REG - Residential Secure - Final Results for the year ended 30 September 2022
01/12/2022 07:00
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RNS Number : 2269I Residential Secure Income PLC 01 December 2022
1 December 2022
Residential Secure Income plc
("ReSI" or the "Company")
Full Year Results to 30 September 2022
Growing, higher quality income drives increased dividend and return to full
coverage in Q4
Residential Secure Income plc (ReSI plc) (LSE: RESI), which invests in
independent retirement living and shared ownership to deliver secure,
inflation-linked returns, is pleased to announce its Annual Results for the
year ended 30 September 2022.
EPRA Net Tangible Assets (NTA) IFRS Net Asset Value
£mn Pence per share £mn Pence per share
Net Asset Value at 30 Sept 2021 184.7 107.9 182.4 106.6
Net income for period 8.9 5.0 8.9 5.0
Valuation change i (#_edn1) 3.0 1.8 3.2 1.8
One-off costs & net share issuance impact (1.0) (0.5) (1.0) (0.5)
Debt valuation / indexation ii (#_edn2) (5.2) (2.9) 1.8 1.1
Proceeds from additional shares issued 15.2 N/A 15.2 N/A
Dividends paid (9.2) (5.2) (9.2) (5.2)
NAV at 30 Sept 2022 196.5 106.1 201.4 108.8
Total Return 5.8 3.4 13.0 7.3
Growing dividend, covered by rising higher quality income
● EPRA Adjusted Earnings iii (#_edn3) up 18% to 5.0 pence per share ("p") (FY
2021: 4.2p)
● Dividend up 3.20% to 5.16p
● Dividend 97% covered by recurring income in the year, return to full cover in
Q4'22
● Rental operating profit up 36% to £8.4mn (FY 2021: £6.2mn)
● £31mn of accretive shared ownership acquisitions, fully deploying February
2022's £15mn capital raise
Strong rental growth with tight occupancy - solid rent collection maintained
● Like-for-like rental growth of 4.5% (FY 2021: 1.5%) with 3.7% in H1 and 5.1%
in H2
● 100% like-for-like shared ownership occupancy (99% including new homes
acquired in September)
● Retirement occupancy above pre-pandemic levels, at 94% in FY 2022 (FY 2021:
93%)
● Rent collection remains at 99%
Valuations impacted by macro environment
● Total return of 3.4p to give EPRA NTA 106.1p (FY 2021: 107.9p)
● EPRA net recurring inflation growth in valuations of 9.4p (11.4p gain on
property valuations less 2p debt indexation which related to FY 2022)
● Offset by 9.6p decline caused by 35bps discount rate increase used in
discounted cash flow property valuations resulting from higher risk-free rates
● One-offs of debt indexations catch-up from the prior year of 0.9p and equity
& debt issuance costs of 0.5p
Delivering high quality, energy efficient, well-managed homes
● ReSI remains focused on residents' wellbeing and improving portfolio energy
efficiency
● 96% of directly rented properties now EPC rated A-C (FY 2021: 90%) following
upgrades during the year
● Almost 90% satisfaction levels with our in-house property management team iv
(#_edn4)
● 54% of retirement residents reported an improvement in their mental health on
moving in v (#_edn5)
● Shared owners better shielded from cost of living increases than outright
owners or private renters vi (#_edn6)
Resilient balance sheet with long-term and low-cost debt
● Diverse portfolio of 3,284 homes worth £383m vii (#_edn7)
● 22-year average debt maturity, 90% fixed or hedged with low 2.4% weighted
average coupon
● 12% reversionary uplift in home values
Outlook: FY 2023 focus on maintaining dividend cover at 5.16p viii (#_edn8)
. Well positioned for future growth.
● 97% inflation linked rents provides strong basis for future growth
● Accelerating tenanted shared ownership opportunities as housing associations
look to fund increasing costs of investing in their existing stock whilst
maintaining development programmes
● Headwinds in FY 2023 from increasing interest rates on 10% of debt that is
floating and energy costs in our retirement communal areas
● Near-term downwards pressure on NTA from rising risk-free rates used in
discounted cash flow valuations
Commenting on ReSI's results, Robert Whiteman CBE, Chairman of ReSI plc, said:
"We are pleased with ReSI's continued growth in FY 2022 driven by improving
retirement occupancy, strong like-for-like rental growth, full occupation of
our shared ownership portfolio, and accretive acquisitions, all underpinned by
consistent rent collection - positioning ReSI well for next year.
"ReSI has built a platform of resilient cash-generative assets and low-cost,
long-term debt which, when paired with the robust governance from its
for-profit Registered Provider and Gresham House's resources and partnerships,
provides a strong basis for future growth.
"The current high inflationary environment is raising the cost of living for
citizens across the country and at the same time the UK is entering into a
recession. Now, more than ever, ReSI's investment thesis is supported by a
growing need for affordable housing in the UK, across the age spectrum. The
country's structural housing shortfall continues and most of the population
lives in areas where home purchase is unaffordable.
"The Board remains confident that ReSI is well positioned to help address the
growing unmet demand for affordable housing."
Ben Fry, Managing Director of Housing at Gresham House added:
"The current cost of living crisis is having a huge impact across the country
and impacts both ReSI and the lives of our residents. Through 2022 and beyond
we continue to balance returns and investing in our portfolio with ensuring
the affordability of our homes for our residents and the long-term resilience
of our income.
"The UK has a substantial shortage of affordable housing, which is only
getting worse as housing associations face unpresented pressure on their own
resources - making it harder for them to deliver the new long-term investment
that is desperately required to deliver new affordable homes.
"This is leading to an increase in housing associations looking to partner
with long-term patient capital, such as ReSI, to continue to deliver much
needed new affordable homes whilst continuing investment in their existing 2
million homes."
Analyst and Investor Presentation and Annual Report
ReSI will host an online webinar and Q&A session for analysts and
investors to discuss the results later today (1 December 2022) at 9:00am.
Registration is available via
https://greshamhouse.zoom.us/webinar/register/WN_6SwbaRFkSaan3tXkdBc9iw
(https://greshamhouse.zoom.us/webinar/register/WN_6SwbaRFkSaan3tXkdBc9iw) .
The accompanying presentation will be made available shortly after the webinar
on the Company's website at https://www.resi-reit.com/company-documents
(https://www.resi-reit.com/company-documents) .
A copy of the pdf Annual Report is available on the Company's website at
https://www.resi-reit.com/company-documents
(https://www.resi-reit.com/company-documents) where further information on the
Company can also be found. The Annual Report has also been submitted to the
National Storage Mechanism and will shortly be available at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) .
i For EPRA NTA, property valuation of £3.0mn, net of £0.2mn revaluation of
trading properties
ii For EPRA NTA movement reflects indexation of USS debt of which £3.7mn /
2.0p related to FY 2022. The Company has elected to carry this debt at fair
value through profit and loss. In accordance with the EPRA Best Practice
Recommendations, EPRA NTA should reflect the amortised cost of the debt rather
than its fair value. In the current period, an adjustment has been made for
£5.2mn which represents the difference between fair value and what amortised
cost would have been had the Company carried the debt at amortised cost. No
adjustment was made in the prior year as it was immaterial. The charge would
have been £1.5mn for the year ended 30 September 2021.
iii EPRA adjusted earnings is EPRA earnings adjusted for income and costs
which are not recurring and is equivalent to IFRS profit after tax before
one-offs and valuation adjustments
iv Source: ReSI Housing Customer Survey
v Source: Retirement residents customer survey
vi Company internal calculation. Full calculation and assumptions disclosed in
cost of living section of the FY 2022 accounts
vii Including 40 homes that are committed acquisitions
viii The dividend target is a target only and not a profit forecast. There can
be no assurance that this target will be met.
For further information, please contact:
ReSI Capital Management Limited / Gresham House Housing
Ben Fry +44 (0) 20 7382 0900
Brandon Holloway
Peel Hunt LLP
Luke Simpson +44 (0) 20 7418 8900
Huw Jeremy
KL Communications gh@kl-communications.com (mailto:gh@kl-communications.com)
Charles Gorman +44 (0) 20 3995 6673
Charlotte Francis
Millie Steyn
About ReSI plc
Residential Secure Income plc ("ReSI plc" LSE: RESI) is a real estate
investment trust (REIT) focused on delivering secure, inflation-linked returns
with a focus on two resident sub-sectors in UK residential - independent
retirement rentals and shared ownership - underpinned by an ageing demographic
and untapped and strong demand for affordable home ownership.
ReSI plc targets a secure, long-dated, inflation-linked dividend of 5.16 pence
per share p.a. (paid quarterly) in FY23 and a total return in excess of 8.0%
per annum ix (#_edn9) . As at 30 September 2022, including committed
acquisitions, ReSI plc's portfolio comprises 3,284 properties, with an
(unaudited) IFRS fair value of £383mn x (#_edn10) .
ReSI plc's purpose is to deliver affordable, high-quality, safe homes with
great customer service and long-term stability of tenure for residents. We
achieve this through meeting demand from housing developers, housing
associations, local authorities, and private developers for long-term
investment partners to accelerate the development of socially and economically
beneficial affordable housing.
ReSI plc's subsidiary, ReSI Housing Limited, is registered as a for-profit
Registered Provider of social housing, and so provides a unique proposition to
its housing developer partners, being a long-term private sector landlord
within the social housing regulatory environment. As a Registered Provider,
ReSI Housing can acquire affordable housing subject to s106 planning
restrictions and housing funded by government grant.
About Gresham House and Gresham House Real Estate
Gresham House is a London Stock Exchange quoted specialist alternative asset
manager committed to operating responsibly and sustainably, taking the long
view in delivering sustainable investment solutions.
Gresham House Real Estate has an unparalleled track record in the affordable
housing sector over 20 years, with senior members having an average of c.30
years' experience.
Gresham House Real Estate offers long term equity investments into UK housing,
through listed and unlisted housing investment vehicles, each focused on
addressing different areas of the affordable housing problem. Each fund aims
to deliver stable and secure inflation-linked returns whilst providing social
and environmental benefits to its residents, the local community, and the
wider economy.
Further information on ReSI plc is available at www.resi-reit.com, and further
information on Gresham House is available at www.greshamhouse.com
ix The dividend target and total return target are targets only and are not
profit forecasts. There can be no assurance that either target will be met,
and they should not be taken as an indication of the Company's future results.
x Excluding the finance lease gross up and including £9mn of committed
acquisitions.
Annual Report & Accounts 2022
Residential Secure Income plc
30 September 2022
Strategy and Performance
Purpose
Residential Secure Income plc (LSE: RESI) is a real estate investment trust
(REIT) focused on delivering secure, inflation-linked returns with a focus on
two residential sub-sectors in the UK - independent retirement rentals and
shared ownership - underpinned by an ageing demographic and untapped, strong
demand for affordable homeownership.
Our purpose is to deliver affordable, high quality, safe homes with great
customer service and long-term stability of tenure for residents. We achieve
this through meeting demand from housing developers (housing associations,
local authorities and private developers) for long-term investment partners to
accelerate the development of socially and economically beneficial affordable
housing.
Portfolio Snapshot
We invest in UK affordable homes to deliver secure inflation linked income
3,284 £383mn 926
Homes
Value of Investment Property*
Unique UK property locations
Including 41 committed acquisitions including £9mn committed acquisitions
30 September 2021: 793
30 September 2021: 3,051
30 September 2021: £351mn
See note 17 on page 146
£16.0mn 5.0% 2,608
Net rental income for the year to 30 September 2022
Annualised net rental yield*
Number of counterparties
Year to 30 September 2021: £13.2mn
30 September 2021: 4.9%
30 September 2021: 2,356
See note 6 on page 141
See Supplementary
Information on page 172
* Alternative performance measure
Portfolio split by region
Region Count
East Midlands 74
East of England 835
Greater London 478
North East 19
North West 259
Scotland 5
South East 788
South West 590
Wales 53
West Midlands 90
Yorkshire and The Humber 93
Total 3284
Portfolio split
Our Portfolio Focus
ReSI has diversified secure inflation-linked income streams from residential
sub-sectors with strong supply and demand imbalances and supportive property
fundamentals
Independent Retirement Living Housing Shared Ownership Housing
(£219mn GAV / 2,215 Homes / 57% of portfolio) (£137mn GAV 1 (#_ftn1) / 780 Homes / 36% of portfolio)
Driver Booming and increasingly lonely older population Huge untapped demand for affordable homeownership
Summary Let to elderly residents with affordable rents and assured tenancies Homebuyers acquire a share in a residential property and rent the remainder
Provides fit-for-purpose homes for retirees, allowing them to maintain their Helps house buyers acquire homes they would otherwise be unable to buy
independence without care provision
Capital grant funding from government allows total shared ownership housing
costs to be c.40% below the level expected for renting an equivalent property
in the private rented sector
Rent growth Increase with RPI each year, capped at 6.0% Increase contractually by RPI + 0.5% each year
Secure income Rental income paid from pensions and welfare Subsidised rents c.30% below market
Homebuyer equity stake
ReSI origination Scale: UK's largest private independent retirement rentals business ReSI Housing - for-profit Registered Provider of Social Housing
advantages Specialist in-house 25-person investment team with over 20-year track record Unique 45-year, 0.9% coupon, RPI linked USS debt facility
Average vacant possession value 2 (#_ftn2) c.£110,000 per home c.£328,000 per home
Net Yield on Cost 5.2% 3.6%
Levered Yield on Cost 6.7% 7.5%
Average customer stay / length of lease 3 (#_ftn3) 6 years 250 years
Annualised like for like rental growth 4.6% 5.4%
September 2022 94% 100% 4 (#_ftn4)
Occupancy
Financial Highlights
as at 30 September 2022
Income
5.0p / +19% 7.4p 4.5%
Adjusted Earnings Per Share*
IFRS Earnings Per Share
Like-for-like rent growth*
EPRA Adjusted Earnings Per Share Year ended 30 September 2021: 4.2p
Year ended 30 September 2021: 6.6p
Year ended 30 September 2021: 1.5%
See note 15 on page 145 See note 15 on page 145
5.16p / + 3.2% 97% £9.0mn / +26%
Dividend per share
Dividend coverage*
Recurring profit before change in fair value and property disposals*
Year ended 30 September 2021: 5.0p
Year ended 30 September 2021: 85%
Year ended 30 September 2021: £7.1mn
See note 15 on page 145 See note 15 on page 145
3.3% 7.1%
Total Return (on Opening NTA)*
Total IFRS Return (on Opening NAV)
Year ended 30 September 2021: 7.5%
Year ended 30 September 2021: 6.2%
See Supplementary See Supplementary
information on page • information on page •
* Alternative performance measure
108.8p / +2.0% £383mn 3.4% (6.4mn shares )
IFRS Net Asset Value per share
Value of Investment Property 5 (#_ftn5) *
Of the total number of shares held by the Fund Manager, current and founder
directors of the Fund Manager, and directors of ReSI plc as at the date of
30 September 2021: 106.6p
30 September 2021: £351mn this Annual Report
See Note 17on page 146
See Note 32on page 157
(30 September 2021: 2.4% or 4.1mn shares)
47% 22 Years 106.1p / -1.7%
Loan to Value Ratio (LTV)
Weighted Average Remaining Life of Debt
EPRA Net Tangible Asset Value (NTA) per share*
30 September 2021: 47%
30 September 2021: 22 years
30 September 2021: 107.9p
See Note 36on page 159 See Note 32on page 157
2.4%
Weighted Average Cost of Debt
30 September 2021: 2.3%
Chairman's Statement
Rob Whiteman CBE
Chairman
"Reduction in retirement voids, strong like for like rental growth, full
occupation of our shared ownership portfolio as well accretive acquisitions
have driven the growth seen in ReSI's underlying financial results for the
year, all underpinned by consistent rent collection - positioning ReSI well
for next year"
Summary
The past year has continued to demonstrate that despite volatility in both the
economic and political environment the need for high-quality affordable
housing continues to increase, a trend we expect to continue through 2023.
I am pleased to report ReSI's portfolio continues to be defensive and
positioned to weather economic stress. Demand for our high-quality affordable
accommodation continues to be strong, whether in our existing portfolio or our
newly acquired homes. This has been illustrated by ReSI delivering strong 4.5%
like for like rental growth whilst increasing occupancy in our retirement
portfolio to its highest ever level (averaging 94% for the year) and fully
occupying our shared ownership portfolio. All underpinned by our consistent
99% rent collection. ReSI now owns a portfolio of 3,284 homes worth £383mn
(including commitments to acquire 41 homes for £9mn) and we have grown our
adjusted earnings by 26% year on year to £9mn.
ReSI raised £15mn of equity in February to grow our shared ownership
portfolio, the proceeds of which are fully invested in 286 shared ownership
homes, the full year impact of which will continue to drive performance in FY
2023.
ReSI's social value is demonstrated by extending affordable housing to
under-served segments of the housing market: primarily providing affordable
housing to retirees to live with peers and avoid loneliness; and providing
high quality and spacious affordable homeownership to lower and middle-income
households through shared ownership.
Importantly, the economic environment and cost of living crisis impacts the
lives of our residents, and we will continue to balance rent increases and
investing in our portfolio with ensuring the affordability of our homes for
our residents and the long-term resilience of our income. For example,
retirement rent increases have been capped at 6.0% during the year, generating
an annual saving of £164k p.a. for retirees. We also offer further rent caps
and rent freezes to provide financial support to our retirement residents most
in need. This support has grown from £32k in the six months to March to a
total annualised amount for the year of £86k.
Furthermore, we continue to aim to be a best-in-class provider of affordable
housing and drive an improvement in standards across the sector. In shared
ownership, ReSI Capital Management Limited (the "Fund Manager") has unique
Customer and Environmental Charters setting out commitments to our residents
and stakeholders, and we continue to invest in improving the energy efficiency
of our retirement portfolio and investing in technology to make the lives of
our residents easier. During the current year, ReSI has focused on the least
energy efficient homes within its portfolio and has upgraded 61% of our D
rated directly-rented retirement homes to a minimum EPC of C, marking great
progress on our plan to achieve this for all by 2025 - a key part of ReSI's
ambition of reducing the carbon footprint of our portfolio.
Net Asset Value and Results
ReSI's FY 2022 financial results build on the earnings growth produced in FY
2021. This growth was driven by reducing retirement voids throughout the
year, rent increases across all three asset classes, continued progress in
occupying our shared ownership portfolio and substantial shared ownership
investments acquisitions.
These factors and ReSI's disciplined approach to selecting and managing
investments helped deliver £9.0mn of EPRA adjusted earnings, up 24% from
£7.1mn last year. This is equivalent to 5.0p per share (FY 2021 4.2p) in line
with EPRA adjusted earnings of 5.0p (FY 2021 4.2p) (See Note 15).
The portfolio's valuation, assessed by Savills, rose £2mn, or 0.6% on a
like-for-like fair value basis for year, to £383mn (including £9mn committed
acquisitions). This was driven by 4.5% like-for-like rental growth, largely
offset by year-over-year increases of 35bps in the weighted average discount
rates, caused by increases in risks free rates over the year. This increase in
discount rates was the largest drag on ReSI's performance in the year.
After accounting for debt indexation and one-offs, ReSI produced a total EPRA
NTA return of 3.4p per share (3.1%) during the financial year, or 4.6p (4.3%)
total return on a recurring basis 6 (#_ftn6) . After paying a dividend of
5.16p per share, the EPRA NTA per share decreased 2% to 106.1p during the year
to 30 September 2022 (1% decline on a recurring basis).
IFRS earnings per share for the year were 7.4 pence per share (6.8%), leading
to an increase in the IFRS NAV by 2.0% to 108.8p after paying out the 5.16p
dividend. The difference to EPRA NTA returns is primarily caused by an
increase in the amortised cost value of debt (EPRA) versus fair value of debt
(IFRS) of 3.9p (£7.0mn). A full summary of ReSI's performance and a breakdown
of our returns is included in the performance section of the Fund Manager's
Report.
Dividend Outlook
Dividends totalling 5.16p were declared for the year, matching our target
increase of 3.1% versus the prior year, in line with September 2021 CPI,
reflecting the inflation-linkage of the portfolio. The dividend is paid in
equal quarterly dividends of 1.29p.
Our dividend was 97% covered by recurring income in the year, with the drop
below 100% primarily reflecting the impact of ReSI's capital raise in
February, and the lag on dividend coverage whilst this was deployed. Full
dividend coverage returned in Q4 once these new investments were onboard.
We anticipate that FY 2023 will see earnings growth from inflation-linked
rents, as well as shared ownership acquisitions and leasing activity, but this
could be offset by one-off operating expenses increasing ahead of rent
increases (driven by ReSI's retirement rentals operations where we are
responsible for energy costs in communal areas) and increases in floating-rate
interest expenses.
In light of these headwinds, we are currently focused on maintaining (and
growing beyond) dividend coverage on a dividend in line with FY 2022 at 5.16p
per Ordinary Share. Any revision or adjustment to the dividend target will
require greater confidence that interest rates have peaked, and energy costs
stabilised. For FY 2024 and beyond these one-offs could be static or
potentially reduce, allowing for higher dividends and supporting our goal over
the longer term delivering sustained dividend growth that broadly tracks
inflation.
This approach will allow ReSI to balance long-term inflation linked returns
whilst continuing to pay attractive dividends to shareholders.
Continuation Vote
The Company's articles of association require the Board to propose a
continuation vote as an ordinary resolution at the Annual General Meeting
(AGM) following the fifth anniversary from the initial public offering (IPO)
of the Company and at every fifth AGM thereafter. The first resolution is
expected to be presented at the AGM in January 2023. Following discussions
with a number of shareholders and on the basis of the growth seen since the
IPO, the long term nature of its assets with supporting debt funding and the
attractiveness of the Company's low risk inflation linked income, the
Directors are of the opinion that the continuation resolution at the
forthcoming AGM will be passed.
Outlook
The current high inflationary environment is raising the cost of living for
citizens across the country at the same time the UK is entering into a
recession. Now, more than ever, the Company's investment thesis is supported
by a growing need for affordable housing in the UK, across the age spectrum.
The country's structural housing shortfall continues and most of the
population lives in areas where home purchase is unaffordable.
The British Property Federation estimates a need for an extra £34bn per annum
of investment into affordable housing over the next decade to start to tackle
the shortfall. Housing associations, who have historically been the primary
investors in affordable housing, are now dealing with rent caps on their
social and affordable rent portfolios in addition to allocating c.£10bn for
fire safety and c.£25bn to upgrade the energy efficiency of their stock
2030 7 (#_ftn7) (, 8 (#_ftn8) ). These financial pressures reduce their
ability to provide new affordable homes, and further support for new long-term
investment in the sector.
The Government continues to encourage new investment, particularly through its
Homes England's Affordable Homes Programme, which provides total funding of
£12.2bn to help subsidise 180,000 new affordable homes by 2026. We remain
excited by the opportunity to help housing associations recycle their capital
with developers to deliver new affordable homes, helping to meet the critical
shortage of affordable homes for independent retirement living and
homeownership and in turn delivering inflation-linked income to our investors.
ReSI has built a platform of resilient cash-generative assets and low-cost,
long-term debt which, when paired with the robust governance from its
for-profit Registered Provider and Gresham House's resources and partnerships,
provides a strong basis for future growth. The Board remains confident that
ReSI is well positioned to help address the growing unmet demand for
affordable housing, and ReSI is also well positioned to deliver long-term
inflation-linked dividends and capital growth.
Promotion of Ben Fry and semi-retirement of Alex Pilato
The Board of ReSI supported the promotion of Ben Fry to lead the housing
division of Gresham House and would like to take the opportunity to thank Alex
Pilato for his contribution to ReSI to date and continuing in his new role as
Senior Adviser.
Annual General Meeting (AGM)
The AGM will be held on 31 January 2023. We hope you will join us, raise any
questions or provide any feedback - as valued stakeholders (among others),
your input is always welcome. Shareholders are encouraged to make use of the
proxy form provided in order to register votes in advance of the AGM through
ReSI's Company Secretary, Computershare.
As always, the Board is grateful for the continued support of ReSI's
shareholders and the contribution of its advisers.
Rob Whiteman
Chairman
Residential Secure Income plc
1 December 2022
Investment Case
Why ReSI?
ReSI's portfolio delivers 97% inflation-linked income, which is generated from
affordable and secure rents and supported by strong market drivers in shared
ownership housing and independent retirement living.
Secure long-term inflation-linked income
5.16p FY 2022 target, paid quarterly
ReSI's business model is:
Supported by: Creating: Executed by:
Strong market drivers Measurable impact Expert manager
Aging population, declining home affordability, supportive Government policy Providing affordable high-quality, energy efficient homes for life, and c.60-person housing team with over 20-year track record in UK housing
addressing elderly loneliness
ReSI's income is:
Diverse Asset-backed Affordable
3,284 households diversified across ages and stages of life Underpinned by c.£454mn home value with 12% uplift from reversionary surplus Low retirement rents 9 (#_ftn9) paid from pensions and welfare
Subsidised shared ownership rents secured by homebuyers' stake c.£14mn Government grant supports subsidised rents
for shared ownership
Market Drivers
Supply / demand imbalance from historic undersupply
The UK has a systemic problem with undersupply of affordable housing that
dates back over 30 years. Housing deliveries across the UK have continued to
fall short of the government's target of 300,000 homes delivered annually, and
the average UK home price increased 9.5% year-over-year in September 2022 to
£295,000.(( 10 (#_ftn10) )) Furthermore, homeownership rates have
dramatically dropped over the last 40 years, despite three-quarters of
non-home owners in Great Britain wanting to own their own home.(( 11
(#_ftn11) )) Those who cannot afford to buy typically end up in private rented
accommodation, much of which is unfit for people to live in safely with PAC
finding that 13% of rented homes in England "pose a serious threat to the
health and safety of renters," despite record rent increases.
The availability of affordable housing in the UK follows similar trends: in
2021, over 1.1 million households were on local authorities' housing waiting
lists across England,(( 12 (#_ftn12) )) reflecting the fact that the annual
delivery of affordable homes (c.50,000) consistently falls well short of the
estimated annual need (c. 145,000).(( 13 (#_ftn13) )) Meanwhile housing
associations, who are typically the primary deliverers of affordable housing,
are having to shift investment capacity away from new development towards
portfolio investment costs associated with fire safety and energy efficiency
improvements.
The results of these trends can be seen in the following maps, which show how
median price-to-earnings ratios at the local authority level have changed over
recent decades. In most local authorities across England, the median earner
cannot afford to buy the median-priced property, as shown in light blue on the
map:
It is estimated that c.£34bn of additional capital funding is needed to
deliver 145,000 affordable homes annually 14 (#_ftn14) , and ReSI aims to
help bridge the funding gap.
Stable, long-term, inflation-linked rents
The affordable housing sector has long-term structural demand drivers,
liability matching return characteristics, potential for growth and insulation
from volatility, all resulting in stable inflation-linked income. It offers a
great opportunity for social impact and, for long-term investors looking for
responsible investment opportunities.
ReSI's rental income streams are diverse and/or secure. Retirement rental
residents pay from pensions and savings, shared owners have ownership stakes
in their homes and the local authority housing portfolio is leased to Luton
Borough Council. ReSI has no leases with weak credit charities or housing
associations. ReSI's rental income stream is therefore significantly more
secure than those of the supported housing sector, the private rental sector
or commercial real estate.
Rent payments rise each year, typically in line with inflation for the
retirement rental portfolio and contractually linked to RPI+0.5% for the
shared ownership portfolio, offering a secure income stream and potential
growth in asset values over time.
Reducing development appetite from peers
The UK has been delivering around 43,000 new affordable homes annually over
the last five years 15 (#_ftn15) but this falls significantly short of need.
Savills analysis suggests that a further 60,000 new affordable homes are
needed annually, and that the affordable housing shortage is most severe in
areas with the highest housing costs, with London and the South East needing
over 50% of new affordable homes to meet demand 16 (#_ftn16) .
Meanwhile housing associations, who have historically been the primary
investors in affordable housing, are now dealing with rent caps on their
social and affordable rent portfolios in addition to allocating c.£10bn for
fire safety and c.£25bn to upgrade energy efficiency of their stock by
2030 17 (#_ftn17) (, 18 (#_ftn18) ). These financial pressures reduce their
ability to provide new affordable homes, and further support for new long-term
investment in the sector. The British Property Federation estimates a need for
an extra £34bn per annum investment in affordable housing over the next
decade to begin to address the shortfall in affordable housing supply.
Investment Team
Gresham House has extensive experience and expertise in affordable housing:
25-person investment team - senior members with average c.30 years' experience
With some individuals amassing over 40 years of experience, ReSI's team has
deep expertise in multiple residential sectors, including shared ownership
housing and independent retirement living.
30+ person property management team
In-house property management team allows ReSI to benefit from scale, and helps
ensure a positive resident experience
Over 20-year track record in social housing, raising >£11bn
The Fund Manager's direct parent company, TradeRisks Limited, has been active
within the social housing sector for over 20 years as a funding arranger and
advisor and, over the last five years, as an investor through ReSI.
Manage £800mn of long-term institutional capital invested into almost 6,000
homes over last five years
Long-term capital sourced from a diversified pool of investor types, including
pension funds (primarily local government and corporate) and wealth management
companies channelling individual SIPPS and ISAs.
Founder and manager of Registered Providers of Social Housing
ReSI Housing Limited, ReSI's wholly-owned Registered Provider of Social
Housing, allows ReSI to invest in shared ownership housing and receive capital
grant funding from the Greater London Authority and Homes England.
Demonstrating strong expertise in the shared ownership sector, Gresham House,
the Fund Manager's parent, has successfully set-up two Registered Providers of
Social Housing across its housing funds.
Greater London Authority Strategic Partner and Homes England Investment
Partner
Reflecting Gresham House's strong relationships with government-regulated
institutions, the Fund Manager's vehicles have been awarded nearly £34mn in
combined grant funding from both institutions. Gresham House has worked with
the government to improve the shared ownership model in the 2021-2026 capital
grant funding programme, with our aim to continue lifting standards across the
shared ownership sector.
Investment Portfolio
Independent Retirement Rental Housing
£219mn GAV / 2,215 Homes / 57% of portfolio
[Map showing geographical Dispersion of retirement portfolio]
Region Number of homes
East Midlands 25
East of England 331
London 190
North East 19
North West 231
Scotland 5
South East 695
South West 520
Wales 53
West Midlands 57
Yorkshire and The Humber 89
Grand Total 2,215
Independent Living for retirees
Our portfolio provides an affordable rental independent living solution for
retirement with lifetime tenancies.
In summary, the portfolio:
1. is let to elderly residents with affordable rents and lifetime
tenancies;
2. provides fit-for-purpose homes for retirees, allowing them to maintain
their independence without care provision;
3. frees up larger homes for families;
4. generates stable and secure rental income paid from pensions and
welfare
5. rents increase with RPI (capped at 6%) each year and are often set
around Local Housing Allowance levels
6. is managed by our in-house 35-person property management and lettings
team, operating under the 'My Future Living' brand
An increasingly lonely and growing older population provides huge and growing
demand for independent retirement renting
There has been a steady upward trend in life expectancy in the UK, and the
average remaining life expectancy of a person reaching retirement age exceeds
20 years 19 (#_ftn19) . As a result, 20% of the UK population is expected to
be over 65 by 2026 20 (#_ftn20) .
In particular, the core market of over 75s is projected to nearly double from
2020 to 2050 21 (#_ftn21) .
Source: ONS
Just 1% of UK over 60s live in purpose-built retirement housing, compared to
13% in Australia and 17% in the USA.
There is a very limited pipeline of retirement developments in the UK, with
only 3% of consented developments being designed specifically for the elderly.
Furthermore, this construction activity is primarily focused on the top end of
the market and not competitive with ReSI's relatively affordable price points.
Specialist retirement housing is accessible (e.g. with lifts) and easy to
manage, enabling people to live independently in their own living space to a
greater age, whilst still having access to some level of day-to-day and
emergency support.
According to Age UK, over 1 million older people say they always or often feel
lonely 22 (#_ftn22) . Boomer & Beyond estimates that nearly one third of
UK residents aged 70 and older identify as modestly satisfied to not at all
satisfied with life 23 (#_ftn23) . Nearly half of older people in the UK (49%
of "over 65s") say that television or pets are their main form of company,
with one research report claiming that loneliness can be as harmful for our
health as smoking 15 cigarettes a day. Specialised retirement accommodation
helps to foster a sense of community by offering shared spaces such as a
residents' lounge and communal gardens.
Independent retirement rental housing (continued)
CASE STUDY
Everybody needs good neighbours
Interview with Jean - Homeshore House, Seaford
There are many things we can do to stay fit and healthy as we get older
including exercising regularly and eating a healthy diet - but some experts
now believe one of the best ways to age gracefully is to be sociable.
One lady enjoying the social side of retirement living is Jean (aged 77 years)
who found her perfect apartment.
Last year, Jean sadly lost her husband John to Covid-19 - the couple were
married for over 40 years. Four years ago, they sold their home in North
London and downsized to rent an apartment in Homeshore House retirement
development in Seaford in East Sussex for a quieter way of life and to be
close to the sea.
"We found it was a great decision to move and renting in retirement is a
fantastic option… We used to own a lovely house but maintaining it was
getting harder. We also wanted to free up some money so we could help our son
with a deposit for his own place."
"I am on an assured tenancy so I can remain here for as long as I wish, and I
really enjoy this stress-free living…
If something needs fixing its sorted very quickly by My Future Living which is
great."
During her career, Jean had been a legal secretary and is still very active.
She particularly enjoys helping organise social events for residents in the
development including bingo evenings, garden centre visits, pub lunches and
golden oldies film afternoons.
Jean loves to keep busy and in her spare time volunteers for two charities
helping people recovering from strokes and people with sight problems.
Jean comments: "I love being part of the community and helping get those who
want to socialise to get out and about. We also have a communal greenhouse
where we grow and share all our produce with each other. It's a lovely way to
get out, keep busy and meet new people."
"Homeshore House is the perfect place to live, not only because the
surroundings and gardens are immaculate with trees dotted everywhere but I've
got the beautiful South Downs on one side and the sea on the other. Right
outside the development is a bus stop which means I can easily get into
Brighton and Eastbourne."
She concludes, "When we started our search we looked around and talked to many
different companies but found My Future Living the most helpful and the
easiest to deal with. I would highly recommend renting in retirement. It's a
fantastic way of life without any worries. What's not to love?"
Shared Ownership Housing
£137mn GAV 24 (#_ftn24) / 780 Homes 25 (#_ftn25) / 36% of portfolio
Data for map showing geographical dispersion of SO units across the UK
Shared ownership
Region Count
East Midlands 49
East of England 215
Greater London 288
North East 0
North West 28
Scotland 0
South East 93
South West 70
Wales 0
West Midlands 33
Yorkshire and The Humber 4
Total 780
Part-buy, part-rent model makes shared ownership the affordable homeownership
solution
Shared ownership provides the affordable route to homeownership for middle-
and lower-income households through a part buy, part rent model with
subsidised rents and low deposit requirements.
In summary, the shared owner:
1. purchases an equity stake in their new home at open market value. This
is known as the "first tranche sale" and is a minimum of 25% of the value of
the property;
2. pays a subsidised rent c.30% below market rent on the remaining part of
the home, which increases annually at RPI+0.5%;
3. has the option to incrementally purchase additional shares in their
home at the prevailing open market value (known as "staircasing");
4. typically finances their initial stake with a 90% mortgage; and
5. is responsible for maintenance, repair and insurance, creating strong
alignment of interest.
Shared ownership is required to be affordable to incoming shared owners, which
typically means no more than 40% of post-tax income of new shared owners can
be spent on total housing costs (i.e. mortgage, rent and any service charge).
There are 202,000 shared ownership homes across England, and around 20,000 new
shared ownership homes are delivered annually (Ministry of Housing,
Communities & Local Government, 2021), making it one of the faster growing
housing tenures.
Increased affordability provides huge demand for shared ownership
Due to lower deposit requirements and discounted rental payments, shared
ownership addresses the affordability barrier that forces people into a
lifetime of private market-rented accommodation with no certainty of tenure,
which makes it more difficult to feel a member of the community.
The graph below sets out the smallest amount of deposit required and the minimum income requirement to purchase a home worth £293,000
26 (#_ftn26)
under shared ownership and outright homeownership. Compared to outright homeownership, shared ownership is an affordable step onto the housing ladder that increases the pool of potentially eligible homeowners by 4.4million people across the country.
Rising interest rates have made the ambition of homeownership more expensive
for all first-time buyers, however the impact is less severe on shared owners
compared to those who own outright.
This is because as shared owners only initially acquire a portion of their
home, the size of the mortgage required to purchase their equity stake is
typically much lower than someone buying a property outright.
As a result, prospective shared owners are much less exposed to an increase in
interest rates compared to typical first time buyers, with the cost increase
for new shared owners, as a result of a 3% interest rate increase, one quarter
of the increase for a first time buyer buying outright
27 (#_ftn27)
The chart below illustrates how homeownership rates have declined across age
cohorts despite the fact that 76% of non-homeowners in Great Britain want to
own a home 28 (#_ftn28) . We expect that declining homeownership rates and
outright purchase affordability worsening will continue to drive demand for
shared ownership in 2023.
Interview with Rachel*, a shared ownership resident:
As a single buyer in London, Rachel thought she would be renting her old flat
until she retired. She was then introduced to shared ownership through a
friend, and soon realised the smaller deposit requirements of the tenure made
her ambition of homeownership possible. Rachel's monthly outgoings under
shared ownership were more or less the same as the rent on her old home, but
now her money is being invested back into her own property.
Rachel emphasised the following as
key benefits of her home:
- Private balcony - "it feels really spacious"
- Location - "I can walk to the station and the town centre is
really close by"
- Opportunity to staircase - "I am absolutely planning to increase
the share I own over time"
* Not her real name
Local Authority Housing
£28mn GAV / 289 Homes / 7% of portfolio
Local authority housing portfolio at a glance
Local authority housing provides homes within Luton for households who are
otherwise homeless, generally because they are unable to afford private rented
accommodation.
ReSI works as a partner with Luton Borough Council and Mears who manage and
maintain the portfolio, with the council taking void risk.
Increasing housing unaffordability drives demand from local authorities for
partners to house those unable to afford their own home
The UK is facing significant demand for short-term council housing nationally
- there were 96,060 households in temporary accommodation as of 30 September
2021, an increase of 1.5% from 30 September 2020 29 (#_ftn29) .
Legislation introduced under the Homelessness Reduction Act 2017 placed
additional obligations on local authorities for housing vulnerable/statutory
homeless people, creating further pressures on councils looking to increase
their access to emergency and temporary housing.
Local authorities are increasingly unable to meet demand for temporary
accommodation from their own housing stock, and some authorities are seeking
temporary accommodation outside their own areas. At the end of September 2021,
approximately 27% of households in temporary accommodation (c.26,000) were in
accommodation in a different local authority district. London authorities make
up 83% of these placements. 30 (#_ftn30)
There is an increasing reliance on emergency bed & breakfasts, which are
more costly than leasing from the private sector. Shelter estimate that
councils in England spent £444mn on this type of accommodation between April
2020 and March 2021, a 382% increase in the 10 years to 31 March 2021 31
(#_ftn31) .
As a result, there is a shortfall between cost and support for temporary
housing in London, the South East and other metropolitan areas. English local
authorities spent at least £1.4bn on temporary accommodation in 2020/21, a
c.16% year-over-year increase. 32 (#_ftn32)
Rents at ReSI's properties are set at close to long-term market rent levels,
provide a cost saving to local authorities, who often have to rely on costly
pay-nightly accommodation, and bed & breakfasts.
ReSI serves as a long-term institutional landlord to replace the numerous
individual landlords that local authorities currently rely upon, helping to
address the difficulties that local authorities have with ensuring adequate
standards across their rented estates.
Strategic Review
KPI Measures
Income Returns
ReSI's key performance indicators (KPIs) are aligned to our business strategy.
These measures are used by the Board and senior management to actively monitor
business performance.
Adjusted earnings* (£mn) Net property rental income (£mn) Rental growth (%) EPRA cost ratio (%)* Profit before tax (£mn)
2020 2021 2022 2020 2021 2022 2020 2021 2022 2020 2021 2022 2020 2021 2022
£mn £mn £mn £mn £mn £mn % % % % % % £mn £mn £mn
5.0 7.1 9.0 11.3 13.2 16.0 1.9% 1.5% 4.5% 33% 43% 36% 2.4 11.2 13.3
KPI definition
Adjusted EPRA earnings, excluding valuation movements on investment assets and Gross rental income after deducting property operating expenses including Like-for-like average growth on rent reviews across the portfolio. Administrative and operating costs (including costs of direct vacancy) divided Profit before tax is a statutory IFRS measure as presented in the Group's
debt, and other adjustments, that are one-off in nature, which do not form ground rent paid. by gross rental income. Consolidated Statement of Comprehensive Income.
part of the ongoing revenue or costs of the business.
Comment
Improved earnings primarily driven by a reduction in retirement voids, Increase of 22% delivered primarily from a 2.2x increase in shared ownership 4.5% like-for-like growth in rental income achieved during the year ended Improvement in cost ratio with improving performance in our retirement Improved profit before tax driven by EPRA earnings and reduction in value of
like-for-like rental growth, occupation of the shared ownership portfolio and net rental income during the year, as a result of £60mn investments made in September 2022, primarily driven by inflation-linked rent increases in the occupancy and further deployment in shared ownership debt held at mark to market, partially offset by diminished year-over-year
acquisitions. FY 2022 and FY 2021, growing the portfolio by 113%. retirement and shared ownership portfolios. growth in property valuation.
Notes
See supplementary informationon page 172 See note 6 to the financial statements. See Glossary on page 182 for definition and calculation basis. See supplementary informationon page 172 See Consolidated Statement of Comprehensive Income.on page 130
* Alternative performance measures
Capital Returns
The following KPIs focus on ReSI's strategic priority to increase overall
income returns and improve the resilience and efficiency of the business model
which will support increasing dividend distributions.
EPRA NTA per share* (pence) IFRS NAV per share (pence) Total Return on NTA (%)* Loan to Value (LTV) (%) Cost of debt
(average) (%)
2020 2021 2022 2020 2021 2022 2020 2021 2022 2020 2021 2022 2020 2021 2022
105.1 107.9 106.1 105.0 106.6 108.8 (0.1) % 7.5% 3.3% 42% 47% 47% 2.6% 2.3% 2.4%
KPI definition
EPRA NTA is the market value of property assets, after deducting deferred tax IFRS NAV per share at the balance sheet date. Return on NTA is total return for the year, prior to payment of dividends Ratio of net debt to the total assets less finance lease and cash on a Average debt coupon for the year including costs and commitment fees.
on trading assets, and excluding intangible assets and derivatives. (excluding movements in valuation of debt and derivatives), expressed as a consolidated Group basis.
percentage of opening NTA.
Comment
1.7% decline in the year to 30 September 2022 driven by a 35bps increase in 2.0% increase in the year to 30 September 2022 primarily driven by 5.0p Returns of 3.3% in FY 2022 (4.3% recurring total return) reflecting 5.0p LTV remained stable at 47%, slightly below ReSI's 50% leverage target. Overall low cost ultra-long-term funding through a secured facility, with
the weighted average property valuation discount rate, which muted the uplift earnings reflecting strong earnings results, along with 2.6p reduction in the earnings offset by a 35bps increase in the weighted average property valuation average debt maturity now at 22 years. Reflecting ReSI's small 10% exposure
in investment property valuations. mark-to-market value of debt and property valuation uplifts. discount rate, which muted the uplift in investment property valuations. to floating-rate interest debt, average debt coupon increased c. 10bps to 2.4%
following increase in SONIA during the year.
Recuring earnings of 5.0p covered 97% of dividends in the year.
(Equivalent to 7.1% returns on opening IFRS NAV)
Notes
See supplementary information on page 172for reconciliation from IFRS to EPRA See Consolidated Statement of Financial Position See supplementary information on page 172for calculation. See supplementary information on page 172for calculation. See note 22 for information on the Group's Borrowings
performance measures
on page 150
* Alternative performance measures
The European Public Real Estate Association (EPRA) is the body that represents
Europe's listed property companies. The association sets out guidelines and
recommendations to facilitate consistency in listed real estate reporting, in
turn allowing stakeholders to compare companies on a like-for-like basis. As
a member of EPRA, the Company is supportive of EPRA's initiatives and
discloses measures in relation to the EPRA Best Practices Recommendations
(EPRA BPR) guidelines.
1. EPRA Earnings per share
Definition Purpose Result
EPRA Earnings per share excludes gains from fair value adjustment on A key measure of a company's underlying operating results and an indication of 4.4p per share for the period 30 September 2022. (30 September 2021: 3.0p)
investment property that are included under IFRS. the extent to which current dividend payments are supported by earnings
Adjusted EPRA Earnings per share excluding one off costs and including first
tranches sales for the period were 5.0p (30 September 2021: 4.2p)
2. EPRA Net Asset Value (NAV) Metrics
Definition Purpose Result
EPRA Net Reinstatement Value (NRV): The EPRA NAV set of metrics make adjustments to the NAV per the IFRS financial EPRA NTA £196.5mn or 106.1p per share at 30 September 2022 (£184.7mn or
statements to provide stakeholders with the most relevant information on the 107.9p per share at 30 September 2021)
Assumes that entities never sell assets and aims to represent the value fair value of the assets and liabilities of a real estate investment company,
required to rebuild the entity. under different scenarios.
EPRA Net Tangible Assets (NTA): EPRA NRV £196.5mn or 106.1p per share at 30 September 2022 (£184.7mn or
107.9p per share at 30 September 2021)
Assumes that entities buy and sell assets, thereby crystallising certain
levels of unavoidable deferred tax.
EPRA Net Disposal Value (NDV): EPRA NDV £225.5mn or 121.8p per share at 30 September 2022 (£178.2mn or
104.1p per share at 30 September 2021)
Represents the shareholders' value under a disposal scenario, where deferred
tax, financial instruments and certain other adjustments are calculated to the
full extent of their liability, net of any resulting tax.
3. EPRA Net Initial Yield (NIY)
Definition Purpose Result
Annualised rental income based on the cash rents passing at the balance sheet A comparable measure for portfolio valuations. This measure should make it 4.1% at 30 September 2022
date, less non-recoverable property operating expenses, divided by the market easier for investors to judge for themselves how the valuation of a portfolio
value of the property, increased with (estimated) purchasers' costs. compares with others.
(3.6% at 30 September 2021 Restated
4. EPRA 'Topped-Up' NIY
Definition Purpose Result
This measure incorporates an adjustment to the EPRA NIY in respect of the The topped-up net initial yield is useful in that it allows investors to see 4.1% at 30 September 2022
expiration of rent-free periods (or other unexpired lease incentives such as the yield based on the full rent that is contracted at the end of the period.
discounted rent periods and step rents).
(3.6% at 30 September 2021 Restated)
5. EPRA Vacancy Rate
Definition Purpose Result
Estimated Market Rental Value (ERV) of vacant space divided by ERV of the A 'pure' percentage measure of investment property space that is vacant, based 5% at 30 September 2022
whole portfolio. on ERV.
(6% at 30 September 2021)
6. EPRA Cost Ratio
Definition Purpose Result
Administrative and operating costs (including and excluding costs of direct A key measure to enable meaningful measurement of the changes in a Company's EPRA Cost Ratio (including direct vacancy costs) 36% at 30 September 2022 (43%
vacancy) divided by gross rental income. operating costs. at 30 September 2021 Restated)
EPRA Cost Ratio (excluding direct vacancy costs) was 34% at 30 September 2022
(39% at 30 September 2021 Restated)
7. EPRA LTV
Definition Purpose Result
Net debt divided by total property value. A key (shareholder-gearing) metric to determine the percentage of debt 46% at 30 September 2022
comparing to the appraised value of the properties.
