 100% | 18,267 |
|---|---|---|
| Othertenants (each less than 10%) | 87% | 15,970 |
| Major customers | 13% | 2,297 |
| £'000 |
The Company owns 100 per cent ofthe equity shares of all subsidiaries listed below and has the powerto appoint and remove the majority ofthe Board of Directors ofthose subsidiaries. The relevant activities ofthe below subsidiaries are determined by the respective Directors based on simple majority votes. Therefore,the Board of the Company has concluded thatthe Company has control over allthese entities and allthese entities have been consolidated within this set of financial statements.
| Name of entity | Principal activity | Country of incorporation | Ownership |
|---|---|---|---|
| Home Holdings 1 Limited | Property investment | UK | 100% |
| Home Holdings 2 Limited | Property investment | UK | 100% |
| Home Holdings 3 Limited | Property investment | UK | 100% |
| Home Holdings 4 Limited | Property investment | UK | 100% |
| Fox Alpha SPV Limited | Property investment | UK | 100% |
| Fox Bravo SPV Limited | Property investment | UK | 100% |
| FPI Co 417 Limited | Property investment | UK | 100% |
| FPI Co 418 Limited | Property investment | UK | 100% |
| FPI Co 419 Limited | Property investment | UK | 100% |
| Grolar Developments SPV 9 Limited | Property investment | UK | 100% |
| Grolar Developments SPV 11 Limited | Property investment | UK | 100% |
| Pathway Homes Group (Exeter) Limited | Property investment | UK | 100% |
| Pathway Homes Group (Luton) Limited | Property investment | UK | 100% |
| Pathway Homes Group (Morecambe) Limited | Property investment | UK | 100% |
| Pathway Homes Group (Plymouth) Limited | Property investment | UK | 100% |
| Pathway Homes Group (Stoke) Limited | Property investment | UK | 100% |
On 27 September 2021 the Company raised £350 million through an initial issue of 321,100,917 New Ordinary Shares at an issue price of 109 pence per New Ordinary Share.
On 15 September 2021,the Company declared an ordinary dividend of 0.84 pence per ordinary share, which was paid on 22 October 2021 to shareholders on the register as at 24 September 2021.
Since 31 August 2021,the Company has acquired 539 new assets totalling £229 million (net of purchase costs) across various geographical locations in London, North West, South West, South East, East, Midlands, Yorkshire, North Eastregions of England and North Wales region.
These properties provide over 2,679 further beds for vulnerable homeless people whose circumstances cover a range of sectors, including drug and alcohol abuse, domestic abuse, general needs poverty and those with mental health issues.
As detailed in note 10, as at 31 August 2021, £120 million of cash was held in accounts to which the Group did not have immediate access. As atthe date of signing these accounts £35.9 million ofthis cash remains restricted and £84.1 million has been utilised oris available for use by the Group.
There is no ultimate controlling party ofthe Group.
Company number: 12822709
| As at 31 August 2021 |
|
|---|---|
| Note | £'000 |
| Non-current assets | |
| Investment property 5 |
9,465 |
| Investmentin subsidiaries 4 |
10,390 |
| Amounts due from subsidiaries 6 |
185,551 |
| Total non-current assets | 205,406 |
| Current assets | |
| Amounts due from subsidiaries 6 |
26,279 |
| Trade and otherreceivables 6 |
201 |
| Cash and cash equivalents 7 |
68 |
| Total current assets | 26,548 |
| Total assets | 231,954 |
| Non-current liabilities | |
| Amounts due to subsidiaries 8 |
1,750 |
| Total non-currentliabilities | 1,750 |
| Current liabilities | |
| Trade and other payables 8 |
589 |
| Total current liabilities | 589 |
| Total liabilities | 2,339 |
| Net assets | 229,615 |
| Capital and reserves | |
| Share capital 9 |
2,406 |
| Special distributable reserve | 229,360 |
| Retained earnings | (2,151) |
| Total capital and reserves attributable to equity holders of the company | 229,615 |
The Company has taken advantage ofthe exemption allowed under Section 408 ofthe Companies Act 2006 and has not presented its own profit and loss accountin these financial statements. The loss and total comprehensive income attributable to the shareholders ofthe parent Company forthe period from 19 August 2020 until 31 August 2021 amounted to £2.2 million.
The notes on pages 84 to 85 form part ofthese financial statements.
The company financial statements were approved and authorised forissue by the Board of directors on 10 November 2021 and signed on its behalf by:
Marlene Wood Director
| Balance at 31 August 2021 | 2,406 | – | 229,360 | (2,151) | 229,615 | |
|---|---|---|---|---|---|---|
| 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 |
| Dividend distribution | – | – | (3,993) | – | (3,993) | |
| Loss forthe period Transaction with owners: |
– | – | – | (2,151) | (2,151) | |
| Forthe period from 19 August 2020 to 31 August 2021 |
Note | Share capital account £'000 |
Share premium account £'000 |
Distributable reserve £'000 |
Retained earnings £'000 |
Total equity attributable to owners ofthe company £'000 |
The notes on pages 84 to 85 form part ofthese financial statements.
