Mill Residential grabbed its fair share of headlines in November 2014, when angel-led crowdfunder SyndicateRoom announced that it would effectively be co-hosting the IPO of what was to be the UK’s first residential REIT. Mill Residential raised £2.226m through the listing, with roughly £1.5m contributed by SyndicateRoom investors. SyndicateRoom positioned this campaign as the first instance of tangible return within the UK’s nascent equity crowdfunding space. The REIT’s shares were initially priced at 100p per share, and closed at 108.5p after a highly successful first day of trading.
But the performance of those shares has subsequently declined. The shares have experienced a sharp decline since late April, reaching a nadir of 70p per share in early September, now standing at 72.5p. Mill Residential has now issued an announcement, which is entitled: “Proposed cancellation of admission to trading on AIM and trading update”. Within the document, Mill Residential’s Directors propose that the admission of the Ordinary Shares to trading on AIM be cancelled, and that the company commences a Members’ Voluntary Liquidation, following such a cancellation. 75% of the company’s shareholders must agree with the proposal for the cancellation and liquidiation to be carried out. If the resolution is approved, however, trading in the REIT’s shares is expected to cease on 16th November 2015.
Mill Residential has indicated that, following the liquidation of its assets, shareholders should expect to receive between 85 and 90 pence per share – although the company does make plain that these figures are intended to serve as guidance only. The proposed liquidators (whose services will only be activated if the resolution is accepted) anticipate that the final distribution of what they expect to be between £2.95m and £3.15m will take up to 10 months to complete (from October 15th).
So what went wrong for Mill Residential? The company provided the following explanation:
“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 unique nature of the Mill Residential campaign – i.e. the fact that investors were buying into what would soon become a listed vehicle – means there’s a chance that SyndicateRoom’s investors have already sold off some or all of their shares. Indeed, there’s a chance that those investors cashed in on or around February 18th – when the REIT's share price climbed to its zenith of 113 pence per share – thus turning a small profit from the round. Ultimately, however, this somewhat experimental project will seemingly come to be viewed as a failure for SyndicateRoom’s investors.
Rupert Taylor honed in on the liquidation of Soshi Games in his latest CrowdView column, applauding SyndicateRoom for the transparent fashion in which the platform handled the situation. The platform is planning a general update on the Mill Residential situation for after the impending shareholder vote, but Goncalo de Vasconcelos, CEO of the platform, offered the following statement:
"We note that Mill Residential REIT, a company that raised funds on SyndicateRoom, has decided to cancel its listing on AIM and commence a Members’ Voluntary Liquidation, subject to shareholder agreement.”
“The Directors of Mill Residential have clearly taken a pragmatic view on the prevailing market conditions and we recognise that this decision is an example of sensible and appropriate corporate governance. It is important to note that shareholders are estimated to receive 85 - 90 pence per share, representing 85 – 90% of the listing price.”
“Equity crowdfunding is high risk, with losses balanced against the potential for high returns, and this is another example of this young sector ‘growing up’ into an established asset class. Part of this ‘growing up’ is to be open and transparent about the failures as well as the successes – something which remains extremely important to both us and our investors.”