(47% at 30 September 2021)
Fund Manager's Report
Ben Fry
Managing Director Housing
ReSI offers a unique opportunity for investment into a highly resilient,
inflation linked, scalable solution to the UK's acute shortage of affordable
housing.
Since I last wrote the Fund Manager's Report for ReSI's FY 2022 Interim
Results, the wider UK macro environment has shifted dramatically. The themes
through the past twelve months have been rising inflation and the
cost-of-living crisis, rising interest rates and political uncertainty. We
expect that as with the impact of the 2020 COVID-19 pandemic, the difficult
economic environment will further evidence the resilience of our portfolio of
high-quality affordable housing.
Importantly, these changes not only affect ReSI, but also the lives of our
residents (more on this below in the FY 2023 Outlook section), and we will
continue to balance rent increases and investing in our portfolio with
ensuring the affordability of our homes for our residents and the long-term
resilience of our income.
Looking backwards, FY 2022 was a year of strong operational performance and
financial achievements for ReSI. During FY 2022, we continued to invest in and
grow our shared ownership portfolio and raised a further £15mn of equity in
February, which with long-term debt from our facility with USS was invested
into 286 shared ownership homes worth £37mn. ReSI's shared ownership
portfolio now comprises 780 homes (including 41 committed and representing a
43% increase since 2021 year-end) and represents 36% of the portfolio mix by
valuation.
Among other driving factors, a full year of impact from FY 2021 shared
ownership acquisitions helped to generate £17.0mn of net rental income in FY
2022, representing 20% growth compared to the previous year. Further
investment completions and inflation-linked rent increases should drive
additional recurring income growth in FY 2023.
We increased our FY 2022 dividend to 5.16p per share ("PPS") in line with
September 2021 CPI of 3.1%, reflecting the inflation-linkage of the portfolio,
as targeted twelve months ago. 19% year-over-year growth in EPRA Adjusted
Earnings to 5.0p per share translated to 97% dividend coverage, with ReSI
re-achieving 100% dividend coverage in Q4 2022, as the capital from February's
fundraise was deployed.
We have continued to focus on addressing social and environmental factors that
impact our residents in the past year. Several examples are covered in the
Social and Environmental section below, demonstrating our focus on providing
security of tenure to our residents in an affordable way.
We aim to be a best-in-class provider of affordable housing and drive an
improvement in standards across the sector. For example, in 2020, ReSI
developed a Shared Ownership Customer Charter and a Shared Ownership
Environmental Charter, which are unique in the shared ownership sector and
provide benefits to both shared owners and our investors. Our aim is for these
benefits to be shared by not just our residents but those in the wider
c.200,000 shared ownership homes across the sector. Our next step towards
being a best-in-class provider involves exploring ways that we can achieve
net-zero-carbon without waiting until the national grid is fully decarbonised.
ReSI's portfolio now consists of 3,284 homes worth £383mn designed to help
make people's housing aspirations achievable. Whether a retired person looking
to move to tailored accommodation to combat loneliness, or someone who has
dreamed of purchasing a property for their family but has found it to be
unaffordable, ReSI's portfolio caters for residents poorly served by the
mainstream housing market. Our ability to meet these under-served groups'
needs is reflected in the resilience of our portfolio and strengthens our
confidence in the assets in which we invest.
Operational Performance
Net rental income before ground rents grew by 20% year-over-year to £17.0mn,
driven by four underlying factors:
reducing retirement voids;
strong like-for-like rent growth;
full occupancy and annualised income of our shared ownership portfolio;
and
accretive acquisitions
and underpinned by:
consistent rent collection
1) Retirement voids:
Income growth delivered 33 (#_ftn33) : £0.2mn / 0.1p per share
Bringing ReSI's property and lettings management in-house in July 2021, with
the formation of ReSI Property Management Limited. (RPML), is a decision that
continues to drive returns. RPML has continued to focus on improving resident
move-in times, which has helped push retirement void losses to average 6.2% in
FY 2022, below pre-COVID-19 levels of c.7%.
The transfer of this property and lettings management function now allows the
team to work closely with the Fund Manager to optimise customer service and
maximise performance for ReSI.
The focus of this team and level of customer service provided is evidenced
through the results of our recent customer survey 34 (#_ftn34) which show
that:
84% would recommend renting in retirement
73% had made new friends
98% valued the assured lifetime tenancy as important
Retirement void losses trending below pre-COVID-19 average
2) Strong like-for-like rent growth
Income growth delivered 35 (#_ftn35) : £0.5mn / 0.3p per share
ReSI's rental income is 97% linked to inflation which has delivered an average
4.5% like-for-like rent growth in the year.
Shared ownership rents increase annually in April and in 2022, like-for-like
rents grew by 5.4% (excluding properties occupied in the previous 12 months).
This increase reflects September 2021 RPI of 4.9% + 0.5%, which drives the
vast majority of ReSI's shared ownership rate increases.
Retirement rents increase across the year on the anniversary of the resident
move in date, with like-for-like rental growth of 4.6% year-over-year (1.5%
growth in FY 2021). Whilst the rental market is very strong, we are very
mindful of the financial challenges facing many residents and are taking a
responsible approach to rental increases, capping all retirement rent
increases at 6% during the year. This represents an annual saving of £164k
p.a. for residents, and helps balance rent increases with retention and
long-term affordability.
The 4.6% like-for-like increase in retirement rental income was partially
offset by a c.3% increase in operating expenses, largely driven by increases
in repair and maintenance costs and service charges.
3) Full occupancy and annualised impact of our shared ownership portfolio:
Income growth delivered 36 (#_ftn36) : £1.7mn / 0.9p per share
Demand for ReSI's shared ownership properties remained robust in FY 2022 and
the same-store portfolio owned by ReSI at September 2021 is fully leased.
Furthermore, ReSI benefited from full year income from acquisitions during FY
2021 of 351 homes from Orbit Group and Metropolitan Thames Valley housing
associations as well as Brick by Brick.
4) Accretive transactions:
Income growth delivered: £0.4mn / 0.2p per share
During FY 2022, ReSI purchased 286 shared ownership homes for net
consideration of £37mn (including commitments for 41 homes for £9mn). These
acquisitions were funded by £15mn of equity raised in February and debt drawn
on the USS credit facility in March, and are earnings-accretive to ReSI's
financial performance. The transactions with Orbit Group and Brick by Brick
were repeat transactions with counterparties transacted with during FY 2021
and the deal with HSPG provides a forward pipeline of at least £50mn -
evidencing the growing strength of ReSI's relationship network.
The 227 homes acquired from Orbit Group and HSPG were occupied and immediately
income generating, whilst those 59 (£11mn) homes from Brick By Brick are
delivered on a phased basis based on construction completion beginning in
September 2022. At the date of this Annual Report, 8 of these homes from Brick
By Brick were acquired and occupied, with a further 32 reserved ahead of
completion and 19 available. We continue to see sustained demand for shared
ownership bear out with respect to the Brick by Brick properties, particularly
as increased interest rates mean some people who could previously have
afforded to buy outright or with Help to Buy can now only afford their own
home through shared ownership. This demand emphasises the important role that
shared ownership housing continues to play in helping mid-to-low-income
earners onto a housing ladder which is otherwise increasingly out of reach for
most people across the country.
5) Consistent rent collection:
ReSI's cash flow is supported by a highly diversified set of income streams
from residents who pay affordable rents. Retirement rentals residents
typically pay their rent from pensions and savings, and rents are often
affordable enough to be materially or entirely covered by welfare. On average,
ReSI's shared ownership residents own c.37% of their homes and generally pay
below-market rent. The remainder of ReSI's portfolio is local authority
housing, which is leased to Luton Borough Council. ReSI has no leases with
asset light, lease funded, housing associations or charities.
The strength of creditworthiness in ReSI's counterparties is manifest in
ReSI's rent collection rate, which remained at 99% in FY 2022, consistent with
historic performance.
Rent collection through COVID
Financial Performance
Total Return:
ReSI delivered a total EPRA NTA return of 3.4p per share (3.1%) for the
financial year, with growth driven by inflation-linked increases across the
shared ownership and retirement portfolios, along with operational
improvements in our retirement portfolio, including further improvement in
voids.
This 3.4 PPS EPRA return comprises:
• 5.0p of Adjusted EPRA earnings (see note 15 of the financial statements -
adjusted earnings per share), with recurring income of £8.9mn from regular
recurring cash flows; plus
• 1.8p gain on change in valuation on investment property as assessed by
Savills (£3mn) - a 0.6% increase on a like-for-like fair value basis to a
total of £383mn (including £9mn of committed acquisitions) as of 30
September 2022. This was driven by 4.5% like-for-like rental growth, partially
offset by c. 35 bps year-over-year increase in the weighted average nominal
discount rates - with shared ownership increasing by c.10 bps to 6.4% and
retirement increasing by c.45 bps to 8.2%; less
• 2.9p impact of USS debt indexation (£5.2mn) of which 0.9 pence related to
prior periods (£1.6mn),* reflecting the index linked nature of the debt which
follows the increase in shared ownership rental income; and
• 0.5p one-off costs (c.£1.0mn), relating to the legal costs of securing
further drawdowns from the USS facility and net share issuance costs.
Excluding the impact of the one-time USS debt indexation adjustment and
one-off costs, ReSI delivered a total recurring EPRA NTA return of 4.6 PPS
(4.3%).
In line with the FY 2022 dividend target, ReSI paid dividends during the
financial year of 5.16p per share, resulting in an EPRA NTA decrease of 1.8p
for the year.
ReSI delivered a total IFRS return of 7.4p per share (6.8%) for the year, with
the difference to EPRA NTA returns caused by an increase in the amortised cost
value of debt (EPRA) vs fair value of debt (IFRS) of 3.9p (£7.0mn), 0.9p
(£1.5mn) of which related to prior periods, and decrease in revaluation of
trading properties of 0.1p per share (£0.2mn). This is an IFRS improvement of
2.1p per share after dividends paid.
Movement in NTA pence per share for the year
NTA at 30/09/21 107.9
Net Income 5.0
Valuation Change 1.8
One-off Costs & Impact of Share Issuance -0.5
Debt Indexation* -2.9
Dividend Paid -5.2
NTA at 30/9/22 106.1
* The Group has elected to carry this debt at fair value through profit and
loss. In accordance with the EPRA Best Practice Recommendations, EPRA NTA
should reflect the amortised cost of the debt rather than its fair value. In
the current period, an adjustment has been made for £5.2mn which represents
the difference between fair value and what amortised cost would have been had
the Group carried the debt at amortised cost. No adjustment was made in the PY
as it was immaterial. The charge would have been £1.5mn for the year ended 30
September 2021.
Movement in IFRS NAV pence per share for the year
NAV at 30/09/21 106.6
Net Income 5.0
Valuation Change 1.8
Debt Valuation 1.1
One-off debt set up costs -0.5
Dividend Paid -5.2
NAV at 30/09/22 108.8
Dividend Coverage
ReSI's dividend was 97% covered by recurring income during the year, including
a return to full dividend coverage in Q4 2022. The drop below 100% primarily
reflected the impact of February's capital raise and the lag on dividend
coverage whilst this was deployed.
The quality of the dividend coverage continues to improve, reflecting the
lease-up of ReSI's shared ownership portfolio with first tranche sales profits
replaced by recurring rental income. This trend is illustrated by the robust
36% year-over-year increase in rental operating profit more than offsetting a
49% decrease in first tranche sales profit to increase total operating profit
by 24%. 95% of the H2 2022 dividend was covered by rental operating profit,
which we aim to further improve in FY 2023. We see the potential for rental
dividend coverage to further improve in FY 2023, driven by inflation-linked
rent increases in the retirement rental and shared ownership portfolios.
H1 FY 2021 H2 FY 2021 H1 FY 2022 H2 FY 2022
Rental Income Profit (Excl. FTS) 5.37 6.98 7.77 9.11
First Tranche Sale 0.78 1.23 0.67 0.35
Dividend 8.55 8.55 8.83 9.55
Statement of Comprehensive Income
FY 2022 FY 2021 Variance
(£'000) (£'000)
Net rental income 17,016 14,165 20%
First tranche sales profits 510 1,008 -49%
Net Finance Costs (5,588) (5,221) 7%
Management fees (1,867) (1,802) 4%
Overheads (1,119) (1,046) 7%
Adjusted Earnings 8,952 7,104 26%
Adjusted EPS 5.0p 4.2p 20%
IFRS Earnings 13,334 11,221 19%
IFRS EPS 7.4p 6.6p 12%
Adjusted Earnings increased by 24% (£1.7mn) on FY 2021 to £9.0mn, driven by
the 20% (£2.8mn) increase in net rental income to £17.0mn with the
deployment of capital; inflation-linked increases across ReSIs three asset
types; and occupancy gains in both shared ownership and retirement.
This earnings growth comes despite a 49% decrease (£0.5mn) in first tranche
sales profits, which reflects the gain on cost we recognise by selling a
portion of a shared ownership home to the occupiers and is thereafter replaced
by ongoing net rental income from the shared owner. The reduction in this line
reflects the ongoing maturity of ReSI's business and increased quality of
income streams.
The 9% increase in net finance costs to £5.6mn reflects a £21mn increase to
£190mn in notional debt since September 2021, including £20mn debt drawn
from USS and £5mn increase in Santander revolver facility to finance shared
ownership acquisitions use during the year partially offset by a £3mn
reduction in shorter term floating rate debt and £1mn reduction in fixed rate
debt.
Balance Sheet
30 Sep 2022 30 Sep 2021 Variance
(£'000) (£'000)
Total Investments 374,785 341,128 10%
Inventories - First tranche shared ownership properties available for sale 1,203 3,800 -68%
Cash and cash equivalents 15,984 8,370 91%
Borrowings amortised cost -194,701 -168,339 16%
Other -787 -278 182%
EPRA Net Tangible Assets (NTA) 196,484 184,682 6%
EPRA NTA per share (pence) 106.1 107.9 -2%
EPRA Net Disposal Value (NDV) 225,455 178,157 27%
EPRA NDV per share (pence) 121.8 104.1 17%
IFRS NAV 201,388 182,392 10%
IFRS NAV per share (pence) 108.8 106.6 2%
Book Value of Debt 189,705 168,339 13%
Reversionary Surplus (excluded from NTA) 47,971 40,026 20%
Reversionary Surplus per share (pence) 25.9 23.4 11%
Despite recent market turmoil, ReSI's property valuation, as assessed by
Savills, grew during the year by £2mn - a 0.6% increase on a like-for-like
fair value basis to a total of £383mn (including £9mn committed
acquisitions) as of 30 September 2022. This was driven by 4.5% like-for-like
rental growth, partially offset by c.35 bps year-over-year increase in the
weighted average nominal discount rates applied to shared ownership and
retirement portfolios of c.10 bps to 6.4% and c.45 bps to 8.2% respectively.
Inventories reflect the amount of unoccupied shared ownership properties that
are expected to be sold to shared owners and are held at cost. The 68%
reduction reflects the full occupation of the opening shared ownership
portfolio made by April 2022. ReSI acquired 18 additional untenanted shared
ownership properties in September 2022, of which 8 have since been occupied.
As a result, £1.2mn of inventories remain as at 30 September 2022.
Total borrowings increased by £21mn over the twelve-month period to £190mn
as of 30 September 2022, £20mn debt drawn from USS and £5mn increase in
Santander revolver facility to finance shared ownership acquisitions use
during the year partially offset by a £3mn reduction in shorter term floating
rate debt and £1mn reduction in fixed rate debt.
The EPRA NTA and IFRS NAV measures exclude the reversionary surplus in our
portfolio which stands at £48mn. This represents the difference between the
market value of our assets used in our balance sheet and the value we could
realise if they became vacant. Overall, our portfolio is valued at a 12%
discount1, on average, to its reversionary value.
Financing and Capital Structure
ReSI now has in place £189mn (notional value) of fixed rate and inflation
linked debt, with a weighted average coupon of 2.4%, the vast majority of
which is long-term partially or fully amortising debt at an average maturity
of 22 years.
These debt financings form part of ReSI's strategy to target an overall level
of indebtedness of 50% loan to gross asset value and a low cost of very
long-term funding, which together enhance the returns to equity available to
shareholders and minimise exposure to refinancing, interest rate and covenant
risks.
This strategy leaves ReSI's well positioned to withstand today's rising
interest rate environment. With only c.10% floating-rate debt exposure and a
weighted average maturity of 22 years, the 2.4% weighted average coupon of our
existing debt balances should remain fairly stable for the near-to-mid-term
future.
As at 30 September 2022, ReSI has c.£31mn of liquidity, including c. £18mn
of revolving credit facility capacity. ReSI's 47% leverage remains slightly
below our 50% target, with headroom across debt covenants to withstand moves
in income, interest rates and valuation headwinds that may arise in the
future, as shown below. 37 (#_ftn37)
Each asset type is secured separately and individually and there is no
cross-collateralization between them. ReSI could sustain a fall in net
operating income by c.30% and remain in compliance with interest cover
covenants. ReSI's investment portfolio is valued on a discounted cash flow
basis on the value of its rental stream (rather than at vacant possession /
retail value) and so has limited exposure in its valuations to house prices.
Sensitivity analysis shows that investment values could fall by c.13% before
loan to value covenants breaches would arise. ReSI is also able to cash cure
any loan to value covenants using liquidity across the Group. ReSI's debt on
its shared ownership portfolio is fully amortising and so does not have a loan
to value covenant.
During the year, ReSI extended its revolving credit facility from Santander by
£15mn to £25mn, whilst reducing the interest rate margin by 55 bps to 2.25%
and agreeing a one-year extension of the facility termination date to March
2025. The expanded £25.0mn facility capacity and reduced interest rate margin
allow for more efficient management of ReSI's working capital and provide
lower-cost bridge financing for future investments.
FY 2022 FY 2021
Total debt £190mn £166mn
LTV (target 50%) 47% 46%
Leverage on reversion value 42% 43%
Weighted average cost 2.4% 2.3%
Weighted average maturity 22 years 22 years
Proportion of Floating Rate debt 10% 9%
Lender Portfolio held against Notional value of debt drawn less amortisation Maturity date Annual interest rate
%
Universities Superannuation Scheme Shared ownership £77.7mn May 2065 0.9% fixed* (inflation linked)
Scottish Widows Retirement £92.5mn June 2043 3.5% fixed
National Westminster Bank Local authority £12.7mn April 2023 1.5% + 1 month SONIA
Santander Bank All assets £6.8mn March 2025 2.25% + 3 month SONIA
Total borrowings £189.7mn
Capital Stack
FY 2022
Debt £190mn
Equity £201mn
Grant Funding £14mn
Reversionary Surplus £48mn
Total £453mn
Social and Environmental
We remain committed to delivering measurable social and environmental impact
for the benefit of our residents and the UK.
Our retirees have benefitted from the rent increase cap of 6% being applied to
all directly-rented retirement properties, generating a total annual saving of
£164k. In addition, further rent caps and rent freezes have been provided to
residents who are most in need, with this support having grown from £32k in
the six months to March to a total annualised amount for the year of £86k.
For our shared owners, we offer several services designed to financially
benefit residents, such as providing assignments and consent for improvements
free of charge and offering reverse staircasing to residents who encounter
financial difficulties. Our commitments to our shared ownership residents
are laid out in our proprietary Shared Ownership Customer and Environmental
Charters, which are available on ReSI's website.
During 2022 we expanded our annual retirement customer survey to shared owners
as well. The survey results help to confirm that the positive outcomes that
ReSI intends to deliver are being experienced by residents.
Shared ownership
87% of RPML residents are happy or not dissatisfied with their property
management service
80% of residents are satisfied that their home is the same or better value for
money than their previous residence
86% of residents are satisfied that their home is as or more energy efficient
than their previous residence
Retirement
90% of retirement residents are happy or not dissatisfied with their property
management service
73% of residents have made new friends since moving in
54% of residents have experienced improvement in their mental health since
moving in
ReSI continued to invest in improving the energy efficiency of its retirement
portfolio in FY 2022. After upgrading 100% of the EPC E rated directly-rented
properties to at least a D in FY 2021, FY 2022 saw ReSI embark on its target
to upgrade all directly-rented D rated properties to at least a C by 2025,
three years ahead of the Government target. During the year 61% of the
directly-rented D rated properties have been upgraded to at least a C,
progress that is well ahead of the project timetable. As a result of this
progress, 96% of our directly-rented properties now have EPC ratings of C or
higher. For the whole portfolio, 85% of the properties are rated C or higher,
leaving ReSI well ahead of the average for the social sector and the overall
UK housing market 38 (#_ftn38) .
(1) English Housing Survey, 2020-2021
The cost of energy has risen drastically in 2022, and with further increases
scheduled for 2023, the energy efficiency improvements we are investing in
generate real cost saving benefits to our residents.
Tenure Saving compared to average UK property (EPC D) 39 (#_ftn39)
£ %
Property with efficiency of average for ReSI shared ownership portfolio (EPC 1,213 40%
B)
Property with efficiency of average for ReSI retirement portfolio (EPC C) 456 15%
Investing in the energy efficiency of our properties is one important step in
our broader net zero plan for ReSI. This year, we have been engaged with the
consultancy Kamma Data, who take an innovative data-focused approach towards
assessing the retrofitting works that are required to upgrade the energy
efficiency of ReSI's properties to their full potential.
Kamma's report will form part of ReSI's net zero strategy, which is intended
to be announced in 2023. The strategy will include a pathway to reach
operational net zero, including scope 3 operational emissions, followed by a
pathway to reach complete net zero, including operational and embodied scope 3
emissions, with complete net zero being reached by 2050 at the latest in line
with Government targets.
Whilst improving property energy efficiency will drive a significant reduction
in carbon emissions produced by the portfolio, it is not possible to reach
operational net zero through retrofitting alone. As a result, to reach
operational net zero, ReSI will either have to wait until the national grid is
fully decarbonised, which is expected to be in 2035, or it will have to
directly procure / invest in its own renewable energy sources. This is an
option that we are currently exploring, with further information to follow in
2023.
Management Team Transition
On 6 March 2022, Alex Pilato moved to a Senior Advisor role as part of his
transition to retirement . Simultaneously, I was promoted to be Managing
Director of the Housing division of Gresham House.
In order to support this transition, Brandon Holloway joined in November 2021
as Deputy Fund Manager, following continued Gresham House investment in
growing the team with Narvinder Khossa as Director of New Business and Hannah
Howard-Jones as Director of Property also joining in 2021, and Dominic Stead
joining in 2022 to head up our in-house property management team. The Gresham
House housing investment team now comprises 25 people, with senior members
having an average of c.30 years' experience.
Alex remains a member of all boards and committees of the division and fund
vehicles. This change has been planned since the acquisition of TradeRisks by
Gresham House. Alex continues to have a very strong interest in the success
of ReSI with significant shareholdings.
Outlook
The themes through the past twelve months have been rising inflation and the
cost-of-living crisis, rising interest rates and political uncertainty. We
expect that as with the impact of the 2020 COVID-19 pandemic, the difficult
economic environment will further evidence the resilience of our portfolio of
high-quality affordable housing.
Importantly, these challenges not only affect ReSI, but also the lives of our
residents. Between the underlying strength of credit for our shared owners,
the affordability of the shared ownership compared to renting on the open
market, the financial backstop of housing benefit and pension funds available
to our retirement residents, and the energy efficiency of ReSI's portfolio
compared to the broader UK, ReSI's residents are relatively well positioned to
weather the current financial environment. For those residents who fall into
acute financial hardship, ReSI offers a range of financial resources to help
mitigate the situation as outlined in the Social and Evironmental section
above.
In addition to potential challenges, the current financial volatility could
also present opportunities in FY 2023. We are seeing that the number of
tenanted shared ownership that will be available to acquire in FY 2023 will be
substantially higher as housing associations (who hold almost 200,000 shared
ownership homes) look to bring in partners to acquire this stock in order to
continue to fund their 43,000 homes per annum development programmes whilst
also investing £25bn by 2030 in the energy efficiency of their homes 40
(#_ftn40) .
ReSI's business model is well positioned to thrive in a high-inflationary
environment. More importantly, ReSI has a highly experienced, capable and
cohesive management team, as well as a dedicated in-house property management
team, who are focused on navigating these uncertain times.
ReSI's long-term amortising debt, with only c.8% floating-rate debt exposure
and a weighted average maturity of 22 years, leaves ReSI well positioned to
withstand today's rising interest rate environment. The 2.4% weighted average
coupon of our existing debt balances should remain relatively stable for the
near-to-mid-term future, and ReSI has ample headroom across debt covenants.
In the short term, we anticipate that FY 2023 will see earnings growth from
inflation-linked rents, as well as shared ownership acquisitions and leasing
activity, but this could be offset by one-off operating expenses increasing
ahead of rent increases (driven by ReSI's retirement rentals operations where
we are responsible for energy costs in communal areas) and increases in
floating-rate interest expenses.
These headwinds could make it difficult to increase Adjusted EPRA Earnings
during FY 2023, and so the dividend target for FY 2023 is being kept constant
at 5.16p per Ordinary Share. Any revision or adjustment to the dividend
target will require greater confidence that interest rates have peaked, and
energy costs stabilised.
For FY 2024 and beyond these one-offs could be static or potentially invert,
allowing for higher earnings and dividend increase.
If FY 2022 was a year of profound change, two themes that remain unchanged are
the UK's worsening shortage of affordable housing, and how well-positioned
ReSI is to meet the two biggest problems in the housing market:
inability to access homeownership, which has been made worse by
recent strong house price growth; and
growing elderly population requiring suitable accommodation for
independent later living.
What also remains the same is our aim to deliver secure, inflation-linked
returns over the long term to investors, while providing measurable social and
environmental impact to our residents and the UK.
Ben Fry
Managing Director, Housing
1 December 2022
Environmental and Social Impact
ReSI's approach to Environmental and Social Impact
This section covers some of the key areas of implementation and other ongoing
social impact and environmental initiatives during the year. There is also
further detail relating to the impact of the Company on its major stakeholders
in the Section 172 statement on page x.
The Board and the Fund Manager believe that sustainable investment involves
the integration of Environmental, Social and Governance (ESG) factors through
all stages of the investment process and that these factors should be
considered alongside financial and strategic issues during the initial
assessment and at all stages of the investment process.
The Board and the Fund Manager recognise their responsibility to manage and
conduct business in a socially responsible way and many of the Company's
investors, residents and other counterparties have the same values. Good
governance and social responsibility require that the Company seeks to
implement a collaborative approach to understanding and improving
environmental and social performance. The Fund Manager is responsible for
engagement on ESG matters and dedicates a significant amount of time and
resource to focusing on the ESG characteristics of the properties in which it
invests.
Such ESG factors, which were traditionally not part of financial analysis, are
incorporated and prioritised as part of the investment and due diligence
process through the ESG decision tool, which has been developed by Gresham
House's dedicated Sustainable Investment Team (see ESG Decision Tool section).
Ongoing monitoring of ESG related risks is carried out through investment
reviews.
The Fund Manager also gives appropriate consideration to corporate governance
and the representation of shareholder interests. This is applied both as a
positive consideration, and also to exclude certain investments where the Fund
Manager does not believe the interests of shareholders will be prioritised.
The Fund Manager's parent, Gresham House has a clear commitment to sustainable
investment as part of its business mission. Based on its Sustainable
Investment Framework, it has developed a range of policies and processes for
all asset classes which the Fund Manager uses to integrate sustainability into
its investment approach. More details can be found in the Housing Sustainable
Investment Policy here:
https://greshamhouse.com/wp-content/uploads/2022/04/Real-Estate-UK-Housing-Sustainable-Investment-Policy-April-22.pdf
(https://greshamhouse.com/wp-content/uploads/2022/04/Real-Estate-UK-Housing-Sustainable-Investment-Policy-April-22.pdf)
Sustainable Investment Framework
The Gresham House Sustainable Investment Framework shown below is used to
structure analysis, monitoring and reporting of ESG issues and opportunities
within the lifecycle of our investments.
ESG Housing Wheel
To determine the most material themes within the broader framework when
profiling our prospective investments, the ESG Housing Wheel ("the Wheel") has
been developed.
The Wheel sets out the six social and environmental factors that are most
crucial to the Company's sustainable investment strategy, with measurable
objectives identified for each factor.
ESG Decision Tool
The Fund Manager has developed the ESG Decision Tool ("the Tool"), which is
used by the investment team to assess the performance of prospective
investments against six core themes in the Wheel and to identify potential ESG
risks. The Tool contains two core sections:
Initial Evaluation - An initial assessment of the investment's performance
against the six core social and environmental factors in the Wheel. The
investment will be assessed against measures of success which have been
developed for the six core social and environmental factors, ensuring that
outcomes can be measured and compared to other investments.
Detailed Questionnaire - This assesses ESG risks in more detail by guiding the
Investment team through a series of potential ESG risks. The completed
questionnaire highlights specific ESG risks that are the most relevant to the
asset.
The investment team are required to mitigate the ESG risks identified by the
Tool as part of the due diligence process for the investment to be approved.
The Tool helps to ensure that ESG risks and opportunities are considered from
the beginning of the investment process. These risks and opportunities are
then continuously tracked, monitored and managed after the acquisition phase.
ESG KPIs
To record the social and environmental impact that ReSI generates through its
investments, the Fund Manager has created a KPI Bank to help drive investment
decision making, engagement planning and enhance stakeholder reporting.
The KPI Bank draws on elements of existing sustainability frameworks, such as
SFDR, while also supplementing these with KPIs that expand upon the core
measures of success contained within the Wheel and the Tool.
The KPI Bank is designed to improve sustainability practices within our
investments and ensure sufficient progress is being made against stated ESG
ambitions. KPIs are to be monitored to understand the strengths and weaknesses
of an investment and to subsequently identify any actions for improvement.
ReSI intends to report against its ESG KPI Bank for the first time in the new
year.
Gresham House Sustainable Investment
The Fund Manager's parent, Gresham House, has achieved top scores in the 2020
PRI (Principles for Responsible Investment) assessment report, the Group's
first assessment since becoming a PRI signatory in 2018. For its 2021 PRI
Report, Gresham House was awarded 4 and 5 stars, out of a maximum of 5 stars,
for all modules relevant to Gresham House plc. For Real Estate specifically,
Gresham House scored 78% versus a median for the sector of 69%.
Gresham House became a signatory to the UK Stewardship Code in 2021. In
September 2022, it was announced that Gresham House had met the expected
standard of reporting for 2021 and will remain a signatory to the UK
Stewardship Code for the second year in a row. Gresham House has also been
awarded the Green Economy Mark from the London Stock Exchange.
More information on Gresham House's approach to sustainable investment can be
found in its Sustainable Investment Report
(https://greshamhouse.com/wp-content/uploads/2022/04/Gresham-House-Sustainable-Investment-Report-2022.pdf)
.
Alignment with UN Sustainable Development Goals (SDGs)
We believe that ReSI's investments support the following UN SDGs by providing
more affordable access to safe, healthy, quality and energy efficient homes
that contribute to local sustainable communities and support their occupants
to enjoy economic and social inclusion.
Environmental Impact
Measuring and reducing the environmental impact of ReSI's operations, whilst
addressing the risks posed by climate change, is essential in enabling ReSI to
reach its long-term financial objectives.
It is estimated that carbon emissions produced by residential buildings
account for 20% 41 (#_ftn41) of all carbon emissions in the UK and as a
result, decarbonisation of the housing sector is a key focus of the
government's net zero strategy. ReSI recognises that as a responsible
landlord, it has a role to play in reducing the emissions produced by its
portfolio and ultimately the wider housing sector.
This year, ReSI has partnered with the consultancy, Kamma Data (Kamma), to
report on the carbon emissions generated by its property portfolio. Kamma have
produced a report that includes an assessment of ReSI's Scope 1 and Scope 2
emissions, the Scope 3 operational emissions of ReSI's property portfolio and
for the first time, an assessment of the Scope 3 embodied carbon emissions
produced in developing ReSI's properties.
In addition, Kamma are producing a report on the retrofitting procedures that
are required to improve the energy efficiency of ReSI's property portfolio
further. The report sets out a choice of fully costed retrofitting pathways
that ReSI can take. The full report will be published during 2023.
Kamma's retrofitting report will form part of ReSI's net zero strategy, which
is intended to be announced in 2023. The strategy will include a pathway to
reach operational net zero, including Scope 3 operational emissions, followed
by a pathway to reach complete net zero, including operational and embodied
Scope 3 emissions, with complete net zero being reached by 2050 at the latest
in line with Government targets.
Whilst improving property energy efficiency will drive a significant reduction
in carbon emissions produced by the portfolio, it is not possible to reach
operational net zero through retrofitting alone. As a result, to reach
operational net zero, ReSI will either have to wait until the national grid is
fully decarbonised, which is expected to be in 2035, or it will have to
directly procure / invest in its own renewable energy sources. This is an
option that the Fund Manager is currently exploring, with further information
to follow in 2023.
Assessing the energy efficiency of ReSI's portfolio
Currently the most effective method of measuring and reporting a property's
environmental impact is using information gathered from property level Energy
Performance Certificates (EPC). EPC ratings are a measure of a property's
energy efficiency, assigning a Standard Assessment Procedure (SAP) rating of 1
to 100 (higher indicates a more environmentally friendly building) and a
corresponding letter grade between A and G. EPC assessments are performed by
third party assessors and therefore provide an externally-verified method of
quantifying the energy efficiency of each home. EPC ratings are obtained on a
property-by-property basis upon acquisition and are refreshed at set
intervals.
EPC Rating SAP Score
A 92 to 100 points
B 81 to 91 points
C 69 to 80 points
D 55 to 68 points
E (current minimum requirement for rental property) 39 to 54 points
F 21 to 38 points
G 1 to 20 points
Example Energy Performance Certificate 42 (#_ftn42)
Government requirements and proposals
In the UK it is a legal requirement that unless exempt, all directly-rented
residential properties must have an EPC rating of at least E. Examples of
exemptions include where it is not possible to upgrade the property to an E
due to the type of walls, the building is listed, or it costs more than
£3,500 to upgrade a home to EPC E.
The Government's energy white paper 43 (#_ftn43) , which is not yet law and
still in consultation, proposes a minimum EPC of C for new rental tenancies
from 2025 and all rental tenancies from 2028. This will continue to have
exemptions for certain types of property, including if it costs more than
£10,000 to upgrade a home to EPC C and thus the Government's expectation is
that only 70% of private rented homes will reach the new proposed minimum
within the timeframe. Currently only 46% 44 (#_ftn44) of UK homes meet the
target minimum EPC of C, with 43% D rated and 10% rated E and below.
This consultation does not apply to shared ownership which is classified as
owner-occupied rather than rented accommodation.
ReSI is aware of the regulatory risk posed by the Energy White Paper and has
taken action to position its portfolio to be ahead of Government legislation
through the implementation of Project D, as described in the targets and
progress section of this Annual Report.
The potential impact of climate change on ReSI and mitigation methods
In addition to the regulatory risk described above, the Board is mindful of
further risks posed by climate change, notably in the following areas:
- Overheating risk: rising average temperatures combined with a
greater quantity and quality of property insulation could result in homes
becoming too hot in the summer months. ReSI is aware of this risk and will
balance the need to insulate its homes with the risk of 'over-insulating' them
by making property-by-property assessments as required.
- Flood risk: rising sea levels could increase the chance of flooding
in homes built near rivers and other bodies of water. ReSI's investment
criteria for new build homes requires that acquisitions are not developed in
medium / high risk flood areas without appropriate mitigants in place. 100% of
the properties acquired during the year met this standard.
- Demand: Following the rise in energy costs over 2022, sales teams
have advised anecdotally that they are starting to see higher levels of demand
for more energy efficient homes, with this trend expected to increase further
over time. To mitigate against this risk, ReSI plans to upgrade the energy
efficiency of its portfolio such that it is ahead of its competitors and
proposed Government legislation, as outlined in the Our Targets and Progress
section.
Calculating ReSI's environmental impact: energy efficiency ratings (EPCs)
At the year end date, 85% of ReSI's portfolio was EPC rated C or higher, up
from 81% last year. This rises to 96% for ReSI's directly-rented homes.
Just 1% of ReSI's properties are E rated, with 100% of directly-rented
properties rated at D or above. The remaining E rated properties are
primarily shared ownership houses that were acquired as part of the
acquisition of older, tenanted properties from Orbit, and Housing Manager
Flats within the retirement portfolio that are on license to a third party.
(1) English Housing Survey, 2020-2021
Average EPC Score
EPC rating of ReSI's Homes* C
Average UK rating 45 (#_ftn45) D
Minimum rating legally required to let out property E
* Representative sample of all properties assessed - 96%.
The table above evidences that the efficiency of ReSI's portfolio is well
above the UK average, however whilst we are pleased with progress in this
area, we recognise that there is more work to be done.
Total properties 3,284, representative sample of 96% assessed
Total directly-rented properties 1,887, 100% of properties assessed
Our targets and progress
ReSI is committed to positioning its portfolio ahead of the government's
legislation to prevent homes with poor energy efficiency ratings from being
rented. This is because improving the energy efficiency of our homes will not
only reduce risk exposure to the new proposed legislation, but we believe it
will also make the properties more attractive to potential residents. To this
end, the following steps have been taken in FY 2022
Project D: After successfully ensuring that 100% of directly-rented E rated
properties were upgraded to at least a D in FY 2021, FY 2022 saw ReSI embark
on its target to upgrade all directly-rented D rated properties to at least a
C by 2025, three years ahead of the Government's proposal for all non-exempt
rental tenancies to be upgraded to C by 2028. This workstream is known as
Project D. During the year, 113 directly-rented properties have been upgraded
to at least a C, representing 61% of the total. The progress made this year
means that we are ahead of schedule for completing the project. Properties
have been upgraded through a combination of retesting and retrofitting works,
such as replacing older heating systems and fitting insulating heat jackets on
water heaters.
Housing Manager Flats (HMFs): The Housing Manager Flats in ReSI's retirement
portfolio are on licence to a third-party, who is responsible for the
maintenance of the properties. Nevertheless, ReSI has worked with the
counterparty to improve the efficiency of the portfolio, evidenced by the
percentage of HMFs with an EPC rating below D dropping from 34% in FY 2021 to
25% in FY 2022. The properties have been upgraded using the same approach as
the directly-rented units, with ReSI funding the works despite not being
responsible for the maintenance of the properties, evidencing our commitment
to reducing carbon emissions across the portfolio.
Orbit Portfolio: During the year, ReSI acquired a portfolio of older, tenanted
shared ownership properties from the Housing Association group, Orbit. At the
time of acquisition in April, 138 of the properties did not have an EPC
rating. Shared owners are not legally required to agree to an EPC assessment
being performed on their property, so ReSI wrote to residents explaining the
benefits of getting their property EPC rated and offering them a £50 voucher
to allow the assessment to be carried out. Since ReSI acquired the portfolio
in April, 66 (48%) of the properties with no rating have been tested. ReSI
hopes to continue to test the remaining properties with no EPC in FY 2023.
ReSI's approach to sustainable investing
ReSI's policy for acquiring new build homes is that they must have a minimum
EPC rating of a B. During FY 2022, 100% of the new build homes acquired met
this standard. Going forward, ReSI aims to increase the proportion of new
build homes that meet the Future Homes Standard, which is expected to be
implemented by the government for all new homes by 2025.
ReSI's preference is to acquire properties developed on brownfield sites in
order to provide affordable housing while preserving biodiversity and
enhancing green spaces. 65% of the new build properties acquired during the
year were redevelopments of brownfield sites.
Case Study: 2022 shared ownership acquisition - Brick by Brick, Malling Close
In 2022, 15 homes on Malling Close, Croydon, were purchased through ReSI's
registered provider of social housing, ReSI Housing, adding to ReSI's existing
portfolio of shared ownership homes.
Social Impact
- Price to earnings ratio of 11.4x 46 (#_ftn46) : providing local
residents with an affordable route onto the housing ladder, in an area where
outright ownership is unaffordable for many
- Rentals charged at a discount of 38% 47 (#_ftn47) to market rate:
making monthly payments affordable to mid to low earners
- Private outdoor balconies: increasing quality of life for residents,
with sufficient space for a table and chair
- Local green spaces: less than a five minute walk from South Norwood
Country Park
- Cycle storage provided for residents: enabling and encouraging
shared owners to switch from motor vehicles to cycling - a low environmental
impact method of transport
Environmental impact
- EPC ratings of B or above: efficient homes reduce carbon emissions
and resident's energy bills
- Mechanical Ventilation and Heat Recovery units: provide fresh,
filtered air into resident's
- Apartments fitted with "green roofs": improves air quality and
reduces carbon emissions
- Solar panels installed on the roofs: panels convert the sun's energy
into electricity which is used to power the communal areas of the building.
- Electric vehicle charging points available on site: promotes
alternative, green, methods of transport
Calculating ReSI's environmental impact: carbon emissions
FY 2022 was the first year of a long term partnership between ReSI and Kamma,
with Kamma calculating the Scope 1, 2 and 3 carbon emissions generated by
ReSI, as well as producing the forthcoming road to net zero report which is
expected to be published in 2023. Using one consultant across all of ReSI's
carbon reporting streamlines the process and ensures that a consistent
methodology is used across all carbon disclosures. The more involved approach
used by Kamma to determine ReSI's emissions in FY 2022 has led to some
differences when comparing to the prior year numbers. ReSI intends to continue
to use Kamma to calculate its carbon emissions going forward, allowing more
accurate year-on-year comparisons in future years.
Emissions are broken down into three categories by the Greenhouse Gas
Protocol:
Scope 1 - All direct emissions from the activities of the Company
or under its control. This includes fuel combustion on site such as gas
boilers and air-conditioning leaks.
Scope 2 - Indirect emissions from electricity purchased and used
by the Company. Emissions are created during the production of the energy and
eventually used by the Company.
Scope 3 - All other indirect emissions from activities of the
Company, occurring from sources that it does not own or control.
Scope 1 and 2 emissions
ReSI doesn't have any office premises of its own and its operations are
performed by the Fund Manager, which is part of Gresham House, and other third
parties as necessary. Where ReSI is financially responsible for the energy
consumption of communal areas and vacant properties within its property
portfolio, the emissions generated by these activities fall under Scope 1 and
2. Where gas is the heating source for these emissions, they are classified as
Scope 1. This is the case for a small number of properties acquired vacant to
be let as shard ownership before the resident moves in. Where the heating
source is electricity, they are classified as Scope 2. Individual property
energy usage is the responsibility of the tenants however and therefore not
considered under Scope 2.
Kamma has calculated ReSI's Scope 1 and Scope 2 emissions using utility bills
and actual kWh consumption data for a representative sample of communal areas
and vacant properties within its portfolio. This data has been extrapolated
across 100% of the vacant properties and communal areas in the portfolio where
emissions fall under the definition of Scope 1 and 2.
Portfolio Total energy consumption (GWh) Tonnes CO(2) Emissions
FY 2021 FY 2022 FY 2021 FY 2022
Retirement: communal areas 48 (#_ftn48) 0.11 0.13 23.1 22.8
Retirement: vacant properties 49 (#_ftn49) 0.13 0.32 26.8 52.4
Shared ownership: vacant properties 0.02 0.01 3.6 0.5
Total 0.26 0.46 53.5 75.7
The work performed by Kamma evidences that the Scope 1 and 2 emissions
generated by ReSI are very small compared to the Scope 3 emissions generated
by its properties. Nonetheless, ReSI will continue to explore methods of
reducing its Scope 1 and 2 emissions going forward.
Scope 3 emissions - third party providers
ReSI is responsible for indirect emissions through its service contracts with
third party providers. The emissions of the Fund Manager will be reported as
part of Gresham House's 2022 annual reporting.
In FY 2022, ReSI has assessed the embodied carbon emissions produced by its
counterparties in developing the new build units that were acquired during the
year. It is estimated that as much as 50% 50 (#_ftn50) of the whole lifecycle
carbon emissions produced by buildings come from embodied carbon emitted in
the development process. As a result, calculating the embodied carbon
emissions produced by the Company is a crucial part of assessing ReSI's carbon
footprint.
Scope 3 Carbon Emissions (Tonnes CO2)
Embodied carbon emissions - 2022 1,172
Kamma's assessment evidences that for FY 2022, embodied carbon emissions
formed a small portion of ReSI's total carbon emissions. This is due to ReSI
committing to acquire a relatively small number of properties that had been
under construction for a portion of FY 2022.
Scope 3 emissions - residents and shared owners
The carbon emissions produced by ReSI's properties are classified as Scope 3,
as they are generated and paid for by residents.
Kamma has estimated the Scope 3 operational carbon emissions generated by
ReSI's property portfolio using data extracted from Energy Performance
Certificates.
Carbon emissions from ReSI's housing portfolio have been calculated in line
with best practice standards. Where electricity is the source of emissions,
regional conversion factors based on the Distribution Network Operator (DNO)
that the property falls within have been used to convert energy usage into
carbon emissions. These conversion factors represent a rolling 12-month
average for each regional DNO. Where gas is the source of the emissions, the
most recent Department for Environment, Food and Rural Affairs ("DEFRA")
emissions factors are used.
The conversion factors used in the FY 2022 assessment produce a more accurate
figure for ReSI's carbon emissions than the FY 2021 assessment, which used the
DEFRA 2021 conversion factor for all sources of carbon emissions. In addition,
the DEFRA 2021 conversion factor is calculated annually and therefore lags
behind more recent conversion factors. Using a more up to date conversion
factor that accurately represents the decarbonising of the National Grid has
resulted in reduced carbon emissions for ReSI in FY 2022.
In addition, the prior year energy consumption figures contained "unregulated
emissions" from residents, such as usage of electronics. These have not been
included in the FY 2022 analysis on the advice of Kamma, as they cannot be
controlled by ReSI.
These values are presented for 3,243 properties that ReSI had acquired at 30
September 2022 on an annualised basis, regardless of whether ReSI owned the
home for the entire period, and no adjustment is made for property void
periods.
Total Scope 3 operational portfolio emissions
Emissions per annum Total energy consumption (GWh) Tonnes CO(2) emissions
2020 2021 2022 2020 2021 2022
ReSI's portfolio 34.7 39.9 40.2 8,699 9,067 3,472
Emissions per property
Emissions per annum per property Total energy consumption per property (kWh) Emissions per property (tonnes CO(2))
2020 2021 2022 2020 2021 2022
SO 6,860 10,371 10,383 1.5 2.2 1.6
RHP 14,041 14,646 13,060 3.5 3.4 0.9
LA 7,440 7,465 11,585 51 (#_ftn51) 1.9 1.7 1.9
Total 12,832 13,248 12,402 3.2 3.0 1.1
Energy consumption by energy source 52 (#_ftn52)
Energy usage per property Electricity Gas LPG Renewable Total
consumption consumption consumption energy consumption
consumption
2021 2022 2021 2022 2021 2022 2021 2022 2021 2022
All properties (GWh) 36.7 32.5 3.1 7.6 0.1 0.2 0.0 0.0 39.9 40.2
Per property (kWh) 12,213 10,011 1,032 2,341 33 45 0.0 0.0 13,248 12,402
Emissions intensity
Emissions intensity 53 (#_ftn53) Energy consumption of property portfolio per £ of Gross Rental In-come (GWh / CO(2) emissions of property port-folio per £ of Gross Rental In-come (tCO(2)
£mn) / £mn)
2021 2022 2021 2022
ReSI's portfolio 54 (#_ftn54) 1.58 400 138
1.76
Total carbon emissions summary
Carbon emissions (Tonnes CO(2))
Total carbon emissions 2020 2021 2022
Scope 1 Not reported 0 2
Scope 2 Not reported 53 76
Scope 3 9,067 4,644
8,699
Total carbon emissions 9,120 4,722
8,699
Overall, ReSI's estimated CO(2) emissions per property has significantly
reduced from FY 2021. This is due to the more accurate methodology used by
Kamma, the continued decarbonisation of grid and work performed to improve the
efficiency of the retirement portfolio through Project D.