This consolidated set of financial statements has been prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework ("FRS 101"). The Company is registered in England and Wales under company registration 12822709.
In preparing these financial statements the Company has taken advantage of disclosure exemptions conferred by FRS 101 and therefore these financial statements do notinclude:
The principal accounting policies applied in the preparation ofthe financial statements are set out below. The policies have been consistently applied throughoutthe period.
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 Company's estimates in relation to its investment property are consistent with the Group for which details are given in Note 7 ofthe to the consolidated financial statements.
The principal accounting policies adopted in the preparation ofthe Company financial statements are consistent with the Group which are described in Note 2. Policies adopted in the preparation ofthe Company's financial statements that are notincluded in the consolidated financial statements are given below:
Investmentin subsidiaries is included in the statement of financial position at costless provision for impairment.
| Balance at end of period | 10,390 |
|---|---|
| Additions in the year | 10,390 |
| Balance at beginning of period | – |
| As at 31 August 2021 £'000 |
A list of Company's subsidiary undertakings is included in Note 23 to the consolidated financial statements.
| Fair value at 31 August 2021 | 9,465 |
|---|---|
| Change in fair value ofinvestment property | 437 |
| Accretion effect of straight-lining rent | 48 |
| Property acquisitions in the period | 8,980 |
| As at 31 August 2021 £'000 |
Detailed information aboutthe valuation of investment property is included in Note 7 to the consolidated financial statements.
| As at 31 August 2021 £'000 |
|
|---|---|
| Amounts due from subsidiaries | 185,551 |
| Non-Current Assets | 185,551 |
These amounts due related to the acquisition of Investment Properties on behalf of subsidiary companies during the period. The subsidiary companies have no intention of liquidating these Investment Properties within the next 12 months. The Directors do not expectthis amountto be paid within one year.
| Trade and other receivables | 26,480 |
|---|---|
| Prepaid expenses | 201 |
| Amounts due from subsidiaries | 880 |
| Amounts due from subsidiaries repayable on demand |
25,399 |
| As at 31 August 2021 £'000 |
| As at | |
|---|---|
| 31 August 2021 | |
| £'000 | |
| Cash held at bank | 68 |
| Non-Current Liabilities | 1,750 |
|---|---|
| Amounts due to subsidiaries | 1,750 |
| £'000 | |
| 31 August 2021 | |
| As at |
| Current liabilities | 589 |
|---|---|
| Trade and other payables | 589 |
| As at 31 August 2021 £'000 |
| Ordinary shares of £0.01 each | As at 31 August 2021 Number |
|---|---|
| On incorporation | 1 |
| Further shares issued during the period | 240,570,464 |
| Issued and fully paid at period end | 240,570,465 |
Detailed information aboutthe share capital ofthe Company is included in note 14.
| Balance at end of period | – |
|---|---|
| (note 16) | (233,353) |
| Transferto special distributable reserve | |
| Share issue costs | (4,811) |
| Share premium arising on ordinary shares issued in relation to equity issuance |
238,164 |
| As at 31 August 2021 £'000 |
|
Detailed information aboutthe share premium of the Company is included in Note 15 to consolidated financial statements.
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 throughout the current or comparative periods.
| Period ended 31 August 2021 |
|
|---|---|
| NAV (£m) | 228.85 |
| Number of ordinary shares (million) | 240.57 |
| NAV per share (£) | 0.95 |
The Company has taken advantage ofthe exemption notto disclose transactions with other members of the Group as the Company financial statements are presented together with the consolidated financial statements.
Note 18 ofthe consolidated financial statements includes details of otherrelated party transactions undertaken by the Company and its subsidiaries.
There is no ultimate controlling party ofthe Company.
