Triple Point Soc.Hsg - Trading Update
03/02/2023 07:00
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RNS Number : 8064O Triple Point Social Housing REIT 03 February 2023
3 February 2023
Triple Point Social Housing REIT plc
(the "Company", "SOHO" or, together with its subsidiaries, the "Group")
Trading Update
The Board of Triple Point Social Housing REIT plc and Triple Point Investment
Management LLP ("Triple Point" or the "Manager") today provide a Trading
Update for the twelve months ended 31 December 2022.
· The Group's portfolio of 3,456 units and 497 properties with a
weighted average unexpired lease term of 25.3 years, demonstrated strong
resilience during the period, underpinned by growing excess demand for
Specialised Supported Housing which represents 88.5% 1 (#_ftn1) of the
Group's portfolio by rent roll.
· 91.7% of rent due was collected for the period (31 December 2021:
99.8%), 25 of the Group's 27 lessees recorded no material arrears.
· The Board remain committed to its stated annual dividend target
of 5.46 pence per Ordinary Share in respect of the financial year ended 31
December 2022.
· 94.3% of the Group's portfolio by rent roll was leased to
Registered Providers that are subject to regulatory protections and standards
provided by the Regulator of Social Housing. In the properties which provide
Specialised Supported Housing (88.5% of the portfolio by rent roll) a care
provider, regulated by the Care Quality Commission ("CQC"), provides care to
residents independently of the Registered Provider. For the remainder of the
portfolio (rent roll), 4.1% is classified as Registered Care or Children's
Services, and 7.4% is classified as Supported Housing.
· The portfolio recorded a strong weighted average rent increase of
6.7% during the twelve month period. 92.6% of the Group's leases are linked to
CPI with the remaining 7.4% linked to RPI, and 5.1% of the Group's leases have
caps.
o For the financial year ending 31 December 2023, the Group will prudently
apply a temporary one-year cap of 7% to its leases to Registered Providers.
This accounts for the current high inflationary environment facing Registered
Providers, but is consistent with both the UK government's 7% cap on social
housing rent increases (despite Specialised Supported Housing being excluded
from the cap) and the Group's highest historical weighted average annual
rental growth rate (being 6.7% for the year 2022). The voluntary cap applied
to the portfolio's leases for 2023 will continue to allow for material rental
growth whilst ensuring that the Group's rent increases remain sustainable and
in line with wider social housing sector policy.
· The Manager continues to actively engage with two of the Group's
27 lessees in relation to the Company's previously reported rent arrears (in
2022). The Group's latest reported Net Asset Value (as at 30 September),
published on 23 November 2022, reflected the valuation impact of these
isolated cases of rent arrears.
Whenever asset management decisions are made, the welfare of the individuals
living in the Group's properties is at the forefront of the decision making
process.
o My Space Housing ("My Space") (7.9% of rent roll): in the Enforcement
Notice published on 16 January 2023, the Regulator of Social Housing noted
concerns around My Space's solvency. The Manager is actively looking to move
properties away from My Space to alternative housing providers but notes the
Regulator's request that My Space consider, amongst other things, the option
of a business combination or merger which might negate the need to move
properties. Were properties to be moved to an alternate housing manager,
protecting the welfare of the residents of these properties would be the
Group's principal concern. The Company notes lease terms may be amended as
part of any transfer.
o In order to establish a downside risk, the Board and the Manager requested
the Company's valuer, Jones Lang LaSalle ("JLL"), to determine the potential
negative impact on the value of the Group's property portfolio in the event
that My Space were to go into administration. JLL have estimated this impact
to be up to 38% of the value of the properties let to My Space or 2.4% of the
Group's total portfolio valuation as of 30 September 2022.
o Parasol Homes Limited ("Parasol") (9.6% of rent roll): due to operational
issues, in the latter half of 2022 Parasol failed to pay all rent due to the
Group. Parasol is working to address these issues and the Manager expects to
agree a rent repayment plan with Parasol, including for rent arrears, which it
is hoped will see the Group's rent payments return to historical levels.
· In a rising interest rate environment, the Group continues to
benefit from its £263.5 million of long-term fixed-priced debt with a
weighted average coupon of 2.74% and a weighted average maturity of 10.6
years. The earliest debt maturity occurs in mid-2028.
· The Group continues to maintain significant covenant headroom
within its credit facilities alongside additional liquidity in the form of
£26.9 million of cash, and unencumbered properties with an aggregate
valuation of £70.8 million as at 30 September 2022.
· The Company will seek to introduce a new risk sharing clause into
its existing leases during Q2 2023 following ongoing consultation with
stakeholders, including the Regulator of Social Housing. The implementation of
the clause is intended to enhance the Group's Registered Provider lessees'
compliance with the Regulator of Social Housing's standards.
· The Board continues to actively engage with its shareholders and
is committed to addressing the current discount to the Company's Net Asset
Value. In order to deliver value to shareholders, the Board and Manager are
exploring making accretive share buybacks outside of a close period and the
potential sale of a portfolio of the Group's properties. If the Group
considered that a potential sale of a portfolio would be in the best interests
of its shareholders, and conditional on such a transaction not having a
material adverse impact on the Group's leverage position, the Board would seek
to return capital from such a sale to its shareholders.