Despite these strong results, ReSI will continue to push forward with its
sustainable investment targets in FY 2023.
Social Impact
ReSI seeks to provide long-term solutions to the UK's lack of affordable
housing through a focus on independent living with retirement rentals and
affordable homeownership.
Our purpose is to deliver affordable, high quality, safe homes with great
customer service and long-term stability of tenure for residents. We achieve
this through meeting demand from housing developers (housing associations,
local authorities and private developers) for long-term investment partners to
accelerate the development of socially and economically beneficial affordable
housing.
To confirm that our intended social impact outcomes are being experienced by
residents, ReSI conducted its annual survey of its shared ownership and
retirement rental residents, the results of which are referenced in this
Annual Report.
The Good Economy report
100% of ReSI's properties have been included in an impact assessment performed
by The Good Economy ('TGE'), which aims to quantify ReSI's social impact.
The key findings from the report are summarised below; the entire report is
available on ReSI's website
(https://greshamhouse.com/real-assets/real-estate-investment/residential-secure-income-plc/).
The report includes TGE's assessment of ReSI against its new framework, the
Equity Impact Project ('EIP'), for the first time. The EIP is helping to
develop a set of globally aligned standards for equity investments in social
and affordable housing. ReSI is one of the first funds to report against the
standard, having contributed to the framework's development through
participating in workshops with TGE.
Social Outcomes
By raising capital to invest in new and existing social and affordable
housing, ReSI makes homes available to people who might otherwise be excluded
by open market mechanisms. The Good Economy's analysis focused on five areas
under the direct control or influence of ReSI. These are:
The diagram below summarises how ReSI's activities contribute to social
outcomes.
RPs - Registered Providers
Source: The Good Economy
Shared Ownership
ReSI acquires shared ownership homes from developers and housing associations.
Shared ownership aims to improve access to homeownership for households that
cannot afford to purchase a home outright through its part-buy, part-rent
model, with subsidised rents and lower deposit requirements.
As part of ReSI's aim to be a best-in-class provider of shared ownership
housing and drive best practice across the sector, its Shared Ownership
Customer Charter and a Shared Ownership Environmental Charter have been
developed. The charters are unique in the shared ownership space and provide
benefits to both residents and investors.
Our aim is for these benefits to be shared by not just our residents but those
in the wider c.200,000 shared ownership homes across the sector, and we have
been pleased to see that many of the measures in the Charters have been
incorporated by Homes England into the new form of shared ownership lease.
How has ReSI performed against TGE's impact objectives?
Objective: Making homeownership accessible in areas with low affordability ratios Addressing barriers to homeownership for low- and middle-income households Providing quality homes and management Bringing more homes into the affordable housing sector
ReSI 2022 Results: 100% of properties in local authorities where the average worker cannot afford 96% of properties affordable to local households when assessed through a Increased the number of properties managed by ReSI's in house property 34% of FY 2022 investment was into new build shared ownership homes
the average home person-centred affordability test manager, RPML
Address social need
House prices in England are on average nine times greater than the average
person's earnings 55 (#_ftn55) , making the average home unaffordable to the
average worker. TGE has found that 68% of ReSI's shared ownership homes are
located in local authorities with house price to earnings ratios above this
average, demonstrating ReSI's commitment to delivering affordable homes to the
areas that need them most.
Whilst affordability is most constrained in areas with an above average price
to income ratio, the average worker is unable to afford the average property
in regions where the ratio is above five times. Any local authority with a
ratio above this level has a need for affordable housing, and 100% of ReSI's
properties are located in such locations.
In addition, 78% of residents said that they would have been unable to buy a
property had it not been for shared ownership, evidencing the social need for
ReSI's properties.
"It gives you the opportunity to own your own home or part of your own home,
giving you security and peace of mind."
Provide affordability and value for money
When assessed through TGE's person centred affordability calculator, 96% of
ReSI's shared ownership properties were found to be affordable to local
residents at the green and amber level. Under TGE's definition, green
affordability and amber affordability is where the resident is spending less
than 33% and 40% respectively of their net income on housing costs. This level
of affordability is achieved as shared ownership rents are charged on residual
equity at 2.75%, representing a typical saving compared to market rent of
c.30% 56 (#_ftn56) .
ReSI demonstrated its commitment to improving affordability for residents in
its acquisition of tenanted shared ownership homes from Orbit Group, where 32
of the residents were initially on leases with a contractual rent increase of
RPI +2.0%, however ReSI took the decision to cap the rent increase at RPI +
0.5%. This helps to ensure that rents remain affordable for residents and
brings the properties in line with the rest of the portfolio.
In addition, the average remaining lease term for Orbit's residents at the
point of acquisition was 95 years. Short lease terms can negatively impact the
value of a shared owner's home, and it can become difficult to mortgage
properties on lease terms of less than 75 years. As a result, ReSI offered all
residents the opportunity to extend their lease term to a minimum of 125
years, for a nominal fee of £1.
"[Shared ownership is] a great way to get onto the housing ladder one step at
a time, while paying a fair rent"
Build quality partnerships
ReSI has increased the proportion of properties that are managed by our
in-house property manager, ReSI Property Management Limited (RPML). Having
control over the property management services provided has improved the
experience for residents, with 87% of residents in a property managed by RPML
saying they are happy or not dissatisfied with their property management
service.
Increase supply
ReSI continued to increase the supply of affordable housing, with 34% of
capital spend in the year used to fund new build affordable housing.
ReSI invested the majority of its remaining capital spend for the year into
acquiring a portfolio of tenanted shared ownership homes from the
not-for-profit Housing Association group, Orbit.
ReSI's investment provided Orbit with a long-term equity injection, which not
only allows the not-for-profit to meet rising demand for additional affordable
homes, but also to upgrade its existing housing stock. The proposed legal
requirement for landlords to ensure that newly let rented homes have an EPC
rating of C or better by 2025 has resulted in an elevated level of demand from
Housing Associations for the long-term equity provided through acquisitions of
this type.
Retirement
ReSI acquires homes which provide rented accommodation for retired residents
who do not require significant on-site care. This tenure mainly provides
benefits for people over 55. It allows them to maintain their independence and
avoid care homes, frees up equity from the sale of previous homes, and fosters
a sense of community by offering shared spaces and communal activities among
residents.
While residents do not require care services, they benefit from having an
on-site development manager who can be contacted via an electronic emergency
pull cord in each apartment, as well as an offsite tenancy welfare team
provided by ReSI Property Management Ltd.
How has ReSI performed against TGE's impact objectives?
Objective: Providing accommodation tailored to the over 55s to allow independent living Providing rental homes that are affordable to the over 55s Supporting residents with a high quality property management service tailored Offering homes to meet the needs of the demographic
to the over 55s
ReSI 2022 Results: Retirement rentals survey analysis: Approximately 27% of residents making rental payments using Housing Benefit When asked on a scale of 1-10 how likely they would be to recommend ReSI's in ReSI primarily acquired its retirement portfolio from other investors between
house retirement property manager, My Future Living, to a friend, 79% of 2017-2019
75% said their retirement home is as good or better than their previous residents responded with 7 or higher
residence
Rent increases for retirees capped below inflation at 6%
73% had made new friends since moving in
88% said that their retirement home is at least as stable as their previous
residence
Address social need
Providing specialist retirement accommodation where residents can live amongst
their peers may have contributed to reduced levels of loneliness being
experienced by residents, demonstrated by 73% of survey respondents saying
they had made new friends since they moved into their retirement property. The
reduced levels of loneliness, combined with stability provided by the assured
tenancies that 85% of residents benefit from, has contributed to a reduced
mental health burden for some residents, with 54% of residents saying their
mental health has improved since moving in.
Providing affordability and value for money
The rents charged on ReSI's retirement properties are, on average, between the
lower quartile and the median of market rents when compared to equivalent
properties in the same local authority. Rents paid by ReSI's retirement
residents include service charge, providing residents with an onsite warden,
garden maintenance and a communal living area. When the cost of the service
charge is removed from the rent level, the rents on ReSI's retirement
properties are, on average, less than the lower quartile market rents when
compared to equivalent properties in the same local authority.
Rents set at this level ensure that a portion of the properties are accessible
to residents on lower incomes, with 27% of residents funding rent payments
through housing benefit and 60% funding payments through their pension income.
Contractually, retirement rents increase at RPI, with a cap at 6.0%. ReSI has
chosen to apply this cap to all retirement properties, despite residents not
on Assured Tenancies being eligible for higher increases. This evidences
ReSI's commitment to ensuring the properties remain affordable to residents.
This rent cap has generated a total annualised saving of £164k to ReSI's
retirement residents this financial year. In addition to capping all rent
increases at 6.0%, where residents are in financial difficulty, ReSI will
offer them rent freezes or reduced rent increases where possible. The rent
freezes and reduced rent increases offered by ReSI have generated a total
annualised saving of £86k, taking the total annualised saving from ReSI
capping rents to £250k.
Where residents approach My Future Living with affordability concerns, their
dedicated welfare team will work with them to find a bespoke affordability
solution. This approach includes checking residents' eligibility for welfare,
helping residents cut their spending, capping rent increases and offering
residents cheaper properties within the development.
Build quality partnerships
ReSI's retirement portfolio is managed in house by ReSI Property Management
Limited (trading as My Future Living), a Gresham House owned provider. My
Future Living has continued to provide a high quality service to residents.
When asked to rate the likelihood of recommending My Future Living to a
friend, 79% said 7 or higher (with 10 being the highest), and 90% of residents
said they were happy or not dissatisfied with the property management services
provided by My Future Living
My Future Living has its own in-house Tenancy Welfare Team that has continued
to delivery positive outcomes for residents this year. It is the team's
responsibility to make note of any potential personal issues (such as early
signs of dementia) and to communicate with families about the residents'
welfare.
My Future Living has continued the roll out of its new system, Fixflo, which
allows residents to report maintenance requirement electronically, with the
aim of improving efficiency and response times.
Increasing supply
ReSI primarily acquired its retirement portfolio from other investors between
2017-2019. This investment kept the homes in the retirement sector, however as
ReSI has not acquired a significant number of new homes in the year, TGE
considers that ReSI is bringing a low level of additionality to the sector
through this tenure
Local Authority
ReSI owns two sites of temporary accommodation at Eaton Green Court and Wesley
House, which are leased to the local authority, Luton Borough Council. Luton
Borough Council uses these homes to house individuals and families who are at
risk of homelessness.
Local authorities in England have a duty to secure accommodation for
unintentionally homeless households and provide support which facilitates them
securing long-term stable accommodation.
Luton has one of the highest levels of homelessness in the UK, with one in
every 66 people experiencing homelessness according to a report by the charity
Shelter. As a result, Luton Borough Council is under continual pressure to
meet the housing needs of homeless people.
Temporary accommodation is a crucial component of Luton Borough Council's
homelessness strategy, and the homes leased to them by ReSI form a significant
proportion of their available housing stock under this tenure.
By providing Luton Borough Council with finance to offer 289 temporary
accommodation homes, ReSI has helped the local authority to eliminate the use
of bed and breakfast accommodation for homeless households.
Temporary accommodation is not only less expensive than bed and breakfast
accommodation for local authorities, but it also more stable for residents.
Luton Borough Council offers residents additional services such as help with
CV writing and mental health support, with the aim of helping residents
escaping the viscous cycle of homelessness.
The nature of leases on the temporary accommodation buildings owned by ReSI
are such that the management of the building is the lessee's responsibility.
As freeholder, ReSI's responsibilities are restricted to insuring the
buildings and repairs and maintenance of some communal services, such as the
lifts, common areas and smoke detectors. ReSI's representatives visit the
buildings at least once a month, to check on the upkeep of the areas for which
it is responsible.
Although safeguarding is the responsibility of the lessee, ReSI ensures that
any safeguarding issues picked up during site visits are reported to the
relevant property manager.
Cost of living
The increases in the cost of the energy, interest rates and inflation over
that past year has resulted in an increase to the cost of living for everyone.
Whilst it has not been possible to insulate our residents from all cost
increases, the steps ReSI has taken alongside the protection offered by the
shared ownership model have ensured that residents are protected from some of
the cost increases that someone renting or owning the average UK property on
the open market may have experienced.
Energy Bills
For many residents, the most significant cost increase this year has been
rising energy bills, with the cost of energy having increased by 64% in the 12
months to October 2022 57 (#_ftn57) and a further increase in the price cap
coming into force in April 2023, taking the annual cost of energy to £3,000.
However, ReSI's properties are considerably more energy efficient than the UK
average, with the average shared ownership property rated EPC B and the
average retirement property rated EPC C. This energy efficiency means that
whilst the increase in energy bills has been significant for our residents, it
has been considerably less than for someone living in the average UK property,
which has an EPC rating of D 58 (#_ftn58) .
TGE found that a resident living in a property with an EPC rating of B would
save £460 p.a. on their energy bills compared to an EPC D rated property in
March 2021, with this saving reducing to £173 p.a. for a C rated property.
When this saving is scaled up by the increase in the energy price cap coming
into force in April 2023, it increases to £1,213 p.a. for the B rated
properties and £456 p.a. for the C rated properties. 59 (#_ftn59)
Tenure Annual cost of energy (£) Increase
March 2022 April 2023 £ %
Property with efficiency of average for ReSI shared ownership portfolio - EPC 761 1,787 1,027 135%
B
Property with efficiency of average for ReSI retirement rental portfolio - EPC 1,083 2,544 1,461 135%
C
Equivalent property with UK average efficiency - 1,277 3,000 1,723 135%
EPC D
Tenure Saving compared to average UK property- (EPC D) at the energy price cap as of
April 2023
£ %
Property with efficiency of average for ReSI shared ownership portfolio - EPC 1,213 40%
B
Property with efficiency of average for ReSI retirement portfolio - EPC C 456 15%
Rent increases
Retirement rents increase contractually with RPI, with a cap at 6.0%. ReSI has
chosen to apply this cap to all retirement properties, and with RPI reaching
12.6% in September 60 (#_ftn60) , residents have benefited significantly from
this. The total annualised saving generated by ReSI capping retirement rent
increase in the year was £250k.
Shared ownership rents increased contractually by 5.4% (RPI + 0.5%) in April
of this year. Rents will not increase again until April 2023, where
contractually, they will increase by September's RPI + 0.5%.
The government announced as part of the 2022 Autumn Statement that it will
apply a 7% cap to social housing rent increases for 2023/24. Whilst there is
no requirement to cap shared ownership rents, both the National Housing
Federation (NHF) and G15, the group of London's largest Housing Associations,
have stated that that they expect the majority of Housing Associations and all
G15 members to be applying the 7% rent cap to their shared ownership
portfolios in 2023/24.
Mortgage costs
2022 has seen interest rates rise significantly in the UK, with the average
cost of a two-year fixed rate mortgage to surpassing 6% 61 (#_ftn61) in
October. Interest rates have come down since then, with the best widely
available rate on an 80% LTV 2-year fixed rate mortgage currently at 5.3% 62
(#_ftn62) . The majority of our shared ownership residents are on fixed rate
mortgages and will therefore be protected from rate rises until their fixed
term expires. For residents who's fixed term has expired, as shared owners
only own a portion of their home, the impact of increased mortgage costs is
significantly reduced compared to someone who owns outright.
Cost-of-living: Financial impact on our residents
Shared owners
To assess the financial impact of these market forces on our shared ownership
residents, we have quantified the cost increases experienced by an average
shared ownership resident. The table below shows average shared ownership
residents who are refinancing their mortgage at today's rates can expect to
see an increase in their housing costs and energy bills of 21% compared to
April 2022, whilst residents with mortgage rates that are fixed will see their
costs increase by 13%. ReSI acknowledges that whilst a rise of up to 21% in
housing costs and energy bills represents a significant financial challenge
for many of our residents, this increase is below the increase that an average
renter / outright owner can expect to experience.
We will work with residents who are struggling to afford their housing costs
and can offer them the option to reverse staircase. In addition, we will
encourage residents to reach out to their mortgage broker to ensure they get
the most appropriate mortgage terms for their financial circumstances.
2022 2023 Increase %
Typical ReSI Shared Ownership Resident refinancing their mortgage at today's Rent and service charge 7,543 8,071 528 7%
rates 63 (#_ftn63)
Mortgage Costs 3,786 4,819 1,033 27%
Energy Bills 64 (#_ftn64) 761 1,787 1,027 135%
Total 12,090 14,678 2,588 21%
Typical ReSI Shared Ownership Resident with fixed rate mortgage Rent and service charge 7,543 8,071 528 7% 65 (#_ftn65)
Mortgage Costs 3,786 3,786 0 0%
Energy Bills 761 1,787 1,027 135%
Total 12,090 13,644 1,555 13%
Average UK outright owner 66 (#_ftn66) Mortgage Costs 15,144 19,277 4,133 27%
Energy Bills 1,277 3,000 1,723 135%
Total 16,421 22,277 5,856 36%
Average UK rental accommodation 67 (#_ftn67) Housing Costs 11,720 13,126 1,406 12% 68 (#_ftn68)
Energy Bills 1,277 3,000 1,723 135%
Total 12,997 16,126 3,129 24%
Retirement residents
For our retirement residents, capping rent increases at 6.0% and living in a
property that is more efficient than the UK average means that cost increases
for residents is lower than if they were renting on the open market.
2022 2023 Increase %
ReSI Retirement resident 69 (#_ftn69) Rent 9,600 10,176 576 6%
Energy Bills 70 (#_ftn70) 1,083 2,544 (#_ftn71) 1,461 135%
Total 10,683 12,720 2,037 19%
Equivalent average private rental property 71 (#_ftn72) Rent 9,600 10,752 1,152 12% 72 (#_ftn73)
Energy Bills 1,277 3,000 1,723 135%
Total 10,877 13,752 2,875 26%
The assessment shows that although retirement residents can expect to see
their costs increase significantly in 2023, the increase will be 29% less than
the increase that they would experience if they were renting the equivalent
property (with an EPC rating of D, the UK average) on the open market.
In addition, the Government announced as part of the 2022 Autumn statement
that the state pension and all HMRC and Department for Work and Pensions
benefits will rise with CPI at 10.1%, a rise well above the capped rent
increase of 6.0%
Demand for shared ownership in the current economic climate
Rising Interest rates across the world have made the ambition of homeownership
more expensive for all first-time buyers, however the impact is less severe on
shared owners compared to those who own outright.
This is because as shared owners only own a portion of their home, the size of
the mortgage required to purchase their equity stake is typically much lower
than someone buying a property outright.
Whilst the rent paid by shared owners on the portion of the property that they
do not own will increase significantly in 2023, even if the full inflationary
increase of September RPI + 0.5% (13.1%) is applied, this increase is
considerably lower than the 40% increase 73 (#_ftn74) in monthly payments
that will be felt by outright owners as a result of a 3.0% increase in
mortgage rates. The higher interest rates go, the more pronounced this saving
under shared ownership becomes.
With outright sale affordability worsening, and with help to buy coming to an
end in 2022, it is expected that shared ownership will become the only
affordable route onto the housing ladder for many higher income residents.
In addition, demand for shared ownership housing far outstrips supply, with
the tenure currently accounting for 20,000 of the 400,000 annual first time
buyer sales in the UK, despite the tenure having the potential to help 4.4
million households 74 (#_ftn75) onto the housing ladder. This supply and
demand imbalance means that the tenure is likely to be able to withstand an
overall reduction in the number of first time buyers in the UK.
There will be some residents who are no longer able to afford shared ownership
in the current economic climate, however it is expected that the new market of
higher income residents, and the extent to which demand for shared ownership
housing outstrips supply, will keep demand for the tenure strong, despite a
worsening affordability outlook.
Governance
Governance and ethics
The Directors and Fund Manager (and the broader Gresham House group) seek to
embed effective corporate governance and a focus on ethics in all of the
Company's operations.
The Board conducts an annual evaluation of its governance and ethics
operations, covering board effectiveness, audit committee effectiveness,
effectiveness of the Chairman and review of director self-appraisals.
Alongside this annual evaluation, ReSI's governance and ethics policies are
reviewed and renewed; these policies cover anti-money laundering,
anti-bribery, conflicts of interest, diversity, inside information,
disclosure, non-audit services, third party benefits, share dealing and
whistleblowing. Many of these policies cover, not only the Board, but also
ReSI's suppliers and contractors.
ReSI's Board is entirely independent board and is tasked with monitoring the
Fund Manager's performance as an AIFM. The Board of ReSI comprises four
non-executive directors, each appointed for the skillsets and experience they
could bring to ReSI. Each director is entitled to compensation that is linked
to ReSI's net asset value, ensuring a long-term alignment of interests and in
accordance with REIT best practice.
By way of additional governance and ethics oversight, for acquisitions of
regulated housing tenures, such as shared ownership, which are completed
through ReSI's wholly owned subsidiary, ReSI Housing, which is registered with
the Regulator of Social Housing (RSH) as a for-profit Registered Provider,
ReSI's activities are subject to the oversight of the RSH and the oversight of
the independent non-executive directors on the Board of ReSI Housing.
The RSH regulatory framework is designed to ensure good governance, financial
viability, minimum maintenance and environmental standards, and protection of
residents' welfare, thus supporting ReSI's goal of maximising social benefit.
ReSI Housing has a suite of governance policies that are independently
reviewed annually to keep ReSI Housing abreast of regulatory developments and
changes in best practice. These policies cover structural governance items
such as conflicts of interest, succession and independence governance, fraud,
anti-money laundering, risk management and also asset management items such as
tenancies, affordability and anti-social behaviour.
Importantly, ReSI Housing's governance policies embed a regulatory protection
that affords non-executive directors enhanced voting powers and a veto over
any action that threatens ReSI Housing's compliance with the RSH's regulatory
standards. As at the date of this Annual Report, ReSI Housing's non-executive
directors are:
• David Orr CBE, former Chief Executive of the National Housing Federation,
and
• Gillian Rowley, former Head of Private Finance at the Homes &
Communities Agency.
More information on the ReSI Housing board can be found on page 92.
Conflicts of interest
Each of ReSI, ReSI Housing and the Fund Manager has a conflicts of interest in
policy maintained in accordance with the applicable best practice.
All of the Directors of the Company are independent of the Fund Manager and
the enhanced voting powers of ReSI Housing non-executive directors are noted
above, both of which are designed to enhance good governance and mitigate
conflicts of intertest.
The Company's conflicts of interest policy reinforces the obligation on each
Director to avoid a situation in which he or she has, or can have, a direct or
indirect interest that conflicts, or may conflict, with the interests of the
Company and to exercise independent judgement.
Each Director has a duty to declare an interest in a proposed transaction and
an obligation to declare an interest in an existing transaction.
If a Director has a potential conflict of interest between his duties to the
Company and his private interests or other obligations owed to third parties
on any matter, the relevant Director will disclose his conflict of interest to
the rest of the Board, not participate in any discussion by the Board in
relation to such matter and not vote on any resolution in respect of such
matter.
Board culture
Each year the Board conducts an annual evaluation of its governance and ethics
operations. This evaluation covers board effectiveness, audit committee
effectiveness, effectiveness of the chairman and director self-appraisals,
with the aim of setting focus areas and key priorities for the year coming.
This discussion of board effectiveness prioritises a discussion of the Board's
role, dynamics and culture, ensuring these develop as the Company matures.
It is the responsibility of the Chairman to set the tone and culture of
meetings of Directors. At Board meetings, ReSI promotes a collegiate
discussion involving all non-executive directors and the Fund Manager,
ensuring the skills and experience of all Board attendees are leveraged.
This leveraging of skills and experience is also a key focus of the ReSI
Housing Board.
Board diversity
Diversity is an important consideration in ensuring that the Board and its
committees have the right balance of skills, experience, independence and
knowledge necessary to discharge their responsibilities. The ReSI plc Board is
composed solely of non-executive Directors and has 25% female representation
(three male directors and one female director).
The ReSI Housing Board contains two non-executive directors that are
independent of the Fund Manager, (with 50% female representation), with
remaining directors being Fund Manager personnel.
The Board's approach to the appointment of non-executive Directors is based on
its belief in the benefits of having a diverse range of experience, skills,
length of service and backgrounds. The Board therefore continues to consider
that it would be inappropriate to set a target and will always appoint the
best person for the job based on merit, and will not discriminate on the
grounds of gender, race, ethnicity, religion, sexual orientation, age,
physical ability or social background. The right blend of perspective is
critical to ensuring an effective Board and successful company.
Board information
It is the responsibility of Company Secretary and the Fund Manager to ensure
that the Board of ReSI is kept abreast of developments with respect to the
Company's operations and business and receives timely, entire board packs for
review at each meeting of Directors.
Standing items at each meeting of ReSI's Directors include the following:
strategic update, review of risk register, portfolio performance, pipeline
report, management and year-end accounts, debt covenant reporting, governance
and approved minutes of ReSI's registered provider subsidiary, ReSI Housing.
In addition, reports of the Company Secretary, Depositary and Registrar are
also tabled for discussion. Extraordinary items will include review of service
providers, updates to governance and other company policies and such other ad
hoc matters as arise from time to time.
Such materials, together with a free, open discussion with the Fund Manager
and Company Secretary, facilitate an environment in which the directors can
fulfil their duties in a manner fitting for ReSI's governance and ethics
environment.
The Fund Manager has agreed a similar approach with the directors of ReSI
Housing. Standing agenda items include the following: strategic update,
pipeline report, property performance and compliance, management and year-end
accounts, review of business plan and stress testing, review of risk register
and a regulatory update, Extraordinary items arise for ReSI Housing too and
include review of property managers, review of customer satisfaction surveys,
updates to governance and other company policies and such other ad hoc matters
as arise from time to time.
Risk and compliance
ReSI has robust risk and compliance management policies and procedures, as
outlined in the risk management and governance sections on pages 77 to 110.
In addition, for acquisitions of regulated housing tenures, ReSI Housing has
its own risk management framework, risk appetite and set of governance
policies.
Commitment to sustainability
ReSI is committed to investing in a sustainable manner in order to generate
long-term returns. We have this year worked with The Good Economy, and Kamma
Data to quantify our impact (see pages 55 to 68).
In addition, the Fund Manager adheres to Gresham House's sustainability
investment framework and shared ownership investments, through ReSI Housing,
benefit from the Fund Manager's proprietary shared ownership customer charter
and environmental charter, under which the Group seeks to offer leases of 250+
years and not charge event fees. The Fund Manager created these charters in
2020 to formalise its existing process and practices that go above and beyond
the requirements of the model for shared ownership lease, ultimately
benefitting the Group's shared owners and comprising part of the Company's
social impact. These charters are updated annually to enable the Fund Manager
to remain abreast of social housing developments. The Fund Manager seeks to be
a market leader in creating a new era of aspirational shared ownership, and in
turn help expand homeownership
Section 172 Statement and Stakeholder Engagement
This section of the Annual Report covers the Board's considerations and
activities in discharging their duties under s.172(1) of the Companies Act
2006 to promote the success of the Company for the benefit of members as a
whole.
This statement includes consideration of the likely consequences of the
decisions of the Board in the longer term and how the Board has taken wider
stakeholders' needs into account.
The Board is ultimately responsible for all stakeholder engagement. However,
as an externally managed investment company, ReSI does not have any employees
and engages third party providers as required including for fund management,
secretarial, administration, broking, depositary and banking services. All
these service providers help the Board fulfil its responsibility to engage
with stakeholders and it should be noted are also, in-turn, stakeholders
themselves.
In addition to promoting the success of the Company for the benefit of members
as a whole, section 172 of the Companies Act 2006 requires the Board to have
regard to the following:
Section 172 element ReSI comment
the long term (s.172(1)(a)) ReSI's investment objective is to establish a residential portfolio
benefitting from inflation-linked income for the long term. Alongside this
intention to hold for the long-term, ReSI has used leverage on a long-term
basis across the Group, ReSI has an average debt maturity of 22 years.
the interests of ReSI's employees (s.172(1)(b)) As an externally managed AIF, this is not applicable to ReSI.
relationships with suppliers, customers and others (s.172(1)(c)) See the discussion regarding the following major stakeholders - "Fund
Manager", "Property Managers & Developers", ""Key Service Providers",
"Grant providers" and "Residents".
the community and the environment (s.172(1)(d)) All investment decisions taken by the Fund Manager on behalf of ReSI are taken
in accordance with its sustainable investment framework.
Moreover, shared ownership investments, through ReSI Housing, benefit from the
Fund Manager's proprietary shared ownership customer charter and environmental
charter, under which the Group seeks to offer leases of 250+ years and not
charge event fees.
The Fund Manager created these charters in 2020 to formalise its existing
process and practices that go above and beyond the requirements of the model
for shared ownership lease, ultimately benefitting the Group's shared owners
and comprising part of the Company's social impact.
high standards of business conduct (s.172(1)(e)) See the section titled "Governance and ethics".
the need to act fairly between members (s.172(1)(f)) See the discussion regarding "Shareholders" as a major stakeholder.
The Board has identified the following major stakeholders in the Company's
business.
On an ongoing basis the Board and Fund Manager monitor both the potential and
actual impacts of decisions made upon these major stakeholders.
Major Stakeholder Why is it important to engage? How have the Directors and Fund Manager engaged?
Shareholders As a public company listed on the London Stock Exchange, ReSI is subject to The Fund Manager along with ReSI's corporate broker regularly meets with
the Listing Rules and the Disclosure Guidance and Transparency Rules. ReSI's shareholders to provide corporate updates and to foster regular
dialogue.
The Listing Rules include a listing principle that a listed company must
ensure that it treats all holders of the same class of shares that are in the The Board encourages shareholders to attend and participate in ReSI's Annual
same position equally in respect of the rights attaching to such shares. With General Meeting (AGM). ReSI values any feedback and questions it may receive
the assistance of regular discussions with and the formal advice of ReSI's from shareholders ahead of and during the AGM.
legal advisors, company secretary and corporate broker, the Board abides by
the Listing Rules at all times. For information on shareholder engagement
please see the Governance section of this Annual Report which contains further
information on shareholder engagement. ReSI's Annual and Interim reports are made available on ReSI's website and
then are circulated to shareholders as requested, providing shareholders with
an in depth understanding of the Company's financial position and portfolio.
ReSI also make available RNS and other business and market updates on ReSI's
website.
Residents ReSI's residents are integral to the business model. The importance of ReSI works with trusted partners to manage its relationships with all
engaging with residents cannot be understated; strong relationships have been residents on all tenures. ReSI's property managers are in regular contact with
shown to improve tenant retention, rent collection rates, overall tenant residents, and residents are also provided with contact details and are able
satisfaction and ReSI's impact on the community. to contact dedicated teams to discuss any problem that they might have.
ReSI is committed to accelerating the development of socially and economically The Fund Manager reviews detailed affordability assessments before a resident
beneficial new housing to make a meaningful contribution to the UK housing is selected, and throughout the lease term a close relationship is maintained
shortage. ReSI's homes deliver a social benefit through providing wellbeing through ongoing engagement. The Fund Manager expects, and monitors, the
improvements to residents (e.g. by providing the security of a home for life), property managers to encourage feedback from residents including suggestions
fiscal savings (e.g. lower costs for housing those at risk of homelessness and for service improvement and to learn from any complaints about service
savings to the NHS), and wider economic benefits (e.g. by enabling people to delivery. The safety and wellbeing of residents is of the highest priority and
live and find work in otherwise unaffordable parts of the country). The social when making an investment the Fund Manager is rigorous in using the skills and
impact delivered by ReSI is reported on page 46 expertise of its property team to provide high quality homes and identify and
mitigate all risks to residents.
In addition, the Fund Manager conducts an annual satisfaction survey for its
retirement and shared ownership residents, affording these residents an
opportunity to comment on the services received.
The Fund Manager considers residents' changing needs and uses their expertise
to assist them. ReSI's lifecycle plans for accommodation includes a
conservative approach to the long-term costs of ownership to ensure that the
standard of quality is maintained or improved throughout the life of the
property. At the same time, the Fund Manager only works with well-regarded and
established partners to ensure all routine and other maintenance is undertaken
promptly and properly.
Fund Manager The most significant service provider for ReSI's long-term success is the Fund The Board regularly monitors the Company's investment performance in relation
Manager, who has been engaged as ReSI's alternative investment fund manager to its objectives and investment policy and strategy.
since ReSI's initial public offer.
The Board receives and reviews regular reports and presentations from the Fund
The Fund Manager performs investment management services to ReSI in accordance Manager and seeks to maintain regular contact to maintain a constructive
with the Alternative Investment Fund Managers Directive 2011/61/EU as working relationship.
implemented into UK law by the Alternative Investment Fund Managers
Regulations 2013 and the Fund chapter of the FCA Handbook
Property Managers & Developers ReSI's property managers are experienced in managing tenants' needs to ensure ReSI always seeks to work with well-regarded partners to ensure that its homes
a good quality of service and to ensure that the regulatory risk is minimised. are fit for purpose and maintained at a high standard in order to meet the
needs of lessees and occupiers, as well as sustaining value over the
long-term.
In addition, strong developer relationships enable ReSI to secure a pipeline
of assets for investment. Experienced development partners ensure that ReSI
acquires high quality homes to lease to its residents, improving quality of The Fund Manager has regular contact with property managers, estate managers
life for residents. and developers and takes a proactive approach to working with third parties.
By supporting development partners, ReSI aims to benefit local communities by Before an acquisition, detailed property due diligence is performed by the
increasing the provision of affordable housing. Through ReSI Housing, ReSI is Fund Manager on all acquisitions to minimise fire and other risks to residents
able to acquire assets within the social housing regulatory environment, which and provide safe and secure accommodation.
emphasises good governance and financial viability.
After acquisition, the Fund Manager (with input from property managers)
regularly reports to the Board on ReSI's property performance and compliance
with property obligations.
Key Service Providers A list of the Company's key service providers can be found on page 139 of this Before the engagement of a service provider, the Board ensures that the
Annual Report. service provider's services are appropriate and values are aligned.
As an externally managed real estate investment trust, the Company conducts On an annual basis the Board reviews the continuing appointment of each
all its business through third-party service providers. service provider to ensure re-appointment is in the best interests of the
Company's shareholders. The Board has strong working relationships with the
Fund Manager, broker, company secretary, administrator and depositary and
receives reports on the performance of the key service providers by the Fund
Manager and company secretary. Separately, the Auditor is invited to attend
the Audit Committee meeting at least once per year.
The Audit Committee Chair maintains regular contact with the audit partner to
ensure the audit process is undertaken effectively.
Regulator of Social Housing ReSI Housing is a wholly-owned subsidiary of ReSI and is registered with, and The Fund Manager and ReSI Housing's board each maintains strong lines of
regulated by, the Regulator of Social Housing (the RSH) as a for-profit communication with the Regulator and is transparent in all dealings.
registered provider.
The Fund Manager, in conjunction with the board of ReSI Housing, keeps ReSI
As a regulated entity, ReSI Housing is able to offer shared ownership Housing's compliance with its regulatory obligations under constant review,
properties, which are central to its future investment strategy and other with input from such external advisers as may be necessary.
regulated tenures.
The board of ReSI Housing contains independent non-executive directors with
enhanced responsibilities for ReSI Housing's compliance with the RSH's
regulatory regime.
Grant Providers To enable delivery of shared ownership homes, ReSI Housing is an investment The Company engages the Fund Manager and third-party service providers to
partner of multiple grant providers, including the Greater London Authority assist with compliance of grant requirements. Any correspondence from a grant
(GLA) and Homes England, and has accessed grant funding under their standard provider is responded to promptly.
form grant agreements.
In the financial year 2022, ReSI Housing's compliance with grant requirements
Each of these grant providers is a long-term investment partner in ReSI on Auckland Rise with GLA has been audited by Trimmer CS Ltd and we are
Housing. awaiting final audit results from the GLA.
HMRC If ReSI fails to remain qualified as a REIT, its rental income and gains will ReSI corresponds with its contacts at HMRC regularly and is transparent in all
be subject to UK corporation tax. dealings.
The Directors and the Fund Manager at all times conduct the affairs of ReSI so
as to enable it to remain qualified as a REIT for the purposes of Part 12 of
the CTA 2010.
Lenders Members of the Group have raised secured debt and entered into a working ReSI's subsidiaries report to their respective lenders in line with the
capital facility. covenants entered into.
As is customary, each facility contains representations and warranties Proactive correspondence helps develop the relationship and aides the
Company's ability to raise further debt in the future.
Principal Decisions
ReSI's Directors are cognisant of their duties under Section 172 and decisions
made by and discussions of the Board take into account the interests of all
the Company's key stakeholders.
The following are examples of how the Board managed their Section 172
obligations in the context of decisions that were anticipated to have a
material impact on ReSI and its key stakeholders
Discussion item Stakeholders Decision and rationale
Equity raise in February 2022 Shareholders The Board approved of the allotment of new ordinary shares, raising £15mn
(gross proceeds).
Residents
Property Managers & Developers
This was considered in the best interests of stakeholders collectively for it
Fund Manager would allow ReSI to continue deploying into its shared ownership pipeline,
through ReSI Housing, increase Group AUM and revenues, expand the Groups'
investor base, further diversify its exposure to inflation-linked receivables
and strengthen its pipeline relationships.
Amendments to the Group working capital facility Shareholders The Board approved of the Fund Manager's proposal to extend and upsize the
Group's working capital facility, reducing the margin and securing additional
Residents bridging and working capital financing.
Property Managers & Developers
Fund Manager
Appointment of Peel Hunt LLP Shareholders The Board approved the appointment of Peel Hunt LLP as corporate broker and
financial adviser, after a broker review and tender process.
Fund Manager
Risk Management
Risk Management Measures
Risk management is the continual building of a framework and culture to
promote a thoughtful and systematic methodology for identifying, analysing,
evaluating, treating, monitoring, and communicating risks related with any
activity that we employ to optimise gains and control potential losses.
ReSI has delegated risk management responsibility to the Fund Manager, for
whom risk management is an integral part of the Fund Manager's culture. Risk
management is also an integral part of the broader Gresham House group.
The Fund Manager has embedded risk management from the top down into its
philosophy, practices and business processes - risk management is not to be
viewed or practiced as a separate activity. All Fund Manager personnel and
ReSI directors are involved to some extent in the management of risk on a
daily basis as part of their usual business activities.
The Fund Manager proactively manages risk (rather than responding reactively
to it) and the Fund Manager's activities are also subject to scrutiny by the
Gresham House risk management framework.
On behalf of ReSI, the Fund Managers maintains the following under regular
review:
Measure Explanation Relevance to Strategy Result
Percentage of shared ownership homes occupied ReSI measures the number of empty shared ownership properties in its shared Unsold shared ownership homes that do no generate rental income or staircasing 723 of ReSI's 739 completed shared ownership homes were sold, reserved or
ownership portfolio. proceeds, and carry operating expenses, adversely impact ReSI's dividend moving to completion to shared owners as of 30 September 2022, equivalent to
coverage. 98% (30 September 2021: 495 of 498 (99%). Those that are vacant are part of
the 18 homes acquired 8in September 2022 and are being let up through
established partners, SO ReSI. A further 10 homes have been reserved since 30
For each empty shared ownership property, ReSI is unable to collect rent, must September and are moving to completion.
pay service charge and council tax, and is exposed to maintenance costs.
Void loss from retirement properties ReSI measures the number of empty retirement properties in its retirement Void retirement units impact ReSI's dividend coverage. The void loss was 6.2% for the year (7.6% in FY 2021).
portfolio.
For each empty retirement property, ReSI is unable to collect rent.
Capital deployed ReSI measures the rate at which it has deployed capital since IPO as this ReSI's strategy prioritises investing in high quality retirement and social Since 30 September 2021, ReSI completed an equity capital raise of £15mn in
drives the timing of income production. housing assets; hence the total capital deployed into such assets reflects February 2022 and committed (net of first tranche sale receipts) cash
ReSI's ability to source suitable investments. consideration of £28mn into 246 additional high-quality shared ownership
homes.
ReSI's capital is therefore again fully deployed, with £383mn deployed
(including £9mn committed acquisitions) by 30 September 2022 (30 September
2021: £351mn).
EPRA NTA per share ReSI measures its EPRA NTA per share, consistent with its financial A higher EPRA NTA per share compared to ReSI's NTA of 98p per share
statements, with a target to achieve capital appreciation in line with immediately following IPO, reflects capital appreciation on its portfolio.
inflation without reliance on gains from asset sales.
EPRA NTA of 106.1p per share (30 September 2021: 107.9p), shows growth of over
8% since IPO whilst paying out c. 23p of dividends of dividends over the same
period.
Dividend per share ReSI is targeting 5.16p per share in respect of the annual period to 30 ReSI seeks to provide stable rental income to its investors through regular ReSI increased its dividend target for FY 2022 to 5.16p in line its target to
September 2022, growing in line with inflation. consistent dividend payments in line with its dividend target. increase versus FY 2021 with annual inflation to September 2021 of 3.1%.
Measuring dividend payments per share reflects ReSI's ability to meet this Performance has been in line with target: four equal dividends were paid of
target, with performance reflecting available cash and the income generated 1.29p per share during the period under review (declared in December 2021 and
from ReSI's assets. January, May and July 2022) totalling 5.16p per Ordinary Share (FY 2021:
5.0p).
Dividend cover Dividend cover expresses the ratio of annualised recurring profits (ie Dividend coverage of at least 100% is required to pay the dividend over the ReSI raised £15mn of equity during the year which led total dividend coverage
excluding asset or liability valuation movements) to dividends paid. long term. to drop to 97% over the year whilst this was deployed. Full dividend coverage
returned in Q4 once these new investments were onboard.
Ongoing charges ratio Ongoing charges ratio compares annualised ongoing expenses to average Net ReSI measures the ongoing charges ratio to demonstrate that the running costs ReSI's ongoing charges ratio was 1.40% (FY 2021: 1.60%) for the period, 1
Asset Value. of the Company are kept to a minimum without impacting performance. October 2021 to 30 September 2022, of which 1.0% relates to the Fund
Management fee and the remainder being general and administrative expenses.
(See supplementary information on page 172)
A lower ongoing charges ratio is indicative of improved financial performance.
Loan covenant stress testing ReSI measures the headroom in group financial covenants. ReSI's borrowing strategy is predicated on long-term project finance to match The Fund Managers analyses financial covenant headroom at quarterly meetings
the cash flows of the scheme in question. and, in addition, when submitting compliance certificates to funders. Given
the headroom the Group has in each of its covenants, no action has to date
been necessary.
ReSI monitors the asset and liability matches to make sure ReSI remains within
its leverage targets and limits, and as part of prudent treasury management.
Bad debts on rental receipts ReSI uses professional management companies to collect rent and invests in SO Bad debt write offs impact ReSI dividend coverage Write off of rent arrears was only £2,900 in the year, representing 0.02% of
schemes where rent arrears are covered by ownership stakes and retirement annual rental income.
schemes where rent arrears are traditionally very low.
In addition, for all acquisitions of regulated housing tenures (such as shared
ownership), which are effected through ReSI Housing, ReSI has an added layer
of risk management embedded into its procedures. As a registered provider
registered with the RSH, the Board of ReSI Housing has established its own
risk management framework, risk management policy and risk appetite, one of
the outcomes of which is the Key Risk Map, which is discussed by the board of
ReSI Housing at every quarterly meeting as a standing item.
The following is a hypothetical Key Risk Map, illustrating the ongoing risk
management conducted by the board of ReSI Housing:
Principal Risks and Uncertainties
The Board recognises the importance of risk management in achieving ReSI's
strategic aims.
The Fund Manager, whose services are overseen by the Board, has responsibility
for identifying potential risks at an early stage, escalating risks (and
changes to risks) and implementing appropriate mitigations, all of which are
recorded in ReSI's risk register. Where relevant, the Company's financial
model is stress-tested to assess the potential impact of a potential risk
taking into account the likelihood of occurrence.
Risk is a standing agenda item at all meetings of the Audit Committee and all
meetings of the Board. The Board takes a proactive view when assessing and
mitigating risks. The Board regularly reviews the risk register to ensure that
identified risks and mitigating actions remain appropriate.
ReSI's risk management process is designed to identify, evaluate and mitigate
(rather than eliminate) the significant and emerging risks that it faces and
that evolve as the business and operating environment changes. The risk
management process ensures a defined approach to decision-making but can only
provide reasonable, and not absolute, assurances.
The Board considers the following to be the principal risks and uncertainties:
Risk Risk mitigation Party responsible Party responsible for monitoring Change in risk over last financial year
Company, Investment Strategy and Operations
ReSI may not meet its investment objective or return objective • Due diligence performed by the Fund Manager prior to each acquisition Fund Manager Board No change
• On-going information on investment activities provided by the Fund
Manager to the Board
• Regular review of investment and return objectives
ReSI may be unable to make acquisitions within its targeted timeline • ReSI has a detailed Investment Policy that describes target assets and Fund Manager Board No change
the process for acquiring such assets
• The Fund Manager has long-term relationships with leading housing
associations, local authorities and private developers
• ReSI Housing, as a for-profit Registered Provider, expands the
origination universe available to ReSI to include acquiring newly developed
properties that are designated as affordable accommodation under planning
requirements and unrestricted stock where ReSI can apply for Government grant
to convert into shared ownership
• The Fund Manager has extended its origination and relationship network by
bringing in additional experienced professionals with backgrounds working for
housing associations, local authorities and private developers
ReSI's due diligence ("DD") may not identify all risks and liabilities in • Legal DD is carried out by established law firms and is managed by Fund Manager Board No change
respect of an acquisition in-house counsel and housing specialists
• Property DD is carried out by reputable real estate surveyors and is
managed by in-house property experts
• Financial DD is carried out by major accounting firms and is managed by
in-house experienced accountants
• The Fund Manager performs shadow credit ratings utilising published
credit rating methodologies
Failure of ReSI Housing to continue to meet the Regulatory Standards • Specialist non-executive directors have been appointed and tasked with ReSI Housing and Fund Manager Board New
reviewing activities from the perspective of the Regulatory Standards
• ReSI Housing board has specialist sector experience and a risk-based
governance structure, and activities are monitored by the Board
• ReSI Housing performs ongoing compliance monitoring and annual
self-assessments
• Regular support and /or compliance assurance procured from third parties
ReSI has insufficient liquidity available to meet obligations as they fall due • The Fund Manager regularly reviews the Group's Business Plan against the Fund Manager Board Increased
(including any debt repayment obligations) or liquidity is available on more Group's recent and anticipated activities to assess future liquidity
expensive terms requirements
• The Group typically uses long-term amortising debt, reducing refinancing
risk
• The Group has access to a working capital facility with Santander, which
gives access to £25mn liquidity, and the Fund Manager actively reviews Group
liquidity to manage cost of carry and mitigate the impact of rising interest
rates
Political and Event risk
Change in Government rent policy or ability to pass through inflation linked • The current high inflationary environment combined is causing a cost of ReSI, ReSI Housing and Fund Manager Board Increased
rent increases, as RPI increases to highest level in 30 years, limiting level living crisis which has the greatest impact on low and middle income earners.
of rent increases Significant RPI increases over the past 12 months to the highest level in the
last 30 years, may result in changes to Government policy on rent increases
across residential sectors
• ReSI's shared ownership leases are contracted to increase annually at RPI
+0.5%. ReSI performs stress testing and profitability analyses regularly
• Rent reviews on the retirement portfolio performed annually at RPI (capped
at 6%), with affordability taken into consideration. The majority of
retirement residents have inflation-protected pensions
• The Fund Manager engages in sector-wide consultations to be familiar with
trend within social housing providers practices
• The Fund Manager regularly reviews market forecasts to stay abreast of
potential developments, including possible government interventions
• The embedded collar in the Group's shared ownership financing restricting
inflationary uplifts
Impact of Energy Efficiency upgrades on rental properties - All properties • ReSI Property Management Limited, as property manager, is working on ReSI, ReSI Housing and Fund Manager Board No change
cannot be upgraded to energy rating of EPC C or higher by 2025 updating EPC ratings on a number of retirement properties
• The majority of shared ownership properties have an EPC rating of B or
higher, with a few properties at lower ratings or no ratings. The Fund Manager
is working towards obtaining ratings for all properties which do not have a
rating at present (noting that this is ultimately a responsibility of the
shared ownership customer)
• Government policy updates and their impacts are constantly reviewed by the
Fund Manager, with appropriate management action pursued via third party
managers
Environmental
Risk of long-term impact on the portfolio from climate change • Environmental concerns are integral to the Fund Manager's investment Fund Manager Board No change
analysis process, and are considered before investment in each scheme
• The Fund Manager has a sustainable investment policy, which is used to
inform investment decisions
• The Fund Manager has have partnered with The Good Economy, Kamma Data and
other knowledgeable third parties to understand ReSI's impact on the
environment and enhance our reporting - please see the Environmental, Social
and Governance section of this Annual Report
• ReSI is investing in improving the environmental efficiency of its
portfolio
Real estate
Significant or material fall in the value of the property market • ReSI's aim is to hold the assets for the long term and generate N/A Board Increased
inflation-linked income
• Although the risk of volatility in valuations has increased, the risk to
ReSI is mitigated by the fact that ReSI is fully deployed into investments
which are primarily income generating, and therefore the Company does not
heavily rely on realised revaluation gains to cover dividend payments.