Glossary Company information
The annualised rents atthe date of acquisition ofthe entire portfolio, net of costs, expressed as a percentage ofthe acquisition price paid forthe Group's investment property, after adding purchase costs paid
The remaining period to maturity of each ofthe Group's debtfacilities, multiplied by the respective capital borrowed on each tranche of debt divided by the sum of the results
The fixed cost of debt of each ofthe Group's debt facilities, multiplied by the respective capital borrowed on each tranche of debt divided by the sum ofthe results
The annualised rents at valuation date ofthe entire portfolio, net of costs, expressed as a percentage of the independent valuation ofthe Group's investment property, after adding purchase costs paid
The point at which ownership ofthe property is legally transferred by dating the transfer deed
The total dividend paid and proposed in respect of a period divided by the number of ordinary shares eligible forthe dividend on the record date
The point on a property transaction at which the contractto sell is exchanged and dated and becomes legally binding
A property transaction in which contracts are exchanged subjectto the completed development of a pre-let asset with. The risks and rewards are transferred atthe point of completion after practical completion ofthe developmentis reached
A property transaction in which land is acquired subject to a funding agreement with the developerto build
a pre-let asset with approved planning permission. The risks and rewards are transferred atland completion priorto the commencement of development
A measure ofthe profitability of an investment property ignoring external factors being the discountrate at which allthe associated cash flows ofthe investment property, net ofrelated borrowings and interest costs, are equalto zero
Initial public offering
The extentto which investments can be realised at short notice
The carrying value of bank borrowings as a percentage ofthe carrying value oftotal assets
The mid-market price for an ordinary share ofthe Company multiplied by the number of ordinary shares in issue
The current annualised rent, net of costs, expressed as a percentage of capital value, after adding notional purchaser's costs
The total value ofthe Group's investment property including capital commitments on forward funded assets determined by the independent valuer on an individual asset basis and assuming no portfolio premium
The point at which a building projectis complete, except for minor defects that can be putright without undue interference or disturbance to the tenant
The growth in value of a shareholding over a specified period, assuming dividends are reinvested to purchase additional units of stock
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
Alvarium Fund Managers (UK) Limited 10 Old Burlington Street London W1S 3AG
Alvarium Home REIT Advisors Limited 10 Old Burlington Street London W1S 3AG
Apex Fund and Corporate Services (UK) Limited 6th Floor, Bastion House 140 London Wall London EC2Y 5DN
Alvarium Securities Limited 10 Old Burlington Street London W1S 3AG
FTI Consulting 200 Aldersgate Aldersgate Street London EC1A 4HD
Apex Depositary (UK) Limited 6th Floor, Bastion House 140 London Wall London EC2Y 5DN
Link Asset Services The Registry 34 Beckenham Road Kent BR3 4TU
Knight Frank LLP 55 Baker Street London W1U 8AN
BDO LLP 55 Baker Street London W1U 7EU
Stephenson Harwood LLP 1 Finsbury Circus London EC2M 7SH
Notice of Annual General Meeting
Notes to the notice of Annual General Meeting
This Notice of Annual General Meeting is an important document. If you are in any doubt as to what action to take, you should consult an appropriate independent adviser.
Notice is hereby given thatthe Annual General Meeting of Home REIT plc will be held atthe offices of Stephenson Harwood LLP at 1 FinsburyCircus, London, EC2M 7SH on 27 January 2022 at 10.00 a.m.forthe following purposes:
To consider and, ifthought fit, pass the following resolutions of which resolutions 1 to 10 will be proposed as Ordinary Resolutions and resolutions 11 to 12 will be proposed as Special Resolutions.
By order ofthe Board
Company Secretary
10 November 2021
6th Floor Bastion House 140 London Wall London EC2Y 5DN
The COVID-19 situation is constantly evolving, and the UK Government may change the currentrestrictions orimplementfurther measures during the affected period. Shareholders should monitorthe Company's website at www.homereituk.com and London Stock Exchange announcements for any updates regarding the Annual General Meeting. Alternatively, shareholders can contactthe Company's Registrar, Link Group, for updated information.
Only members registered in the Register of Members ofthe Company at 10.00 a.m. on 25 January 2022 shall be entitled to vote atthe Annual General Meeting in respect ofthe number of voting rights registered in their name atthattime. Changes to entries on the Register of Members after 10.00 a.m. on 25 January 2022 shall be disregarded in determining the rights of any person to attend and vote atthe Annual General Meeting.
Ifthe Annual General Meeting is adjourned for no more than 48 hours afterthe originaltime,the same voting record date will also apply forthe purpose of determining the entitlement of members to attend, speak and vote (subjectto UK Governmentrestrictions) atthe adjourned meeting. Ifthe Annual General Meeting is adjourned for more than 48 hours,then the voting record date will be the close of business on the day which is two days (excluding non-working days) before the day ofthe adjourned meeting or, ifthe Company gives notice ofthe adjourned meeting, at any time specified in that notice.
In the case of joint holders of a voting right,the vote of the senior holder who tenders a vote, whetherin person or by proxy, shall be accepted to the exclusion ofthe votes ofthe otherjoint holders and, forthis purpose, seniority shall be determined by the orderin which the names stand in the Register of Members in respect of the joint holding.
Subjectto UK Governmentrestrictions, members are entitled to attend and vote atthe forthcoming Annual General Meeting or at any adjournment(s)thereof. On a poll each member has one vote for every one share held.