Chris Phillips, Chair of SOHO, said: "The Board recognises the ongoing
resilience of the Company's portfolio, notwithstanding the sector-wide
pressures social housing providers are experiencing. SOHO's focus on
Specialised Supported Housing, and excess demand for more homes underpins our
confidence in the Group's outlook. The proposed amendments to existing lease
clauses are aimed at strengthening the compliance of the Company's Registered
Provider partners. The Board and the Manager are focused on delivering value
to shareholders, and are exploring making accretive share buybacks and the
potential sale of a portfolio of the Group's properties."
Max Shenkman, Head of Investment, Triple Point, said: "Over the last five
years, we have built a UK wide portfolio of properties leased to a diversified
range of counterparties most of whom focus on providing long-term Specialised
Supported Housing to people with care and support needs. Other than in two
isolated instances, our lessees have adjusted to the impact of a changing
macroeconomic and operating environment effectively, despite the rising cost
of providing their services. We continue to actively manage two isolated cases
of material rent arrears in our portfolio. We believe in proportionate
specialist industry regulation and its ability to enhance governance and
service provision in social housing. This, in turn, supports the
sustainability of the portfolio's cash flows and returns to SOHO's
shareholders."
COMPANY AND MANAGER COMMENTARY
1. Portfolio Performance and Valuation
91.7% of rent due and generated by the Group's portfolio of 497 properties was
collected during the period.
Properties that provide Specialised Supported Housing make up 88.5% 2
(#_ftn2) of the Group's portfolio by rent roll. In all of these properties a
care provider regulated by the CQC provides care to residents independently of
the Registered Provider who is responsible for providing housing management
services. Based on data received by the Manager from lessees, the Company
estimates that, for those lessees, the average care hours received by
residents is over 40 hours per week, considerably above guidance around the
levels of care expected in Specialised Supported Housing.
During 2022, rising inflation had a significant impact on the cost of
operating social housing properties. The majority of the Group's lessees have
adjusted to the impact of a changing macroeconomic and operating environment
effectively, as demonstrated by the resilience in the portfolio's performance.
If, as forecast, inflation slows over the course of the current financial
year, the peak of these challenges should have passed.
On a like for like basis, we expect the Company's property portfolio valuation
as at the 31 December 2022, provided by JLL, to reflect some negative
adjustment compared to the end of the prior quarter (30 September 2022:
£672.2 million), predominantly reflecting an outward movement in some social
housing yields. We expect this movement to be limited relative to other
commercial property markets due to excess demand for Specialised Supported
Housing, coupled with a continued lack of supply.
2. Portfolio Composition and Regulatory Protections
2.1. Lessee Regulgation and Care Provision
25 of the Group's 27 leases are regulated by either the Regulator of Social
Housing, the CQC or Ofsted, representing 98.4% of the portfolio's rent roll.
The majority of the Group's lessees are therefore subject to strong,
specialist housing, care or, in relation to two properties, children's
services regulation.
88.5% of the Group's properties benefit from a separate care provider,
regulated by the CQC. The care provider delivers care and/or support to the
residents living in the Group's properties. A further 3.8%, of the Group's
properties are leased directly to a care provider regulated by the CQC,
meaning that over 92.3% of the Group's properties have care and support
provided by a CQC registered care provider.
The provision of care and support is contracted directly between the Local
Authority and the care provider. Separately, where the care provider is not
the lessee, the care provider will typically enter into a service level
agreement with the relevant Registered Provider which, amongst other things,
will usually see the care provider underwrite the rent of any unoccupied units
in the property. These contracts typically last for between 5 to 10 years. Of
the Group's properties, 408 properties or 82% benefit from this voids cover.
On average, the Group's lessees are 17 years old, and they were typically
established to provide homes in the community to adults with care and support
needs.
Regulator Lessees Portfolio Composition Rent Roll (%)
By number of properties As at 31 December 2022
Regulator of Social Housing (RSH) 18 460 94.3
Care Quality Commission (CQC) 5 29 3.8
Ofsted 2 2 0.3
Sub Total (Subject to specialist Regulation) 25 491 98.4
Community Interest Groups or Charities 2 6 1.6
(Not subject to specialist care or housing regulation)
TOTAL 27 497 100.0
2.2. Portfolio Diversification and Monitoring
The Group has seven lessees each representing 5% or more of the Group's rent
roll and which together represent 74.3% of the Group's rent roll as at 31
December 2022. All these lessees are Registered Providers. Except for
Inclusion Housing CIC which represents 29.4%, none of the Group's other
lessees represent more than 10% of rent roll.
Despite a changing macroeconomic and operating environment, most of the seven
lessees that represent 5% or more of the Group's rent roll have demonstrated
an improvement in net profitability in their latest management accounts shared
with the Manager. The Manager receives and analyses management accounts for
all of these seven lessees and does the same for lessees representing 99.1% of
the portfolio (by rent roll).