Additionally, ReSI has significant headroom of at least 13% in its
loan-to-value covenants, and significant headroom in its income cover
covenants (e.g. 31% for the retirement portfolio).
• The Board will assess market forecasts on a quarterly basis to put in
place mitigations in the event of a material fall in the value of the property
market
• The Group will enter into long-term management agreements
• The Fund Manager stays abreast of market developments and forecasts, and,
where necessary, seeks to adjust offer terms accordingly
• ReSI focuses on areas of the market with limited and ideally
countercyclical exposure to the wider property market
Inability to secure residents • ReSI actively manages its void risk, looking for opportunities to acquire Property managers / estate agents Fund Manager No change
pre-tenanted homes where possible
• ReSI engages established property managers to provide the day-to-day
management of home lettings and collection of underlying rent from residents
or shared owners
• ReSI only accepts void risk where there is a demonstrable strong demand
or where the residents are part owners of the properties (as exhibited by
retirement, sub-market rental assets or shared ownership properties)
• The like-for-like shared ownership portfolio is now fully occupied, with
the retirement portfolio now averaging 6.2% void loss in FY 2022, below
pre-COVID-19 levels of c. 7%.
• ReSI is investing in improving the environmental efficiency of its
portfolio to save residents on their heating bills and meet increased
Government requirements on the minimum energy efficiency of rented homes
Service providers
ReSI is dependent on the expertise of the Fund Manager and its key personnel • ReSI's Board of Directors and the board of ReSI Housing have strong Fund Manager Board No change
to evaluate investment opportunities and to assist in the implementation of relevant experience and introduce independent scrutiny
ReSI's investment objective and investment policy
• The Fund Manager's interests are aligned to those of ReSI's shareholders
through a fee structure which pays 25% of Fund Manager fees in equity and
provides for no transaction-specific fees
• As of the date of this Annual Report, the current and founder directors
of the Fund Manager (or persons connected to them) hold (in aggregate)
2,359,115 Ordinary Shares in ReSI and the Fund Manager holds 3,647,399
Ordinary Shares totalling 3.3% of shares in issue
• The Fund Manager follows strict selection processes in recruiting
personnel including psychometric testing, external verification of
qualifications and experience and KYC and security checks
• The Board formally reviews the Fund Manager's
performance annually
Poor performance by service providers leading to reputational loss or loss of Service providers are either recommended to or known to the Fund Manager Board New
shareholders' assets Fund Manager in advance of engaging
Board agrees contractual arrangements with all key service
providers
Board considers regular reporting from key service providers
Board monitors quality of services provided by key service
providers and conducts an annual review of such service providers
Details of disaster recovery arrangements are obtained from
key service providers
Taxation
If ReSI fails to meet the requirements of the REIT regime and remain qualified • ReSI has operated and intends to remain within the UK REIT regime and Fund Manager Board No change
as a REIT, its rental income and gains will be subject to UK corporation tax work within its investment objective and policy
• The Fund Manager receives advice from professional advisors on an
on-going basis the UK REIT regime and reports any relevant changes to the
Directors; such advice covers the UK REIT regime, legal developments,
accounting standards and investment companies in general
• The Fund Manager will at all times conduct the affairs of ReSI so as to
enable it to become and remain qualified as a REIT for the purposes of Part 12
of the CTA 2010
• The Board would have oversight on any action that would result in ReSI
failing to adhere to the UK REIT regime, and ReSI receives tax advice from
professional advisers who review REIT status quarterly and submit annual tax
returns in line with HMRC requirements.
• The Fund Manager monitors the government and HMRC, FCA and other public
announcements for any relevant release affecting the Company
Investment Management
Market and individual investment risks not analysed or detected in a timely • The Fund Manager rigorously analyses investment opportunities and Fund Manager Board No change
fashion leading to deteriorating investment performance or a higher risk undertakes comprehensive due diligence before acquisition
profile than anticipated
• The Fund Manager does not receive a performance-based fee and as such is
not financially incentivised to target riskier higher yielding assets
• The Fund Manager receives a management fee prior to deployment and so is
not financially incentivised to purchase assets quickly regardless of the
performance of such assets
Information Systems and Cyber security
IT systems are compromised / unavailable, leading to financial loss / data The Fund Manager is part of the Gresham House group, who Fund Manager Board No change
breach have a specialist third party IT team that are responsible for systems
maintenance and has increased its capacity and capability with an outsourced
IT function, and the appointment of a dedicated Information Technology Manager
The Fund Manager has made significant investment in new
technology that incorporates a greater level of data security in building a
secure and resilient platform which is GDPR compliant
Company Secretary evaluates third party service providers to
the Company to ensures that providers have a similar level of robust processes
and controls around information security and systems.
Regular systems penetration testing and vulnerability
assessments are conducted by multiple independent specialists to ensure our
systems are robust.
Regular Staff training which includes awareness of IT
policies, cyber threats, data protection and GDPR requirements
Going Concern and Viability Statement
Going Concern
The Board monitors the Company's ability to continue as a going concern. The
following is a summary of the Directors' assessment of the going concern
status of the Company and its Group, which should be read in conjunction with
the viability statement.
The Directors have considered the Group's cash position, income and expense
flows. As at 30 September 2022 the Group's net assets were £201.4mn and the
Group held cash and cash equivalents of £16.0mn. Net rental income for the
year ended 30 September 2022 was £16.0mn, which is expected to increase to
reflect the Group's recently occupied and committed shared ownership
investments. The total ongoing operating expenses (excluding finance costs,
taxation and aborted acquisition costs) for the period ended 30 September 2022
were £3.2mn, showing the Group had substantial operating expenses cover.
ReSI's portfolio provides a very secure long term income stream. This is due
to the defensive nature of ReSI's portfolio, the diversity of ReSI's
counterparties and the resilience of ReSI's tenants' incomes. Tenants' incomes
are predominantly from pensions / savings or paid by local authorities and are
checked for affordability and to rents below market value. The secure
long-term nature of the income is further evidenced by:
the Company's shared ownership portfolio is 99% occupied;
the Company's stabilised retirement portfolio occupancy rates are
typically in excess of 94%. with the empty time primarily reflecting time to
refurbish properties when a tenant vacates;
a rent collection level for the year of 99%;
the average residency period of a retirement portfolio tenant is
six years;
Shared Ownership customer leases ranging from between 130 and 999
years with annual increases generally at RPI +0.5%; and
Local authority assets are ultimately leased to Luton Borough
Council, which is an area with one of the highest rates of housing need in the
country, to house those in the Borough who would be otherwise homeless or
threatened with homelessness.
ReSI has high-quality cash flows that are resilient to economic downturns.
ReSI also has a great deal of headroom in its financial covenants and, after
conducting various stress tests and sensitivity analyses, could withstand a
prolonged drop in net income without breaching any loan covenant.
As the property investment values of ReSI's retirement and local authority
portfolios are primarily calculated with reference to future cash flows, not
house prices, volatility in house prices does not have a substantial impact on
the value of its property assets. Sensitivity analysis shows that a 13% fall
in the value of ReSI's assets would not result in a loan covenant breach.
Based on the above information, the Board has made its assessment and remains
satisfied that there are no material uncertainties affecting the Group's
and/or Company's ability to continue in business for the foreseeable future,
being at least 12 months from the date of approval of the financial
statements. Accordingly, the Company has adopted the going concern basis in
the preparation of these financial statements.
Assessment of Viability
The principal risks and uncertainties section on pages 60 to 63 of this Annual
Report summarises those principal matters that the Directors consider could
prevent ReSI the Group from delivering on its strategy and is derived from a
robust assessment of the principal risks to our business model, future
performance, liquidity, and solvency, which is supplemented by financial
modelling and stress testing conducted by the Fund Manager. A number of these
principal risks, because of their nature or potential impact, could also
threaten the Group's ability to continue in business in its current form if
they were to occur.
The assumptions underpinning our cash flow forecasts and covenant compliance
sensitivity analysis have been tested to explore the resilience of the Group's
cash flows and profitability to the potential impact of the Group's
significant risks, or a combination of those risks.
Considerations applied to going concern and viability
All of the sensitivity scenarios modelled use a base case scenario comprising
of the consummating of no acquisitions other than those already committed, no
further capital deployed to support the underlying costs of the business, and
no significant changes to Governmental, regulatory or taxation policies.
The remaining principal risks, while having an impact on the Group's business
model, are not considered by the directors to have a reasonable likelihood of
impacting the Group's viability over the next five years to 30 September 2027.
Sensitivities and mitigating actions
The sensitivity analyses performed were designed to be severe but plausible,
and to take full account of the availability of mitigating actions that could
be taken to avoid, or reduce, the impact or occurrence of the underlying
risks. Mitigating actions that could be taken at the Group's discretion
include use of funds available under the revolving credit facility to reduce
debt and the reduction or suspension of dividend payments.
Stress tests
The Directors have considered the level of the fall in property values that
could be sustained without an impact on financial covenants and acquisitions
that have exchanged but not completed. The Discounted Cash Flow valuation of
the Group's Investment Properties could fall by over 13% from the valuation at
30 September 2022 before any loan to value covenant breaches would arise.
Additionally, in considering the effect of a reduction in rent on interest
cover covenants, the Group could sustain a fall in net operating income by
over 30% and remain in compliance with these covenants.
Availability of funding
The Santander revolving credit facility of £10mn was increased to £25mn of
which £3.9mn is currently drawn and extended to March 2025 in September 2022.
This provides ReSI with increased access to working capital and bridge
finance. Repayment of the entire £12.2mn NatWest loan is due in April 2023.
However, repayment of the NatWest loan could be funded from the Santander
facility if necessary and the forecasts have been prepared on this assumption.
Generally, the Fund Manager arranges finance in advance of expected
requirements and has reasonable confidence that replacement debt facilities
will be in place as required.
Financial models have been prepared for the going concern period which
consider liquidity at the start of the period and key financial assumptions at
the Company level as well as at Group level. These financial assumptions
include expected cash generated and distributed by the portfolio companies,
which is then available to be distributed to the Company. The assumptions
include inflows and outflows in relation to external debt, interest payments,
expected dividends and the ongoing administrative costs of the Company. These
models assume that the Continuation Resolution is passed 2023.
Continuation Vote
The Company's articles of association include a requirement for the Board to
propose an ordinary resolution at the annual general meeting following the
fifth anniversary from the initial public offering of the Company for the
Company to continue in its current form (the Continuation Resolution). This is
the first continuation vote since the Company was established.
If the Continuation Resolution is passed, the Company will continue its
business as presently constituted and propose the same resolution at every
fifth annual general meeting thereafter. If the Continuation Resolution is not
passed, the Directors will be required, within six months after the date of
the annual general meeting, to formulate proposals for consideration by the
shareholders for the voluntary liquidation, unitisation, reorganisation, or
reconstruction of the Company.
After making appropriate enquiries of the Company's brokers and Investment
Adviser, pursuant to their recent discussions with a number of the Company's
shareholders, the Directors are of the view that the Continuation Resolution
will be passed at the forthcoming annual general meeting.
This reflects the long-term nature of the Company's assets with supporting
debt funding and the attractiveness of the Company's low risk inflation-linked
income strength in the Company's portfolio. Accordingly, the Directors expect
that the Continuation Resolution will be passed. If the Continuation
Resolution is not passed, an event which the Directors consider to be highly
remote, formulating and implementing any such proposals would require the
Company to continue operations for a period of at least 12 months from the
date of approval of the Company's financial statements.
Viability Statement
In accordance with the UK Corporate Governance Code the Board has assessed the
viability of the Group over a longer period than the 12 months required by the
'Going Concern' provision. The Board has conducted this review for the five
years to 30 September 2027. The Board considers that five years is the maximum
period for which the degree of uncertainty relating to factors outside of the
Board's control is low enough to make a reasonable expectation in respect of
the Group's longer-term viability.
Five years was also considered appropriate given the Company's long-term
investment objective. The Board has considered each of the principal risks and
uncertainties set out above together with the liquidity and solvency of the
Company.
Having considered the matters above, the Board has a reasonable expectation
that the Group will be able to continue in operation and meet its liabilities
as they fall due over the five-year period of its assessment.
The Chairman's Statement and Fund Manager's Report present the positive
long-term investment case for acquiring high quality residential assets which
also underpins the Group's viability for the 5-year period.
Approval
The Strategic report was approved by the Board of Directors on 1 December
2022.
Rob Whiteman
Chairman of the Board of Directors
1 December 2022
Governance
Board of Directors
Rob Whiteman CBE
Non-executive Chairman
Appointed
9 June 2017
Skills, competence and experience:
Significant knowledge of public service finances and reform and a strong
background in public financial management and governance.
Presently Chief Executive of the Chartered Institute of Public Finance &
Accountancy (CIPFA) and previously Chief Executive of UK Border Agency (UKBA),
Improvement and Development Agency (IDeA), and London Borough of Barking and
Dagenham. He previously held various positions in the London Borough of
Lewisham from 1996-2005, latterly as Director of Resources and Deputy Chief
Executive.
He has been a technical adviser to the board of the International Federation
of Accountants (IFAC) in New York since 2013.
Educated at the University of Essex where he gained a BA (Hons) in Economics
and Government and is a qualified Chartered Public Finance Accountant (CPFA).
Other roles:
Director of CCAB Limited
Director of the Koru Project CIC F
Director of Eagles Crest (Poole) Limited
Director of CIPFA C.Co Limited
Director of CIPFA Business Limited
Director of Lilliput Advisory Ltd
Robert Gray
Senior Independent Director and Chairman of the Audit Committee
Appointed
9 June 2017
Skills, competence and experience:
Extensive business experience, including experience in debt finance and
capital markets.
Robert has held roles at J.P. Morgan, and later at HSBC Markets Limited and
HSBC Investment Bank in London working initially as Managing Director in
Global Capital Markets and subsequently as Vice Chairman for Client
Development. Robert was also Chairman, Debt Finance & Advisory at HSBC
Bank plc. As Director and Chair of the Overseas Promotion Committee of
TheCityUK Robert served as financial services sector adviser to the UK
Minister for Trade & Investment.
Robert was Chairman of the International Primary Market Association and Vice
Chairman and Chairman of the Regulatory Policy Committee of the International
Capital Market Association.
Robert was educated at Sherborne School and St. John's College, Cambridge
University where he gained a MA (Hons) in History.
Other roles:
Director and Chair of the Audit Committee of the Arab British Chamber of
Commerce
Trustee of Allia Limited
Director and Company Secretary of Prospekt Medical Limited
Elaine Bailey
Non-executive Director
Appointed
9 June 2017
Skills, competence and experience:
Previously the Chief Executive of Hyde Group, the G15 Housing Association with
over 50,000 properties providing housing to 100,000 residents, a position she
held for five years until 2019. During this time Elaine oversaw the
establishment of a five-year development pipeline of 11,000 homes and the
launch of several innovative partnerships with housebuilders, contractors,
local authorities and other housing associations. Elaine also previously
worked in the construction and Government services sectors; and worked for
some years at Serco.
Actively involved in the Government's Building Safety Programme, including as
a member of the Industry Safety Standards Steering Group, and a former
Non-Executive Director of the Health and Safety Executive Board.
Elaine was educated at Southampton University, where she gained a civil
engineering degree and holds an MBA from Imperial College.
Other roles:
Director of Andium Housing Association
Director of McCarthy & Stone Shared Ownership Division
Director of CHAS (Construction Health and Safety)
Director of MJ Gleeson plc
Trustee of Greenslade Family Foundation
John Carleton
Non-executive Director
Appointed
9 June 2017
Skills, competence and experience:
A strong operational leader with management experience and a track record in
social infrastructure and housing.
Previously John was a Partner and Head of Housing, Regeneration and Growth at
Arcadis LLP, was an Executive Director for Markets & Portfolio at Genesis
Housing Association and Managing Director for Genesis Homes Ltd. In addition,
John has held various other roles including Executive Director of Property
Investment at Orbit Group, Director of Places for People Leisure Partnerships,
Director of Social Infrastructure and Housing at PricewaterhouseCoopers,
Director of the Housing Corporation (now the Homes and Communities Agency),
Property Director at Barclays Bank, Managing Director of HRC Ltd / Lehman
Brothers and Head of the Specialist Property Division at the Bank of Ireland.
John was educated at the University of Liverpool and holds a MBA in Finance
from Manchester Business School. He is a fellow of the R.I.C.S and also holds
an IPF Investment Property Forum Diploma from the Cambridge University Land
Institute.
Other roles:
Director of Helping Change Limited
ReSI Housing Non-Executive Directors
ReSI owns ReSI Housing Limited, a for-profit registered provider of social
housing. The ReSI Housing Board contains independent directors (who are
independent of the Fund Manager and ReSI) and Fund Manager directors. The
board of ReSI Housing is comprised of Ben Fry, David Orr, Alex Pilato, Pete
Redman, Mark Rogers, and Gilian Rowley. The independent Directors control the
Board on matters that they consider may affect ReSI Housing's compliance with
the regulatory standards of the Regulator of Social Housing. ReSI Housing's
non-executive directors are:
David Orr, CBE
Non-executive Director
Appointed
2 October 2018
Skills, competence and experience:
David is an experienced leader in both executive and non-executive roles. He
has over 30 years' experience in Chief Executive roles, most recently at the
National Housing Federation. He is Chair of Clarion Housing Association, Chair
of the Canal & River Trust, is a previous President of Housing Europe and
previous Chair of Reall, an international development housing charity. He is
also chair of The Good Home Inquiry, co-chair of #Housing 2030, a joint
project for Housing Europe and UNECE, and a member of the Archbishop of
Canterbury's Housing, Church and Community Commission. David frequently speaks
on the challenge of optimistic leadership and the critical importance of
governance. He has wide ranging media experience, is a well-regarded
commentator and blogger and has extensive expertise navigating the world of
politics and government. In June 2018 David was awarded a CBE.
Other roles:
Chair of Clarion Housing Association
Chair of The Canal & River Trust
Chair of The Good Home Inquiry
Co-chair of #Housing 2030
Board member of Clanmil Housing Association Trustee National Communities
Resource Centre
Gillian Rowley
Non-executive Director
Appointed
11 March 2019
Skills, competence and experience:
Gillian brings to ReSI Housing over 30 years of housing and housing finance
expertise, with a focus on policy development within the framework of
regulatory standards.
She served as the Non-Executive Director for The Housing Finance Corporation
from 2006 - 2012, where she was heavily involved in business strategy,
financial policy and governance. This overlapped with her role as the Head of
Private Finance at the former social housing regulator, the Homes &
Communities Agency, where for 13 years she was responsible for relationships
with lenders, investors, advisers, and credit rating agencies operating in the
social housing sector. She has also been an authority on all aspects of social
housing finance policy, including advising Government departments, focusing on
areas of regulatory standards, and being responsible for social housing sector
guidance on treasury management.
Ben Fry - Managing Director, Housing & Investment Committee Member, ReSI
plc
Ben Fry is Managing Director of the Housing division at Gresham House. He has
led investment management for Residential Secure Income since IPO in July
2017, prior to which he led TradeRisks' debt advisory services for housing
associations, local authorities, and social infrastructure.
Ben has almost 20 years of industry experience, with eleven years social
housing experience since joining TradeRisks in 2011. He has extensive
experience across social housing and social infrastructure. Ben qualified as a
chartered accountant with Deloitte and is a fellow of the Institute of
Chartered Accountants of England and Wales. He holds a BSc in Mathematics from
Imperial College London.
Brandon Holloway - Deputy Fund Manager, Housing
Brandon joined Gresham House as Deputy Fund Manager, Housing in November 2021.
Prior to joining Gresham House, Brandon worked at real estate private equity
firm Singerman Real Estate, focusing primarily on seniors housing acquisitions
and asset management and investor relations. Prior to Singerman Real Estate,
he worked as a corporate finance analyst at Ventas, Inc., a market listed
healthcare REIT based in Chicago, IL (USA).
Brandon has 11 years of experience in real estate investing and corporate
finance, and holds a BA in economics from Williams College.
Alex Pilato - Senior Advisor, Housing & Investment Committee Member, ReSI
plc
Alex is Senior Adviser to the Housing and Capital Markets divisions at Gresham
House, following the acquisition of TradeRisks and ReSI Capital Management in
March 2020 and his subsequent transition to retirement. Alex remains a member
of all the boards and committees of the housing division and the Group SPVs.
This transition has been planned since the acquisition of TradeRisks by
Gresham House.
Alex founded the TradeRisks group in 2000 where he was the Chairman &
Chief Executive until the sale to Gresham House on 5 March 2020 when he became
Managing Director and head of the housing division. Alex has worked in
financial services throughout his career, including 7 years at JP Morgan. He
has 35 years of investment banking and fund management experience, with the
last 22 years' focused on the social housing and infrastructure sectors.
Alex has a first-class honours degree in Theoretical Physics from the
University of London and a DPhil in Mathematics from the University of Oxford.
Mark Rogers - Executive Director, ReSI Housing & Investment Committee
Member, ReSI plc
Mark is an Executive Director of ReSI Housing and part of the team at Gresham
House, having joined TradeRisks and ReSI Capital Management in 2018 to lead
the acquisitions function. Before joining, Mark spent 12 years as a Chief
Executive of Circle Housing Group, a 65,000 unit housing association, before
merging it into the Clarion Group, the largest housing association in the UK.
Prior to that, Mark held Chief Executive roles at Anglia Housing Group and
Nene Housing Society. He has been a member of the Chartered Institute of
Housing since 1986 and has 39 years of social housing experience.
Pete Redman - Executive Director, ReSI Housing & Investment Committee
Member, ReSI plc
Pete is an Executive Director of ReSI Housing, joining Gresham House as part
of the acquisition of TradeRisks in March 2020. He has responsibility for due
diligence on residential acquisitions and operational performance by ReSI's
property managers and leaseholders. He joined TradeRisks in 2013 and has 47
years of experience in residential portfolio management, having been Chief
Executive of Notting Hill Housing Group and Housing Director of two London
Boroughs.
Pete has been advisor to the Greater London Authority, to the Scottish
Government, and was a member of the team that won the Wolfson Economics Prize
in 2014 on housing supply.
Pete studied Engineering and then Philosophy at the University of Cambridge,
is an Alumnus of London Business School, and is an Honorary Fellow of the
Royal Institute of British Architects.
Directors' Report
The Directors are pleased to present their report and accounts, together with
the audited financial statements of the Company, for the year ended 30
September 2022.
Residential Secure Income plc, company number: 10683026, (the Company) is a
Real Estate Investment Trust (REIT) listed on the premium segment of the Main
Market of the London Stock Exchange. The Company's investment strategy focuses
on, delivering secure inflation linked returns from investing in affordable
shared ownership, retirement and local authority housing throughout the UK.
The Board is ultimately responsible for all aspects of the Company's affairs,
including setting the parameters for monitoring the investment strategy and
the review of investment performance and policy. The Board also has ultimate
responsibility for all strategic policy issues, the timing, price and volume
of any buybacks of Ordinary Shares, corporate governance matters and
dividends.
Further information on the Board's role is provided in the Corporate
Governance Statementbeginning on page 69, which forms part of the Directors'
Report.
Powers of the Board
The general powers of the Directors are set out in Article 99 of the Company's
Articles of Association. This Article provides that the business of the
Company shall be managed by the Board, which may exercise all the powers of
the Company, subject to any limitations imposed by applicable legislation, the
Articles and any directions given by special resolution of the shareholders of
the Company.
Results
The Group's IFRS profit for the year was £13.3mn and the IFRS earnings per
share were 7.4p. The results for the year are shown in the financial
statements. Commentary on the results, future developments and post balance
sheet events can be found in the Strategic Report, Chairman's Statement and
Fund Manager's Report.
Investment property
A summary of the Group's investment property portfolio is included on page 2.
A full portfolio listing can be made available on request.
Dividend policy
The Company is targeting, on a fully invested and geared basis, a dividend
yield of c.5% per annum based on the issue price of £1 per Ordinary Share,
which the Company then expects to increase broadly in line with inflation. It
is the Company's intention to pay dividends to shareholders on a quarterly
basis and in accordance with the REIT Regime.
Over time, the Company expects its dividends to increase broadly in line with
inflation, targeting a total return in excess of 8% per annum. As a REIT, the
Company is required to meet a minimum distribution test for each accounting
period through which it is a REIT. This minimum distribution test requires the
Company to distribute a minimum of 90% of its Property Rental Business income
profits for each accounting period, as adjusted for tax purposes.
When the Company pays a dividend, that dividend is a Property Income
Distribution (PID) to the extent necessary to satisfy the 90% distribution
condition. If the dividend exceeds the amount required to satisfy that test,
then depending on the circumstances the REIT may determine that all or part of
the balance is a non-PID dividend. Subject to certain exceptions, PIDs will be
subject to withholding tax at the basic rate of income tax (currently 20%).
If the Company ceases to be a REIT, dividends paid by the Company may
nevertheless be PIDs to the extent they are paid in respect of profits and
gains of the Property Rental Business whilst the Company was within the REIT
Regime.
Dividends paid in the year ended 30 September 2022
In line with the Company's dividend policy and target, four equal dividends of
1.29p per Ordinary Share were paid during the year, totalling 5.16p per
Ordinary Share, of which 4.08p was paid as PID and 1.08p was paid as non-PID.
These were declared in December 2021 and January, May and July 2022 with the
first being the fourth interim dividend for the year ended 30 September 2021.
The Board declared a fourth interim dividend in respect of the quarter to 30
September 2022 of 1.29p per Ordinary Share, which will be payable on 18
January 2023 to shareholders on the register at the close of business on 9
December 2022. The ex-dividend date is 8 December 2022 and the full amount
will be paid as PID.
Management - Fund Manager
ReSI Capital Management Limited (part of the Gresham House group) has been
engaged as the Company's alternative investment fund manager (the Fund
Manager), pursuant to a Fund Management Agreement originally dated 16 June
2017 (as amended), to advise the Company and provide certain investment and
risk management services.
ReSI Capital Management Limited is authorised and regulated by the Financial
Conduct Authority (FCA)") as a 'full scope' UK alternative investment fund
manager for the purposes of the UK AIFM Regime.
The Fund Manager is appointed under a contract subject to twelve months'
written notice with such notice not to expire prior to the fifth anniversary
of first admission of the Ordinary Shares to trading on the London Stock
Exchange, which was in July 2022.
The Fund Manager is entitled to remuneration calculated in respect of each
quarter, based upon the Net Asset Value, at a rate equivalent to 1% (if under
£250mn), 0.9% (if over £250mn), 0.8% (if over £500mn) or 0.7% (if over
£1bn).
The Fund Management Fee shall be paid quarterly in advance, with 75% of the
total Fund Management Fee payable in cash and 25% of the total Fund Management
Fee (net of any applicable tax) payable in the form of Ordinary Shares. During
the period, 444,717 ordinary shares were awarded to the Fund Manager as part
of the Fund Management Fee, of which 212,153 ordinary shares were purchased
from Treasury at an average price of 106.57p per share (the prevailing Net
Asset Value at the time of issue).
Since year end, as per the announcement on 3 October 2022, 130,650 Ordinary
Shares were purchased in the secondary market at an average price of 105.5p
per share and awarded to the Fund Manager as part of the Fund Management Fee.
The Fund Manager is also entitled to a debt arrangement fee in respect of debt
arranged by the Fund Manager for ReSI or its subsidiaries. The debt
arrangement fee is equal to 0.04% p.a. levied on the notional amount
outstanding of any bond or private placement financing. There is no debt
arrangement fee payable in respect of any bank debt financing the Fund Manager
may arrange for the Group.
Related to the Fund Manager is ReSI Property Management Limited ('RPML'), a
wholly owned subsidiary of the Fund Manager that provides property management
services to parts of the Group on a cost pass through basis with no profit
margin. During the year, RPML charged fees of £1,738,000 (2021: £408,000) in
respect of costs incurred in providing property management services and
£166,000 (2021: £317,000) in respect of non-recurring costs.
Continuing appointment of the Fund Manager
The Board has discretion to monitor the performance of the Fund Manager and,
to appoint a replacement Fund Manager. The continuing appointment of the Fund
Manager is considered by the Board to be in the best interests of shareholders
as a whole. The reason for this view is that the performance is satisfactory
and the Fund Manager is well placed to continue to manage the assets of the
Company according to the Company's strategy.
During the period, the Board, either directly or via its advisors, engaged
with shareholders carefully considering all feedback. The Board explored all
potential outcomes which may be in the interest of the Company and its members
as a whole.
Depositary
Thompson Taraz Depositary Limited has been appointed as depositary to provide
cash monitoring, safekeeping and asset verification and oversight functions as
prescribed by the UK AIFM Regime.
Company Secretary
Computershare Company Secretarial Services Limited has been appointed as the
Company Secretary of the Company and provides company secretarial services and
a registered office to the Company.
Administrator
MGR Weston Kay LLP has been appointed as administrator to the Company. The
administration of the Company is delegated and performed in consultation with
the AIFM and the Fund Manager. Financial information of the Company is
prepared by the administrator and is reported to the Board.
Share capital and shareholders
As at 30 September 2022 the Company's issued share capital comprised
194,149,261 Ordinary Shares, each of 1p nominal value, including 8,985,980
Ordinary Shares held in Treasury. Treasury shares do not hold any voting
rights. As at 30 September 2022, the Company's total shares in issue with
voting rights, excluding treasury shares, were 185,163,281. As at the date of
this Annual Report, there has been no change to the Company's issued share
capital, total voting rights or Ordinary Shares held in Treasury.
During the period, 212,153 Ordinary Shares were issued from Treasury to
satisfy the Fund Management Fee at an average price of 106.57p per share. The
average price was the prevailing Net Asset Value per share at the time of
issuance.
On 7 February 2022, the Company issued a total of 13,824,884 new ordinary
shares of 1p nominal value each in the capital of the Company, at an issue
price of 108.5p per share. This resulted in gross proceeds of £15mn.
Each Ordinary Share held entitles the holder to one vote. Treasury shares do
not hold any voting rights. All shares, excluding those held in Treasury,
carry equal voting rights and there are no restrictions on those voting
rights.
There are no restrictions on the transfer of Ordinary Shares, nor are there
any limitations or special rights associated with the Ordinary Shares. All
shareholders have the opportunity to attend and vote, in person or by proxy,
at the AGM. For further information on the details of the forthcoming AGM and
ways to engage with the Board, and the Fund Manager, please refer to page 186.
Voting deadlines are stated in the notice of meeting and form of proxy and are
in accordance with the Companies Act 2006.
Authority of Directors to allotted shares
The authority to issue new shares granted at the Annual General Meeting (AGM)
held on 14 January 2022 will expire at the conclusion of the forthcoming AGM.
The forthcoming AGM will consider the authority for Directors to allot further
shares in the capital of the Company under section 551 of the Companies Act
2006 up to 37,032,656 Ordinary Shares (excluding shares held in Treasury) in
the capital of the Company (equivalent to approximately 20% of the Ordinary
Shares in issue at the date of the notice of this meeting).
If the Directors wish to offer shares (or sell treasury shares which the
Company may purchase and elect to hold as treasury shares) for cash, company
law requires that unless shareholders have given specific authority for the
waiver of their statutory pre-emption rights, the new shares must be first
offered to existing shareholders in proportion to their existing holdings.
There may be occasions, however, when the Directors will need the flexibility
to allot new shares (or to grant rights over shares) for cash or to sell
treasury shares for cash without first offering them to existing shareholders
in proportion of their holdings in order to make investments in line with the
Company's investment policies. This cannot be done unless the shareholders
have first waived their pre-emption rights.
Accordingly, the AGM will consider two separate resolutions relating to the
Director's ability to allot shares for cash or sell treasury shares for cash
up to an aggregate nominal value of £37,032,656 which is equivalent to
approximately 20% of the Company's issued Ordinary Share capital (excluding
shares held in Treasury) as at the date of the notice of this meeting. This
will allow the Company to carry out one or more tap issues, in aggregate, up
to 20% of the number of Ordinary Shares in issue at the AGM and thus to pursue
specific investment opportunities in a timely manner in the future and without
the requirement to publish a prospectus and incur the associated costs.
The Directors are aware that the combined authority to dis-apply pre-emption
rights in respect of up to 20% of the Company's issued Ordinary Share capital
sought under resolutions 12 and 13 is higher than the 10% typically sought by
investment companies. However, the Directors believe that a higher authority
is justified to enable the Company to fund future acquisitions in line with
the Company's investment policy and strategy for growth.
In accordance with UK Listing Rules, the Company will only issue Ordinary
Shares pursuant to this authority at a price that is not less than the
prevailing net asset value per share of the Company calculated in accordance
with its IFRS accounting policies at the time of issue. In addition, the
Directors will not sell treasury shares at less than such net asset value per
share.
Discount management
The Board makes use of its share buyback powers as a means of correcting any
imbalance between supply of and demand for the Ordinary Shares. In deciding
whether to make any such repurchases, including the timing, volume and price
of such repurchases of Ordinary Shares, the Directors have regard to the
Company's REIT status and what they believe to be in the best interests of
shareholders as a whole and in compliance with the Articles, the Listing
Rules, Companies Act 2006 and all other applicable legal and regulatory
requirements. During the year ended 30 September 2022, the Company did not
purchase any of its own Ordinary Shares for holding in treasury.
The timing, price and volume of any buybacks of Ordinary Shares will be at the
discretion of the Directors and is subject to the working capital requirements
of the Company and the Company having sufficient surplus cash resources
available. Directors will only buyback shares at a discount to the then
prevailing net asset value of the shares. Under the Listing Rules, the maximum
price (exclusive of expenses) which may be paid for an Ordinary Share must not
be more than the higher of: (i) 5% above the average of the mid-market values
of the Ordinary Shares for the five Business Days before the repurchase is
made; or (ii) the higher of the price of the last independent trade and the
highest current independent bid for Ordinary Shares.
The authority for the Company to purchase its own shares granted by the AGM
held on 14 January 2022 will expire at the conclusion of the forthcoming AGM.
The Directors recommend that a new authority to purchase up to 14.99% of the
Ordinary Shares in issue (subject to the condition that not more than 14.99%
of the Ordinary Shares in issue, excluding treasury shares, at the date of the
AGM are purchased) is granted and a resolution to that effect will be put to
the AGM to be held on 31 January 2023. Any Ordinary Shares purchased will
either be cancelled or, if the Directors so determine, held in Treasury.
Treasury shares
The Company is permitted to hold Ordinary Shares acquired by way of market
purchase in treasury, rather than having to cancel them. Such Ordinary Shares
may be subsequently cancelled or sold for cash. Holding Ordinary Shares in
treasury enables the Company to sell Ordinary Shares from treasury quickly and
in a cost efficient manner and provides the Company with additional
flexibility in the management of its capital base.
Unless authorised by shareholders, Ordinary Shares held in treasury will not
be sold at less than Net Asset Value per Share unless they are first offered
pro rata to existing shareholders. The Company will not hold treasury shares
in excess of 10% of the Ordinary Share capital of the Company from time to
time.
Appointment and replacement of directors
In accordance with the Company's Articles of Association, Directors may be
appointed by the Board to fill a vacancy following which they will be elected
by shareholders by ordinary resolution at an Annual General Meeting or General
Meeting of the Company.
Articles of Association
The Company's Articles of Association can only be amended by Special
Resolution at a shareholders meeting.
Financial Instruments
The Company's financial instruments comprise its share portfolio, cash
balances, borrowings, debtors and creditors that arise directly from its
operations, profit or loss balances on derivative instruments and accrued
income and expenses. The financial risk management objectives and policies
arising from its financial instruments and exposure of the Company to risk are
disclosed in note 36 to the financial statements.
Going Concern
The Directors' assessment of the longer-term viability of the Company is set
out on page 87.
Continuation vote
Under the Articles of Association of the Company, the Directors are required
to propose an ordinary resolution at the Annual General Meeting following the
fifth anniversary from its initial public offering that the Company should
continue as presently constituted and at every fifth AGM thereafter.
Accordingly, the first continuation resolution will be presented to
shareholders at the AGM on 31 January 2023.
In the event that a continuation resolution is not passed, the Directors would
be required to formulate proposals for the voluntary liquidation, unitisation,
reorganisation or reconstruction of the Company for consideration by
shareholders at a general meeting. The Directors expect that if the
Continuation Resolution is not passed, an event which the Directors consider
to be highly remote, formulating and implementing any such proposals would
require the Company to continue operations for a period of at least 12 months
from the date of approval of the Company's financial statements.
The Directors do not believe that there is a material uncertainty as to
whether the Company will continue as a going concern from the continuation
vote, taking into account the growth seen since IPO, the successful equity
fund raise in February 2022, the long-term nature of the Company's assets with
supporting debt funding and the attractiveness of the Company's low risk
inflation linked income.
Financial models have been prepared for the going concern period which
consider liquidity at the start of the period and key financial assumptions at
the Company level as well as at Group level. These financial assumptions
include expected cash generated and distributed by the portfolio companies,
which is then available to be distributed to the Company. The assumptions
include inflows and outflows in relation to external debt, interest payments,
expected dividends and the ongoing administrative costs of the Company. These
models assume that there is no vote to terminate the Company in 2023.
Significant shareholdings
As at 30 September 2022, the Directors have been notified of the following
shareholdings comprising 3% or more of the issued share capital (excluding
treasury shares) of the Company:
Shareholders Holding Percentage of voting rights
Close Asset Management Limited 18,818,332 11.00%
Schroders plc 16,648,405 9.73%
CG Asset Management Ltd 13,206,949 7.72%
Halb Nominees Limited 11,560,797 6.76%
VT Gravis Funds ICVC 9,049,470 5.29%
Premier Miton Group plc 7,699,945 4.50%
City Asset Management plc 7,394,138 4.32%
abrdn plc 6,975,722 3.77%
City of Bradford - West Yorkshire Pension Fund 9,750,000 5.27%
Since 30 September 2022 and the date of this Annual Report, the Company has
been notified of the following changes to the significant shareholdings:
Shareholders Holding Percentage of voting rights
Close Asset Management Limited 20,231,855 10.93%
Settlement of ordinary share transactions
Ordinary share transactions in the Company are settled by the CREST share
settlement system.
Anti-bribery and corruption
It is the Company's policy to conduct all of its business in an honest and
ethical manner (see page 90 for a discussion on the Governance of the
company). The Company takes a zero-tolerance approach to bribery and
corruption and is committed to acting professionally, fairly and with
integrity in all its business dealings and relationships. The Company's policy
and the procedures that implement it are designed to support that commitment.
As a result, the Company can confirm that there were no legal actions, fines
or sanctions relating to anti-corruption, anti-bribery, anti-competitive
behaviour or anti-trust or monopoly laws or regulations in the year to 30
September 2022.
Environmental, Social and Governance (ESG) matters
The Company, the Fund Manager and the broader Gresham House group believe that
it is essential to incorporate environmental and social considerations into
the Company's business model and decision-making processes.
Gresham House has a clear commitment to sustainable investment as part of its
business mission and has achieved a score of 4 out of 5 stars in its most
recent PRI (Principles for Responsible Investment) assessment report.
The Company always seeks to work with well-regarded partners to ensure that
its investments are fit for purpose and maintained at a high standard in order
to meet the needs of lessees and occupiers as well as sustaining their value
over the long term.
As a result, the Company can confirm that there were no legal actions, fines
or sanctions relating to environmental, social or governance matters in the
year to 30 September 2022.
Through ReSI Housing, the Company is able to acquire and hold assets within
the social housing regulatory environment, which focusses on good governance
and financial viability.
All of the Group's day to day operations and activities are outsourced to
third-parties. As such the Group does not have any employees or operations of
its own and does not generate any direct greenhouse gas or other emissions or
consume any energy reportable under the Companies Act 2006 (Strategic Report
and Directors' Report) Regulations 2013 or the Companies (Directors' Report)
and Limited Liability Partnerships (Energy and Carbon Report) Regulations
2018, implementing the UK Government's policy on Streamlined Energy and Carbon
Reporting. Information regarding the portfolio's carbon emissions can be found
on page 43.
Under Listing Rule 15.4.29(R), the Company, as a closed ended investment fund,
is currently exempt from complying with the Task Force on Climate related
Financial Disclosures.
For more information on the Company's environmental and social impact, please
see pages 39 to 52.
Employees
The Company has no employees and no share schemes. The Company does not
therefore calculate or disclose employee turnover rates, its share of
temporary staff or employee training hours. The Board's policy on Diversity is
contained in the Corporate Governance Statement on page 78.
The Board is also not entitled to participate in any bonus scheme, with
Directors compensated according to the Company's Net Asset Value, ensuring a
long-term alignment of interests.
Modern Slavery Act 2015, Bribery Act 2010 and Criminal Finances Act 2017
The Company is not within the scope of the UK Modern Slavery Act 2015 because
it does not have employees, customers or meet the turnover threshold, the
Company is therefore not obliged to make a slavery and human trafficking
statement.
However, the Directors and Fund Manager are satisfied that, to the best of
their knowledge, the Company's principal suppliers, as listed in the
Directors' report on pages 72 to 73, comply with the provisions of the Modern
Slavery Act 2015 and maintain adequate safeguards in keeping with the
provisions of the Bribery Act 2010 and Criminal Finances Act 2017.
Annual General Meeting
The AGM of the Company will be held on 31 January 2023 at 12:45pm. The Notice
convening the AGM is contained in this Annual Report and can be found on the
Company's website at
https://greshamhouse.com/real-assets/real-estate-investment/residential-secure-income-plc/
The Board is of the opinion that the passing of all resolutions being put to
the AGM would be in the best interests of the Company and its shareholders.
The Directors therefore recommend that shareholders vote in favour of
resolutions 1 to 15, as set out in the Notice of Meeting, as they intend to do
in respect of their own shareholdings.
Political donations
The Company's policy is not to make any direct or indirect political
donations. No political donations were made during the year under review and
no political donations will be paid during the forthcoming year (2021: nil).
Future developments
The outlook for the Company is discussed in the Chairman's Statement on page
5.
Independent Auditor
BDO LLP have expressed their willingness to continue in office as Independent
Auditor and a resolution to re-appoint them will be put to shareholders at the
AGM.
Disclosure of information to the Independent Auditor
Each of the Directors at the date of the approval of this Annual Report
confirms that:
i. so far as the Directors are aware, there is no relevant audit
information of which the Company's independent Auditor is unaware; and
ii. the Directors have taken all steps that ought to have been taken as
Directors to make themselves aware of any relevant information and to
establish that the Company's Independent Auditor is aware of that information.
This confirmation is given and should be interpreted in accordance with the
provisions of Section 418 of the Companies Act 2006. In accordance with
Section 489 of the Companies Act 2006, a resolution to re-appoint BDO LLP as
the Company's Independent Auditor will be put forward at the forthcoming AGM.
Regulatory disclosures - information to be disclosed in accordance with
Listing Rule 9.8.4:
The following table provides references to where the information required by
Listing Rule 9.8.4 is disclosed:
Listing Rule
9.8.4 (1) - Capitalised Interest The Company has not capitalised any interest in the year under review.
9.8.4 (2) - Unaudited Financial Information The Company publishes a quarterly NAV statement. The Company published its
interim report and unaudited financial statements for the period from 1
October 2021 to 31 March 2022.
9.8.4 (4) - Incentive Schemes The Company has no incentive schemes in operation.
9.8.4 (5) and (6) - Emolument Waivers No Director of the Company has waved or agreed to waive any current or future
emoluments from the Company.
9.8.4 (7), (8) and (9) - Share Issuance Included in the Director's report.
9.8.4 (8) and (9) - Companies Part of the Group Not applicable.
9.8.4 (10) - Significant Contracts During the period under review, there were no contracts of significance
subsisting to which the Company is a party and in which a Director of the
Group is or was materially interested or between the Company and a controlling
shareholder.
9.8.4 (11) - Controlling Shareholders The Company is not party to any contracts for the provision of services to the
Company by a controlling shareholder.
9.8.4 (12) and (13) - Waiving Dividends During the period under review, there were no arrangements under which a
shareholder has waived or agreed to waive any dividends or future dividends.
9.8.4 (14) - Board Statement re Significant Shareholders Not applicable.
There are no other disclosures to be made under LR 9.8.4
By order of the Board
For and on behalf of
Computershare Company Secretarial Services Limited
Company Secretary
1 December 2022
Corporate Governance Statement
Introduction
In this statement, the Company reports on its compliance with the principles
and provisions of the Association of Investment Companies Code of Corporate
Governance (the AIC Code), as published in February 2019 which provides a
framework of best practice for investment companies. The Board is committed to
high standards of corporate governance and the Directors are accountable to
shareholders for the governance of the Company's affairs.
Statement of Compliance
The AIC Code addresses the principles and provisions set out in the UK
Corporate Governance Code (the UK Code), as well as setting out additional
provisions on issues that are of specific relevance to the Company.
The Board considers that reporting against the principles and provisions of
the AIC Code, which has been endorsed by the Financial Reporting Council
(FRC), provides more relevant information to its shareholders. The FRC has
confirmed that AIC member companies, such as ReSI plc, who report against the
AIC Code will be meeting their obligations in relation to the UK Code and the
associated disclosure requirements under paragraph 9.8.6 of the Listing Rules.
The UK Code is available on the FRC website (www.frc.org.uk
(http://www.frc.org.uk) ). The AIC Code is available on the AIC website
(www.theaic.co.uk (http://www.theaic.co.uk) ), which includes an explanation
of how the AIC Code adapts the principles and provisions set out in the UK
Code to make them relevant for investment companies.
Throughout the year ended 30 September 2022, the Company has complied with the
principles of the AIC Code which incorporates the UK Code, except as set out
below:
Executive Directors - The UK Code includes provisions relating to
the role of the chief executive and executive directors' remuneration. For the
reasons as set out in the AIC Guidance, the Board considers these provisions
are not relevant to the Company. ReSI plc is an externally managed company
with a Board comprising entirely of Non-Executive Directors and it does not
have any employees, therefore it does not have any executive board members or
a chief executive.
Internal audit function - The UK Code includes provisions for an
internal audit function. For reasons set out in the AIC Code, the Board
considers that these provisions are not relevant to the Company as it is an
externally managed investment company. In particular, all of the Company's
day-to-day management and administrative functions are outsourced to
third-party service providers, all of which have their own internal audit
function. As a result, the Company has no internal operations. The Board has
therefore determined that it is not necessary for the Company to have its own
internal audit function, although this is reviewed on an annual basis.
The Company has therefore not reported further, in respect of these
provisions.
