Mill Residential REIT PLC Proposed cancellation from trading and trading update

 
TIDMMRR 
 
15 October 2015 
 
                           Mill Residential REIT plc 
 
                     ("MRR", the "Company" or the "Group") 
 
    Proposed cancellation of admission to trading on AIM and trading update 
 
The Company announces that, following a review by the Directors of the 
Company's continuing strategy and its day to day operation, further to the 
Company's interim results on 25 June 2015 ("Interim Results"), the Directors 
have concluded that it is in the overall interests of the Company and its 
Shareholders if the admission of the Ordinary Shares to trading on AIM is 
cancelled and the Company commences a Members' Voluntary Liquidation following 
such cancellation. 
 
Under the AIM Rules, it is a requirement that cancellation of admission to 
trading on AIM must be approved by not less than 75 per cent. of shareholders 
voting in general meeting. Accordingly, the notice of General Meeting set out 
in a circular to shareholders which will be posted today contains a special 
resolution to approve the application to the London Stock Exchange for 
cancellation of admission of the Company's shares to AIM. If the resolution is 
approved, it is expected that trading in the Ordinary Shares on AIM will cease 
at the close of business on 16 November 2015, with Cancellation expected to 
take effect at 7.00 a.m. on 17 November 2015. 
 
Background to and reasons for the proposed Cancellation 
 
At IPO, the intention of the Company was to grow rapidly from its small size, 
grasping the market opportunity of being the first mainstream UK residential 
REIT and seeking out further equity funding to deploy in opportunistic 
investments. The Company's stated strategy of investing in rental properties 
aimed to provide the Company with reliable and increasing rental income over 
time, together with steady sustained growth in net asset value. 
 
Since the Company's admission to trading on AIM, the asset management team has 
identified, evaluated and recommended a number of acquisition targets which 
meet the Company's investment criteria. However, obtaining equity funding for 
these has not been achieved and so none have been pursued to a successful 
conclusion. The management team engaged in an equity fund-raising supported by 
the Company's brokers. The fund-raising process included a significant number 
of third-party institutional investors. While a number of potential investors 
made indications of interest, the Company was unable to attract capital of 
sufficient scale to grow the business. Whilst the residential investment sector 
is attracting investor interest from major institutions, some institutions are 
initiating their own larger competing offers via unquoted funds or direct 
investment. In addition, the size of the Company was seen by some institutions 
as too small to attract investment. 
 
Without market support, the Company's strategy to acquire property portfolios 
proved challenging as the Company could only offer relatively illiquid shares 
and not cash to effect a transaction. Furthermore, after allowing for liquidity 
and contingencies, the cash held in the Company has not been sufficient to make 
a sizeable investment. Notwithstanding the renegotiation of administrative 
expenses in April 2015, which led to a 27 per cent. reduction in such costs 
(referred to in the Interim Results), the current costs of operation as a 
listed vehicle exceed income, resulting in the continuing reduction in the 
Company's net asset value. 
 
The Board has considered a number of options such as the Company continuing as 
a listed cash shell after the sale of investment properties and the return of a 
majority of cash to Shareholders by way of a dividend. However, the Board would 
also need to seek new investment and a new board of directors to implement any 
revised investment strategy. The Board considered that the potential for 
significant costs, uncertainties and risks associated with this option 
outweighed the potential premium that any new investor might attach to the 
Company as a cash shell.  The Board also considered other ways of returning 
surplus capital to Shareholders but concluded this was too costly and could 
generate dividends that would be taxable to Shareholders as opposed to a return 
of capital. 
 
The Board has therefore reluctantly decided that it is in the best interests of 
Shareholders to effect the Cancellation and will make arrangements for an 
orderly sale of assets and return of cash by way of a Members' Voluntary 
Liquidation, which will maximise the return to Shareholders.  It is anticipated 
that, assuming the Board's recommendations receive required shareholder 
approval, the Proposed Liquidators would plan to make orderly distributions of 
capital to Shareholders on the sale of the seed portfolio on an incremental 
basis. Based on the Company's sale strategy of the seed portfolio, the Proposed 
Liquidators anticipate that the final distribution may take up to 10 months to 
complete from the date of this announcement. 
 