The Manager's Housing Team of 24 people are focused on monitoring the
performance of the properties, lessees and care providers within the Group's
portfolio. Since launch properties have been inspected by the Manager's
in-house surveyors every two years and this is complemented by quarterly and
bi-annual operational, financial and compliance surveys as well as frequent
engagement with senior management teams.
2.3. Regulatory Engagement
The Company's focus is on leasing Specialised Supported Housing properties to
Registered Providers regulated by the Regulator of Social Housing (per
paragraph 2.1 above). Over the last five years, the Regulator of Social
Housing has actively engaged with Registered Providers operating the
long-lease model in the Specialised Supported Housing sector.
Of the Group's 18 Registered Provider lessees, three have over 1,000 units and
15 under 1,000 units. Typically, Registered Providers with under 1,000 units
are subject to a lower level of regulatory oversight.
However, due to the Regulator of Social Housing's focus on the Specialised
Supported Housing sector, all of SOHO's Registered Providers have been subject
to relatively intensive engagement, which promotes a greater degree of
accountability and transparency in the sector.
The Company and the Manager welcome the ongoing engagement by the Regulator of
Social Housing as it ultimately serves the best interests of the Company's
tenants and shareholders. We believe that improvements in the governance and
operations of the Group's lessees is bought about by strong regulation and,
combined with the active asset management undertaken by the Manager,
strengthens portfolio performance.
All regulatory judgements and notices concerning the Group's Registered
Providers have been reported by the Group in various announcements dating back
to May 2018. In nearly all cases we believe that the Regulator of Social
Housing's engagement has promoted improvements in both the governance and
operations of these organisations.
Following engagement with key stakeholders, including the Regulator of Social
Housing, and in order to complement the work done by the boards and management
teams of the Group's lessees, the Company will seek to implement a new risk
sharing clause in the Group's existing leases. The clause is aimed at
strengthening the compliance of the Company's Registered Providers by
addressing some of the general risks raised by the Regulator of Social Housing
in relation to long leases.
3. Outlook
The Group remains focused on providing Specialised Supported Housing to people
with care and support needs throughout the UK.
The Company expects the Specialised Supported Sector to maintain its ongoing
resilience due to its strength in recessionary periods relative to other
commercial property sectors, which in turn is underpinned by the growing
excess demand for more Specialised Supported Housing in the UK.
The majority of the Group's lessees continue to perform in-line with our
expectations. Other than in relation to two of the Group's 27 lessees, rent
collection remains consistent with historical levels. The Company and Manager
will continue to engage positively and collaboratively with our lessee
partners to help them respond to both inflationary pressures and the
observations around their compliance made by the Regulator of Social Housing,
as evidenced through the voluntary implementation of the 7% rent increase cap
and the proposed roll out of the new risk sharing clause respectively.
ENDS.
FOR FURTHER INFORMATION ON THE COMPANY, PLEASE CONTACT:
Triple Point Investment Management LLP (Manager)
Tel: 020 7201 8989
Max Shenkman
Isobel Gunn-Brown
Akur Capital (Joint Financial Adviser)
Tel: 020 7493 3631
Tom Frost
Anthony Richardson
Siobhan Sergeant
Stifel (Joint Financial Adviser and Corporate Broker)
Tel: 020 7710 7600
Mark Young
Mark Bloomfield
Rajpal Padam
Madison Kominski
NOTES
The Company focuses on investing in newly developed social housing assets in
the UK, with a particular focus on specialised supported housing. The majority
of the assets within the portfolio are subject to inflation-linked, long-term,
Fully Repairing and Insuring ("FRI") leases with Approved Providers (being
Housing Associations, Local Authorities or other regulated organisations in
receipt of direct payment from local government). The portfolio comprises
investments into properties which are already subject to a lease with an
Approved Provider, as well as forward funding of pre-let developments but does
not include any direct development or speculative development.
There is increasing political pressure and social need to increase housing
supply across the UK which is creating opportunities for private sector
investors to help deliver this housing. The Group's ability to provide forward
funding for new developments not only enables the Company to secure fit for
purpose, modern assets for its portfolio but also addresses the chronic
undersupply of suitable supported housing properties in the UK at sustainable
rents as well as delivering returns to investors.
The Company is a UK Real Estate Investment Trust ("REIT") listed on the
premium segment of the Official List of the UK Financial Conduct Authority and
is a constituent of the FTSE EPRA/NAREIT index.
Additional information on regulation
The Specialised Supported Housing sector is regulated by the Regulator who
carries out assessments on registered providers either through a scheduled
In-depth assessment ("IDA") or reactive engagement. When a registered provider
passes the 1,000-unit threshold, it automatically becomes subject to a
detailed IDA by the Regulator.
The IDA assesses compliance with the requirements of the Governance and
Financial Viability Standard. The outcome of an IDA results in the Regulator
publishing a formal grading (V 1-4 for Viability and G 1-4 for Governance,
where V1-2 and G1-2 are considered "compliant" ratings, and V3-4 and G3-4 are
considered "non-compliant" ratings), known as a regulatory judgement.
1 (#_ftnref1) Including Specialised Supported Housing properties at
affordable rents.
2 (#_ftnref2) Including Specialised Supported Housing properties at
affordable rents.
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