The Board of Directors
The Company has a robust corporate governance framework with oversight
provided by a highly experienced, fully independent board. The Board consists
of four Non-Executive Directors including the Chairman. All of the Directors
have served during the entire year. The Directors are collectively responsible
for determining the investment policy and strategy, and have overall
responsibility for the Company's activities. The names and biographical
details of the Directors, including a list of their other directorships and
significant commitments is shown on pages 92 to 94.
The Board believes that during the year ended 30 September 2022 its
composition was appropriate for a REIT of the Company's nature and size. The
Directors have a broad range of relevant business and financial knowledge,
skills and experience to meet the Company's requirements and all of the
Directors are able to allocate sufficient time to the Company to discharge
their responsibilities effectively.
In accordance with the Listing Rules that apply to closed-ended investment
entities, and taking into consideration the AIC Code, the Board has reviewed
the status of its individual Directors and the Board as a whole. No Director
of the Company has served for nine years or more and all Directors remain
independent of the Company's Fund Manager. Accordingly, all Directors are
considered to be independent in both character and judgement.
The Board leads the appointment process of new Directors, as and when
vacancies arise in accordance with the Directors' ongoing succession
planning. A formal process for the selection and appointment of new
Directors to the Company is followed by the Board. New Director appointments
shall be made on the basis of merit against objective criteria as identified
by the Board as being desirable to complement the skills and experience of the
existing Directors whilst having regard for all diversity factors.
Succession planning and Board composition has been a focus during the year,
particularly in the context of Board tenure and diversity policies. On 21
September 2022, the Board approved and adopted a Board tenure and
re-appointment policy (Board Tenure Policy). The Board considers it to be
inappropriate to set a specific tenure limit for any individual Director or
the Chairman of the Board. Instead, as set out in the Board Tenure Policy, the
Board will seek to recruit a new Director on average every 2-4 years to
regularly bring the challenge of fresh thinking into the Board's discussions.
The Board recognises the benefits of regular refreshment and diversity which
brings new perspectives and challenge, whilst also maintaining stability and
continuity of corporate memory through longer serving Directors. Through the
Board Tenure Policy the Board seeks to achieve a range of skills, experience,
backgrounds and lengths of services among its members. This approach will
likely result in an average tenure of 3-5 years. The Board does not believe
that length of service in itself necessarily disqualifies a Director from
seeking reappointment but, when making a recommendation, the Board will take
into account the requirements of the AIC Code. Information in respect of the
Company's Board Diversity Policy can be found on page 106 of this Annual
Report.
In accordance with the Company's Articles of Association, Directors may be
appointed by the Company by ordinary resolution or by the Board. If appointed
by the Board, a Director shall hold office only until the next AGM and shall
not be taken into account in determining the number of Directors who are to
retire by rotation. In line with best practice and the Board Tenure Policy,
all the Directors will stand for annual re-election and the performance of
each Director will be appraised by the Board annually, prior to the AGM.
Accordingly, resolutions to re-elect all applicable Directors are contained
within the AGM Notice of Meeting. The Directors have appointment letters which
do not provide for any specific term. Copies of the Directors' appointment
letters are available for inspection on request at the registered office of
the Company and will be available at the AGM. Upon joining the Board, new
Directors receive a formal induction and relevant training is available to
Directors on an ongoing basis.
Insurance and indemnity provisions
A policy of insurance against Directors' and Officers' liabilities is
maintained by the Company.
Responsibilities of the Chairman and Senior Independent Director
The Board appointed Robert Whiteman as Chairman of the Company, in March
2018. The Chairman is responsible for leading the Board and for its overall
effectiveness in directing the affairs of the Company. The Chairman ensures
that all Directors receive accurate, timely and clear information and help
promote a culture of openness and debate in Board meetings by facilitating the
effective contribution of other Directors. The Chairman also takes a leading
role in ensuring effective communications with shareholders and other
stakeholders.
Robert Gray was appointed Senior Independent Director of the Company on 16
September 2021. The Senior Independent Director provides a channel of
communication for any shareholder concerns regarding the Chairman and leads
the Chairman's annual performance evaluation.
In accordance with the AIC Code, the Board has reviewed and approved a policy
setting out the responsibilities of the Chairman and the Senior Independent
Director.
Audit Committee
The Board delegates certain responsibilities and functions to the Audit
Committee as is clearly set out and defined in its terms of reference, which
can be inspected at the registered office of the Company and viewed on the
Company's website
(https://greshamhouse.com/real-assets/real-estate-investment/residential-secure-income-plc/).
The Audit Committee comprises the whole Board, all of whom are independent and
have relevant financial expertise. Robert Gray who is the Chairman of the
Audit Committee has relevant financial experience and holds similar roles at
other organisations. The Committee as a whole has competence relevant to the
sector in which the Company operates. The Committee meets at least twice a
year to review the integrity and content of the interim and annual financial
statements, including the ongoing viability of the Company. The Committee also
reviews the scope and results of the external audit, its cost effectiveness,
quality and the independence and objectivity of the external Auditors,
including the provision of non-audit services. A report of the Audit Committee
is included in this Annual Report as set out on page 111.
Other Committees
The fully independent Board additionally fulfils the responsibilities of a
nomination committee and remuneration committee. Given the size of the Board
and the size and nature of the Company, which has no employees or executive
directors, it has not been considered necessary by the Board to establish
separate nomination or remuneration committees at this time.
It is the responsibility of the Board as a whole to determine and approve the
Directors' fees, following proper consideration and having regard to the
industry generally, the role that individual Directors fulfil in respect of
Board and committee responsibilities, the time committed to the Company's
affairs and the remuneration levels generally within the sector. Detailed
information on the remuneration arrangements for the Directors can be found in
the Directors Remuneration Report on pages 86 to 87.
It is the responsibility of the Board as a whole to undertake a formal review
of the balance, effectiveness and diversity of the Board and consider
succession planning, identifying the skills and expertise needed to meet the
Companies strategic objectives. The Board is also responsible for reviewing
the appointment of a Senior Independent Director, membership of the Board's
Committees, and the re-appointment of those Directors standing for re-election
at AGMs.
In addition, the Board as a whole fulfils the functions of a management
engagement committee to review the actions and judgements of management in
relation to the interim and annual financial statements and the Company's
compliance with statutory and regulatory matters. Furthermore, in this
capacity, the Board reviews the terms of the Fund Management Agreement and
examines the effectiveness of the Company's internal control systems and the
performance of the Fund Manager, depositary, administrator, company secretary
and the registrar.
Board and Audit Committee meeting attendance
Directors Board Meeting Audit Committee
(7 meetings held) (3 meetings held)
Rob Whiteman 7 3
Robert Gray 7 3
John Carleton 6 2
Elaine Bailey 7 3
There were seven board meetings and three Audit Committees during the year to
30 September 2022. Additional sub-committee meetings of the Board were also
held during the year in respect of the Company's share issuance, payment of
dividends, approval of NAV, approval of financial statements and results, and
other administrative matters and approval of documentation.
Due to an unforeseen natural event, and despite his best efforts, John
Carleton was unfortunately unable to attend, either in person or virtually,
the Audit Committee and Board meetings held in November 2021. John had access
to all relevant Board and Audit Committee meeting materials prior to the
meetings and provided comments and questions prior to and after the meetings.
Board diversity
During the period, the Board approved and adopted a new Board Diversity
Policy, which was updated in line with the FCA Policy Statement 22/3 on
diversity and inclusion published 1 April 2022. The board Diversity Policy
sets out the approach to diversity on the Board and the process which the
Board will follow when making new appointments. All Board appointments will be
made on merit and against objective criteria, having due regard to the
benefits of diversity on the Board including of gender, ethnicity, sexual
orientation, disability or educational, professional and socio-economic
backgrounds and cognitive and personal strengths and taking care that
appointees have enough time available to devote to the position, in the
context of the overall balance of skills and backgrounds that the Board needs
to maintain in order to remain effective.
It is the Board's ongoing intention that, to the extent that there are any
changes to the current composition of the Board, it shall take into account
the recommendations of the Hampton-Alexander Review on gender diversity
(published 2016) and the Parker Review on ethnic diversity (published 2017).
Whilst recognising the importance and benefits of diversity in the boardroom,
the Board does not consider it to be in the interest of the Company and its
shareholders to set prescriptive diversity criteria or targets as all
appointments must be made on merit. However, diversity generally, including
gender and ethnicity, will be taken into consideration with evaluating the
skills, knowledge, and experience desirable to fill each Board vacancy. The
objective of the Board Diversity Policy is to ensure that all Board
appointments will be made on merit, in the context of the skills, knowledge
and experience that are needed for the Board to be effective.
The Board appraises its collective set of cognitive and personal strengths,
independence and diversity on an annual basis, and especially during the
recruitment process, so as to ensure alignment with the Company's strategic
priorities and aims. The Board is satisfied with its current composition. One
Director (25%) of the ReSI plc Board, Elaine Bailey, is female.
The below tables set out the directors' gender or sex and ethnic background:
Board gender identity or sex
Number of board members Percentage of the board Number of senior positions on the board
Men 3 75% Not applicable*
Women 1 25%
Board ethnic background
Number of board members Percentage of the board Number of senior positions on the board
White British or other White (including minority white groups) 4 100% Not applicable*
* This column is not applicable as the Company is an externally managed real
estate investment trust and does not have executive management functions,
including the roles of a chief executive officer or chief financial officer.
The Company is voluntarily reporting on the diversity targets set out in
Listing Rule 9.8.6R(9). As at 30 September 2022, the Company has not met the
following targets on board diversity:
a. At least 40% of individuals on its board are women
b. At least one of the senior board positions is held by a
women
c. At least one individual on its board is from a minority
ethnic background
As at the publication of this Annual Report, there have been no changes to the
Board that have impacted the Company's ability to meet these targets.
As a Board of four Directors, the size of the Board provides a challenge to
achieving the diversity targets and it is recognised that any change of the
membership of the Board will have a significant impact on the representation
of any particular group of people.
Succession planning and review of the composition of the Board has been a key
focus during the year as can be seen though the adoption of the new Board
Diversity Policy and the Board Tenure Policy. In order to take steps towards
embedding the Board Diversity Policy and the Board Tenure Policy, encouraging
diversity, and achieving the diversity targets stated above, the Board aims to
start implementing its succession plans during the year ending 30 September
2023. The centrepiece of which will be the gender and ethnic diversity of the
Board. In accordance with the new Board Diversity Policy, an objective of the
Company when appointing new Directors to the Board shall be to have a long
list of potential non-executive directors including diverse candidates of
appropriate merit.
Performance evaluation
On an annual basis, the Board evaluates its own performance and the
performance of the Audit Committee, the Chairman and individual Directors. For
the period under review the evaluation was facilitated by the Company
Secretary and was carried out by way of a detailed questionnaire.
The Chairman led the evaluation, which covered the functioning and dynamics of
the Board as a whole, composition and diversity of the Board, the
effectiveness of the Audit Committee and the contribution made by each
Director. Each Director completed a self-evaluation questionnaire in order to
reflect on their personal commitment and contributions during the period. The
results were reviewed by the Chairman and discussed with the Board. The
Board confirmed that the results of the performance evaluation were positive,
and it was concluded that the Board continued to function effectively and
there are no significant concerns among the Directors about the Board's
effectiveness. The resulting actions agreed by the Directors will be monitored
during the year ending 30 September 2023. The Board is satisfied that all
current Directors continue to contribute effectively and have the skills and
experience relevant to the leadership and direction of the Company.
A separate evaluation of the Chairman was led by the Senior Independent
Director, Robert Gray. Directors completed a Chairman evaluation
questionnaire, the responses of which were reviewed by the Senior Independent
Director who then met with the Chairman to discuss and address any points of
action.
The Board monitors the performance of the Fund Manager and believes the
continuing appointment of the Fund Manager to be in the best interests of
shareholders as a whole. For further information see page 97.
During the period, the Board reviewed and re-evaluated the need for an
externally facilitated board evaluation. Taking into consideration the current
activities of the Company, it was agreed that undertaking an external board
evaluation in the period was not, at this time, appropriate or in the best
interest of the Company. The Board recognise the benefits of an external
evaluation and will continue to consider whether an external evaluation would
be beneficial and in the interests of the Company as a whole.
Internal control review and assessment process
The AIC Code requires the Board to review the effectiveness of the Company's
system of internal controls. The Board recognises it has ultimate
responsibility for the Company's risk management and system of internal
controls, and for reviewing and monitoring their effectiveness. The risk
management process and system of internal controls are designed to manage,
rather than eliminate, the risk of failure to achieve the Company's
objectives. It should be recognised that such systems can only provide
reasonable, rather than absolute, internal assurance against material
misstatement or loss.
The Board has undertaken a risk assessment and review of the Company's
internal controls framework and the Company's risk appetite in the context of
the Company's overall investment objective. The Board, through delegation to
the Audit Committee, has undertaken a robust assessment and review of the
emerging and principal risks facing the Company. A statement of the principal
risks and uncertainties faced by the Company can be found on pages 80 to 86.
The Board believes that the existing arrangements represent an appropriate
framework to meet the control requirements. By these procedures the Directors
have kept under review the effectiveness of the internal control system
throughout the year and up to the date of this Annual Report. The monitoring
and review includes all material controls, covering financial, operational and
compliance. Given the nature of the Company's activities and the fact that
most functions are sub-contracted, the Directors have obtained information
from key third-party service providers regarding the controls operated by
them. The Board has concluded that the Company's risk management and internal
control system, and those of the key third-party service providers, are
adequate to meet the needs of the Company.
Financial aspects of internal control
The Directors are responsible for the internal financial control systems of
the Company and for reviewing their effectiveness. These aim to ensure the
maintenance of proper accounting records, the reliability of the financial
information upon which business decisions are made and which is used for
publication and that the assets of the Company are safeguarded. As stated
above, the Board has contractually delegated to external agencies the services
the Company requires, but it is fully informed of the internal control
framework established by the AIFM, the Fund Manager, Company Secretary,
Corporate Broker, Tax Adviser, Depositary, Public Relations Adviser and
Registrar 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 of the
administrative function from investment management, maintenance of appropriate
insurance and adherence to physical and computer security procedures.
The Statement of Directors' Responsibilities in respect of the accounts is on
page 118 and the Going Concern and Viability Statement is on page 87. The
Independent Auditor's Report is on pages 120 to 126.
Other aspects of internal control
The Board holds quarterly meetings, plus additional meetings as required.
Between these meetings there is regular contact with the Fund Manager and
other key service providers. The Board has agreed policies on key operational
issues. The Company's key service providers report to the Board on operational
and compliance issues. The Fund Manager, Corporate Broker, Company Secretary
and the Depositary provide reports, which are reviewed by the Board. The
Administrator prepares management accounts, which enable the Board to assess
the financial position of the Company. Additional ad hoc reports are received
as required and Directors have access at all times to the advice and services
of the corporate Company Secretary, which is responsible for ensuring that
Board and Committee procedures are followed and that applicable regulation are
complied with. The Company Secretary is also responsible for ensuring the
timely delivery of information and reports and for ensuring that statutory
obligations of the Company are met.
This contact with the key service providers enables the Board to monitor the
Company's progress towards its objectives and encompasses an analysis of the
risks involved. The effectiveness of the Company's risk management and
internal controls systems is monitored and a formal review has been completed.
There are no significant findings to report from the review. A typical agenda
of a formal Board meeting includes a review of the financial and portfolio
performance in that period, distributable income and dividend yield compared
to forecast, an update regarding the investment pipeline, statutory and
regulatory matters and governance obligations. The Directors are independent
of the Fund Manager. The Board review investment activity and performance and
exercise appropriate control and supervision to ensure acquisitions are made
in accordance with agreed investment parameters. The Fund Manager has been
given responsibility for the day-to-day management of the Company's assets in
accordance with the investment policy subject to the control and directions of
the Board.
Matters reserved for the Board and delegated authorities
There is a clear division of responsibilities between the Chairman, the
Directors, the Fund Manager and the Company's third-party service providers.
To retain control of key decisions and ensure there is a clear division of
responsibilities between the running of the Board and the running of the
business, the Board has identified 'reserved matters' that only it can
approve. The Board has delegated a number of responsibilities and authorities
to the Fund Manager. In accordance with the Fund Management Agreement, which
has been reviewed during the period and the Board has agreed that it remains
appropriate. These responsibilities include the level of borrowing, which is
based on the characteristics of the relevant property and asset class and
identifying new investment opportunities for the Company, performing due
diligence in relation to potential investments, approving and executing such
investments and monitoring existing investments. The Fund Manager presents
potential transactions to the Board at regular Board meetings. The Board and
the Committee receive sufficient, reliable and timely information in advance
of meetings and are provided with or given access to all necessary resources
and expertise to enable them to fulfil their responsibilities and undertake
their duties in an effective manner.
Principal risks
The Directors confirm that they have carried out a robust assessment of the
principal and emerging risks facing the Company, including those that would
threaten its position, business model, future performance, solvency or
liquidity. The principal risks and how they are being managed is set out in
the Strategic Report on pages 80 to 86. As part of its risk process, the Board
seeks to identify emerging risks to ensure that they are effectively managed
as they develop and recorded in the risk matrix.
Annual General Meeting
At least twenty-one days' notice shall be given to all the members and to the
Auditors of an AGM. All other general meetings shall also be convened by not
less than twenty-one days' notice to all those members and to the Auditors
unless the Company offers members an electronic voting facility and a special
resolution reducing the period of notice to not less than fourteen days prior
to the general meeting, in which case a general meeting may be convened by not
less than fourteen days' notice in writing. A special resolution will be
proposed at the AGM to reduce the period of notice for general meetings, other
than the AGM, to not less than fourteen days.
Shareholder relations
The Company encourages all shareholders to attend and vote at the AGM and
seeks to provide a minimum of twenty one working days' notice of that meeting.
The Notice of Meeting sets out the business of the AGM and any item not of an
entirely routine nature is explained in the Directors' Report. Separate
resolutions are proposed for each substantive issue. The Board and the Fund
Manager are available to discuss issues affecting the Company, and
shareholders have the opportunity to address questions to the Fund Manager,
the Board including the Chairman and the Chairman of the Audit Committee.
The Fund Manager has a structured programme of meetings with key shareholders
and reports back to the Board on its findings. A detailed list of the
Company's shareholders is reviewed at each Board meeting.
The Half-Yearly and Annual reports of the Company are prepared by the Board
and its advisers to present a full and readily understandable review of the
Company's performance. Copies of which are dispatched to shareholders by post
or electronically as requested and are also on the Company's website
(https://greshamhouse.com/real-assets/real-estate-investment/residential-secure-income-plc/).
Half year and annual investor presentations, as well has factsheets, reports
and policies are also made available on the Company's website.
The Chairman and the Board welcome direct feedback from shareholders.
Further details of the Company's engagement with stakeholders and how the
Board has regard to those stakeholders in the Board's decision-making
processes are set out in the Strategic Report on pages 1 to 89.
Exercise of voting powers and stewardship code
The principles of best practice of the Stewardship Code are not applicable to
the Company's operations, being a REIT that does not hold the shares of other
companies.
Social and environmental policy
Please see the Environmental and Social Impact report on pages 46 to 68 for
details.
For and on behalf of
Computershare Company Secretarial Services Limited
Company Secretary
1 December 2022
Report of the Audit Committee
Role of the Audit Committee
The AIC Code of Corporate Governance (the UK Code) recommends that boards
should establish an audit committee consisting of at least three, or in the
case of smaller companies, two independent non-executive directors. The Board
is required to satisfy itself that the Audit Committee has recent and relevant
experience. The main role and responsibilities of the Audit Committee should
be set out in written terms of reference covering certain matters described in
the UK Code. The terms of reference of the Audit Committee can be found on the
Company's website at
https://greshamhouse.com/real-assets/real-estate-investment/residential-secure-income-plc/.
The Audit Committee meets formally at least twice a year for the purpose,
amongst other things, of:
considering the appointment, independence and objectivity, and
remuneration of the Company's external Auditor, BDO LLP (the Auditor);
to review the annual accounts and half-yearly financial report;
to review the day-to-day management of the Company by the Fund
Manager and its adherence to agreed investment parameters; and
assessment of the Company's internal financial controls and risk
management systems.
Composition
All of the independent Directors of the Company are members of the Audit
Committee. The Audit Committee as a whole has recent and relevant financial
experience. The Chairman of the Company is a member of the Audit Committee.
The Board and the Audit Committee believe that the Chairman of the Company
being a member of the Audit Committee is appropriate and beneficial to the
Company due to his contributions as a result of his recent and relevant
financial experience and as a result of him being independent on appointment.
Details of the Committee members' experience can be found on page 67 to 68.
Meetings
There have been three Audit Committee meetings during the year ended 30
September 2022. These meetings were aligned with key dates for financial
reporting and the audit cycle of the Company. Attendance is included in the
Corporate Governance Statement page 106.
During these meetings the Audit Committee has:
reviewed the Company's financial statements for the half year and
year end and made formal recommendations to the Board;
reviewed the Company's going concern and viability statements;
reviewed the internal controls and risk management systems of the
Company and its third-party service providers including cyber-security;
reviewed the Company's risk register reflecting the current and
emerging risks faced by the Company;
agreed the audit plan and fees with the Auditor, including the
principal areas of focus;
reviewed its own performance; and
Reviewed its Terms of Reference.
Financial statements and significant accounting matters
The Audit Committee considered the following significant accounting issues in
relation to the Company's Financial Statements for the year ended 30 September
2022:
A. Investment property valuation
The valuation of investment property is the most material matter in the
production of the financial statements. Savills Advisory Services Limited has
been appointed to value the Company's property investments, in accordance with
the Regulated Investment Company requirements, on a quarterly basis. The Audit
Committee reviewed a copy of the valuation report once it had been completed
and has received a presentation from the valuer. Investment properties are
valued at their fair value in accordance with IFRS 13 and IAS 40, which
recognises a variety of fair value inputs depending upon the nature of the
investment. The Audit Committee has reviewed the assumptions underlying the
property valuations and concluded that the valuation as at 30 September 2022
is appropriate.
B. Fair value of debt (debt held at fair value through profit and loss)
The Group's debt held at fair value through profit or loss is fair-valued as
of the year-end and based on the relevant gilt rate and discounted cash flows.
The Audit Committee has reviewed the assumptions underlying the debt
valuations and concluded that the valuation at the Company's year-end is
appropriate.
C. Revenue recognition
Ensuring that the Group's rental income is accounted for in accordance with
accounting standards presents an inherent risk. The Audit Committee has
reviewed the Company's procedures in place for revenue recognition and has
concluded that revenue has been appropriately recognised.
D. Shared ownership
Shared ownership is a form of tenure in which a long lease is granted in
respect of a property alongside payment of an initial stake in that property
(the First Tranche). Proceeds of First Tranche sales are included within
turnover and the related proportion of the cost of the asset recognised within
cost of sales. Shared ownership properties are split proportionately between
Inventories and Investment properties based on the current element relating to
First Tranche sales. The valuations for the investment property element are
valued by Savills as part of the investment property valuation process and the
inventory element is held at cost (defined as the lower of net realisable
value or cost). The Audit Committee has reviewed the Savills valuation report
for the relevant period, the Company's assessment of the split of investment
property and inventory, and the Company's procedures in place for the
valuation of shared ownership and has concluded that it has been appropriately
recognised.
E. Internal Controls and Risk Management
Through the powers conferred upon the Audit Committee by the Board, the Audit
Committee is responsible for ensuring that suitable internal controls systems
are implemented by the Fund Manager and other third-party service providers,
and further ensuring that those control systems are continuously reviewed and
remain effective. The Audit Committee has reviewed the internal controls of
third-party service providers and the Fund Manager during the period.
In addition, with the assistance of the Fund Manager and third-party services
providers, the Audit Committee identifies the principal risks and
uncertainties faced by the Company and determines strategies to ensure that
they are mitigated. Further details on the principal risks and uncertainties
that face the Company can be found on pages 80 to 86.
External Audit
The Audit Committee monitors and reviews the effectiveness of the external
audit process for the publication of the Annual Report and makes
recommendations to the Board on the re-appointment, remuneration and terms of
engagement of the Auditor.
Audit Fees
The audit fee incurred for the review of the 2022 Annual Report and Accounts
was £178,000 (30 September 2021: £145,000). The Audit Committee continues to
monitor the level of audit fees carefully.
Provision of non-audit services
The Audit Committee has a Non-Audit Services Policy to govern the supply of
any non-audit services provided by the 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 prevent the Auditor from remaining objective and independent. On 21
September 2022, the Board reviewed and approved the Non-Audit Services Policy
following a review of its ongoing effectiveness and adequacy.
BDO LLP were paid fees of £61,000 in respect of non-audit services in the
year to 30 September 2022 (2021: £34,000). These services were in respect of
the interim review of the Interim Report for the period ended 31 March 2022
(£34,000) and reporting accountant services (£37,000). When reviewing the
suitability of BDO LLP to carry out this service the Audit Committee assesses
a number of factors, including but not limited to: assessing whether there are
any threats to independence and objectivity resulting from the provision of
such services, the nature of the service provided and whether the skills and
experience of BDO LLP make it the most suitable supplier. The Audit Committee
has considered the non-audit work of the Auditor during the year ended 30
September 2022 and does not consider that this compromises its independence.
In addition, the Audit Committee has received assurances from the Auditor that
its independence is not compromised by the supply of these services and
appropriate safeguards have been implemented where required including a
separate team undertaking the work of the reporting accountant.
Audit tenure
BDO LLP has been appointed as the Company's Auditor since the Company's
incorporation in 2017, following a competitive process and review of the
Auditor's credentials. The appointment of the external Auditor is reviewed
annually by the Audit Committee and the Board and is subject to approval by
shareholders. Following a review of the service provided by the Company's
Auditor and consideration of conducting an audit tender, the Audit Committee
were satisfied with the Auditors performance and have decided that no further
action would be taken. The current appointment of BDO LLP is compliant with
all existing regulations and the Board and the Audit Committee agree that the
Auditor remains independent. In accordance with the requirements relating to
the appointment of audit firms, the Company will be required to conduct an
audit tender no later than for the financial year beginning 1 October 2027. In
addition, in line with the requirement for the audit partner to be rotated at
least every five years, a new lead audit partner, Richard Levy, was appointed
for the audit for the financial year beginning 1 October 2021.
Effectiveness of external audit and continuing appointment of the Auditor
The Audit Committee is responsible for reviewing the effectiveness of the
external audit process. The Audit Committee received a presentation of the
audit plan from the Auditor and a presentation of the results of the audit
following completion of the main audit testing. Following the presentation of
the results of the audit, the Audit Committee conducted a review of the
Auditor which included a discussion of the audit process and the ability of
the Auditor to fulfil its role. The feedback provided by the Fund Manager
regarding the audit team's performance on the audit was positive. The Auditor
demonstrated a good understanding of the Group and had identified and focused
on the areas of increased financial reporting risk. Its reporting to the Audit
Committee during the period was clear and thorough. The Audit Committee is
satisfied that the Auditor has appropriately challenged the Fund Manager's
judgements.
The Audit Committee acknowledged that the audit team during the period,
including the new lead audit partner, comprised of staff with appropriate
levels of knowledge and experience of the sector in which the Company
operates. Following the above review, the Audit Committee concluded that the
external audit process has been effective. Taking into consideration the
performance and effectiveness of the Auditor and the confirmation of their
independence, the Audit Committee has agreed that the re-appointment of BDO
LLP should be recommended to the Board and the shareholders of the Company at
the forthcoming AGM. BDO LLP has confirmed its willingness to continue in
office.
Internal audit function
The Audit Committee has considered the need for an internal audit function and
considers that this is not appropriate given the size, nature and
circumstances of the Company. The Audit Committee keeps the needs for an
internal audit function under periodic review.
Conclusion with respect to the Annual Report and financial statements - fair,
balanced and understandable financial statements
The Audit Committee has concluded that the Annual Report for the year ended 30
September 2022, taken as a whole, is fair, balanced and understandable and
provides the information necessary for shareholders to assess the Company's
position, performance, business model and strategy. The Audit Committee has
reported its conclusions to the Board of Directors. The Audit Committee
reached this conclusion through a process of review of the document and
enquiries to the various parties involved in the production of the Annual
Report.
Robert Gray
Chairman of the Audit Committee
1 December 2022
Directors' Remuneration Implementation Report
The Board has prepared this report in accordance with the requirements of the
Large and Medium Sized Companies and Groups (Accounts and Reports) (Amendment)
Regulations 2013.
The law requires the Company's Auditor to audit certain disclosures provided.
Where disclosures have been audited, they are indicated as such. The Auditor's
opinion is included in the Independent Auditor's Report on pages 120 to 126.
The Board consists entirely of Non-Executive Directors and the Company has no
employees therefore the Company has not reported on those aspects of
remuneration that relate to Executive Directors. As detailed on page 106. it
is not considered appropriate for the Company to establish a separate
Remuneration Committee. Accordingly, the Board as a whole considers and
approves the Directors' remuneration.
Remuneration Policy
The Company is required to ask shareholders to formally approve the Directors'
Remuneration Policy, on a three-yearly basis. Any change to the Directors'
Remuneration Policy requires shareholder approval. A binding ordinary
resolution to approve the Directors' Remuneration Policy was last proposed and
approved by shareholders at the AGM of the Company held on 14 January 2022.
There are no proposed changes to the policy, and therefore it is intended that
the provisions of this policy continue for the year ended September 2023 and
subsequent years. A copy of the policy is included in the Company's Annual
Report for the year ended 30 September 2022. The Directors' Remuneration
Policy will next be put forward for approval at the AGM to be held in 2025.
Directors' Remuneration Implementation Report
The Directors' Remuneration Implementation Report is presented for approval by
shareholders on an annual basis and will be put forward as an ordinary
resolution at the forthcoming AGM. The result of the shareholder resolution on
the Implementation Report is non-binding on the Company, although it gives
shareholders an opportunity to express their views, which will be taken into
account by the Board.
The law requires the Company's Auditor to audit certain disclosures provided
in the Directors' Remuneration Implementation Report. Where disclosures are
audited, they are indicated as such. The Auditor's opinion is on page 120.91.
A non-binding ordinary resolution to approve the Directors' Remuneration
Implementation Report contained in the Annual Report for the period ended 30
September 2021 was put forward and passed at the AGM held on 14 January 2022.
The votes cast by proxy were as follows:
Directors' Remuneration Policy
Number of votes Percentage of votes cast
For 95,493,606 99.16%
Against 809,958 0.84%
Votes Withheld 3
Directors' Remuneration Report
Number of votes Percentage of votes cast
For 95,492,606 99.17%
Against 800,731 0.83%
Votes Withheld 3
Remuneration
The Company currently has four Non-Executive Directors.
Directors are entitled to receive a fee linked to the Net Asset Value of the
Company in respect of their position as a Director of the Company. Fees are
currently payable at the rates set out in the Remuneration Policy and below
The Chairman, will be entitled to receive a fee linked to the Net Asset Value
of the Company as follows:
Net Asset Value Annual Fee
Up to £100,000,000 £40,000
£100,000,001 to £200,000,000 £50,000
£200,000,001 to £350,000,000 £60,000
thereafter £70,000
Each of the Directors, save for the Chairman, will be entitled to receive a
fee linked to the Net Asset Value of the Company as follows:
Net Asset Value Annual Fee
Up to £100,000,000 £30,000
£100,000,001 to £200,000,000 £35,000
thereafter £40,000
The Board believes that these fees set out in the Remuneration Policy
appropriately reflect prevailing market rates for the Company's complexity and
size, and will also enable the Company to attract appropriately experienced
additional Directors in the future.
The Board reviews the fees payable to the Directors on an annual basis. During
the year, the Net Asset Value of the Company increased to such that the
Directors became eligible for a fee increase under the Remuneration Policy.
However, taking into consideration current ongoing activities within the
Company, the Board agreed to waive an increase of fees for the year ended 30
September 2022. The Board will meet to review the Directors' Remuneration
during the course of the year ending 30 September 2023 and consider a
potential increase per the Remuneration Policy.
Directors' service contracts
The Directors do not have service contracts with the Company. The Directors
are not entitled to compensation on loss of office. The Directors have
appointment letters which do not provide for any specific term but are subject
to re-election by shareholders at a maximum interval of three years. However,
in line with best practice and the Company's Tenure and Re-appointment Policy
all Directors have agreed to retire and stand for re-election on a voluntary
basis at the AGM in January 2023.
There are no restrictions on transfers of the Company's shares held by the
Directors, or any special rights attached to such shares.
Director search and selection fees
No Director search and selection fees were incurred during the year ended 30
September 2022.
Directors' emoluments for the year ended 30 September 2022 (audited)
The Directors who served during the year received the following remuneration
for qualifying services.
Fees from 1 October 2021 to 30 September 2022 Fees from 1 October 2020 to 30 September 2021 Annual percentage change in fees
£'000 £'000 %
Robert Whiteman 50 50 0
Robert Blackburn Gray 35 35 0
John Carleton 35 35 0
Elaine Bailey 35 35 0
155 155
When reviewing any change in Directors' fees from previous financial periods,
it is important to note that the remuneration of the Directors is linked to
the Net Asset Value of the Company.
There are no other taxable benefits payable by the Company which may be deemed
to be taxable. None of the above fees were paid to third parties.
The Directors do not receive pension benefits, long-term incentive schemes or
share options.
Performance
The following chart shows the performance of the Company's share price by
comparison to the principal relevant indices. The Board believes that these
indices are the most representative comparator for the Company, given the
Company's investment objective.
ReSI plc share price indexed performance vs. peers(4)
Relative importance of spend on pay
The following table sets out the total level of Directors' remuneration
compared to Net Operating Income, Directors' fees, Operating expenses, and
Dividends paid and payable to shareholders.
2022 2021 Change
£'000 £'000 £'000
Net Property Income 17,526 15,173 2,354
Directors' fees 155 155 0
Operating expenses 3,221 3,217 5
Dividends paid and payable to shareholders 9,194 8,552 642
The management fee and expenses have been included to give Shareholders a
greater understanding of the relative importance of spend on pay. It also
provides Directors Fees as % age of Divis and Exps
Directors' holdings (audited)
There are no requirements pursuant to the Company's Articles of Association
for the Directors to own shares in the Company. As at 30 September 2022, the
Directors' beneficial shareholdings were as follows:
30 September 2022 30 September 2021
Robert Whiteman 80,000 80,000
Robert Blackburn Gray 207,148 157,148
John Carleton 4,850 4,850
Elaine Bailey 5,000 5,000
The changes in the Director's beneficial shareholdings between 30 September
2022 and the date of this report were as follows:
30 November 2022 30 September 2022
Robert Whiteman 100,000 80,000
Robert Blackburn Gray 262,315 207,148
John Carleton 4,850 4,850
Elaine Bailey 5,000 5,000
The shareholdings of the Directors are not significant and therefore do not
compromise their independence as Non-Executive Directors.
Statement
On behalf of the Board and in accordance with Part 2 of Schedule 8 of the
Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment)
Regulations 2013, I confirm that the above Report on Remuneration Policy and
Remuneration Implementation summarises, as applicable, for the financial year
ended 30 September 2022:
(a) the major decisions on Directors' remuneration;
(b) any substantial changes relating to Directors' remuneration made during
the financial year ended 30 September 2022; and
(c) the context in which the changes occurred and decisions have been taken.
Rob Whiteman
Chairman of the Board of Directors
1 December 2022
Directors' Responsibilities
The Directors are responsible for preparing the Annual Report and the
financial statements in accordance with applicable law and regulation.
Company law requires the Directors to prepare Group and parent Company
financial statements for each financial year. The Group financial statements
have been prepared in accordance with UK adopted international accounting
standards and the Company financial statements have been prepared in
accordance with Financial Reporting Standard 100 Application of Financial
Reporting Requirements ("FRS 100") and Financial Reporting Standard 101
Reduced Disclosure Framework ("FRS 101"), subject to any material departures
disclosed and explained in the Company financial statements; and 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 of the state of
affairs of the Group and Company and of the Group's and Company's profit or
loss for that period.
In preparing the financial statements, the Directors are required to:
select suitable accounting policies and then apply them
consistently;
make judgements and estimates that are reasonable, relevant,
reliable and prudent;
for the Group financial statements, state whether they have been
prepared in accordance with UK adopted international accounting standards,
subject to any material departures disclosed and explained in the financial
statements;
for the parent Company financial statements, state whether
applicable UK accounting standards have been followed, subject to any material
departures disclosed and explained in the parent company financial statements;
and
prepare the financial statements on a going concern basis unless
it is inappropriate to presume that the Group and the Company will continue in
business.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Group and Company's transactions and
disclose with reasonable accuracy at any time the financial position of the
Group and Company and enable them to ensure that its financial statements
comply with the Companies Act 2006.
They are responsible for such internal control as they determine necessary to
enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error, and have general responsibility
for taking such steps as are reasonably open to them to safeguard the assets
of the Group and to prevent and detect fraud and other irregularities. Under
applicable law and regulations, the Directors are also responsible for
preparing a Strategic Report, Directors' Report, Directors' Remuneration
Implementation Report and Corporate Governance Statement that complies with
that law and those regulations. These can be found on pages 1 to 89, 96 to
103, 104 to 110 and 114 to 117 respectively. The Directors are responsible for
the maintenance and integrity of the corporate and financial information
included on the Company's website. Legislation in the UK governing the
preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
The Directors are responsible for ensuring that the Annual Report and
accounts, taken as a whole, are fair, balanced and understandable and provide
the information necessary for shareholders to assess the Group and Company's
performance, business model and strategy.
Website publication: The Directors are responsible for ensuring the Annual
Report and the financial statements are made available on a website
(https://greshamhouse.com/real-assets/real-estate-investment/residential-secure-income-plc/).
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 other
jurisdictions. The maintenance and integrity of the Company's website is the
responsibility of the Directors. The Directors' responsibility also extends to
the ongoing integrity of the financial statements contained therein.
Directors' responsibility statement
Each of the Directors, whose names and titles are listed on pages 92 to 94,
confirms that to the best of their knowledge:
the financial statements have been prepared in accordance with UK
adopted international accounting standards and, give a true and fair view of
the assets, liabilities, financial position and profit or loss of the Company
and the undertakings included in the consolidation as a whole;
the Strategic Report includes a fair review of the development and
performance of the business and the financial position of the Company and the
undertakings included in the consolidation taken as a whole, together with a
description of the principal risks and uncertainties that they face; and
the Annual Report and accounts taken as a whole is fair, balanced
and understandable and provides the information necessary for shareholders to
assess the Company's performance, business model and strategy.
For and on behalf of the Board
Rob Whiteman
Chairman
1 December 2022
Financials
Note
2022 2021
£'000 £'000
Income 6 31,785 39,596
Cost of sales 6 (14,259) (24,423)
Net income 17,526 15,173
Administrative expenses
Fund management fee 7 (1,867) (1,802)
General and administrative expenses 8 (1,128) (1,047)
Non-recurring operating costs 9 (225) (368)
Total Administrative expenses (3,220) (3,217)
Operating profit before property disposals and change in fair value 14,306 11,956
Loss on disposal of investment properties (24) (12)
Change in fair value of investment properties 13 3,200 7,731
Change in fair value of borrowings 13 1,809 (2,731)
Debt set up costs 12 (369) (606)
Operating profit 18,922 16,338
Finance income 12 67 -
Finance costs 12 (5,655) (5,221)
Change in fair value of interest rate swap derivative contracts 12 - 104
Profit for the year before taxation 13,334 11,221
Taxation 14 - -
Profit for the year after taxation 13,334 11,221
Other comprehensive income: - -
Total comprehensive income for the period attributable to the shareholders of 13,334 11,221
the Company
Earnings per share - basic and diluted - pence 15 7.4 6.6
All of the activities of the Group are classified as continuing.
The notes on pages 134 to 162 form part of these financial statements.
Note 2022 2021
£'000 £'000
Non-current assets
Investment properties 17 406,127 372,335
Total non-current assets 406,127 372,335
Current assets
Inventories shared ownership properties 16 1,203 3,800
Trade and other receivables 18 3,390 4,051
Deposits paid for property purchases 19 827 1,158
Cash and cash equivalents 20 15,984 8,370
Total current assets 21,404 17,379
Total assets 427,531 389,714
Current liabilities
Trade and other payables 21 4,891 7,738
Borrowings 22 14,285 2,984
Lease liabilities 31 994 989
Total current liabilities 20,170 11,711
Non-current Liabilities
Borrowings 22 175,420 165,355
Recycled Capital Grant Fund 23 205 38
Lease liabilities 31 30,348 30,218
Total non-current liabilities 205,973 195,611
Total liabilities 226,143 207,322
Net assets 201,388 182,392
Equity
Share capital 24 1,941 1,803
Share premium 25 14,605 108
Treasury shares reserve 26 (8,293) (8,515)
Retained earnings 27 193,135 188,996
Total interests 201,388 182,392
Total equity 201,388 182,392
Net asset value per share - basic and diluted (pence) 32 108.8 106.6
The financial statements were approved and authorised for issue by the Board
of Directors on and signed on its behalf
by:
Rob Whiteman
Chairman
1 December 2022
The notes on pages 134 to 162 form part of these financial statements.
Note
2022 2021
£'000 £'000
Cash flows from operating activities
Profit for the year 13,334 11,221
Adjustments for non-cash items:
(Gain) in fair value of investment properties 13 (3,200) (7,731)
Movement in rent smoothing adjustment 13 (1,148) (650)
(Gain) in fair value of interest rate swap 12 - (104)
Loss/(profit) in fair value of borrowings 13 (1,809) 2,731
Loss on disposal of investment properties 24 12
Shares issued in lieu of management fees 7 467 449
Finance income 12 (67) -
Finance costs 12 5,655 5,221
Debt set up costs 12 369 606
Cash generated from operations before working capital changes 13,625 11,755
Changes in working capital
Decrease/(Increase) in trade and other receivables 659 (288)
Decrease in inventories 2,597 6,621
(Decrease)/increase in trade and other payables (2,754) 1,876
Net cash flow generated from operating activities 14,127 19,964
Cash flow from investing activities
Purchase of investment properties 17 (30,635) (33,526)
Grant received 17 672 1,204
Disposal of investment properties 1,475 1,719
Deposits paid for acquisitions 19 (513) (1,158)
Interest received 12 67 -
Amounts transferred into restricted cash 20 - (851)
deposits
Net cash flow used in investing activities (28,934) (32,612)
Cash flow from financing activities
Share issue (net of issue costs) 24 14,635 -
Purchase of own shares 26 (245) (338)
New borrowings raised 22 28,100 25,128
New borrowing costs 22 (215) (275)
Bank loans repaid (4,978) (605)
Finance costs 12 (5,681) (5,556)
Dividend paid 30 (9,195) (8,552)
Net cash flow generated from financing activities 22,421 9,802
Net increase/(decrease) in cash and cash equivalents 7,614 (2,846)
Reclassification of restricted cash balances 20 2,684 -
Cash and cash equivalents at the beginning of the year 20 5,686 8,532
Cash and cash equivalents at the end of the year 20 15,984 5,686
The notes on pages 134 to 162 form part of these financial statements.
Share Share Treasury shares Retained
capital premium reserve earnings Total equity
£'000 £'000 £'000 £'000 £'000
Balance at 30 September 2020 1,803 108 (8,626) 186,327 179,612
Profit for the year - - - 11,221 11,221
Other comprehensive income - - - - -
Total comprehensive income - - - 11,221 11,221
Contributions by and distributions to shareholders
Issue of management shares - - 449 (449) -
Share based payment charge - - - 449 449
Purchase of own shares - - (338) - (338)
Dividends paid - - - (8,552) (8,552)
Balance at 30 September 2021 1,803 108 (8,515) 188,996 182,392
Profit for the year - - - 13,334 13,334
Other comprehensive income - - - - -
Total comprehensive income - - - 13,334 13,334
Contributions by and distributions to shareholders
Issue of shares 138 14,862 - - 15,000
Share issue costs (365) (365)
Issue of management shares - - 467 (467) -
Share based payment charge - - - 467 467
Purchase of own shares - - (245) - (245)
Dividends paid - - - (9,195) (9,195)
Balance at 30 September 2022 1,941 14,605 (8,293) 193,135 201,388
The notes on pages 134 to 162 form part of these financial statement
1. General information
Residential Secure Income plc ("the Company") was incorporated in England and
Wales under the Companies Act 2006 as a public company limited by shares on 21
March 2017. The Company's registration number is 10683026. The registered
office of the Company is located at The Pavilions, Bridgwater Road, Bristol,
BS13 8FD.
The Company achieved admission to the premium listing segment of the main
market of the London Stock Exchange on 12 July 2017.
The Company and its subsidiaries (the "Group") invests in residential asset
classes that comprise the stock of registered UK social housing providers,
Housing Associations and Local Authorities.
2. Basis of preparation
The financial information does not constitute the Group's financial statements
for the periods ended 30 September 2022 or 30 September 2021, but is derived
from those financial statements. Financial statements for the year ended 30
September 2021 have been delivered to the Registrar of Companies and those for
the year ended 30 September 2022 will be delivered following the Company's
Annual General Meeting. The auditors' reports on both the 30 September 2021
and 30 September 2022 financial statements were unqualified; did not draw
attention to any matters by way of emphasis; and did not contain statements
under section 498 (2) or (3) of the Companies Act 2006.
These financial statements for the year ended 30 September 2022 have been
prepared in accordance with UK adopted international accounting standards.
The financial statements have been prepared on a historical cost basis, except
for investment properties, derivative financial instruments and certain
borrowings which have been measured at fair value.
The comparatives presented are for the year ended 30 September 2021.
The financial statements have been rounded to the nearest thousand and are
presented in Sterling, except when otherwise indicated.
a) Going concern
The Directors have made an assessment of the Group's ability to continue as a
going concern and are satisfied that the Group and the Company have the
resources to continue in business for the foreseeable future, as set out in
the going concern statement on page 87 to 89. The Group expects to refinance
the NatWest facility which is due to expire in April 2023. The Group has
access to a revolving credit facility of £25mn with Santander which could be
used if necessary. Furthermore, the Directors are not aware of any material
uncertainties that may cast significant doubt upon the Group and the Company's
ability to continue as a going concern. Therefore, the financial statements
have been prepared on the going concern basis.
ReSI is subject to covenants on debt secured on its shared ownership,
retirement and Local Authority portfolios (which are ringfenced to that
particular portfolio) and on its holding company working capital facility with
Santander (see note 22 on page 150). Sensitivity analysis has been performed,
showing a large amount of headroom on all covenants (see Fund Manager Report
on page 32), including all debt servicing and valuation metrics. Due to the
long-term nature of the company's assets and strong cash flow, the Directors
do not forecast a breach of any debt covenants.
Financial models have been prepared for the going concern period which
consider liquidity at the start of the period and key financial assumptions at
the Company level as well as at the level of the subsidiaries of the ReSI plc.
These financial assumptions include expected cash generated and distributed by
the portfolio companies available to be distributed to the Company. This
includes inflows and outflows in relation to the external debt and interest
payments expected within the subsidiaries, the availability of new external
debt facilities, committed expenditure for investments and expected dividends
as well as the ongoing administrative costs of the Company.
Continuation vote
Under the Articles of Association of the Company the Directors are required to
propose an ordinary resolution at the Annual General Meeting following the
fifth anniversary from its initial public offering that the Group and the
Company should continue as presently constituted and at every fifth AGM
thereafter. The first resolution is expected to be presented at the AGM in
January 2023 at which the continuation vote will be proposed.
If the Continuation Resolution is passed, the Group and the Company will
continue its business as presently constituted and propose the same resolution
at every fifth annual general meeting thereafter.
After making appropriate enquiries of the Group and the Company's brokers and
Investment Adviser, pursuant to their recent discussions with a number of the
Group and the Company's shareholders, the Directors are of the view that the
Continuation Resolution will be passed at the forthcoming annual general
meeting. This reflects the long-term nature of the Group and the Company's
assets with supporting debt funding and the attractiveness of the Group and
the Company's low risk inflation linked Income strength in the portfolio.