Taking into account prevailing market conditions and the expected costs of both 
selling the investment properties and winding up the Company, the Board 
estimate that, should the Company take the recommended course of action, the 
surplus to be distributed to Shareholders by the Proposed Liquidators may be 
between GBP2.95 and GBP3.15 million (or between 85 and 90 pence per share). These 
amounts are provided for guidance only and are not certain as they are 
dependent on factors outside the control of the Board, including sales 
proceeds, costs and taxation. 
 
The Company has received irrevocable undertakings from the Directors and 
certain Shareholders (whose holdings amount in aggregate to 53.97 per cent. of 
the issued share capital of the Company) that they will vote in favour of the 
Cancellation and the Members' Voluntary Liquidation. Therefore, it is expected 
that the Resolutions will be passed at the General Meeting. 
 
Trading update 
 
The Company's unaudited net assets as at 30 September 2015 were GBP3,209,000, 
including cash of GBP765,000, resulting in a net asset value per share as at 30 
September 2015 of 91.6 pence. 
 
The Company announces that its wholly-owned subsidiary, Investors in Housing 
(GP) Limited, has exchanged contracts for the sale of 160 Walnut Tree Close for 
a cash consideration of approximately GBP405,000, after costs. The contract is 
conditional on completion and is expected to complete in the next 10 business 
days. The net proceeds of this sale will be retained as cash and then 
distributed to Shareholders in accordance with the proposals included in this 
announcement regarding the Company's intention to dispose of its current 
portfolio. 
 
This property and one other property in the MRR portfolio require refurbishment 
in order for them to be able to be re-let.  The Board has decided that rather 
than incurring the refurbishment costs the Company should dispose of these 
properties. The other property currently has an accounting value of GBP395,000. 
 
At the date of this document, an offer has been accepted on the other property 
and exchange of contracts is expected shortly. A further announcement will be 
made at that time. 
 
The combined sales price is in excess of the aggregate value of the two 
properties as set out in the interim results which were announced on 25 June 
2015. 
 
Cancellation Process 
 
Under the AIM Rules, Cancellation requires the expiration of a period of not 
less than 20 clear Business Days from the date on which notice of the intended 
Cancellation is given to the London Stock Exchange. The Company has notified 
the London Stock Exchange of the proposed Cancellation. Subject to the passing 
of Resolution 1 (as set out in the Notice of General Meeting), Cancellation 
will occur no earlier than five clear Business Days after the General Meeting 
and it is expected that trading in the Ordinary Shares on AIM will cease at the 
close of business on 16 November 2015, with Cancellation expected to take 
effect at 7.00 a.m. on 17 November 2015. 
 
Shareholders should be aware that if Cancellation is approved by Shareholders 
and takes effect, they will as from that time cease to hold shares in a company 
whose shares are admitted to trading on AIM. Following Cancellation, there will 
be limited opportunities for Shareholders to realise their investment in the 
Company other than pursuant to the proposed Members' Voluntary Liquidation. 
 
Trading in the Ordinary Shares after Cancellation 
 
Following Cancellation, the Ordinary Shares will not be traded on any public 
market and the CREST facility will be cancelled. The Ordinary Shares will 
remain capable of being transferred in paper form for a limited time until the 
Members' Voluntary Liquidation is completed with the sanction of the Proposed 
Liquidators. Transfers of interests in shares in certified form should be sent 
to the Company's registrars, Share Registrars Limited, Suite E, First Floor, 9 
Lion and Lamb Yard, Farnham, Surrey GU9 7LL. Existing share certificates remain 
valid until completion of the Members' Voluntary Liquidation. 
 
Members' Voluntary Liquidation 
 
If the Resolutions are approved by Shareholders, the Company will commence a 
Members' Voluntary Liquidation following the Cancellation and the appointment 
of a liquidator is accordingly required. Subject to Resolution 4 being passed, 
the Proposed Liquidators will be appointed following the Cancellation and 
immediately upon the commencement of the Members' Voluntary Liquidation. 
 
In a Members' Voluntary Liquidation, the powers of the directors cease (save to 
the extent that the Company in a general meeting or the liquidators sanction 
otherwise) and the liquidators assume responsibility for the Company's 
affairs.  The liquidators deal with the realisation of assets, the agreement 
and discharge of liabilities and the distribution of the Company's surplus 
funds to Shareholders as and when funds permit.  Prior to distributing cash to 
Shareholders, the liquidators must be satisfied that either all liabilities
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