Pursuantto Section 324 ofthe Companies Act 2006 (the "Act"), a member entitled to attend and vote at the Annual General Meeting may appoint more than one proxy (subjectto UK Governmentrestrictions), provided that each proxy is appointed to exercise the rights attached to different shares held by him. A proxy need not be a member ofthe Company.
The appointment of a proxy will not preclude a shareholderfrom attending and voting in person atthe Annual General Meeting (subjectto UK Government restrictions) or at any adjournmentthereof.
If you are an institutional investor you may be able to appoint a proxy electronically via the Proxymity platform, a process which has been agreed by the Company and approved by the Registrar. Forfurther information regarding Proxymity, please go to www. proxymity.io. Your proxy must be lodged by 10 a.m. on 25 January 2022 in orderto be considered valid. Before you can appoint a proxy via this process you will need to have agreed to Proxymity's associated terms and conditions. Itis importantthat you read these carefully as you will be bound by them and they will govern the electronic appointment of your proxy.
On a vote on a show of hands, each proxy has one vote.
If a proxy is appointed by more than one member and all such members have instructed the proxy to vote in the same way,the proxy will only be entitled, on a show of hands,to vote "for" or "against" as applicable. If a proxy is appointed by more than one member, but such members have given different voting instructions,the proxy may, on a show of hands, vote both "for" and "against" in order to reflectthe different voting instructions.
On a poll, all or any ofthe voting rights ofthe member may be exercised by one or more duly appointed proxies. However, where a member appoints more than one proxy, Section 285(4) ofthe Act does not authorise the exercise by the proxies taken together of more extensive voting rights than could be exercised by the memberin person.
Notes to the notice of Annual General Meeting — continued
To appoint a proxy, you may:
By registering on the Signal Shares portal at www.signalshares.com, you can manage your shareholding, including: (i) casting your vote; (ii) changing your dividend paymentinstruction; (iii) updating your address; and (iv) selecting your communication preference.
To be effective,the proxy vote must be submitted at www.signalshares.com so as to have been received by the Company's registrars notless than 48 hours (excluding weekends and public holidays) before the time appointed forthe meeting or any adjournment of it.
Any power of attorney or other authority under which the proxy is submitted must be returned to the Company's Registrars, Link Group PXS1, 10th Floor, Central Square, 29 Wellington Street, Leeds LS1 4DL.
If a paperform of proxy is requested from the Company's registrar, it should be completed and returned to Link Group PXS1, 10th Floor, Central Square, 29 Wellington Street, Leeds LS1 4DL to be received notless than 48 hours (excluding weekends and public holidays) before the time appointed forthe meeting or any adjournment of it.
If you need help with voting online, orrequire a paperform of proxy, please contactthe Company's registrar, Link Group, by email at [email protected] or by telephone on 0871 664 0391 (if calling from the UK) or on +44 (0) 371 664 0391 (if calling from outside ofthe UK). Link Group are open between 9.00 a.m. and 5.30 p.m., Monday to Friday (excluding public holidays in England and Wales).
In accordance with the Company's Articles of Association, in determining the time for delivery of proxies, no account shall be taken of any part of a day thatis not a working day.
A member may terminate a proxy's authority at any time before the commencement ofthe Annual General Meeting. Termination must be provided in writing and submitted to Link Group.
To appoint one or more proxies orto give an instruction to a proxy (whether previously appointed or otherwise) via the CREST system, CREST messages must be received by the Company's agent(ID number RA10) no laterthan the deadline specified in Note 6. Forthis purpose,the time ofreceipt will be taken to be the time (as determined by the timestamp generated by the CREST system) from which the issuer's agentis able to retrieve the message. The Company may treat as invalid a proxy appointment sent by CREST in the circumstances set outin Regulation 35(5)(a) ofthe Uncertificated Securities Regulations 2001. Instructions on how to vote through CREST can be found on the website www.euroclear.com.
Members may not use any electronic address provided eitherin the notice of Annual General Meeting or any related documents to communicate with the Company for any purpose otherthan those expressly stated.
Ifrelevant UK Governmentrestrictions come into force as atthe date ofthe Annual General Meeting, shareholders will be invited to submit any questions they would otherwise have asked atthe AGM via email to [email protected]. Such questions will be considered by the Board. If any relevant questions are received,the Company willrespond to those questions directly and may also, ifthe Board so determines, and subjectto any confidentiality orregulatory restrictions, publish on the Company's website a summary of responses to questions received.
A copy ofthe notice ofthe Annual General Meeting, including these explanatory notes and otherinformation required by Section 311A of the Act, is included on the Company's website, www.homereituk.com.
As at 10 November 2021 (being the last practicable date priorto the publication ofthis Notice of Annual General Meeting)the total number of Ordinary Shares in the Company in issue was 561,671,382. The total number of voting rights on that date was therefore 561,671,382.
Designed and produced by Whitehouse Associates London
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