The Board is, therefore, of the opinion that the going concern basis adopted
in the preparation of the consolidated financial statements is appropriate
having reviewed the next 12 month period.
b) Changes to accounting standards and interpretations
Amendments to standards adopted during the year
The IASB and IFRIC have revised a number of standards. None of these
amendments have led to any material changes in the Group's accounting policies
or disclosures during the year.
Standards in issue but not yet effective
Certain new standards, amendments and interpretations to existing standards
have been published that are mandatory for the Group's accounting periods
beginning on or after 1 October 2022 and whilst the Directors are considering
these, initial indications are that these changes, will have no material
impact on the Group's financial statements.
3. Significant accounting policies
The accounting policies applied in the preparation of the financial statements
are set out below. On 31 December 2020, IFRS as adopted by the European Union
at that date was brought into the UK law and became UK-adopted international
accounting standards, with future changes being subject to endorsement by the
UK Endorsement Board. Residential Secure Income Plc transitioned to UK-adopted
international accounting standards in its consolidated financial statements on
1 October 2021. There was no impact or changes in accounting policies from the
transition.
a) Basis of consolidation
The consolidated financial statements incorporate the financial statements of
the Company and the entities controlled by the Company (its subsidiaries) at
the period end date.
Subsidiaries are all entities over which the Group has control. The Group
controls an entity when the Group:
is exposed to, or has rights to, variable returns from its
involvement with the entity and;
has the ability to affect those returns through its power to
direct the activities of the entity.
All intra-group transactions, balances, income and expenses are eliminated on
consolidation. The financial information of the subsidiaries is included in
the financial statements from the date that control commences until the date
that control ceases.
If an equity interest in a subsidiary is transferred but a controlling
interest continues to be held after the transfer then the change in ownership
interest is accounted for as an equity transaction.
Accounting policies of the subsidiaries are consistent with the policies
adopted by the Company.
b) Acquisitions and business combinations
The Directors assess whether each acquisition is a business or asset
acquisition. Under IFRS 3, a business is defined as an integrated set of
activities and assets that is capable of being conducted and managed for the
purpose of providing a return in the form of dividends, lower costs or other
economic benefits directly to investors or other owners, members or
participants. A business will usually consist of inputs, processes and
outputs.
Business acquisitions are accounted for using the acquisition method. To date
the group has not acquired any businesses. Acquisitions that do not meet the
definition of a business are accounted for as asset acquisition. Asset
acquisitions are accounted for by applying the Group's relevant accounting
policy relating to the assets being acquired.
c) Investment properties
Investment properties, which are properties held to earn rentals and/or for
capital appreciation, are initially measured at cost, being the fair value of
the consideration given, including expenditure that is directly attributable
to the acquisition of the investment property. After initial recognition,
investment property is stated at its fair value at the Statement of Financial
Position date adjusted for the carrying value of leasehold interests. Gains
and losses arising from changes in the fair value of investment property are
included in profit or loss for the period in which they arise in the Statement
of Comprehensive Income.
Investment property is recognised as an asset when it is probable that the
economic benefits that are associated with the property will flow to the Group
and it can measure the cost of the investment reliably. This is usually on
legal completion.
Subsequent expenditure is capitalised only when it is probable that future
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 to be obtained from the asset. Any gain or loss arising on
de-recognition of the property (calculated as the difference between the net
disposal proceeds and the carrying amount of the asset) is recorded in profit
or loss in the period in which the property is derecognised.
Significant accounting judgements, estimates and assumptions made for the
valuation of investment properties are discussed in note 4.
d) Inventories
Inventories relate to properties held for delivery as shared ownership which
provides an affordable homes ownership through a part-buy, part-rent model
where Shared Owners buy a stake in the home (with a lower deposit requirement
as it is only required as a percentage of this stake) and pay a discounted
rent on the portion of the property that the Shared Owner(s) does not own. In
accordance with IAS 2 Inventories, the part that is expected to be sold to the
Shared owner under the First Tranche Sale are held at the lower of cost and
net realisable value.
e) Shared ownership
Shared ownership is where initially a long lease on a property is granted
through a sale to the occupier, in return for an initial payment (the First
Tranche).
First Tranche sales are included within turnover and the related proportion of
the cost of the asset recognised as cost of sales.
Shared ownership properties are split proportionately between Inventories and
Investment properties based on the current element relating to First Tranche
sales. The assumptions on which the First Tranche proportion has been based
include, but are not limited to, matters such as the affordability of the
shared ownership properties, local demand for shared ownership properties, and
general experience of First Tranche shared ownership sales within ReSI Housing
and the wider the social housing sector.
Shared Owners have the right to acquire further tranches ('staircasing') and
any surplus or deficit on such subsequent sales are recognised in the
Statement of Comprehensive Income as a part disposal of Investment properties.
Where a grant is receivable from Government and other bodies as a contribution
towards the capital cost of shared ownership investment property, it is
recognised as a deduction in arriving at the cost of the property. Prior to
satisfying any performance obligations related to grant, such grants are held
as a liability on the Statement of Financial Position.
In some circumstances, typically when a shared owner staircases, there arises
an obligation to recycle the grant into the purchase of new affordable
properties within three years or to repay the grant to the relevant grant
provider. Where such an obligation exists the grant will be held as a
liability on the Statement of Financial Position.
f) Share issue costs
The costs of issuing or reacquiring equity instruments (other than in a
business combination) are accounted for as a reduction to share premium to the
extent that share premium has arisen on the related share issue.
g) Revenue
The Group recognises revenue on an accruals basis, and when the amount of
revenue can be reliably measured and it is probable that future economic
benefits will flow to the Group. Revenue comprises rental income and First
Tranche sales of shared ownership properties.
Gross rental income - Gross rental income is non-contingent rental income,
recognised on a straight-line basis over the term of the underlying lease and
is included in the Group Statement of Comprehensive Income. Any contingent
element of rental income is recognised on an as-received basis. Lease
incentives granted are recognised as an integral part of the net consideration
for the use of the property and are therefore recognised on the same,
straight-line basis over the term of the lease. Contractual fixed annual rent
increases and lease incentives are recognised on a straight-line basis over
the term of the lease.
Amounts received from tenants to terminate leases or to compensate for
dilapidations are recognised in the Group Statement of Comprehensive Income
when the right to receive them arises.
Gross ground rental income - Gross ground rental income is recognised on a
straight-line basis over the term of the underlying lease.
Income from property sales is recognised when performance conditions are
fulfilled which is usually at the point of legal completion.
Property sales consist of one performance obligation - the transfer of the
property to the shared owner. The transaction price is fixed and specific in
the sales contract. Revenue is recognised at a point in time, when control of
the property passes. Control is considered to pass on legal completion of the
property sale.
h) Cost of sales
Included within First Tranches cost of sales are costs relating to the first
tranche sale portion of newly acquired shared ownership properties. These
costs include a share of expenditure incurred for acquisition of those
properties in proportion to the First Tranche percentage sold, direct
overheads and other incidental costs incurred during the course of the sale of
those properties.
i) Expenses
The Group recognises all expenses on an accruals basis.
j) Finance income and expense
Finance income comprises interest receivable on funds invested. Financing
expenses comprise interest payable, interest charged on head lease liabilities
and amortisation of loan fees.
Interest income and interest payable are recognised in profit and loss as they
accrue, using the effective interest method.
k) Taxation
Taxation on the profit or loss for the period not exempt under UK REIT
regulations comprises current and deferred tax. Tax is recognised in the
Statement of Comprehensive Income except to the extent that it relates to
items recognised as direct movement in equity, in which case it would be
recognised as a direct movement in equity. Current tax is expected tax payable
on any non-REIT taxable income for the period, using tax rates enacted or
substantively enacted at the balance sheet date.
Deferred tax is provided in full using the balance sheet liability method on
timing differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for taxation purposes.
Deferred tax is determined using tax rates that have been enacted or
substantively enacted by the reporting date and are expected to apply when the
asset is realised or the liability is settled.
No provision is made for timing differences (i) arising on the initial
recognition of assets or liabilities, other than on a business combination,
that affect neither accounting nor taxable profit and (ii) relating to
investments in subsidiaries to the extent that they will not reverse in the
foreseeable future.
l) Dividend payable to shareholders
Equity dividends are recognised when they become legally payable which for the
final dividends is the date of approval by the members. Interim dividends are
recognised when paid.
m) Financial instruments
Financial assets
Recognition of financial assets
All financial assets are recognised on a trade date which is the date when the
Group becomes a party to the contractual provisions of the instrument.
Initial measurement and classification of financial assets
Financial assets are classified into the following categories: 'financial
assets at fair value through profit or loss' and 'financial assets at
amortised cost'. The classification depends on the business model in which the
asset is managed and on the cash flows associated with that asset.
Financial assets are initially measured at fair value, plus transaction costs,
except for those financial assets classified as at fair value through profit
or loss, which are initially measured at fair value.
At 30 September 2022, the Group had the following non-derivative financial
assets which are held at amortised cost:
Cash and cash equivalents
Cash and short-term deposits in the balance sheet comprise cash at bank
(including investments in money-market funds) and short-term deposits with an
original maturity of three months or less.
Trade and other receivables
Trade and other receivables are recognised at their original invoiced value.
Where the time value of money is material, receivables are discounted and then
held at amortised cost, less provision for expected credit loss.
Impairment of financial assets
The Group applies the IFRS 9 simplified approach to measuring the expected
credit losses for trade and other receivables whereby the allowance or
provision for all trade receivables are based on the lifetime expected credit
losses ("ECLs").
The Group applies the general approach for initial recognition and subsequent
measurement of expected credit loss provisions for the loan receivable and
other receivables which have maturities of 12 months or more and have a
significant finance component.
This approach comprises of a three-stage approach to evaluation of expected
credit losses. These stages are classified as follows:
Stage 1
Twelve-month expected credit losses are recognised in profit or loss at
initial recognition and a loss allowance is established. For financial
instruments that have not deteriorated significantly in credit quality since
initial recognition or that have low credit risk at the reporting date, the
loss allowance for 12-month expected credit losses is maintained and updated
for changes in amount. Interest revenue is calculated on the gross carrying
amount of the asset (i.e. without reduction for expected credit losses).
Stage 2
If the credit risk increases significantly and the resulting credit quality is
not considered to be low credit risk, full lifetime expected losses are
recognised and includes those financial instruments that do not have objective
evidence of a credit loss event. Interest revenue is still calculated on the
gross carrying amount of the asset.
Stage 3
If the credit risk of a financial asset increases to the point that it is
considered credit impaired (there is objective evidence of impairment at the
reporting date), lifetime expected credit losses continue to be recognised.
For financial assets in this stage, lifetime expected credit losses will
generally be individually assessed. Interest revenue is calculated on the
amortised cost net carrying amount (amortised cost less impairment).
De-recognition of financial assets
The Group derecognises a financial asset when the contractual rights to the
cash flows from the asset expire, or it transfers the financial asset and
substantially all the risks and rewards of ownership to another entity. If any
interest in a transferred asset is retained, then the Group recognises its
retained interest in the asset and associated liabilities.
Financial liabilities
Recognition of financial liabilities
All financial liabilities are recognised on the date when the Group becomes a
party to the contractual provisions of the instrument.
Initial measurement and classification of financial liabilities
Financial liabilities are classified into the following categories: 'financial
liabilities at fair value through profit or loss' and 'other financial
liabilities'. The classification depends on the nature and purpose of the
financial liabilities and is determined at the time of initial recognition.
Financial liabilities are initially measured at fair value, net of transaction
costs, except for those financial liabilities classified as at fair value
through profit or loss, which are initially measured at fair value.
Fair value through profit or loss
This category comprises certain of the Group's borrowings and out-of-the-money
derivatives where the time value does not offset the negative intrinsic value.
The Group's loans with USS held at fair value through profit and loss may be
recorded at a different value to the notional value of the borrowings due to
changes in the expected future rate of inflation versus the date the debt was
drawn, impacting gilt rates. The designation to value a loan at fair value
through profit and loss is irrevocable and was made to correct an accounting
mismatch as the value of the loan is linked to the shared ownership investment
portfolio. The decision to link the loan to RPI was made to ensure that
returns are matched to rent proceeds received (also linked to RPI). They are
carried in the Consolidated Statement of Financial Position at fair value with
changes in fair value recognised in the Group Statement of Comprehensive
Income as either a fair value movement (note 13) or in the finance income or
expenses line (note 12), except where the movement relates to a change in own
credit risk which is recognised in other comprehensive income.
At 30 September 2022, the Group had the following non-derivative financial
liabilities which are classified as other financial liabilities:
Trade and other payables
Trade and other payables are initially recognised at fair value and
subsequently held at amortised cost.
Borrowings
Borrowings are recognised initially at fair value less attributable
transaction costs or at fair value, with attributable transaction costs fully
expensed if an election is made to hold at fair value through profit or loss.
Subsequent to initial recognition, borrowing costs are stated at amortised
cost with any difference between the amount initially recognised and
redemption value being recognised in profit or loss in the Statement of
Comprehensive Income over the period of the borrowings using the effective
interest method or at fair value if elected to hold at fair value through
profit or loss.
De-recognition of financial liabilities
The Group derecognises a financial liability when its contractual obligations
are discharged, cancelled or expire.
n) Derivative instrument and hedge accounting
Derivative financial instruments, comprising interest rate swaps held are
initially recognised at fair value and are subsequently measured at fair value
being the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at a
measurement date. Movements in fair value are recognised in profit and loss as
part of finance costs.
o) Leases
The group as lessor
A lease is classified as a finance lease if substantially all of the risks and
rewards of ownership transfer to the lessee. In the case of properties where
the Group has a leasehold interest, this assessment is made by reference to
the Group's right of use asset arising under the head lease rather than by
reference to the underlying asset. If the Group substantially retains those
risks, a lease is classified as an operating lease.
Rentals receivable under operating leases are recognised in the income
statement on a straight-line basis over the term of the relevant lease. In the
event that lease incentives are granted to a lessee, such incentives are
recognised as an asset. The aggregate cost of the incentives is recognised as
a reduction in rental income on a straight-line basis over the term of the
relevant lease.
The group as lessee
Where an investment property is held under a head lease, the lease liability
is capitalised at the lease commencement at the present value of the minimum
lease payments. Each lease payment is allocated between repayment of the
liability and a finance charge to achieve a constant rate on the outstanding
liability. The corresponding rental obligations, net of finance charges, are
included in liabilities. Investment properties held under head leases are
subsequently carried at their fair value. The carrying value of lease
liabilities are remeasured when the variable element of the future lease
payments dependent on a rate or index is revised, using the same discount rate
as at the lease commencement date.
p) Share based payments
Payments made to the Fund Manager that are to be settled by the issue of
shares is determined on the basis of the Net Asset Value of the Group. The
estimated number of shares to be issued in satisfaction of the services
provided is calculated using the daily closing share price of the Company at
the date of calculation.
4. Significant accounting judgements and estimates
The preparation of financial statements in accordance with the principles of
IFRS required the Directors of the Group to make judgements, estimates and
assumptions that affect the reported amounts recognised in the financial
statements. However, uncertainty about these assumptions and estimates could
result in outcomes that require a material adjustment to the carrying amount
of the asset or liability in the future. Estimates and underlying assumptions
are reviewed on an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimates are revised and in any future
periods affected.
Estimates:
Investment properties
The Group uses the valuation carried out by its independent external valuers
as the fair value of its property portfolio. The assumptions on which the
property valuation reports have been based include, but are not limited to,
matters such as the tenure and tenancy details for the properties, ground
conditions at the properties, the structural condition of the properties,
prevailing market yields and comparable market transactions. Further
information is provided in note 17.
The Group's properties have been independently valued by Savills (UK) Limited
("Savills" or the "Valuer") in accordance with the definitions published by
the Royal Institute of Chartered Surveyors' ("RICS") Valuation - Professional
Standards, July 2017, Global and UK Editions (commonly known as the "Red
Book"). Savills is one of the most recognised professional firms within
residential and social housing property valuation and has sufficient current
local and national knowledge and has the skills and understanding to undertake
the valuations competently.
If the assumptions upon which the external valuer has based its valuations
prove to be inaccurate, this may have an impact on the value of the Group's
investment properties, which could in turn have an effect on the Group's
financial position and results. Further information is provided in note 17.
With respect to the Group's Financial Statements, investment properties are
valued at their fair value at each Statement of Financial Position date in
accordance with IFRS 13 which recognises a variety of fair value inputs
depending upon the nature of the investment (the 'fair value hierarchy').
Specifically:
Level 1 - Unadjusted, quoted prices for identical assets and liabilities in
active (typically quoted) markets;
Level 2 - Quoted prices for similar assets and liabilities in active markets.
Level 3 - Inputs not based on observable market data (that is, unobservable
inputs).
The Group's investment properties are included in Level 3 as the inputs to the
valuation are not based on observable market data.
Borrowings held at fair value
Some of the Group's borrowings are held at fair value.
The inputs / assumptions on which these borrowings have been valued include
the relevant inflation linked gilt rate at the date of valuation and the
future rate of RPI inflation. Further information is provided in note 22.
If these assumptions prove to be inaccurate, this may have an impact on the
carrying value of the Group's borrowings held at fair value, which could in
turn have an effect on the Group's financial position and results.
In the fair value hierarchy, borrowings valued at fair value are included in
Level 2 as they are based on observable market data (inflation linked gilt
yields).
Shared Ownership Properties
First Tranche Sales
The Group estimates the proportion of shared ownership properties that will be
sold as First Tranche sales and therefore classified as inventory rather than
investment property. The assumptions on which the proportion has been based
include, but are not limited to, matters such as the affordability of the
shared ownership properties, local demand for shared ownership properties, and
general experience of First Tranche shared ownership sales in the social
housing sector. The first tranche sales percentage used is consistent with
values used by the valuers. As at 30 September 2022, the average first tranche
sales percentage assumed for vacant shared ownership properties was 25%. If
there is a change in percentage used, this will affect the proportion of
inventory and investment property recognised with a higher assumed first
tranche sale percentage resulting in a higher inventory value and lower
investment property value.
5. Operating segments
IFRS 8, Operating Segments, requires operating segments to be identified on
the basis of internal financial reports about components of the Group that are
regularly reviewed by the chief operating decision maker (which in the Group's
case is the Board of Directors) in order to allocate resources to the segments
and to assess their performance.
The Group's reporting to the chief operating decision maker does not
differentiate by property type or location as the Group is considered to be
operating in a single segment of business and in one geographical area.
No customers have revenue that is greater than 10% of the total Group revenue.
The internal financial reports received by the Board of Directors contain
financial information at a Group level and there are no reconciling items
between the results contained in these reports and the amounts reported in the
Financial Statements.
6. Income less cost of sales
2022 2021
Net property income First tranche sales Total Total
£'000 £'000 £'000 £'000
Gross Rental income 25,670 - 25,670 22,826
First tranche property sales - 6,115 6,115 16,770
Total income 25,670 6,115 31,785 39,596
Service charge expenses (4,927) - (4,927) (4,701)
Property operating expenses (3,717) - (3,717) (3,958)
Impairment of receivables (10) - (10) (2)
First tranche cost of sales - (5,605) (5,605) (15,762)
Total cost of sales (8,654) (5,605) (14,259) (24,423)
Net rental income/gross profit before ground rents 17,016 510 17,526 15,173
Ground rents disclosed as finance lease interest (996) - (996) (989)
Net rental income/gross profit after ground rents disclosed as finance lease 16,020 510 16,530 14,184
asset
Included within gross rental income is a £1,148,000 (2021: £650,000) rent
smoothing adjustment that arises as a result of IFRS 16 'Leases' which require
rental income in respect of leases with rents increasing by a fixed percentage
being accounted for on a straight-line basis over the lease term. During the
year this resulted in an increase in rental income, with an offsetting entry
being recognised in profit or loss as an adjustment to the investment property
revaluation (see note 17).
Gross rental income includes service charges collected from tenants, included
in rent collected but not separately invoiced, of £4,622,000 during the year
(2021: £4,344,000). Service charge expenses, as reflected in the cost of
sales, also includes amounts paid in respect of properties which were vacant
during the period of £305,000 (2021: £357,000).
The gross profit after ground rents disclosed as finance lease interest are
presented to provide what the Board believes is a more appropriate assessment
of the Group's net property income. Ground rent costs are an inherent cost of
holding certain leasehold properties and are taken into consideration by
Savills when valuing the Group's properties.
7. Fund management fee
2022 2021
£'000 £'000
Cash portion 1,400 1,353
Equity 467 449
1,867 1,802
ReSI Capital Management Limited acts as alternative investment fund manager
(the "Fund Manager") pursuant to the Fund Management Agreement.
The Fund Manager is entitled to an annual management fee (the "Fund Manager
Fee") under the Fund Management Agreement with effect from the date of
Admission, as follows:
a) on that part of the Net Asset Value up to and including £250mn, an
amount equal to 1% p.a. of such part of the Net Asset Value;
b) on that part of the Net Asset Value over £250mn and including £500mn,
an amount equal to 0.9% p.a. of such part of the Net Asset Value;
c) on that part of the Net Asset Value over £500mn and up to and
including £1,000mn, an amount equal to 0.8% p.a. of such part of the Net
Asset Value;
d) on that part of the Net Asset Value over £1,000m, an amount equal to
0.7% p.a. of such part of the Net Asset Value.
The Fund Management Fee is paid quarterly in advance. 75% of the total Fund
Management Fee is payable in cash and 25% of the total Fund Management Fee
(net of any applicable tax) is payable in the form of Ordinary Shares rather
than cash.
8. General and administrative expenses
Group Group
2022 2021
£'000 £'000
Professional fees 579 552
Directors' fees and expenses 220 217
Fees paid to the Company's Auditor 279 224
Other expenses 41 53
Aborted acquisition costs 9 1
1,128 1,047
9. One-off administration costs
2022 2021
£'000 £'000
One-off administration costs 225 368
225 368
In July 2021, the property and lettings management of the ReSI's retirement
portfolio was transferred from Girlings to ReSI Property Management Limited, a
subsidiary of the Fund Manager, and now property management services are
provided at cost. The transfer has led to improved performance on the
retirement portfolio, as evidenced in void reductions, and is expected to
drive further cost efficiencies and operational improvements. The charges
above relate to residual set-up costs associated with the transfer, which
straddled the 2021-year end, and is now complete, one-off costs associated
with upgrading the energy performance of properties.
10. Directors' fees and expenses
2022 2021
£'000 £'000
Fees 155 155
Taxes 17 17
172 172
Fees paid to directors of subsidiaries 48 45
220 217
The Group had no employees during the year (2021: Nil) other than the
Directors and Directors of subsidiaries.
The Chairman is entitled to receive a fee linked to the Net Asset Value of the
Group as follows:
Each of the Directors, save the Chairman, is entitled to receive a fee linked
to the Net Asset Value of the Group as follows:
None of the Directors received any advances or credits from any Group entity
during the year (2021: Nil).
During the year, the Net Asset Value of the Company increased to such that the
Directors became eligible for a fee increase under the Remuneration Policy.
However, taking into consideration current ongoing activities within the
Company, the Board agreed to waive an increase of fees for the year ended 30
September 2022. The Board will meet to review the Directors' Remuneration
during the course of the year ending 30 September 2023 and consider a
potential increase per the remuneration policy.
11. Fees paid to the Company's Auditor
2022 2021
£'000 £'000
Audit fees
Parent and consolidated financial statements 75 60
Audit of subsidiary undertakings 143 122
Additional fees payable to the Auditors in relation to prior year audit 18 -
Total audit fees 237 182
Audit related services
Review of interim report 42 42
Non-audit fees
Corporate Finance Fees 44 -
Total fees 318 224
Non audit fees of £44,000 relating to corporate finance services have been
incurred in the year ended 30 September 2022 (2021: £nil). These costs have
been included in prepayments as they relate to a future work.
Fees paid to the Company's Auditors are inclusive of irrecoverable VAT.
12. Net finance costs
2022 2021
£'000 £'000
Finance income
Interest income 67 -
67 -
Finance expense
Interest payable on borrowings (4,300) (3,946)
Amortisation of loan costs (268) (259)
Debt programme costs (91) (27)
Lease interest (996) (989)
(5,655) (5,221)
Movement in fair value of derivative contracts
Interest rate swaps - 104
Net finance costs (5,588) (5,117)
One-off shared ownership facility set-up costs (300) (567)
Debt set up fees (69) (39)
Debt set up costs (369) (606)
The Group's interest income during the year relates to cash invested in a
money market fund, which is invested in short-term AAA rated Sterling
instruments.
Ground rents paid in respect of leasehold properties have been recognised as a
finance cost in accordance with IFRS 16 "Leases".
Movement in fair value of derivative contracts arose from interest rate swaps
entered into in February 2019 to partially fix the £14.5mn of debt secured by
the Local Authority portfolio. The swaps expired on 20 August 2021.
Debt set up fees in the current year relate to the abortive fees of debt that
was not put in place.
13. Change in fair value
2022 2021
£'000 £'000
Gain/(loss) on fair value adjustment of investment properties 4,348 8,381
Adjustments for lease incentive assets and rent straight line assets
recognised
Start of the year 922 272
End of the year (2,070) (922)
3,200 7,731
Gain/(loss) on fair value adjustment of borrowings (note 22) 1,809 (2,731)
Shared ownership facility set up costs (300) (567)
4,709 4,433
Gain/(loss) on fair value adjustment of borrowings arises from debt raised
against the shared ownership portfolio, which the Company elected to fair
value through profit and loss in order to address an accounting mismatch as
the value of the loan is linked to the shared ownership investment portfolio.
During the year the Group incurred costs of £0.3mn (equivalent to 0.2 basis
points on the drawn balance per annum over 45 years) in relation to further
£20mn drawdown of debt under the shared ownership 45-year £300mn facility.
With the election made to value this debt at fair value through profit or
loss, all fees associated with this debt have been expensed in the current
year.
14. Taxation
2022 2021
£'000 £'000
Current tax - -
Deferred tax - -
- -
The tax charge for the period varies from the standard rate of corporation tax
in the UK applied to the profit before tax. The differences are explained
below:
2022 2021
£'000 £'000
Profit before tax 13,334 11,221
Tax at the UK corporation tax rate of 19% (2021: 19%) 2,533 2,132
Tax effect of:
UK tax not payable due to REIT exemption (1,995) (656)
Investment property revaluation not taxable (608) (1,469)
Expenses that are not deductible in taxable profit (27) (15)
Unutilised residual current year tax losses 97 8
Tax charge for the year - -
As a UK REIT the Group is exempt from corporation tax on the profits and gains
from its property rental business provided it meets certain conditions set out
in the UK REIT regulations.
The government has announced that the corporation tax standard rate is to
remain at 19% until 31 March 2023. From 1 April 2023 the rate will increase to
25%.
15. Earnings per share
2022 2021
£'000 £'000
Profit attributable to Ordinary shareholders 13,334 11,221
Deduction of fair value movement on investment properties, borrowings and (5,009) (5,104)
interest rate swap
Deduction of non-recurring set up costs 225 368
Deduction of debt set up costs 369 606
Deduction of aborted acquisition costs 9 1
Loss on property disposals 24 12
Adjusted Earnings 8,952 7,104
Weighted average number of ordinary shares (thousands) 180,159 171,071
Basic Earnings per share (pence)
- 2022 (pence) 7.4
- 2021 (pence 6.6
Adjusted Earnings per share (pence)
- 2022 (pence) 5.0
- 2021 (pence 4.2
Basic earnings per share ('EPS') is calculated as profit attributable to
Ordinary Shareholders of the Company divided by the weighted average number of
shares in issue throughout the relevant period.
The Adjusted Earnings are presented to provide what the Board believes is a
more appropriate assessment of the operational income accruing to the Group's
activities. Hence, the Group adjusts basic earnings for income and costs which
are not of a recurrent nature or which may be more of a capital nature.
EPRA Earnings per share
2022 2021
£'000 £'000
Earnings per IFRS income statement 13,334 11,221
Changes in value of investment properties (3,200) (7,731)
Profits or losses on disposal of investment properties 24 12
Profits or losses on sales of trading properties (510) (1,008)
Changes in fair value of financial instruments and associated close-out costs (1,809) 2,627
EPRA Earnings 7,839 5,121
Basic number of shares 180,159 171,071
EPRA Earnings per Share (EPS) (pence) 4.4 3.0
Adjusted EPRA Earnings per share
2022 2021
£'000 £'000
Company specific adjustments:
Exclude debt set up costs 369 607
Exclude one-off administration costs 225 368
Exclude one-off aborted acquisition costs 9 -
Include shared ownership first tranche sales 510 1,008
Company specific Adjusted EPRA Earnings 8,952 7,104
Company specific Adjusted EPRA Earnings per share (pence) 5.0 4.2
EPRA earnings per share ('EPS') is calculated as EPRA earnings attributable to
Ordinary shareholders of the Company divided by the weighted average number of
shares in issue throughout the relevant period.
The Adjusted EPRA Earnings are presented to provide what the Board believes is
a more appropriate assessment of the operational income accruing to the
Group's activities. Hence, the Group adjusts EPRA earnings for income and
costs which are not of a recurrent nature or which may be more of a capital
nature.
Dividend coverage for the year ended 30 September 2022 is 97% based on an
adjusted earnings figure of £8.95mn and dividends paid over the year of
£9.20mn.
16. Inventories - finished properties available for sale
2022 2021
£'000 £'000
Shared ownership properties 1,203 3,800
1,203 3,800
The costs of inventories recognised in cost of sales as an expense in the year
is £5,605,000 (2021: £15,762,000). The amount of inventories written down to
net realisable value is Nil (2021: Nil).
17. Investment properties
2022 2021
£'000 £'000
At beginning of period 372,335 331,782
Property acquisitions at cost 30,827 33,113
Grant receivable (672) (1,652)
Capital expenditure 652 539
Property disposals (1,498) (1,731)
Movement in head lease gross up 135 1,631
Adjustments for lease incentive assets and rent straight line assets - 272
recognised
Change in fair value during the period 4,348 8,381
At end of period 406,127 372,335
Valuation provided by Savills 374,785 341,128
Adjustment to fair value - finance lease asset 31,342 31,207
Total investment properties 406,127 372,335
The investment properties are divided into:
2022 2021
£'000 £'000
Leasehold properties 293,734 284,596
Freehold properties * 81,051 56,532
Head lease gross up 31,342 31,207
Total investment properties 406,127 372,335
*Includes Feuhold properties, the Scottish equivalent of Freehold.
The table below shows the total value of the Group's investment properties
including committed properties with purchase contracts exchanged at 30
September 2022. Consistent with the valuation provided by Savills, the
adjustment to fair value in respect of finance lease assets for ground rents
receivable has been excluded to show the value of the asset net of all
payments to be made (including ground rent payments). Committed properties
with purchase contracts exchanged have been included to provide an indication
of the value of all properties to which the Group is contractually committed
at 30 September 2022.
2022 2021
£'000 £'000
Total investment properties 406,127 372,335
Adjustment to fair value - finance lease asset (31,342) (31,207)
Committed properties with purchase contracts exchanged 8,635 9,946
Total investment properties including committed properties with purchased 383,420 351,074
contracts exchanged
Included within the carrying value of investment properties at 30 September
2022 is £2,070,000 (2021: £922,000) in respect of the smoothing of fixed
contractual rent uplifts as described in note 6. The difference between rents
on a straight-line basis and rents actually receivable is included within the
carrying value of the investment properties but does not increase that
carrying value over the fair value.
The historical cost of investment properties at 30 September 2022 was
£339,012,000 (2021: £309,703,000).
In accordance with "IAS 40: Investment Property", the Group's investment
properties have been independently valued at fair value by Savills (UK)
Limited ("Savills"), an accredited external valuer with recognised and
relevant professional qualifications.
The carrying values of investment property as at 30 September 2022 agree to
the valuations reported by external valuers, except that the valuations have
been:
Increased by the amount of finance lease liabilities recognised in respect of
investment properties held under leases of £31,342,000 (£31,207,000 at 30
September 2021) representing the present value of ground rents payable for the
properties held by the Group under leasehold - further information is provided
in note 31. This is because the independent valuations are shown net of all
payments expected to be made. However, for financial reporting purposes in
accordance with IAS 40, "Investment Property", the carrying value of the
investment properties includes the present value of the minimum lease payments
in relation to these leases. The related lease liabilities are presented
separately on the Statement of Financial Position.
'Rent straight line adjustments' represent the recognition of lease incentives
and contractual fixed annual rent increases on a straight-line basis over the
term of the underlying leases.
The Group's investment objective is to provide shareholders with an attractive
level of income, together with the potential for capital growth, from
acquiring portfolios of homes across residential asset classes that comprise
the stock of statutory registered providers.
The Group intends to hold its investment property portfolio over the long
term, taking advantage of upward-only inflation linked leases. The Group will
not be actively seeking to dispose of any of its assets, although it may
dispose of investments should an opportunity arise that would enhance the
value of the Group as a whole.
The Group has pledged substantially all of its investment properties to secure
loan facilities granted to the Group (see note 22).
In accordance with IFRS 13, the Group's investment property has been assigned
a valuation level in the fair value hierarchy. The fair value hierarchy gives
the highest priority to quoted prices in active markets for identical assets
(Level 1) and the lowest priority to unobservable inputs (Level 3). The
Group's investment property as at 30 September 2022 is categorised as Level 3.
ReSI's properties are valued by Savills using a discounted cash flow ("DCF")
methodology applying a discount rate to estimated future cash flows to arrive
at a net present value of the properties.
Historically, Savills valued ReSI's retirement rentals portfolio using a
capitalisation methodology which applied a yield to current and estimated
rental income, subject to certain adjustments for estimated vacant possession
value and head lease length (where yields and rental values were considered to
be unobservable inputs). In order to align with incoming RICS guidance to
use DCF valuation methodologies and to apply consistent methodologies across
all of ReSI's portfolios, Savills transitioned the retirement valuation
approach to a DCF methodology at 30 September 2022.
There are multiple key unobservable inputs that play material roles in
determining the Group's fair value of investment property:
1. The discount rates applied to projected rental cash flows (and to
staircasing cash flows for shared ownership properties):
a. Effectively, the discount rate is representative of both the long-term
cost of borrowing and the risks implicit in the properties concerned, as well
as the risk associated with the cash flow assumptions reflected in the
valuation.
b. Everything else being equal, there is a negative relationship between
the discount rate and the property valuation, such that an increase in the
discount rate will decrease the valuation of a property and vice versa.
c. Weighted average nominal rental discount rates applied across the
shared ownership and retirement portfolio valuations at 30 September ranged
from 5.4% to 10.2%.
2. Projected rates of inflation (both CPI and RPI):
a. The majority of ReSI's leases are inflation-linked (subject to
inflation floors and, for some leases, inflation caps). Additionally, some of
ReSI's operating expenses are subject to inflationary pressures. Changes in
inflation assumptions can have a material impact on the Group's valuations.
b. The relationship between inflation and income growth (and resulting
rental values) is generally positive, as the majority of the Group's revenues
are inflation-linked (subject to certain inflation caps and floors in certain
leases in ReSI's portfolio), however, inflation can also increase operating
expenses, potentially offsetting some or all of inflation-linked revenue
growth, all else being equal.
c. Forecast inflation rates applied for different years across the
portfolio valuations at 30 September ranged from 2.0% to 8.5% for CPI and 2.5%
to 12.3% for RPI.
3. House price growth for shared ownership properties
a. Projected house price growth plays a significant role in determining
the prevailing open market value at which shared ownership residents
staircase.
b. Everything else being equal, there is a positive relationship between
future house price growth and the property valuation, such that an increase in
future house price growth will increase the valuation of a property and vice
versa. HPI forecasts applied for different years to the shared ownership
valuations ranged from -1.5% to +10%.
4. Staircasing rates for shared ownership properties:
a. Shared ownership residents have the option to incrementally purchase
from ReSI additional shares in their homes at the prevailing open market
value. This process, known as "staircasing", generates additional cash flow to
the Group, and the rate of staircasing partly determines the amount of cash
flow from equity purchases that the Group may receive in any given period of
time.
b. The relationship between future staircasing rates and property
valuation may be either positive or negative depending on the discount rate
and house price growth assumptions used for a given property. If a zero rate
of staircasing is assumed this would result in an increase in the valuation of
ReSI's shared ownership properties as Savills apply a higher discount rate to
staircasing cash flows as compared to rental cash flows. Equally, if it
assumed that a propertystaircases immediately this would also result in
increase in the valuation of ReSI's shared ownership properties as these
properties are valued at a discount to their Open Market Value (the price at
which shared owners staircase).
c. Staircasing rates applied to shared ownership valuations ranged from
2.5% to3.0%.
There are interrelationships between these inputs as they are determined by
market conditions, and the valuation movement in any one period depends on the
balance between them. If these inputs move in opposite directions (i.e. rental
values increase and discount rates decrease) valuation movements can be
amplified, whereas if they move in the same direction they may be offset,
reducing the overall net valuation movement. The valuation movement is
materially sensitive to changes in discount rates and rental values. The
impact on valuation from the change in key factors has been modelled below by
Savills:
Key inputs Key inputs Sensitivity modelled Valuation at + -
30 September 2022 Updated Valuation Updated Valuation
£mn £mn £mn
Retirement Regional Discount Rate +/- 25bps 218.9mn 210.4mn 228.1mn
Consumer Price Index (CPI) 75 (#_ftn76) +/- 25bps 218.9mn 208.6mn 230.1mn
Retail Price Index (RPI) 76 (#_ftn77) +/- 25bps 218.9mn 229.1mn 209.2mn
Shared Ownership Rental Discount Rate +/- 25bps 128.2mn 125.5mn 131.1mn
Retail Price Index (RPI) +/- 25bps 128.2mn 130.0mn 126.5mn
House Price Index (HPI (long-term rate Yr 6+)) +/- 25bps 128.2mn 129.7mn 127.0mn
18. Trade and other receivables
2022 2021
£'000 £'000
Trade debtors 385 968
Prepayments 2,623 2,488
Other debtors 382 595
3,390 4,051
The Group applies the IFRS 9 simplified approach to measuring expected credit
losses using a 12-month expected loss provision for rent receivables. To
measure expected credit losses on a collective basis, rent receivables are
grouped based on similar credit risk and ageing.
The expected loss rates are based on the Group's historical credit losses
experienced since inception to the period end. The historical loss rates are
then adjusted for current and forward-looking information on macroeconomic
factors affecting the Group's customers. Both the expected credit loss
provision and the incurred loss provision in the current and prior years are
immaterial. No reasonably possible changes in the assumptions underpinning the
expected credit loss provision would give rise to a material expected credit
loss.
There is no significant difference between the fair value and carrying value
of trade and other receivables at the Statement of Financial Position date.
19. Deposits paid for property purchases
2022 2021
£'000 £'000
Deposit paid for property purchases 827 1,158
827 1,158
The deposits paid as at 30 September 2022 relate to the acquisition of 41
shared ownership homes from Brick by Brick Croydon Ltd located in Croydon
which are expected to complete in the first half of FY 2023.
The deposits paid as at 30 September 2021 relate to the acquisition of 46
shared ownership homes in Leicestershire and Croydon, 38 of which were
acquired during the year with the rest expected to complete in the first half
of FY 2023.
20. Cash and cash equivalents
2022 2021
£'000 £'000
Cash at bank 12,739 5,684
Cash held as investment deposit 2 2
12,741 5,686
Restricted cash 3,243 2,684
15,984 8,370
During the year, the Group has reassessed the classification of restricted
cash and has included it in cash and cash equivalents at 30 September 2022.
This relates to cash that is subject to restrictions with a third party where
the terms of the account do not prevent the Group from the cash. In prior
periods, this balance was not included in cash and cash equivalents in the
Consolidated Statement of Cash flows. Comparatives have not been adjusted for
this reclassification on grounds of materiality. Included within cash at the
year-end was an amount totalling £3,243,000 (£2,684,000 at 30 September
2021) held in separate bank accounts which the Group considers restricted
cash. Restricted cash is cash where there is a legal restriction to specify
its type of use. This is typically where the Group has agreed to deposit cash
with a bank as part of a joint arrangement with a tenant under a lease
agreement, or to provide additional security to a lender over loan facilities,
or under an asset management initiative.
£1,324,000 (2021: £1,227,000) was held by the managing agent of the
retirement portfolio in respect of tenancy rental deposits. Other funds were
held by the management agent in an operating account to pay service charges in
respect of the RHP Portfolio due on 1 October 2022.
£1,564,000 (2021: £1,139,000) was held by US Bank in respect of funds
required as a debt service reserve for the shared ownership debt.
£354,000 (2021: £318,000) was held in respect of a service charge reserve
fund.
Cash held as investment deposit relates to cash invested in a money market
fund, which is invested in short-term AAA rated Sterling Investments. As the
fund has a short maturity period, the investment has a high liquidity. The
fund has £13.8bn AUM, hence the Group's investment deposit represents an
immaterial proportion of the fund.
21. Trade and other payables
2022 2021
£'000 £'000
Trade payables 1,173 3,735
Accruals 1,238 1,756
VAT payable 4 3
Deferred income 797 661
Other creditors 1,679 1,583
4,891 7,738
Trade payables and accruals principally comprise amounts outstanding for trade
purchases and ongoing costs. For most suppliers interest is charged if payment
is not made within the required terms. Thereafter, interest is chargeable on
the outstanding balances at various rates. The Company has financial risk
management policies in place to control that all payables are paid within the
agreed credit timescale.
There is no significant difference between the fair value and carrying value
of trade and other payables at the Statement of Financial Position date.
22. Borrowings
2022 2021
£'000 £'000
Loans 192,126 170,814
Unamortised borrowing costs (2,421) (2,475)
189,705 168,339
Current liability 14,285 2,984
Non-current liability 175,420 165,355
189,705 168,339
The loans are repayable as follows:
Within one year 14,285 2,984
Between one and two years 9,851 14,792
Between three and five years 9,088 6,911
Between six and ten years 14,887 12,019
Between eleven and twenty years 29,452 23,953
Over twenty years* 112,142 107,680
189,705 168,339
*£77.6mn of this is due at the maturity date of the loan in 2043.
The maturity analysis has been expanded in the current year to provide better
information. The comparatives have been amended for consistency.
Movements in borrowings are analysed as follows:
Fair value through profit or loss Held at amortised cost 2022 2021
£'000 £'000 £'000 £'000
At 30 September 2021 168,339 141,101
59,513 108,826
Drawdown of facility 20,000 8,100 28,100 25,128
New borrowing costs - (215) (215) (275)
Amortisation of loan costs - 268 268 259
Fair value movement (1,809) - (1,809) 2,731
Repayment of borrowings - (4,978) (4,978) (605)
Year ended 30 September 2022 189,705 168,339
77,704 112,001
The table below lists the Group's borrowings:
Lender Drawn on original facility Outstanding debt net of unamortised issue costs Maturity date Annual interest rate
2022 2021 2022 2021
£'000 £'000 £'000 £'000
Held at amortised cost
Scottish Widows Ltd 97,000 97,000 92,506 95,224 Jun-43 3.5% Fixed (Average)
National Westminster Bank plc 21,550 14,450 12,704 14,450 Apr-23 1.50% over SONIA
Santander 7,100 1,628 6,791 1,628 Jun-25 2.25% over SONIA
125,650 113,078 112,001 111,302
Held at fair value
Universities Superannuation Scheme 77,500 57,500 77,704 59,513 May-65 0.94% (Average) *
77,500 57,500 77,704 59,513
Total borrowings 203,150 170,578 189,705 170,815
*The principal will increase at a rate of RPI+0.5% on a quarterly basis; RPI
is capped between 0% and 5% on a pro-rated basis.
The Group elected to fair value through profit and loss the Universities
Superannuation Scheme borrowings. The notional outstanding debt at 30
September 2022 was £77.5mn (2021: £57.5mn) with an amortised cost of
£82.7mn (2021: £59.0mn).
The Universities Superannuation Scheme borrowings have been fair valued by
calculating the present value of future cash flows, using the gilt curve and a
credit spread reflecting the high credit strength of the borrower at the date
of valuation. The credit spread used for the valuation as at 30 September 2022
was 1.81%.
In accordance with IFRS 13, the Group's borrowings held at fair value have
been assigned a valuation level in the fair value hierarchy. The fair value
hierarchy gives the highest priority to quoted prices in active markets for
identical assets (Level 1) and the lowest priority to unobservable inputs
(Level 3). The Group's borrowings held at fair value as at 30 September 2022
are categorised as Level 2.
Everything else being equal, there is a negative relationship between the
credit spread and the borrowings valuation, such that an increase in the
credit spread (and therefore the future interest payable) will reduce the
valuation of a borrowing liability and vice versa. A 10-basis point increase
in the credit spread would result in a reduction of the liability by £1.2mn.
During the year the Group transferred all of its borrowings subject to a
variable rate of interest from LIBOR to SONIA. SONIA is an overnight rate
whereas LIBOR was a term rate. SONIA is close to a risk-free measure of
borrowing costs. It is compounded over a lending period to produce a
backward-looking term interest rate, It is expected that this change in
risk-free rate will not lead to a material change in overall borrowing
costs.
The fair value of borrowings held at amortised cost at 30 September 2022 was
£83.3mn (£114.2mn at 30 September 2021).
The Scottish Widows facility is secured by a first charge over retirement
properties with a fair value of £218.9mn.
The NatWest facility is secured by a first charge over Local Authority Housing
properties with a fair value of £27.7mn.
The Universities Superannuation Scheme facility is secured by a first charge
over shared ownership properties with a fair value of £128.2mn, cash of
£11.2mn, deposits of £0.8mn and restricted cash balances of £1.6mn.
On 12 September 2022, the Group amended the terms of the revolving capital
facility with Santander UK plc under which the facility was increased from
£10mn to £25mn at a reduced margin of 2.25%, down from 2.80%, over SONIA and
extended to 12 March 2025. Each draw under the facility must be repaid within
2 years of drawdown. There is a commitment fee of 2.25% on 30% of the undrawn
balance of the facility. As at the year end, £7.1mn had been drawn down under
the facility. The facility bears interest at SONIA plus 2.25%.
23. Recycled Capital Grant
ReSI's shared ownership portfolio has been supported by grant funding, which
is designed to facilitate the delivery of affordable housing projects. In some
circumstances, typically when a shared owner staircases, ReSI will be required
to recycle the grant into the purchase of new properties within three years or
to repay it to the relevant grant provider.
On disposal / staircasing of a grant funded property, the Group initially
recognises a liability in the Recycled Capital Grant fund. If the disposal
receipts are not subsequently recycled, the grant will be repaid.
The balance at 30 September 2022 was £205,000 (2021: £38,000).
24. Share capital account
Number of Ordinary 1 p £'000
shares
At 30 September 2021 180,324,377 1,803
Issue of shares 13,824,884 138
At 30 September 2022 194,149,261 1,941
The share capital account relates to amounts subscribed for share capital.
Rights, preferences and restrictions on shares
All Ordinary Shares carry equal rights; no privileges are attached to any
shares in the Company. All the shares are freely transferable, except as
otherwise provided by law. The holders of Ordinary Shares are entitled to
receive dividends as declared from time to time and are entitled to one vote
per share at meetings of the Company. All shares rank equally with regard to
the Company's residual assets.
During the year, 13,824,884 ordinary shares of 1p each were issued at a
premium of £1.075 per share. Costs of £364,514 associated with the share
issue have been offset against the share premium account.
Treasury shares do not hold any voting rights.
25. Share premium account
£'000
At 30 September 2021 108
Issue of shares 14,862
Share issue costs (365)
At 30 September 2022 14,605
The share premium account relates to amounts subscribed for share capital in
excess of nominal value.
26. Treasury shares reserve
£'000
At 30 September 2021 (8,515)
Purchase of treasury shares (245)
Transferred as part of Fund Management fee 467
At 30 September 2022 (8,293)
The treasury shares reserve relates to the value of shares purchased by the
Company in excess of nominal value.
During the year ended 30 September 2022, the Company purchased 232,564 of its
own 1p ordinary shares at a total gross cost of £240,201 (£240,400 cost of
shares and £801 associated costs).
During the year, 212,153 1p Ordinary Shares were transferred from its own
shares reserve to the Fund Manager, in lieu of the management fee in
accordance with the Fund Management Agreement.
As at 30 September 2022, 8,985,980 (2021: 9,198,133) 1p Ordinary Shares are
held by the Company.
27. Retained earnings
£'000
At 30 September 2021 188,996
Profit for the year 13,334
Share based payment charge 467
Issue of management shares (467)
Dividends (9,195)
At 30 September 2022 193,135
Retained earnings incorporate all gains and losses and transactions with
shareholders (e.g. dividends) not recognised elsewhere.
28. Group entities
The Group entities which are owned either directly by the Company or
indirectly through a subsidiary undertaking are:
Name of entity Percentage of ownership Country of incorporation Principal place of business Principal activity
ReSI Portfolio Holdings Limited* 100% UK UK Holding company
RHP Holdings Limited 100% UK UK Holding company
The Retirement Housing Limited Partnership 100% UK UK Property investment
ReSI Housing Limited 100% UK UK Registered Provider of Social Housing
Wesley House (Freehold) Limited 100% UK UK Property investment
Eaton Green (Freehold) Limited 100% UK UK Property investment
Name of entity Registered address
ReSI Portfolio Holdings Limited 5 New Street Square, London, EC4A 3TW
RHP Holdings Limited 5 New Street Square, London, EC4A 3TW
The Retirement Housing Limited Partnership Glanville House, Frobisher Way, Taunton , Somerset, TA2 6BB
ReSI Housing Limited 5 New Street Square, London, EC4A 3TW
Wesley House (Freehold) Limited 5 New Street Square, London, EC4A 3TW
Eaton Green (Freehold) Limited 5 New Street Square, London, EC4A 3TW
All group entities are UK tax resident.
29. Notes to the cash flow statement
The liabilities arising from financing activities are reconciled below:
Borrowings due within one year (note 22) Borrowings due in more than one year Fair value of interest rate swaps Lease liabilities (note 31) Total
(note 22)
£'000 £'000 £'000 £'000 £'000
At 1 October 2021 2,984 165,355 - 31,207 199,546
Cash flows
Borrowings advanced - 28,100 - - 28,100
Borrowings repaid (4,978) - - - (4,978)
Debt arrangement fees paid (215) (215)
Non-cash flows
Reclassification of borrowings
Borrowings reclassified 15,279 (15,279) -
Amortisation of debt set up fees - 268 - - 268
Change in fair value of borrowings - (1,809) - - (1,809)
Recognition of headlease liabilities acquired - - - 135 135
At 30 September 2022 14,285 175,420 - 31,342 221,047
Borrowings due within one year (note 22) Borrowings due in more than one year Fair value of interest rate swaps Lease liabilities (note 31) Total
(note 22)
£'000 £'000 £'000 £'000 £'000
At 1 October 2020 388 140,713 104 29,576 170,781
Cash flows
Borrowings advanced 2,201 22,927 - - 25,128
Borrowings repaid (605) - - - (605)
Debt arrangement fees paid - (275) - - (275)
Non-cash flows
Borrowings reclassified 1,000 (1,000) -
Amortisation of debt set up fees - 259 - - 259
Change in fair value of borrowings - 2,731 - - 2,731
Change in fair value of interest rate swaps - - (104) - (104)
Recognition of headlease liabilities acquired - - - 1,631 1,631
At 30 September 2021 2,984 165,355 - 31,207 199,546
30. Dividends
2022 2021
£'000 £'000
Amounts recognised as distributions to shareholders in the period:
4th interim dividend for the year ended 30 September 2020 of 1.25p per share - 2,138
1st interim dividend for the year ended 30 September 2021 of 1.25p per share - 2,138
2nd interim dividend for the year ended 30 September 2021 of 1.25p per share - 2,138
3rd interim dividend for the year ended 30 September 2021 of 1.25p per share - 2,138
4th interim dividend for the year ended 30 September 2021 of 1.29p per share 2,208 -
1st interim dividend for the year ended 30 September 2022 of 1.29p per share 2,209 -
2nd interim dividend for the year ended 30 September 2022 of 1.29p per share 2,389 -
3rd interim dividend for the year ended 30 September 2022 of 1.29p per share 2,389 -
9,195 8,552
Amounts not recognised as distributions to shareholders in the period:
4th interim dividend for the year ended 30 September 2021 of 1.25p per share - 2,138
4th interim dividend for the year ended 30 September 2022 of 1.29p per share 2,389 -
Categorisation of dividends for UK tax purposes:
Amounts recognised as distributions to shareholders in the period:
Property Income Distribution (PID) 7,345 3,078
Non-PID 1,850 5,474
9,195 8,552
On 1 December 2021, the Company declared its fourth interim dividend of 1.29p
per share for the period 1 July 2021 to 30 September 2021.
On 27 January 2022, the Company declared its first interim dividend of 1.29p
per share for the period 1 October 2021 to 31 December 2021.
On 24 May 2022, the Company declared its second interim dividend of 1.29p per
share for the period 1 January 2022 to 31 March 2022.
On 27 July 2022, the Company declared its third interim dividend of 1.29p per
share for the period 1 April 2022 to 30 June 2022.
On 1 December 2022, the Company announced the declaration of a fourth interim
dividend of 1.29 pence per share for the period 1 July 2022 to 30 September
2022 which will be payable on 18 January 2023 to Shareholders on the register
at the close of business on 8 December 2022.
The Company intends to continue to pay dividends to shareholders on a
quarterly basis in accordance with the REIT regime.
Dividends are not payable in respect of its Treasury shares held.
31. Lease arrangements
The Group as lessee
The interest expense in respect of lease liabilities for the period was
£996,000 (2021: £989,000).
There was no expense relating to variable lease payments in the period (2021:
Nil).
The Group did not have any short-term leases or leases for low value assets
accounted for under IFRS 16 paragraph 6, nor any sale and leaseback
transactions.
The total cash outflow in respect of leases was £994,000 (2021: £989,000).
At 30 September 2022, the Group had outstanding commitments for future minimum
lease payments under non-cancellable leases, which fall due as follows:
As at 30 September 2022 Less than one year Two to five years 6-10 years 10-20 years More than 20 years Total
£'000 £'000 £'000 £'000 £'000 £'000
Minimum lease payments 994 3,976 4,970 9.920 113,062 132,922
Interest - (291) (432) (1,485) (99,372) (101,580)
Present value at 30 September 2022 994 3,685 26,663 8,435 13,690 31,342
As at 30 September 2021 Less than one year Two to five years 6-10 years 10-20 years More than 20 years Total
£'000 £'000 £'000 £'000
Minimum lease payments 989 3,955 4,944 9,888 113,600 133,377
Interest - (288) (429) (1,496) (99,957) (102,170)
Present value at 30 September 2021 989 3,667 26,551 8,392 13,643 31,207
The above commitment is in respect of ground rents payable for properties held
by the Group under leasehold. There are 2,182 properties (2021: 2,281) held
under leasehold with an average unexpired lease term of 155 years (2021: 157
years).
The majority of restrictions imposed are the covenants in place limiting
tenancies to people of retirement age.
The Group as lessor
The Group leases some of its investment properties under operating leases. At
the balance sheet date, the Group had contracted with tenants for the
following future aggregate minimum rentals receivable under non-cancellable
operating leases:
2022 2021
£'000 £'000
Receivable within 1 year 7,987 6,616
Receivable between 1-2 years 5,817 4,544
Receivable between 2-3 years 5,723 4,544
Receivable between 3-4 years 4,728 4,544
Receivable between 4-5 years 4,530 4,544
Receivable between 5-10 years 19,039 13,665
Receivable between 10-20 years 37,987 25,635
Receivable after 20 years 373,736 250,571
459,537 314,663
The maturity analysis has been expanded in the current year to provide more
information. The comparatives have been amended for consistency.
The total of contingent rents recognised as income during the period was £nil
(2021: £nil).
The majority of leases are assured tenancy or assured shorthold tenancy
agreements. The table above shows the minimum lease payments receivable under
the assumption that all tenants terminate their leases at the earliest
opportunity. However, assured tenancies are long-term agreements providing
lifetime security of tenure to residents.
The leases in the licensed retirement homes portfolio are indefinite and would
only be terminated in the event that the leaseholders of the relevant
retirement development vote to no longer have a resident house manager living
at their development.
The Group's shared ownership properties are let to Shared Owners on leases
with initial lease terms of between 130 to 999 years.
Two of the Group's properties are let out on more traditional leases which
account for approximately 8% of total rental income.
The table below shows our expected lease receivables, excluding future rent
reviews, from existing leases based on historical turnover rates consistent
with our assumptions for valuing the properties:
2022 2021
£'000 £'000
Receivable within 1 year 25,099 22,971
Receivable between 1-2 years 21,547 19,576
Receivable between 2-3 years 18,590 16,839
Receivable between 3-4 years 15,286 14,631
Receivable between 4-5 years 13,221 12,847
Receivable between 5-10 years 44,784 38,255
Receivable between 10-20 years 54,455 41,539
Receivable after 20 years 382,089 258,530
575,071 425,008
The maturity analysis has been expanded in the current year to provide more
information. The comparatives have been amended for consistency.
32. Net asset value per share
2022 2021
£'000 £'000
Net assets 201,388 182,392
201,388 182,392
Ordinary shares in issue at period end (excluding shares held in treasury) 185,163,281 171,126,244
Basic NAV per share (pence) 108.8 106.6
The net asset value ('NAV') is calculated as the net assets of the Group
attributable to shareholders divided by the number of Ordinary Shares in issue
at the period end.
EPRA Net Tangible Assets (NTA) per share
2022 2021
£'000 £'000
Restated
IFRS NAV per the financial statements 201,388 182,392
Revaluation of trading properties 93 278
Fair value of financial instruments (4,997) 2,012
Real estate transfer tax - -
EPRA NTA 196,484 184,682
Fully diluted number of shares 185,163,281 171,126,244
EPRA NTA per share (pence) 106.1 107.9
EPRA NTA is equivalent to EPRA Net Reinstatement Value
The EPRA Net Tangible Assets ('EPRA NTA') per share calculated as the EPRA NTA
of the Group attributable to shareholders divided by the number of Ordinary
Shares in issue at the period end.
The Group has debt which it elected to carry at fair value through profit and
loss. In accordance with the EPRA Best Practice Recommendations, EPRA NTA
should reflect the amortised cost of the debt rather than its fair value. In
the current period, an adjustment has been made for £5.0mn which represents
the difference between fair value and what amortised cost would have had the
Group carried the debt at amortised cost. No adjustment was made in the prior
year as it was immaterial. The adjustment would have been £1.5mn for the year
ended 30 September 2021.
33. Contingent liabilities and commitments
ReSI's shared ownership portfolio has been supported by £15mn of grant
funding. In some circumstances, typically when a Shared Owner staircases, ReSI
will be required to recycle the grant into the purchase of new properties
within three years or to repay it to the grant providing body (see note 23).
ReSI is committed to the acquisition of 41 shared ownership units in South
London which are expected to complete within the next financial year, at a
total acquisition cost of £8.9mn.
There are no provisions for fines and settlements specified for ESG
(Environmental, Social or Governance) or any other issues.
34. Related party disclosure
As defined by IAS 24 Related Party Disclosures, parties are considered to be
related if one party has the ability to control the other party or exercise
significant influence over the other party in making financial or operational
decisions.
For the year ended 30 September 2022, the Directors of the Group are
considered to be the key management personnel. Details of amounts paid to
Directors for their services can be found within note 10, Directors' fees and
expenses.
ReSI Capital Management Limited acts as alternative investment fund manager
(the "Fund Manager") pursuant to the Fund Management Agreement. The Fund
Manager has responsibility for the day-to-day management of the Company's
assets in accordance with the Investment policy subject to the control and
directions of the Board.
The Fund Management agreement is terminable on not less than 12 months'
notice, such notice not to expire earlier than 12 July 2022 (the fifth
anniversary of admission to the Official List of the UKLA and traded on the
London Stock Exchange main market).
Details regarding the Fund Manger's entitlement to a management fee are shown
in note 7.
For the year ended 30 September 2022, the Company incurred £1,867,000 (2021:
£1,802,000) in respect of fund management fees of which £nil was outstanding
as at 30 September 2022 (2021: £nil). The above fee was split between cash
and equity as per the Fund Management Agreement with the cash equating to
£1,401,000 (2021: £1,351,000) and the equity fee of £467,000 (2021:
£449,000) being paid as 444,717 Ordinary Shares (2021: 506,000) at an average
price of £1.05 per share (2021: £0.91 per share).
In addition, the Fund Manager was paid a fee, pursuant to the Fund Management
Agreement, of £143,000 (2021: £186,000) in respect of its arrangement of
borrowings for the Group and £nil was outstanding at 30 September 2022
(September 2021: £nil).
During the period the Directors and the Fund Manager received dividends from
the Company of £15,000 (2021: £10,000) and £149,000 (2021: £53,000)
respectively.
ReSI Property Management Limited ('RPML') is a wholly owned subsidiary of ReSI
Capital Management Limited and provides property management services to the
Group on a cost pass through basis with no profit margin. During the year,
RPML charged fees of £1,738,000 (2021: £408,000) in respect of costs
incurred in providing property management services and £166,000 (2021:
£317,000) in respect of non-recurring costs.
.
35. Post balance sheet events
There have been no significant events that require disclosure to, or
adjustment in the financial statements as at 30 September 2022.
36. Financial instruments
The table below sets out the categorisation of the financial instruments held
by the Group as at 30 September 2022. Borrowings held at amortised cost have a
fair value of £83.3mn. The carrying amount of other financial instruments
approximates to their fair value.
2022 2021
£'000 £'000
Financial assets
At amortised cost
Trade and other receivables 767 1,563
Cash and cash deposits 15,984 8,370
16,751 9,933
Financial liabilities
At amortised cost
Obligations under leases 31,342 31,207
Borrowings 112,002 108,826
Trade and other payables 4,090 7,074
147,434 147,107
At fair value through profit or loss
Borrowings 77,703 59,513
77,703 59,513
225,137 206,620
The Group's activities expose it to a variety of financial risks: market risk,
interest rate and inflation risk, credit risk, liquidity risk and capital risk
management.
The Group's risk management policies are established to identify and analyse
the risks faced by the Group, to set appropriate limits and controls, and to
monitor risks and adherence to limits. When considered appropriate the Group
uses derivative financial instruments to hedge certain risk exposures.
Risk management policies and systems are reviewed regularly by the Board and
Fund Manager to reflect changes in the market conditions and the Group's
activities.
The exposure to each financial risk considered potentially material to the
Group, how it arises and the policy for managing the risk is summarised below:
a) Market risk
Market risk is the risk that changes in market prices will affect the Group's
income or the value of its holding of financial instruments.
The Company's activities will expose it to the market risks associated with
changes in property and rental values.
Risk relating to investment in property
Investment in property is subject to varying degrees of risk. Some factors
that affect the value of the investment in property include:
changes in the general economic climate;
changes in the general social environment;
competition from available properties;
obsolescence; and
government regulations, including planning, environmental and
tax laws.
Variations in the above factors can affect the valuation of assets held by the
Company and the rental values it can achieve, and as a result can influence
the financial performance of the Company.
The Group mitigates these risks by entering into long-term management and
rental/letting agreements to ensure any fall in the property market should not
result in significant impairment to rental cash flows. The average unexpired
length of lease in the portfolio is 155 years. In addition, the Group focuses
on areas of the market with limited and ideally countercyclical exposure to
the wider property market.
As the Group operates only in the United Kingdom residential property market
for Retirement Homes, Shared Ownership and Local Authority housing it is not
exposed to currency risk.
b) Interest rate and inflation risks
Interest rate risk is the risk that the fair value or future cash flows of a
financial instrument will fluctuate because of changes in market interest
rates.
The interest rate exposure profile of the Group's financial assets and
liabilities as at 30 September 2022 and 30 September 2021 were:
Nil rate assets and liabilities Floating rate assets Fixed rate liability Floating rate liability Total
£'000 £'000 £'000 £'000 £'000
2022
Trade and other receivables 767 - - - 767
Cash and cash equivalents - 15,984 - - 15,984
Trade and other payables (4,090) - - - (4,090)
Bank borrowings - - (170,210) (19,495) (189,705)
Obligations under finance leases - - (31,342) - (31,342)
(3,323) 15,984 (201,552) (19,495) (208,386)
2021
Trade and other receivables 1,563 - - - 1,563
Cash and cash equivalents - 8,370 - - 8,370
Trade and other payables (7,074) - - - (7,074)
Bank borrowings - - (152,538) (15,801) (168,339)
Obligations under finance leases - - (31,207) - (31,207)
(5,511) 8,370 (183,745) (15,801) (196,687)
The Group has primarily financed its activities with fixed rate debt, which
reduces the Group's exposure to changes in market interest rates. If market
interest rates increased by 1% the Group's finance costs for existing debt
facilities would increase by £198,040. Conversely, if market interest rates
decreased by 1% the Group's finance costs for existing debt facilities would
decrease by £198,040.
The Group intends to finance its activities with fixed, floating rate or
inflation-linked debt. Changes in the general level of interest rates and
inflation can affect the Group's profitability by affecting the spread
between, amongst other things, the income on its assets and the expense of its
interest-bearing liabilities, the value of its interest-earning assets and its
ability to realise gains from the sale of assets should this be desirable.
The Fund Manager intends to match debt cash flows to those of the underlying
assets and therefore does not expect to utilise derivatives. However, to the
extent this is not possible, the Group may utilise derivatives for full or
partial inflation or interest rate hedging or otherwise seek to mitigate the
risk of inflation or interest rate movements. The Group will closely manage
any derivatives, in particular with regard to liquidity and counterparty
risks. The Group will only use derivatives for risk management and not for
speculative purposes.
c) Credit risk
Credit risk is the risk of financial loss to the Group if a counterparty fails
to meet its contractual obligations and arises principally from the Group's
tenants (in respect of trade receivables arising under operating leases),
banks and money market funds (as holders of the Group's cash deposits).
Exposure to credit risk
2022 2021
£'000 £'000
Trade and other receivables 767 1,563
Cash and cash equivalents 15,984 8,370
16,751 9,933
The Group engages third parties to provide day-to-day management of its
properties including letting and collection of underlying rent from residents
or shared owners. The Group mitigates void risk by acquiring residential asset
classes with a demonstrable strong demand or where the residents are part
owners of the properties (as exhibited by retirement, sub-market rental assets
or shared ownership properties).
The credit risk of cash and cash equivalents is limited due to cash being held
at banks or money market funds considered credit worthy by the Fund Manager,
with high credit ratings assigned by international credit rating agencies.
Note 31 details the Group's exposure as a lessor in respect of future minimum
rentals receivable.
d) Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting
the obligations associated with its financial liabilities that are settled by
delivering cash or another financial asset.
The Group manages its liquidity and funding risks by considering cash flow
forecasts and ensuring sufficient cash balances are held within the Group to
meet future needs. Prudent liquidity risk management implies maintaining
sufficient cash and marketable securities, the availability of financing
through appropriate and adequate credit lines, and the ability of customers to
settle obligations within normal terms of credit. The Company ensures, through
forecasting of capital requirements, that adequate cash is available.
The Company's near-term debt maturities include c.£12.7mn of debt repayable
in full to NatWest in April 2023. The Company currently has c.£31mn of
liquidity on hand to address this upcoming maturity, including £18mn of
available capacity on the Santander revolving credit facility.
The Group has been in compliance with all financial covenants on its external
borrowings throughout the year.
The following table details the Group's remaining contractual maturing for its
financial liabilities. The tables have been drawn up based on the undiscounted
cash flows of financial liabilities, including future interest payments, based
on the earliest date on which the Group can be required to pay.
Less than one year Two to five years More than five years Total
£'000 £'000 £'000 £'000
2022
Borrowings 14,285 18,456 156,964 189,705
Interest on borrowings 3,824 14,611 53,435 71,870
Obligations under leases 994 3,975 127,953 132,922
Payables and accruals 4,090 - - 4,090
23,193 37,042 338,352 398,587
2021
Borrowings 2,984 21,703 143,652 168,339
Interest on borrowings 3,805 14,108 54,009 71,922
Obligations under leases 989 3,955 128,433 133,377
Payables and accruals 7,074 - - 7,074
14,852 39,766 326,094 380,712
e) Capital risk management
The Group manages its capital to ensure the entities in the Group will be able
to continue as a going concern whilst maximising the return to shareholders
through the optimisation of the debt and equity balance.
The capital structure of the Group consists of debt (note 22), cash and cash
equivalents (note 20) and equity attributable to the shareholders of the
Company (comprising share capital, retained earnings and the other reserves as
referred in notes 24 to 27).
The Group is not subject to externally imposed capital requirements under the
UK AIFM regime.
The Group's management reviews the capital structure on a regular basis in
conjunction with the Board. As part of this review management considers the
cost of capital, risks associated with each class of capital and debt and the
amount of any dividends to shareholders.
2022 2021
£'000 £'000
Obligations under leases 31,342 31,207
Borrowings (book value) 189,705 168,339
Cash and cash equivalents (15,984) (8,370)
Net debt 205,063 191,176
Equity attributable to equity holders 201,388 182,392
Net debt to equity ratio 1.02 1.05
Borrowings excluding lease liability 189,705 168,339
Available cash* (12,675) (6,825)
Net debt excluding lease liability and cash 177,030 161,514
Total assets less finance lease gross up and cash 380,206 350,137
Loan to Value ("LTV") leverage ratio 0.47 0.46
* Available cash includes amounts held by US Bank in respect of funds required
as a debt service reserve for the shared ownership debt but excludes other
restricted cash balances.
The LTV leverage ratio has been presented to enable a comparison of the
group's borrowings as a proportion of Gross Assets as at 30 September 2022 to
its medium term target LTV leverage ratio of 0.50.
37. Supplemental financial information
Note 2022 2021
£'000 £'000
Non-current assets
Investment in subsidiary undertakings 8 189,018 174,390
Total non-current assets 189,018 174,390
Current assets
Trade and other receivables 9 715 1,859
Cash and cash equivalents 10 42 1,039
Total current assets 757 2,898
Total assets 189,775 177,288
Current liabilities
Trade and other payables 11 367 370
Total current liabilities 367 370
Net assets 189,408 176,918
Equity
Share capital 12 1,941 1,803
Share premium 13 14,605 108
Treasury shares reserve 14 (8,293) (8,515)
Retained earnings 181,155 183,522
Total interests 189,408 176,918
Total equity 189,408 176,918
The notes on pages 134 to 162 form part of these financial statements.
The Company has taken advantage of the exemption allowed under section 408 of
the Companies Act 2006 and has not presented its own profit and loss account
in these financial statements. The profit attributable to the Parent Company
for the year ended 30 September 2022 amounted to £6.8mn (2021: £8.5mn).
These financial statements were approved and authorised for issue by the Board
of Directors on 1 December 2022 and signed on its behalf by:
Robert Whiteman
Chairman
1 December 2022
Treasury
Share Share shares Retained
capital premium reserve earnings Total equity
£'000 £'000 £'000 £'000 £'000
Balance at 30 September 2020 1,803 108 (8,626) 183,567 176,852
Profit for the period - - - 8,507 8,507
Total comprehensive income - - - 8,507 8,507
Contributions by and distributions to shareholders
Issue of management shares - - 449 (449) -
Share based payment charge - - - 449 449
Purchase of own shares - - (338) - (338)
Dividend paid - - - (8,552) (8,552)
Balance at 30 September 2021 1,803 108 (8,515) 183,522 176,918
Profit for the period - - - 6,828 6,828
Total comprehensive income - - - 6,828 6,828
Contributions by and distributions to shareholders
Issue of shares 138 14,862 - - 15,000
Share issue costs - (365) - - (365)
Issue of management shares - - 467 (467) -
Share based payment charge - - - 467 467
Purchase of own shares - - (245) - (245)
Dividends paid - - - (9,195) (9,195)
Balance at 30 September 2022 1,941 14,605 (8,293) 181,155 189,408
The notes on pages 134 to 162 form part of these financial statements.
1. Basis of preparation
The financial statements have been prepared in accordance with Financial
Reporting Standard 100 Application of Financial Reporting Requirements ("FRS
100") and Financial Reporting Standard 101 Reduced Disclosure Framework ("FRS
101").
2. Disclosure exemptions adopted
In preparing these financial statements the Company has taken advantage of all
disclosure exemptions conferred by FRS 101. Therefore these financial
statements do not include:
Certain comparative information as otherwise required by adopted
IFRS;;
Certain disclosures regarding the Company's capital;
A statement of cash flows;
The effect of future accounting standards not yet adopted;
The disclosure of the remuneration of key management personnel;
and
Disclosure of related party transactions with other wholly owned
members of Residential Secure Income plc.
In addition, and in accordance with FRS 101, further disclosure exemptions
have been adopted because equivalent disclosures are included in the Company's
consolidated financial statements. These financial statements do not include
certain disclosures in respect of:
Financial instruments;
Fair value measurement other than certain disclosures required
as a result of recording financial instruments at fair value
3. Changes to accounting standards and interpretations
Revised standards adopted during the year
The IASB and IFRIC have revised a number of standards. None of these
amendments have led to any material changes in the Company's accounting
policies or disclosures during the year.
Standards in issue but not yet effective
Certain new standards, amendments and interpretations to existing standards
have been published that are mandatory for the Company's accounting periods
beginning on or after 1 October 2022 and whilst the Directors are considering
these, initial indications are that these changes, will have no material
impact on the Company's financial statements.
4. Significant accounting policies
The significant accounting policies applied in the preparation of the
financial statements are set out below. The policies have been consistently
applied throughout the period.
a) Basis of accounting
These financial statements have been presented as required by the Companies
Act 2006 and have been prepared under the historical cost convention and in
accordance with applicable Accounting Standards and policies in the United
Kingdom ("UK GAAP")
b) Currency
The Company financial information is presented in Sterling which is also the
Company's functional currency and all values are rounded to the nearest
million (£mn), except where otherwise indicated.
c) Investments in subsidiary undertakings in the Company Financial
Statements
Investments in subsidiary undertakings are stated at cost less any provision
for impairment in value.
d) Share issue costs
The costs of issuing or reacquiring equity instruments (other than in a
business combination) are accounted for as a reduction to share premium to the
extent that share premium has arisen on the related share issue.
e) Finance income
Finance income comprises interest receivable on funds invested and is
recognised in profit and loss as it accrues, using the effective interest
method.
f) Taxation
Taxation on the profit or loss for the 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 extent that
it relates to items recognised as direct movement in equity, in which case it
would be recognised as a direct movement in equity. Current tax is expected
tax payable on any non-REIT taxable income for the period, using tax rates
enacted or substantively enacted at the balance sheet date. Deferred tax is
provided in full using the balance sheet liability method on timing
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for taxation purposes.
Deferred tax is determined using tax rates that have been enacted or
substantively enacted by the reporting date and are expected to apply when the
asset is realised or the liability is settled.
No provision is made for timing differences (i) arising on the initial
recognition of assets or liabilities, other than on a business combination,
that affect neither accounting nor taxable profit and (ii) relating to
investments in subsidiaries to the extent that they will not reverse in the
foreseeable future.
g) Dividend payable to shareholders
Equity dividends are recognised when they become legally payable which for the
final dividends is the date of approval by the members. Interim dividends are
recognised when paid.
h) Financial instruments
Financial assets
Recognition of financial assets
All financial assets are recognised on a trade date which is the date when the
Company becomes a party to the contractual provisions of the instrument.
Initial measurement and classification of financial assets
Financial assets are classified into the following categories: 'financial
assets at fair value through profit or loss' and 'financial assets at
amortised cost'. The classification depends on the business model in which the
asset is managed and on the cash flows associated with that asset.
Financial assets are initially measured at fair value, plus transaction costs,
except for those financial assets classified as at fair value through profit
or loss, which are initially measured at fair value.
At 30 September 2022, the Company had the following non-derivative financial
assets which are classified as financial assets at amortised cost:
Cash and cash equivalents
Cash and short-term deposits in the balance sheet comprise cash at bank
(including investments in money-market funds) and short-term deposits with an
original maturity of three months or less.
Trade and other receivables
Trade and other receivables are recognised at their original invoiced value.
Where the time value of money is material, receivables are discounted and then
held at amortised cost, less provision for expected credit loss.
Impairment of financial assets
The Company applies the IFRS 9 simplified approach to measuring the expected
credit losses for trade and other receivables whereby the allowance or
provision for all trade receivables are based on the lifetime expected credit
losses ("ECLs").
The Company applies the general approach for initial recognition and
subsequent measurement of expected credit loss provisions for the loan
receivable and other receivables which have maturities of 12 months or more
and have a significant finance component.
This approach comprises of a three-stage approach to evaluation expected
credit losses. These stages are classified as follows:
Stage 1
Twelve-month expected credit losses are recognised in profit or loss at
initial recognition and a loss allowance is established. For financial
instruments that have not deteriorated significantly in credit quality since
initial recognition or that have low credit risk at the reporting date, the
loss allowance for 12-month expected credit losses is maintained and updated
for changes in amount. Interest revenue is calculated on the gross carrying
amount of the asset (i.e. without reduction for expected credit losses).
Stage 2
If the credit risk increases significantly and the resulting credit quality is
not considered to be low credit risk, full lifetime expected losses are
recognised and includes those financial instruments that do not have objective
evidence of a credit loss event. Interest revenue is still calculated on the
gross carrying amount of the asset.
Stage 3
If the credit risk of a financial asset increases to the point that it is
considered credit impaired (there is objective evidence of impairment at the
reporting date), lifetime expected credit losses continue to be recognised.
For financial assets in this stage, lifetime expected credit losses will
generally be individually assessed. Interest revenue is calculated on the
amortised cost net carrying amount (amortised cost less impairment).
De-recognition of financial assets
The Company derecognises a financial asset when the contractual rights to the
cash flows from the asset expire, or it transfers the financial asset and
substantially all the risks and rewards of ownership to another entity. If any
interest in a transferred asset is retained, then the Company recognises its
retained interest in the asset and associated liabilities.
Financial liabilities
Recognition of financial liabilities
All financial liabilities are recognised on the date when the Company becomes
a party to the contractual provisions of the instrument.
Initial measurement and classification of financial liabilities
Financial liabilities are classified into the following categories: 'financial
liabilities at fair value through profit or loss' and 'other financial
liabilities'. The classification depends on the nature and purpose of the
financial liabilities and is determined at the time of initial recognition.
Financial liabilities are initially measured at fair value, net of transaction
costs, except for those financial liabilities classified as at fair value
through profit or loss, which are initially measured at fair value.
At 30 September 2022, the Company had the following non-derivative financial
liabilities which are classified as other financial liabilities:
Trade and other payables
Trade and other payables are initially recognised at fair value and
subsequently held at amortised cost.
De-recognition of financial liabilities
The Group derecognises a financial liability when its contractual obligations
are discharged, cancelled or expire.
5. Significant accounting judgements and estimates
The preparation of financial statements requires the Directors of the Company
to make judgements, estimates and assumptions that affect the reported amounts
recognised in the financial statements. However, uncertainty about these
assumptions and estimates could result in outcomes that require a material
adjustment to the carrying amount of the asset or liability in the future.
Estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimates are revised and in any future periods affected.
Impairment of fixed asset investments
The Directors are required to review the carrying amounts of its investments
to determine whether there are any indicators for impairment. After assessing
the carrying amounts of the Company's investments, it was determined that
impairment indicators no longer existed for some of the investments and a
reversal of impairment loss should be recognised.
6. Fees paid to the Company's Auditor
2022 2021
£'000 £'000
Audit fees 78 60
Audit related services 15 14
Non-audit fees
Corporate Finance Fees 44 -
Total fees 137 74
Fees paid to the Company's Auditors are inclusive of irrecoverable VAT.
7. Dividends paid
2022 2021
£'000 £'000
Amounts recognised as distributions to shareholders in the period:
4th interim dividend for the year ended 30 September 2020 of 1.25p per share - 2,138
1st interim dividend for the year ended 30 September 2021 of 1.25p per share - 2,138
2nd interim dividend for the year ended 30 September 2021 of 1.25p per share - 2,138
3rd interim dividend for the year ended 30 September 2021 of 1.25p per share - 2,138
4th interim dividend for the year ended 30 September 2021 of 1.29p per share 2,208 -
1st interim dividend for the year ended 30 September 2022 of 1.29p per share 2,209 -
2nd interim dividend for the year ended 30 September 2022 of 1.29p per share 2,389 -
3rd interim dividend for the year ended 30 September 2022 of 1.29p per share 2,389 -
9,195 8,552
Amounts not recognised as distributions to shareholders in the period:
4th interim dividend for the year ended 30 September 2021 of 1.25p per share - 2,138
4th interim dividend for the year ended 30 September 2022 of 1.29p per share 2,138 -
Categorisation of dividends for UK tax purposes:
Amounts recognised as distributions to shareholders in the period:
Property Income Distribution (PID) 7,345 3,078
Non-PID 1,850 5,474
9,195 8,552
On 1 December 2021, the Company declared its fourth interim dividend of 1.29p
per share for the period 1 July 2021 to 30 September 2021.
On 27 January 2022, the Company declared its first interim dividend of 1.29p
per share for the period 1 October 2021 to 31 December 2021.
On 24 May 2022, the Company declared its second interim dividend of 1.29p per
share for the period 1 January 2022 to 31 March 2022.
On 27 July 2022, the Company declared its third interim dividend of 1.29p per
share for the period 1 April 2022 to 30 June 2022.
On 1 December 2022, the Company announced the declaration of a fourth interim
dividend of 1.29p per share for the period 1 July 2022 to 30 September 2022
which will be payable on 18 January 2023 to Shareholders on the register at
the close of business on 8 December 2022.
The Company intends to continue to pay dividends to shareholders on a
quarterly basis in accordance with the REIT regime.
Dividends are not payable in respect of its Treasury shares held
8. Investments
2022 2021
£'000 £'000
At beginning of year 174,390 171,865
Additions 14,628 174,390
Disposals - (172,728)
Impairment reversal - 863
At end of year 189,018 174,390
Investments represent investment in subsidiary undertakings are subject to
review for impairment indicators.
The impairment reversal is included in administrative expenses in the
Company's statement of comprehensive income.
The impairment of the Company's investments in subsidiary undertakings has
been determined by the comparing the Company's cost of investment in each
subsidiary with the fair value of each subsidiaries' assets and liabilities.
The investments are categorised as Level 3 in the fair value hierarchy.
The Company had the following subsidiary undertakings at 30 September 2022:
Name of entity Percentage of ownership Country of incorporation Principal place of business Principal activity
ReSI Portfolio Holdings Limited 100% UK UK Holding company
RHP Holdings Limited 100% UK UK Holding company
The Retirement Housing Limited Partnership 100% UK UK Property investment
ReSI Housing Limited 100% UK UK Registered Provider of Social Housing
Wesley House (Freehold) Limited 100% UK UK Property investment
Eaton Green (Freehold) Limited 100% UK UK Property investment
Name of entity Registered address
ReSI Portfolio Holdings Limited 5 New Street Square, London, EC4A 3TW
RHP Holdings Limited 5 New Street Square, London, EC4A 3TW
The Retirement Housing Limited Partnership Glanville House, Frobisher Way, Taunton , Somerset, TA2 6BB
ReSI Housing Limited 5 New Street Square, London, EC4A 3TW
Wesley House (Freehold) Limited 5 New Street Square, London, EC4A 3TW
Eaton Green (Freehold) Limited 5 New Street Square, London, EC4A 3TW
All group entities are UK tax resident.
9. Trade and other receivables
2022 2021
£'000 £'000
Amounts due from group undertakings 697 1,806
Prepayments 18 53
715 1,859
Amounts due from group undertakings are unsecured, interest free and repayable
on demand.
All amounts fall due for repayment within one year.
10. Cash and cash equivalents
2022 2021
£'000 £'000
Cash at bank 40 1,037
Cash held as investment deposit 2 2
42 1,039
Cash held as investment deposit relates to cash invested in a money market
fund, which is invested in short-term AAA rated Sterling Investments. As the
fund has a short maturity period, the investment has a high liquidity. The
fund has £13.8bn AUM, hence the Group's investment deposit represents an
immaterial proportion of the fund.
11. Trade and other payables
2022 2021
£'000 £'000
Trade payables 37 82
Accruals 330 288
367 370
Amounts due to group undertakings are unsecured, interest free and repayable
on demand.
12. Share capital
Number of Ordinary 1 p £'000
shares
At 30 September 2021 180,324,377 1,803
Issue of shares 13,824,884 138
At 30 September 2022 194,149,261 1,941
The share capital account relates to amounts subscribed for share capital.
Rights, preferences and restrictions on shares
All Ordinary Shares carry equal rights, and no privileges are attached to any
shares in the Company. All the shares are freely transferable, except as
otherwise provided by law. The holders of Ordinary Shares are entitled to
receive dividends as declared from time to time and are entitled to one vote
per share at meetings of the Company. All shares rank equally with regard to
the Company's residual assets.
Treasury shares do not hold any voting rights.
13. Share premium
£'000
At 30 September 2021 108
Issue of shares 14,862
Share issue costs (365)
At 30 September 2022 14,605
The share premium account relates to amounts subscribed for share capital in
excess of nominal value.
14. Treasury share reserve
£'000
At 30 September 2021 (8,515)
Purchase of treasury shares (245)
Transferred as part of Fund Management fee 467
At 30 September 2022 (8,293)
The treasury shares reserve relates to the value of shares purchased by the
Company in excess of nominal value.
During the year ended 30 September 2022, the Company purchased 232,564 of its
own 1p ordinary shares at a total gross cost of £244,165 (£240,140 cost of
shares and £4,025 associated costs).
During the year 444,717 1p Ordinary Shares were transferred from its own
shares reserve to the Fund Manager, in lieu of the management fee in
accordance with the Fund Management Agreement.
As at 30 September 2022, 8,985,980 (2021: 9,198,133) 1p Ordinary Shares are
held by the Company.
15. Related party transactions
The Company has taken advantage of the exemption not to disclose transactions
with other members of the Group as the Company's own financial statements are
presented together with its consolidated financial statements. For all other
related party transactions please make reference to note 34 of the Group
accounts
Supplementary information
1) EPRA Earnings Recurring earnings from core operational activities
2022 2021
£'000 £'000
Earnings per IFRS income statement 13,334 11,221
Changes in value of investment properties (3,200) (7,731)
Profits or losses on disposal of investment properties 24 12
Profits or losses on sales of trading properties incl. impairment charges in (510) (1,008)
respect of trading properties.
Changes in fair value of financial instruments and associated close-out costs (1,809) 2,627
EPRA Earnings 7,839 5,121
Basic number of shares 180,159 171,071
EPRA Earnings per share (EPS) (pence) 4.4 3.0
Adjusted EPRA Earnings per share
2022 2021
£'000 £'000
Company specific adjustments:
Exclude one off costs 603 975
Include shared ownership first tranche sales 510 1,008
Company specific Adjusted Earnings 8,952 7,104
Company specific Adjusted Earnings EPRA per share (pence) 5.0 4.2
2) EPRA Net Tangible Assets (NTA) and EPRA Net Reinstatement Value (NRV)
2022 2021
£'000 £'000
IFRS NAV per the financial statements 201,388 182,392
Revaluation of trading properties 93 278
Fair value of financial instruments (4,997) 2,012
Real estate transfer tax - -
EPRA NTA 196,484 184,682
Fully diluted number of shares 185,163 171,126
EPRA NTA per share (pence) 106.1 107.9
The Group has debt which it elected to carry at fair value through profit and
loss. In accordance with the EPRA Best Practice Recommendations, EPRA NTA
should reflect the amortised cost of the debt rather than its fair value. In
the current period, an adjustment has been made for £5mn which represents the
difference between fair value and what amortised cost would have been had the
Group carried the debt at amortised cost. No adjustment was made in the prior
year as it was immaterial. The adjustment would have been £1.5mn for the year
ended 30 September 2021.
The fair value of financial instruments removes the effect of mark-to-market
adjustments, arising from the movement in gilt yields and credit spreads, to
include the value of debt at amortised cost which will be crystallised through
holding debt in normal circumstances.
3) EPRA Net Reinstatement Value (NRV)
2022 2021
£'000 £'000
IFRS NAV per the financial statements 201,388 182,392
Revaluation of trading properties 93 278
Fair value of financial instruments (4,997) 2,012
Revaluation of intangibles to fair value - -
Real estate transfer tax - -
EPRA NRV 196,484 184,682
Fully diluted number of shares 185,163 171,126
EPRA NRV per share (pence) 106.1 107.9
The Group has debt which it elected to carry at fair value through profit and
loss. In accordance with the EPRA Best Practice Recommendations, EPRA NRV
should reflect the amortised cost of the debt rather than its fair value. In
the current period, an adjustment has been made for £5mn which represents the
difference between fair value and what amortised cost would have been had the
Group carried the debt at amortised cost. No adjustment was made in the prior
year as it was immaterial. The adjustment would have been £1.5mn for the year
ended 30 September 2021.
The fair value of financial instruments removes the effect of mark-to-market
adjustments, arising from the movement in gilt yields and credit spreads, to
include the value of debt at amortised cost which will be crystallised through
holding debt in normal circumstances.
4) EPRA Net Disposable Value (NDV)
2022 2021
£'000 £'000
IFRS NAV per the financial statements 201,388 182,392
Revaluation of trading properties 93 278
Fair value of fixed interest rate debt 23,974 (4,511)
EPRA NDV 225,455 178,159
Fully diluted number of shares 185,163 171,126
EPRA NDV per share (pence) 121.8 104.1
5) EPRA Net Initial Yield (NIY) AND EPRA "Topped Up" NIY
2022 2021
£'000 £'000
Investment property - wholly owned 374,785 341,128
Trading property (including share of JVs) 1,203 3,800
Completed property portfolio 375,988 344,928
Allowance for estimated purchasers' costs estimated as 6% of property 22,559 20,696
portfolio
Gross up completed property portfolio valuation 398,548 365,624
Annualised cash passing rental income 24,809 21,805
Property outgoings (8,653) (8,661)
Annualised net rents 16,156 13,144
Add: notional rent expiration of rent-free periods or other lease incentives - -
Topped-up net annualised rent 16,156 13,144
EPRA NIY 4.1% 3.6%
EPRA Topped up NIY 4.1% 3.6%
In accordance with the EPRA Best Practice Recommendations, EPRA NIY should be
based on net passing cash rental. The prior period annualised rental income
has been updated to reflect this.
6) EPRA Vacancy Rate
2022 2021
£'000 £'000
Estimated Rental Value of vacant space 1,368 1,514
Estimated rental value of the whole portfolio 27,292 25,061
EPRA Vacancy Rate 5% 6%
7) EPRA Cost Ratios
2022 2021
£'000 £'000
Restated
Administrative/operating expense line per IFRS income statement 3,221 3,217
Net service charge costs/fees 4,927 4,701
Management fees less actual/estimated profit element 1,739 1,994
Other property operating expenses 1,988 1,966
Service charge costs recovered through rents but not separately invoiced (4,622) (4,344)
EPRA Costs (including direct vacancy costs) 7,253 7,534
Direct vacancy costs (527) (745)
EPRA Costs (excluding direct vacancy costs) 6,726 6,789
Gross Rental Income less ground rents - per IFRS 24,673 21,837
Less: service fee and service charge costs components of Gross Rental Income (4,622) (4,344)
Gross Rental Income 20,051 17,493
EPRA Cost Ratio (including direct vacancy costs) 36% 43%
EPRA Cost Ratio (excluding direct vacancy costs) 34% 39%
In accordance with the EPRA Best Practice Recommendations, EPRA Costs should
exclude service charges recovered through rents but not separately invoiced
and include all property operating expenses. The prior period costs have been
updated to reflect this.
Gross rental income includes service charges collected from tenants, included
in rent collected but not separately invoiced, of £4,621,789 during the
period (2021: £4,344,089). Service charge expenses, as reflected in the cost
of sales, also includes amounts paid in respect of properties which were
vacant during the period of £304,966 (2021: £357,306).
Management fees less actual/estimated profit element is made up of property
management fees paid during the period.
8) EPRA LTV
2022 2021
£'000 £'000
Restated
Borrowings 189,705 168,339
Net payables - -
Less cash (15,984) (8,370)
Net debt 173,721 159,969
374,785 341,128
Investment properties at fair value
Net receivables 325 1,233
Total property value 375,110 342,361
46% 47%
EPRA LTV
9) AIC Ongoing Ratio
Total expenses ratio
Management fee 1,867 1,802
Fund operating expenses* 742 1,046
2,609 2.848
Average Net Asset Valuation ** 191,890 181,002
Annualised total expenses ratio 1.4% 1.6%
* Fund operating expenses has been revised to only include the direct costs at
the Fund level and not subsidiary level. No adjustment was made in the prior
year.
**The average Net Asset Valuation is calculated as the average of the opening
and closing NAV for the financial year.
10) Net rental yield
The net yield on the Group's historical cost of investment property represents
the unlevered rental income return on the Group's capital deployed into
acquisition of investment properties.
2022 2021
£'m £'m
Annualised net rental income at balance sheet date 16.5 14.3
Historical cost of investment property 339.0 309.7
Historical cost of investments not yet income producing (7.5) (14.8)
Historical cost of income producing investment properties 331.5 294.9
Net yield 5.0% 4.9%
11) Total Return on NTA
A performance measure which represents the total return for the year,
excluding movements in valuation of debt and derivatives, expressed as a
percentage of opening NTA.
2022 2021
£'mn £'mn
Operating profit before property disposals and change in fair value 14.3 12.0
Valuation movement of investment properties 3.2 7.7
Finance costs (6.0) (5.8)
Debt Indexation* (5.2) -
Revaluation of trading properties (0.2) (0.4)
Property return 6.1 13.5
IFRS NAV at beginning of the prior year 182.4 179.6
Revaluation of trading properties 0.3 0.7
Fair value of financial instruments 2.0 (0.6)
Real estate transfer tax - -
Opening EPRA NTA 184.7 179.7
Movement in share capital 14.9 -
Increase/(decrease) in the year (3.1) 5.0
Closing EPRA NTA 196.5 184.7
Total return on opening NTA (%) 3.3% 7.5%
* The Group elected to carry this debt at fair value through profit and loss.
In accordance with the EPRA Best Practice Recommendations, EPRA NTA should
reflect the amortised cost of the debt rather than its fair value. In the
current period, an adjustment has been made for £5.2mn which represents the
difference between fair value and what amortised cost would have been had the
Group carried the debt at amortised cost. No adjustment was made in the PY as
it was immaterial. The charge would have been £1.5mn for the year ended 30
September 2021
12) Total Return on IFRS NAV
A performance measure which represents the total IFRS return for the year as a
percentage of opening IFRS NAV.
2022 2021
£'mn £'mn
Net income 13.3 11.2
Share issuance costs (0.3) -
Total Return 13.0 11.2
Net Asset Value at the beginning of the year 182.4 179.6
Total IFRS return on opening NAV (%) 7.1% 6.2%
13) Loan to Value Ratio
The LTV leverage ratio has been presented to enable a comparison of the
group's borrowings as a proportion of Gross Assets as at 30 September 2022 to
its medium target LTV leverage ratio of 0.50.
2022 2021
£'000 £'000
Borrowings excluding lease liability 189,705 168,339
Available cash (12,675) (6,825)
Net debt excluding lease liability and cash increase/(decrease) in year 177,030 161,514
Total assets less finance lease gross up and cash 380,206 350,137
Loan to Value ("LTV") leverage ratio 0.47 0.46
Glossary
Administrator The Company's administrator from time to time, the current such administrator
being MGR Weston Kay LLP.
AIC Association of Investment Companies.
Alternative Investment Fund or "AIF" An investment vehicle under the UK AIFM Regime. the Company is classified as
an AIF.
Annual General Meeting or "AGM" A meeting held once a year which shareholders can attend and where they can
vote on resolutions to be put forward at the meeting and ask directors
questions about the company in which they are invested.
Articles or Articles of Association The articles of association of the Company.
Company Secretary The Company's company secretary from time to time, the current such company
secretary being Computershare Company Secretarial Services Limited.
Discount The amount, expressed as a percentage, by which the share price is less than
the net asset value per share.
Depositary Certain AIFs must appoint depositaries under the requirements of the AIFM
Regime. A depositary's duties include, inter alia, safekeeping of assets,
oversight and cash monitoring. The Company's current depositary is Thompson
Taraz Depositary Limited.
Dividend Income receivable from an investment in shares.
Ex-dividend date The date from which you are not entitled to receive a dividend which has been
declared and is due to be paid to shareholders.
Financial Conduct Authority or "FCA" The independent body that regulates the financial services industry in the UK.
Functional Home Both a Unit and an aggregation of multiple Units offering elderly care
facilities, assisted living facilities, sheltered housing or supported housing
that are made available, by a Tenant, Occupant or Nominator (as the case may
be) to a Resident/Residents.
Fund Manager ReSI Capital Management Limited, a company incorporated in England and Wales
with company number 07588964 in its capacity as Fund Manager to the Company.
Gearing A way to magnify income and capital returns, but which can also magnify
losses. A bank loan is a common method of gearing.
Housing Association A regulated independent society, body of trustees or company established for
the purpose of providing social housing.
HMRC HM Revenue & Customs
Investment company A company formed to invest in a diversified portfolio of assets.
Liquidity The extent to which investments can be sold at short notice.
Loan to Value (LTV) Ratio Ratio of total debt outstanding, excluding the finance lease liability,
against the total assets excluding the adjustment for finance lease gross up.
Market Rental Home Both a Unit of residential accommodation and an accommodation block comprising
multiple Units facilities that is/are made available, by a Tenant, Occupant or
Nominator, to a Resident/Residents at a market rent.
Net assets The net asset value of the Company as a whole on the relevant date calculated
in accordance with the Company's normal accounting policies.
Net asset value (NAV) per Ordinary Share The net asset value of the Company on the relevant date calculated in
accordance with the Company's normal accounting policies divided by the total
number of Ordinary Shares then in issue.
Non PID dividend A dividend paid by the Company that is not a PID.
Ongoing charges A measure, expressed as a percentage of average net assets, of the regular,
recurring annual costs of running an investment company.
Ordinary Shares The Company's Ordinary Shares of 1p each.
PID A distribution referred to in section 548(1) or 548(3) of the CTA 2010, being
a dividend or distribution paid by the Company in respect of profits or gains
of the Property Rental Business of the Group (other than gains arising to
non-UK resident Group companies) arising at a time when the Group is a REIT
insofar as they derive from the Group's Property Rental Business.
Portfolio A collection of different investments held in order to deliver returns to
shareholders and to spread risk.
Premium The amount, expressed as a percentage, by which the share price is more than
the net asset value per share.
Property Rental Business A Property Rental Business fulfilling the conditions in section 529 of the
CTA 2010.
REIT Real estate investment trust.
Rental Agreement Comprise Leases, Occupancy Agreements and Nominations Agreements.
Rental growth The change in gross rental income in a period as a result of rent increases,
tenant renewals or a change in tenants. Applies to changes in gross rents on a
comparable basis and excludes the impact of acquisitions, disposals and
changes resulting from refurbishments.
Reputable Care Provider A Statutory Registered Provider or other private entity in the business of
building, managing and/or operating Functional Homes in the United Kingdom
that the Fund Manager considers reputable in light of its investment grade
equivalent debt strategy.
Reversionary Surplus The increase in valuation if the portfolio is valued on a vacant possession
basis compared to the IFRS fair value
RPI The Retail Price Index (RPI) is a measure of inflation, which in turn is the
rate at which prices for goods and services are rising.
Share buyback A purchase of a company's own shares. Shares can either be bought back for
cancellation or held in treasury.
Share price The price of a share as determined by a relevant stock market.
Shared Owner The part owner of a shared ownership home that occupies such shared ownership
home in return for the payment of rent to the co-owner.
Social impact per share The social, economic and environmental impact and value of investments
calculated using two key analysis frameworks, Social Return on Investment
(SROI) and Economic Impact, divided by the number of shares outstanding.
Sub-Market Rental Home A Unit of residential accommodation that is made available, by a Tenant,
Occupant or Nominator, to a Resident to rent at a level below the local market
rent.
Total return A measure of performance that takes into account both income and capital
returns.
Treasury shares A company's own shares which are available to be sold by a company to raise
funds.
UK AIFM Regime Together, The Alternative Investment Fund Managers Regulations 2013 (as
amended by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit)
Regulations 2019) and the Investment Funds Sourcebook forming part of the FCA
Handbook, in each case as amended from time to time.
Directors
Robert Whiteman
(Non-executive Chairman)
Robert Gray
(Senior Independent Director)
John Carleton
(Non-executive Director)
Elaine Bailey
(Non-executive Director)
Registered Office
The Pavilions
Bridgwater Road
Bristol
BS13 8FD
Company Information
Company Registration Number: 10683026
Incorporated in the United Kingdom
Fund Manager
ReSI Capital Management Limited
5 New Street Square
London
EC4A 3TW
Corporate Broker
Peel Hunt LLP
7th Floor, 100 Liverpool Street
London
EC2M 2AT
Legal and Tax Adviser
Cadwalader, Wickersham & Taft LLP
Dashwood House
69 Old Broad Street
London EC2M 1QS
Tax Adviser
Evelyn Partners Group Limited
(formerly Smith & Williamson)
45 Gresham Street
London
EC2V 7BG
Depositary
Thompson Taraz LLP
4th Floor, Stanhope House
47 Park Lane
Mayfair
London
W1K 1PR
Administrator
MGR Weston Kay LLP
55 Loudoun Road
St John's Wood
London
NW8 0DL
Company Secretary
Computershare Governance Service, UK
The Pavilions
Bridgwater Road
Bristol
BS13 8FD
Registrar
Computershare Governance Service, UK
The Pavilions
Bridgwater Road
Bristol
BS13 8FD
Auditors
BDO LLP
55 Baker Street
London
W1U 7EU
Public Relations Adviser
KL Communications
40 Queen Street
London
EC4R 1DD
Valuers
Savills (UK) Limited
33 Margaret Street
London
W1G 0JD
Notice of Annual General Meeting
Annual General Meeting 2023
In line with the requirements of the Companies Act 2006, the Company will hold
an Annual General Meeting ("AGM") of shareholders to consider the resolutions
laid out in the Notice of Meeting below.
Shareholders are permitted to attend the AGM in person and any shareholders
wishing to do so are requested to register their interest in attending by
emailing the Fund Manager at resiplc@greshamhouse.com by Monday 23 January
2023.
Should a shareholder have a question that they would like to raise at the AGM,
either of the Board or the Fund Manager, the Board request that they either
ask the question in advance of the AGM via email to resiplc@greshamhouse.com
by Monday 23 January 2023. Alternatively, a shareholder may attend the AGM and
ask the question at the meeting at the appropriate time. If appropriate, the
Company will publish the responses on its website
https://greshamhouse.com/real-assets/real-estate-investment/residential-secure-income-plc/
(https://greshamhouse.com/real-assets/real-estate-investment/residential-secure-income-plc/)
as soon as reasonably practicable after the conclusion of the AGM.
AGM voting
Each of the resolutions to be considered at the AGM will be voted on by way of
a show of hands unless a poll is validly demanded. A member present in person
or by proxy shall have one vote on a show of hands.
Details of how to vote, either electronically, by proxy form or through CREST,
can be found in the Administrative Notes to the Notice of AGM on pages 186 to
194.
The results of the AGM will be announced to the London Stock Exchange and
placed on the Company's website, as soon as practicable after the conclusion
of the AGM.
Resolutions
Resolutions 1 to 11 will be proposed as ordinary resolutions. An ordinary
resolution requires a simple majority of votes cast, whether in person or by
proxy, to be cast in favour of the resolution for it to be passed. Resolutions
12 to 15 will be proposed as special resolutions. A special resolution
requires a majority of not less than 75% of the votes cast, whether in person
or by proxy, to be cast in favour of the resolution for it to be passed.
Voting results
The results of the voting will be announced through a regulatory information
service and will be published on our website
https://greshamhouse.com/real-assets/real-estate-investment/residential-secure-income-plc/
(https://greshamhouse.com/real-assets/real-estate-investment/residential-secure-income-plc/)
as soon as reasonably practicable after the conclusion of the AGM.
Notice of Annual General Meeting
Notice is hereby given that the Annual General Meeting of Residential Secure
Income plc (the "Company") will be held at the offices of Gresham House plc,
the parent company of the Fund Manager Resi Capital Management Ltd, 80
Cheapside, EC2V 6EE on 31 January 2023 at 12.45 p.m. for the following
purposes:
To consider and if thought fit pass the following resolutions of which
resolutions 1 to 11 will be proposed as ordinary resolutions and resolutions
12 to 15 will be proposed as special resolutions.
Ordinary Resolutions
1. To receive the Company's Annual Report and Accounts for the year ended
30 September 2022, with the reports of the Directors and Auditor thereon.
2. To approve the Directors' Remuneration Implementation Report included
in the Annual Report for the year ended 30 September 2022.
3. To re-elect Robert Whiteman as a Director of the Company.
4. To re-elect Robert Gray as a Director of the Company.
5. To re-elect John Carleton as a Director of the Company.
6. To re-elect Elaine Bailey as a Director of the Company.
7. To re-appoint BDO LLP as Auditor to the Company to hold office until
the conclusion of the next general meeting at which the Company's annual
accounts are laid before the meeting.
8. To authorise the Directors to fix the remuneration of the Auditor until
the conclusion of the next Annual General Meeting of the Company.
9. To authorise the Directors to declare and pay all dividends of the
Company as interim dividends and for the last dividend referable to a
financial year not to be categorised as a final dividend that would ordinarily
be subject to shareholder approval.
10. That the continuation of the Company as an investment trust until the
AGM of the Company falling five years after the date of this resolution be
approved.
11. That the Directors be and are hereby generally and unconditionally
authorised in accordance with section 551 of the Companies Act 2006 (in
substitution for all subsisting authorities to the extent unused) to exercise
all the powers of the Company to allot Ordinary Shares of one pence each in
the capital of the Company up to an aggregate nominal amount equal to
£37,032,656 (equivalent to approximately 20% of the Ordinary Shares in issue
(excluding shares held in Treasury) at the date of the notice of this meeting)
during the period commencing on the date of the passing of this resolution and
expiring (unless previously varied, revoked or renewed by the Company in
general meeting) at the conclusion of the Annual General Meeting of the
Company to be held in 2024 or, if earlier, on the expiry of 15 months from the
passing of this resolution, save that the Company may, at any time prior to
the expiry of such authority, make an offer or enter into an agreement which
would or might require the allotment of shares in pursuance of such an offer
or agreement as if such authority had not expired.
Special Resolutions
12. That, subject to the passing of resolution 11, in substitution for all
subsisting authorities to the extent unused but without prejudice to the
exercise of any such power prior to the date hereof, the Directors be and are
generally and unconditionally authorised for the purposes of sections 570 and
573 of the Companies Act 2006 ("the Act") to allot equity securities (within
the meaning of section 560 of the Act) for cash either pursuant to the
authority conferred by resolution 11 or by way of sale of treasury shares, as
if section 561(1) of the Act did not apply to any such allotment or sale,
provided this authority shall be limited to (a) the allotment or sale of
equity securities up to an aggregate nominal amount equal to £18,516,328
(equivalent to approximately 10% of the issued Ordinary Shares of the Company
(excluding shares held in Treasury) at the date of this notice); and (b) the
allotment or sale of equity securities at a price not less than the prevailing
Net Asset Value per share, and shall (unless previously varied, revoked or
renewed by the Company in the general meeting) expire at the conclusion of the
Annual General Meeting of the Company to be held in 2024 or, if earlier, on
the expiry of 15 months from the passing of this resolution, save that the
Company may, at any time prior to the expiry of such power, make an offer or
enter into an agreement which would or might require equity securities to be
allotted or sold from treasury after the expiry of such power, and the
Directors may allot or sell from treasury equity securities in pursuance of
such an offer or an agreement as if such power had not expired.
13. That, subject to the passing of resolution 11 and in addition to the
authority granted in resolution 12, in substitution for all subsisting
authorities to the extent unused but without prejudice to the exercise of any
such power prior to the date hereof, the Directors be and are generally and
unconditionally authorised for the purposes of sections 570 and 573 of the
Companies Act 2006 ("the Act") to allot equity securities (within the meaning
of section 560 of the Act) for cash either pursuant to the authority conferred
by resolution 11 or by way of sale of treasury shares, as if section 561(1) of
the Act did not apply to any such allotment or sale, provided this authority
shall be limited to (a) the allotment or sale of equity securities up to an
aggregate nominal amount equal to £18,516,328 (equivalent to approximately
10% of the issued Ordinary Shares of the Company (excluding shares held in
Treasury) at the date of this notice); and (b) the allotment or sale of equity
securities at a price not less than the prevailing Net Asset Value per share,
and shall (unless previously varied, revoked or renewed by the Company in
general meeting) expire at the conclusion of the Annual General Meeting of the
Company to be held in 2024 or, if earlier, on the expiry of 15 months from
the passing of this resolution, save that the Company may, at any time prior
to the expiry of such power, make an offer or enter into an agreement which
would or might require equity securities to be allotted or sold from treasury
after the expiry of such power, and the Directors may allot or sell from
treasury equity securities in pursuance of such an offer or an agreement as if
such power had not expired.
14. That the Company be and is hereby generally and unconditionally
authorised in accordance with section 701 of the Companies Act 2006 ("the
Act") to make market purchases (within the meaning of section 693(4) of the
Act) of its Ordinary Shares of 1p each, provided that:
a. the maximum number of Ordinary Shares hereby authorised to be purchased
shall be 27,755,975 (representing 14.99% of the Company's issued Ordinary
Share capital (excluding shares held in Treasury) at the date of the notice of
this meeting);
b. the minimum price (exclusive of any expenses) which may be paid for an
Ordinary Share is 1p;
c. the maximum price (excluding expenses) which may be paid for an
Ordinary Share is not more than the higher of:
i. 5% above the average of the middle market quotations for the Ordinary
Shares for the five business days immediately before the day on which it
purchases that share; and
ii. the higher of the price of the last independent trade and the highest
current independent bid for the Ordinary Shares.
d. the authority hereby conferred shall expire at the conclusion of the
Annual General Meeting of the Company in 2024 or, if earlier, on the expiry of
15 months from the passing of this resolution, unless such authority is
renewed prior to such time; and
e. the Company may make a contract to purchase Ordinary Shares under the
authority hereby conferred prior to the expiry of such authority, which will
or may be executed wholly or partly after the expiration of such authority and
may make a purchase of Ordinary Shares pursuant to any such contract.
15. That a general meeting of the Company other than an Annual General
Meeting may be called on not less than 14 clear days' notice, provided that
this authority shall expire at the conclusion of the Company's next Annual
General Meeting after the date of the passing of this resolution.
Registered office
The Pavilions,
Bridgwater Road,
Bristol,
England,
BS13 8FD
By order of the Board
For and on behalf of Computershare Company Secretarial
Services Limited
Company Secretary
1 December 2022
Notes to the Resolutions
Notes to resolution 1
Ordinary resolution: Annual report and accounts for the year ended September
2022
The Directors are required to present the annual report and accounts, which
incorporate the Strategic report, Directors' Report, the Auditor's Report and
the financial statements for the year ended 30 September 2022. These are
contained in the Company's Annual Report and Audited Financial Statements for
the year ended 30 September 2022 (the "Annual Report").
Notes to resolution 2
Ordinary resolution: Directors' Remuneration Implementation Report
In accordance with the requirements of the remuneration reporting regime which
came into force on 1 October 2013, the Board is required to give notice to
shareholders of the intention to propose an ordinary resolution to approve the
Directors' Remuneration Implementation Report for the financial year ended 30
September 2022. The Directors' Remuneration Implementation Report, which can
be found on pages 114 to 115 of the Annual Report, gives details of the
Directors' remuneration and remuneration policy for the year ended 30
September 2022.
The Company's Auditor, BDO LLP, has audited those parts of the Directors'
Remuneration Implementation Report which are required to be audited and their
report may be found in the Annual Report. The Directors' Remuneration
Implementation Report has been approved by the Board and signed on its behalf
by the Company Secretary. The vote on the Directors' Remuneration
Implementation Report is advisory in nature and therefore not binding on the
Company.
Notes to resolutions 3-6
Ordinary resolution: Re-election of directors
In line with best practice, the Board has resolved that all Directors will be
submitted for re-election on an annual basis. Therefore, Robert Whiteman,
Robert Gray, John Carleton and Elaine Bailey will retire, and being eligible,
offer themselves for re-election.
The Board has carefully considered whether each of the Non-Executive Directors
is free from any relationship that could materially interfere with the
exercise of his or her independent judgement. It has concluded that each
Non-Executive Director is independent. The Board has also reviewed and
concluded that each Non-Executive Director possesses the necessary mix of
skills and experience to continue to contribute effectively to the Company's
long-term sustainable success. Further, notwithstanding their other
appointments, the Board is satisfied that each Non-Executive Director is able
to commit sufficient and appropriate time to their board responsibilities.
Full biographies of all the Directors are set out in the Company's Annual
Report on pages 92 to 94.
Notes to resolution 7
Ordinary resolution: Re-appointment of Auditor
The appointment of BDO LLP as Auditor of the Company ends at the conclusion of
the AGM. BDO LLP have indicated their willingness to stand for reappointment
as Auditor of the Company until the conclusion of the AGM in 2024. The Audit
Committee considers the reappointment of the external Auditor each year before
making a recommendation to the Board. The Board recommends the reappointment
of the Auditors.
The effectiveness of the external Auditor is evaluated by the Audit Committee.
The Committee assessed BDO LLP's approach to providing audit services as it
undertook this year's audit. On the basis of such assessment, the Committee
concluded that the audit team was providing the required quality in relation
to the provision of the services. The audit team had shown the necessary
commitment and ability to provide the services, together with a depth of
knowledge, robustness, independence and objectivity as well as an appreciation
of complex issues.
The Audit Committee assesses the independence of the external Auditor on an
ongoing basis and the external Auditor is required to rotate the lead audit
partner every five years and other senior audit staff every seven years. The
current lead partner has been in place since the 2021 AGM, accordingly, the
audit for the financial year beginning 1 October 2025 will be led by a new
audit partner. No partners or senior staff associated with the audit may
transfer to the Group.
Notes to resolution 8
Ordinary resolution: Remuneration of Auditor
The Audit Committee reviews the fee structure, resourcing and terms of
engagement for the external Auditor annually. The Board is seeking authority
for the Audit Committee to fix the Auditor's remuneration. Fees paid to the
external Auditor for the year were £178,000 (2021: £145,000).
The Audit Committee is satisfied that this level of fee is appropriate in
respect of the audit services provided and that an effective audit can be
conducted for this fee. BDO LLP were paid fees of £61,000 in respect of
non-audit services in the year to 30 September 2022 (2021: £34,000). These
services were in respect of the interim review of the Interim Report for the
period ended 31 March 2022 (£34,000) and reporting accountant services
(£27,000). The consolidated financial statements provides details of the
remuneration of the Company's external Auditor. This can be found on page 115
of the Annual Report.
Notes to resolution 9
Ordinary resolution: Policy of paying quarterly interim dividends.
The purpose of the renewal is to provide flexibility to the Company to
continue implementing its quarterly interim dividend policy.
Notes to resolution 10
Ordinary resolution: Continuation vote
Under the Articles of Association of the Company, the Directors are required
to propose an ordinary resolution at the Annual General Meeting following the
fifth anniversary from its initial public offering that the Company should
continue as presently constituted and at every fifth AGM thereafter. In
accordance with this, a continuation vote is scheduled to be held at the
Company's AGM in 2023 in order to extend the Company's life for another five
years.
Notes to resolution 11
Ordinary resolution: Authority to allot
The purpose of this resolution is to grant the Board the authority to allot
ordinary shares in accordance with Section 551 of the Act up to up to
37,032,656 Ordinary Shares (excluding shares held in Treasury) in the capital
of the Company (equivalent to approximately 20% of the Ordinary Shares in
issue at the date of the notice of this meeting). While the Directors have no
present intention of exercising this authority, they consider it important to
have the maximum flexibility commensurate with good corporate governance
guidelines, to raise finance to enable the Company to respond to investment
opportunities, market developments and conditions. No ordinary shares will be
issued for cash at a price less than the prevailing net asset value per
ordinary share at the time of issue pursuant to this authority. This authority
shall expire at the conclusion of the Company's Annual General Meeting to be
held in 2024, or, if earlier, on the expiry of 15 months from the passing of
this resolution, save that the Company may, at any time prior to the expiry
of such authority, make an offer or enter into an agreement which would or
might require the allotment of shares in pursuance of such an offer or
agreement as if such authority had not expired.
Notes to resolutions 12 and 13
Special resolution: Disapplication of pre-emption rights
If the Directors wish to exercise the authority under resolution 11 and offer
shares (or sell treasury shares which the Company may purchase and elect to
hold as treasury shares) for cash, company law requires that unless
shareholders have given specific authority for the waiver of their statutory
pre-emption rights, the new shares must be first offered to existing
shareholders in proportion to their existing holdings. There may be occasions,
however, when the Directors will need the flexibility to allot new shares (or
to grant rights over shares) for cash or to sell treasury shares for cash
without first offering them to existing shareholders in proportion of their
holdings in order to make investments in line with the Company's investment
policies. This cannot be done unless the shareholders have first waived their
pre-emption rights.
These Resolutions will, if passed, authorise the Directors to do this by
allowing the Directors to allot shares for cash or sell treasury shares for
cash up to an aggregate nominal value of £37,032,656.20, which is equivalent
to approximately 20% of the Company's issued Ordinary Share capital as the
date of this Notice (being the latest practicable date prior to the
publication of this notice).
In the event that resolution 12 is passed, but resolution 13 is not passed,
the Directors will only be authorised to issue Ordinary Shares up to an
aggregate nominal value of £18,516,328, which represents approximately 10% of
the Company's issued Ordinary Share capital (excluding shares held in
Treasury) as the date of this Notice (being the latest practicable date prior
to the publication of this notice).
Resolutions 12 and 13 will allow the Company to carry out one or more tap
issues, in aggregate, up to 20% of the number of Ordinary Shares in issue at
the AGM and thus to pursue specific investment opportunities in a timely
manner in the future and without the requirement to publish a prospectus and
incur the associated costs.
The Directors are aware that the combined authority to dis-apply pre-emption
rights in respect of up to 20% of the Company's issued Ordinary Share capital
sought under resolutions 12 and 13 is higher than the 10% typically sought by
investment companies. However, the Directors believe that a higher authority
is justified to enable the Company to fund future acquisitions in line with
the Company's anticipated acquisition pipeline. In addition, the higher
authority is expected to broaden the Company's asset base which will increase
the diversity of the portfolio. It will also allow the Company to broaden its
investor base and enhance the size and liquidity of the Company's share
capital, and spread the fixed operating costs over a larger capital base,
thereby reducing the Company's ongoing charges ratio.
In accordance with UK Listing Rules, the Company will only issue Ordinary
Shares pursuant to this authority at a price that is not less than the
prevailing net asset value per share of the Company calculated in accordance
with its IFRS accounting policies at the time of issue. In addition, the
Directors will not sell treasury shares at less than such net asset value per
share.
Resolutions 12 and 13 will be proposed as special resolutions to provide the
Company with the necessary authority. If given, the authority will expire at
the conclusion of the next AGM of the Company in 2024 or, if earlier on the
expiry of 15 months from the passing of this resolution. The Directors intend
to renew such authority in respect of 10% of the Company's issued Ordinary
Share capital (excluding shares held in Treasury) at successive AGMs in
accordance with current best practice.
Notes to resolution 14
Special resolution: Purchase of own shares
The current authority of the Company to make market purchases of up to
approximately 14.99%of its issued share capital expires shortly. This
resolution seeks renewal of such authority until the next AGM, or the expiry
of 15 months after the passing of the resolution is earlier. The price paid
for shares will not be less than the nominal value nor more than the maximum
amount permitted to be paid in accordance with the rules of the Financial
Conduct Authority in force as at the date of purchase. This power will be
exercised only if, in the opinion of the Directors, a repurchase would be in
the best interests of shareholders as a whole. Any shares repurchased under
this authority will either be cancelled or held in Treasury at the discretion
of the Board for future re-sale in appropriate market conditions.
The authority sought would replace the authority previously given to the
Directors. The maximum number of ordinary shares authorised to be purchased
pursuant to the authority represents approximately 14.99%of the total number
of ordinary shares in issue (excluding shares held in Treasury) as at the date
of this Notice.
This authority shall expire at the conclusion of the Company's next Annual
General Meeting to be held in 2024.
Notes to resolution 15
Special resolution: Notice of General Meetings
Under the provisions in the Act, listed companies must call general meetings
(other than an annual general meeting) on at least 21 clear days' notice
unless the company:
a. has obtained shareholder approval for the holding of general meetings
on 14 clear days' notice by passing an appropriate resolution at its most
recent annual general meeting; and
b. offers the facility for shareholders to vote by electronic means
accessible to all shareholders.
To enable the company to utilise the shorter notice period of 14 days for
calling such general meetings, shareholders are asked to approve this
resolution. The shorter notice period would not be used as a matter of routine
for such meetings, but only where the flexibility is merited by the business
of the meeting and is thought to be to the advantage of shareholders as a
whole. If granted, this authority will be effective until the company's next
annual general meeting.
Recommendation
The Directors consider that all the resolutions to be proposed at the Annual
General Meeting are in the best interests of the Company and its shareholders
as a whole. The Directors unanimously recommend that shareholders vote in
favour of all the resolutions, as they intend to do in respect of their own
beneficial holdings of shares.
Administrative notes to the Notice of Annual General Meeting
Website address
1. Information regarding the meeting, including the information required
by section 311A of the Companies Act 2006, is available from
https://www.resireit.com/
Entitlement to attend and vote
2. Only those holders of Ordinary Shares registered on the Company's
register of members at 6.00 p.m. on Friday 27 January or, if this meeting is
adjourned, at close of business on the day two days prior to the adjourned
meeting, shall be entitled to vote at the meeting.
Appointment of Proxies
3. Members entitled to vote at the meeting (in accordance with Note 2
above) are entitled to appoint a proxy to vote in their place. If you wish to
appoint a proxy please use the Form of Proxy or follow the instructions at
note 7 below if you wish to appoint a proxy through the CREST electronic proxy
appointment service. In the case of joint members, only one need sign the Form
of Proxy. The vote of the senior joint member will be accepted to the
exclusion of the votes of the other joint members. For this purpose, seniority
will be determined by the order in which the names of the members appear in
the register of members in respect of the joint shareholding. The completion
and return of the Form of Proxy will not stop you attending and voting in
person at the meeting should you wish to do so. A proxy need not be a member
of the Company.
You may appoint more than one proxy provided each proxy is appointed to
exercise the rights attached to a different share or shares held by you. If
you choose to appoint multiple proxies use a separate copy of this form (which
you may photocopy) for each proxy, and indicate after the proxy's name the
number of shares in relation to which they are authorised to act (which, in
aggregate, should not exceed the number of Ordinary Shares held by you).
Please also indicate if the proxy instruction is one of multiple instructions
being given. All forms must be signed and returned in the same envelope.
Additional forms may be obtained by contacting the Company's registrars,
Computershare Investor Services PLC helpline on 0370 889 3181. Shareholders
can access their information at www.investorcentre.co.uk.
4. You can appoint the Chairman of the Meeting, or any other person. If
you wish to appoint someone other than the Chairman, cross out the words "the
Chairman of the Meeting" on the Form of Proxy and insert the full name of your
appointee.
5. You can instruct your proxy how to vote on each resolution by marking
the resolutions For and Against using the voting methods stated in notes 6 and
7 below. If you wish to abstain from voting on any resolution please mark
these resolutions withheld. It should be noted that a vote withheld is not a
vote in law and will not be counted in the calculation of the proportion of
votes "For" and "Against" a resolution. If you do not indicate how your proxy
should vote, he/she can exercise his/her discretion as to whether, and if how
so how, he/she votes on each resolution, as he/she will do in respect of any
other business (including amendments to resolutions) which may properly be
conducted at the meeting.
A company incorporated in England and Wales or Northern Ireland should execute
the Form of Proxy under its common seal or otherwise in accordance with
Section 44 of the Companies Act 2006 or by signature on its behalf by a duly
authorised officer or attorney whose power of attorney or other authority
should be enclosed with the Form of Proxy.
Appointment of proxy using
6. You can vote either:
· by logging on to www.eproxyappointment.com and following the
instructions. Shareholders will need their shareholder reference number, PIN
and control number to submit a proxy vote this way (which will be provided via
email or on their paper form of proxy);
· you may request a hard copy form of proxy directly from the
registrars, Computershare Investor Services on Tel: 0370 889 3181; or
· in the case of CREST members, by utilising the CREST electronic
proxy appointment service in accordance with the procedures set out below.
To be valid, a form of proxy should be lodged with the Company's registrars,
Computershare Investor Services PLC, The Pavilions, Bridgewater Road, Bristol,
BS99 6ZY so as to be receive not later than 48 hours before the time appointed
for the meeting or any adjourned meeting or, in the case of a poll taken
subsequent to the date of the meeting or adjourned meeting, so as to be
received no later than 24 hours before the time appointed for taking the poll.
Appointment of a proxy through CREST
7. CREST members who wish to appoint a proxy or proxies through the CREST
electronic proxy appointment service may do so for the meeting to be held on
the above date and any adjournment(s) thereof by using the procedures
described in the CREST Manual. CREST Personal Members or other CREST sponsored
members, and those CREST members who have appointed a voting service
provider(s), should refer to their CREST sponsor or voting service
provider(s), who will be able to take the appropriate action on their behalf.
In order for a proxy appointment or instruction made using the CREST service
to be valid, the appropriate CREST message (a "CREST Proxy Instruction") must
be properly authenticated in accordance with Euroclear UK & Ireland
Limited's specifications and must contain the information required for such
instructions, as described in the CREST Manual. The message, regardless of
whether it constitutes the appointment of a proxy or an amendment to the
instruction given to a previously appointed proxy, must, in order to be valid,
be transmitted so as to be received by the Company's agent (ID: 3RA50) by the
latest time(s) for receipt of proxy appointments specified in the notice of
meeting. For this purpose, the time of receipt will be taken to be the time
(as determined by the timestamp applied to the message by the CREST
Applications Host) from which the Company's agent is able to retrieve the
message by enquiry to CREST in the manner prescribed by CREST. After this time
any change of instructions to a proxy's appointee through CREST should be
communicated to the appointee through other means.
CREST members and, where applicable, their CREST sponsors or voting service
providers should note that Euroclear UK & Ireland Limited does not make
available special procedures in CREST for any particular messages. Normal
system timings and limitations will therefore apply in relation to the input
of CREST Proxy Instructions.
It is the responsibility of the CREST member concerned to take (or, if the
CREST member is a CREST personal member or sponsored member or has appointed a
voting service provider(s), to procure that his CREST sponsor or voting
service provider(s) take(s)) such action as shall be necessary to ensure that
a message is transmitted by means of the CREST system by any particular time.
In this connection, CREST members and, where applicable, their CREST sponsors
or voting service providers are referred, in particular, to those sections of
the CREST Manual concerning practical limitations of the CREST system and
timings.
The Company may treat as invalid a CREST Proxy Instruction in the
circumstances set out in Regulation 35(5) (a) of the Uncertificated Securities
Regulations 2001. All messages relating to the appointment of a proxy or an
instruction to a previously appointed proxy, which are to be transmitted
through CREST, must be lodged at 12.45 p.m. on Friday 27 January 2023 in
respect of the meeting. Any such messages received before such time will be
deemed to have been received at such time. In the case of an adjournment, all
messages must be lodged with Computershare Investor Services PLC no later than
48 hours before the rescheduled meeting.
Termination of proxy appointments
8. In order to revoke a proxy instruction you will need to inform the
Company. Please send a signed hard copy notice clearly stating your intention
to revoke your proxy appointment to Computershare Investor Services PLC, The
Pavilions, Bridgwater Road, Bristol BS99 6ZY.
In the case of a member which is a company, the revocation notice must be
executed under its common seal or otherwise in accordance with section 44 of
the Companies Act 2006 or by signature on its behalf by an officer or attorney
whose power of attorney or other authority should be included with the
revocation notice.
If you attempt to revoke your proxy appointment but the revocation is received
after the time specified in note 2 above then, subject to the paragraph
directly below, your proxy will remain valid.
If you submit more than one valid proxy appointment in respect of the same
Ordinary Shares, the appointment received last before the latest time for
receipt of proxies will take precedence.
Nominated Persons
9. If you are a person who has been nominated under section 146 of the
Companies Act 2006 to enjoy information rights:
· You may have a right under an agreement between you and the
member of the Company who has nominated you to have information rights
(Relevant Member) to be appointed or to have someone else appointed as a proxy
for the meeting.
· If you either do not have such a right or if you have such a
right but do not wish to exercise it, you may have a right under an agreement
between you and the Relevant Member to give instructions to the Relevant
Member as to the exercise of voting rights.
· Your main point of contact in terms of your investment in the
Company remains the Relevant Member (or, perhaps, your custodian or broker)
and you should continue to contact them (and not the Company) regarding any
changes or queries relating to your personal details and your interest in the
Company (including any administrative matters). The only exception to this is
where the Company expressly requests a response from you.
If you are not a member of the Company but you have been nominated by a member
of the Company to enjoy information rights, you do not have a right to appoint
any proxies under the procedures set out in the notes to the form of proxy.
Questions at the Meeting
10. Under section 319A of the Companies Act 2006, the Company must answer
any question you ask relating to the business being dealt with at the meeting
unless:
· answering the question would interfere unduly with the
preparation for the meeting or involve the disclosure of confidential
information;
· the answer has already been given on a website in the form of an
answer to a question; or
· it is undesirable in the interests of the Company or the good
order of the meeting that the question be answered.
Issued Shares and total voting rights
11. As at the date of this Notice, the total number of shares in issue is
194,149,261 Ordinary Shares of 1p each. The total number of Ordinary Shares
with voting rights is 185,163,281. On a vote by a show of hands, every holder
of Ordinary Shares who (being an individual) is present by a person, by proxy
or (being a corporation) is present by a duly authorised representative, not
being himself a member, shall have one vote. On a poll every holder of
Ordinary Shares who is present in person or by proxy shall have one vote for
every Ordinary Share held by him.
Communication
12. Except as provided above, members who have general queries about the
meeting should use the following means of communication (no other methods of
communication will be accepted):
· calling Computershare Investor Services PLC shareholder helpline:
0370 889 3181;
· in writing to Computershare Investor Services PLC, The Pavilions,
Bridgwater Road, Bristol BS99 6ZZ.
You may not use any electronic address provided either in this notice of
meeting or in any related documents (including the Form of Proxy for this
meeting) to communicate with the Company for any purposes other than those
expressly stated.
1 (#_ftnref1) Including committed acquisitions.
2 (#_ftnref2) Shared ownership vacant possession value includes both the
value of ReSI's 63% average equity position, and the 37% owned by residents.
3 (#_ftnref3) Assuming no staircasing.
4 (#_ftnref4) The shared ownership portfolio owned since September 2021 is
fully occupied. Including recent untenanted acquisitions, shared ownership
occupancy is 98%.
5 (#_ftnref5) Including £9mn committed acquisitions
6 (#_ftnref6) Total recurring return excludes the impact of one-off costs
and a one-time debt indexation catch-up adjustment. The Group has debt which
it elected to carry at fair value through profit and loss. In accordance with
the EPRA Best Practice Recommendations, EPRA NTA should reflect the amortised
cost of the debt rather than its fair value. In the current period, an
adjustment has been made for £5.2mn which represents the difference between
fair value and what amortised cost would have been had the Group carried the
debt at amortised cost. No adjustment was made in the prior year as it was
immaterial. The charge would have been £1.5mn for the year ended 30 September
2021.
7 (#_ftnref7) Inside Housing, L&G and British Property Federation, March
2022 (based on a 2020 survey by Inside Housing).
8 (#_ftnref8) Savills and National Housing Federation, Decarbonising the
Housing Association Sector - Costs and Funding Options (October 2021).
9 (#_ftnref9) Retirement rents in line with Local Housing Allowance.
10 (#_ftnref10) Source: ONS: UK House Price Index: November 2022.
11 (#_ftnref11) Sources: Ministry of Housing, Communities & Local
Government - English Housing Survey, 2019-20, and YouGov (May 2021).
12 (#_ftnref12) Source: Department for Levelling Up, Housing and
Communities and Ministry of Housing, Communities & Local Government (27
January 2022).
13 (#_ftnref13) Sources: Department for Levelling Up, Housing and
Communities (2021) and House of Commons Library (2022).
14 (#_ftnref14) Department for Levelling Up, Housing and Communities (2021)
and House of Commons Library (2022), British Property Federation, and Legal
& General, 2022
15 (#_ftnref15) Savills News, October 2022
https://www.savills.co.uk/insight-and-opinion/savills-news/334433-0/housing-associations-can-boost-economic-growth-with-increased-affordable-housing-supply--says-new-report
(https://www.savills.co.uk/insight-and-opinion/savills-news/334433-0/housing-associations-can-boost-economic-growth-with-increased-affordable-housing-supply--says-new-report)
.
16 (#_ftnref16) Savills Research & G15, Mind the Gap (Not-for-profit
Housing Associations' Role in Delivering New Affordable Homes), 2022; Savills,
Affordable Housing - Building Through Cycles, 2018.
17 (#_ftnref17) Inside Housing, L&G and British Property Federation,
March 2022 (based on a 2020 survey by Inside Housing).
18 (#_ftnref18) Savills and National Housing Federation, Decarbonising the
Housing Association Sector - Costs and Funding Options (October 2021).
19 (#_ftnref19) ONS, Past and projected period and cohort life tables:
2020-based, UK, 1981 to 2070, January 2022.
20 (#_ftnref20) ONS, 2020-based Interim National Population Projections,
January 2022.
21 (#_ftnref21) ONS, 2020-based Interim National Population Projections,
January 2022.
22 (#_ftnref22)
https://www.ageuk.org.uk/latest-news/archive/1-million-older-people-feel-lonely/#:~:text=Age%20UK%20is%20calling%20for,loneliness%20is%20in%20the%20UK.
23 (#_ftnref23) Boomer & Beyond quantitative research study 2022.
24 (#_ftnref24) Including £9mn of committed acquisitions.
25 (#_ftnref25) Including 41 units of committed acquisitions.
26 (#_ftnref26) Source: Gresham House as at November 2022. Assumptions:
£293,000 house purchase; mortgage rate 5.3%; mortgage term 25 years; deposit
requirement 10%; shared ownership rent 2.75%; service charge / maintenance
cost of £1,500; 1st tranche shared ownership sale 25%; mortgage-to-income
multiple requirement: 4.0x; maximum housing costs 40% of net income (after 30%
deductions including tax, student loan repayment etc.).
27 (#_ftnref27) Assumptions: £293,000 house purchase; initial mortgage rate
3.0%; updated mortgage rate 6.0%; %; mortgage term 25 years; deposit
requirement 10%; 1st tranche shared ownership sale 25%;
28 (#_ftnref28) YouGov (May 2021) 'Who does - and doesn't - want to own a
home?'
29 (#_ftnref29)
https://researchbriefings.files.parliament.uk/documents/SN02110/SN02110.pdf.
30 (#_ftnref30)
https://commonslibrary.parliament.uk/research-briefings/sn02110/
(https://eur02.safelinks.protection.outlook.com/?url=https%3A%2F%2Fcommonslibrary.parliament.uk%2Fresearch-briefings%2Fsn02110%2F&data=04%7C01%7Cb.holloway%40greshamhouse.com%7C164f8355d0c94616020208d9a5437bcb%7C7a74c7b448444bcaa292c2f67edf7466%7C1%7C0%7C637722531551888500%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C1000&sdata=4JNalSbsFlwG9E%2B4weLXJ5MYXCbGQB64Av5ZVbwfGCI%3D&reserved=0)
.
31 (#_ftnref31)
https://blog.shelter.org.uk/2022/02/temporary-accommodation-the-new-social-housing/
(https://blog.shelter.org.uk/2022/02/temporary-accommodation-the-new-social-housing/)
.
32 (#_ftnref32)
https://commonslibrary.parliament.uk/research-briefings/sn02110/
(https://eur02.safelinks.protection.outlook.com/?url=https%3A%2F%2Fcommonslibrary.parliament.uk%2Fresearch-briefings%2Fsn02110%2F&data=04%7C01%7Cb.holloway%40greshamhouse.com%7C164f8355d0c94616020208d9a5437bcb%7C7a74c7b448444bcaa292c2f67edf7466%7C1%7C0%7C637722531551888500%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C1000&sdata=4JNalSbsFlwG9E%2B4weLXJ5MYXCbGQB64Av5ZVbwfGCI%3D&reserved=0)
.
33 (#_ftnref33) FY 2021 versus FY2022
34 (#_ftnref34) Based on 251 respondents to a survey carried out by RPML,
representing c.11% of residents.
35 (#_ftnref35) FY 2021 versus FY2022
(#_ftnref36)
37 (#_ftnref37) Figures in the loan covenants table are based on most recent
quarter of lender covenant reporting.
38 (#_ftnref38) As defined in the English Housing Survey, 2020 to 2021
39 (#_ftnref39) Correct for the scheduled increase to the energy price cap
in April 2023
40 (#_ftnref40) Savills and National Housing Federation, Decarbonising the
Housing Association Sector - Costs and Funding Options (October 2021).
41 (#_ftnref41) Department for Business, Energy and Industrial Strategy
42 (#_ftnref42) EPC certificate for retirement rental property owned by ReSI
43 (#_ftnref43) The Energy White Paper - Powering our Net Zero Future,
December 2020
44 (#_ftnref44) English Housing Survey, 2020 to 2021
45 (#_ftnref45) English Housing Survey, 2020-2021
46 (#_ftnref46) Ratio of house price to residence based earnings - ONS
47 (#_ftnref47) Compared with average CR0 gross rental yield. Data from
Realyse - Sept 2022
48 (#_ftnref48) FY 2021 emissions restated to include additional emissions
from communal areas not considered in prior year
49 (#_ftnref49) A considerably larger sample size of vacant properties was
used to calculated emissions from retirement properties in FY 2022 compared to
FY 2021. As a result, the larger FY 2022 figure is a more accurate assessment
than the FY 2021 figure, rather than a genuine increase in emissions
50 (#_ftnref50)
https://www.arup.com/news-and-events/arup-commits-to-whole-lifecycle-carbon-assessments-for-buildings-and-withdrawal-from-fossil-fuels.
51 (#_ftnref51) In FY 2022, Kamma determined the energy consumption of the
Local Authority Portfolio by using the EPC data from units which have a
domestic EPC and extrapolating across all Local Authority units. The FY 2021
assessment used domestic and non-domestic EPC data in its assessment, and
therefore the year-on-year comparison is not like for like. Going forward,
Kamma will continue to use the FY 2022 method.
52 (#_ftnref52) In FY 2022 the allocation of energy consumption by energy
source was performed based on the energy source information on property EPC
certificates, with consideration given to the actual energy source of the
properties as provided by ReSI where energy source data was not available from
EPC certificates. This is a more granular approach than the one used last year
and going forward, it is intended that Kamma will continue to use the FY 2022
method.
53 (#_ftnref53) Includes Scope 1, Scope 2 and operational Scope 3 emissions.
Embodied carbon excluded to allow like-for-like year-on-year comparison.
54 (#_ftnref54) Gross rental income used as portfolio intensity measure as
it increases in proportion with Scope 1, Scope 2 and operational Scope 3
emissions, and it is the most reliable available metric.
55 (#_ftnref55) ONS - House price to workplace-based earnings ratio, 2021
56 (#_ftnref56) Based on a typical UK rental yield of 4.0%
57 (#_ftnref57) Comparison of Price cap at October 2021 versus October 22 -
https://www.energyhelpline.com/help/the-history-of-ofgems-energy-price-cap
58 (#_ftnref58) English Housing Survey 2020 to 2021
59 (#_ftnref59) Saving on energy bills assumes household energy consumption
equal to the level used to calculate the energy price cap headline figure.
Actual saving will vary dependent on the amount of energy consumed by the
resident
60 (#_ftnref60) https://www.ons.gov.uk/economy/inflationandpriceindices
61 (#_ftnref61) https://www.bbc.co.uk/news/business-63144506
62 (#_ftnref62) Money Supermarket - 22 November 2022
63 (#_ftnref63) Shared ownership assumptions: OMV £293k; First Tranche
Sale: 25%; Deposit: 10%; Mortgage term: 25 years; initial interest 3.0%;
refinanced interest 5.3%; Rents: 2.75%; Service charge: £1,500 p.a; EPC B
64 (#_ftnref64) 2022 energy bills as of March 2022 price cap. 2023 energy
bills as of April 2023 price cap
65 (#_ftnref65) Based on NHF announcement that they expect the majority of
Housing Associations to be applying a 7% cap to shared ownership rent
increases in 2023:
https://www.housing.org.uk/news-and-blogs/news/rent-cap-press-statement/
(https://www.housing.org.uk/news-and-blogs/news/rent-cap-press-statement/)
66 (#_ftnref66) Outright owner assumptions; OMV: £293k; Mortgage LTV 90%;
initial interest 3.0%; refinanced interest 5.3%; EPC D
67 (#_ftnref67) Rental Assumptions - OMV: £293k; Rental Yield: 4.0%; EPC D
68 (#_ftnref68) Savills - Affordable rents capped, but private renters left
behind - November 2022
69 (#_ftnref69) Retirement Assumptions: Rent £800pcm; Rent increase 6%; EPC
C
70 (#_ftnref70) 2022 energy bills as of March 2022 price cap. 2023 energy
bills as of April 2023 price cap
(#_ftnref71)
71 (#_ftnref72) Private Rental Assumptions: Rent £800pcm; EPC D
72 (#_ftnref73) Savills - Affordable rents capped, but private renters left
behind - November 2022
73 (#_ftnref74) Metro Finance - Shared ownership - Where are we heading?
74 (#_ftnref75) Gresham House calculation
75 (#_ftnref76) Applied to operating expenses and rents at the end of
contractual periods
76 (#_ftnref77) Applied to contractual rent increases
i (#_ednref1) For EPRA NTA, property valuation of £3.0mn, net of £0.2mn
revaluation of trading properties
ii (#_ednref2) For EPRA NTA movement reflects indexation of USS debt of
which £3.7mn / 2.0p related to FY 2022. The Group has elected to carry this
debt at fair value through profit and loss. In accordance with the EPRA Best
Practice Recommendations, EPRA NTA should reflect the amortised cost of the
debt rather than its fair value. In the current period, an adjustment has been
made for £5.2mn which represents the difference between fair value and what
amortised cost would have been had the Group carried the debt at amortised
cost. No adjustment was made in the prior year as it was immaterial. The
charge would have been £1.5mn for the year ended 30 September 2021.
iii (#_ednref3) EPRA adjusted earnings is EPRA earnings adjusted for income
and costs which are not recurring and is equivalent to IFRS profit after tax
before one-offs and valuation adjustments
iv (#_ednref4) Source: ReSI Housing Customer Survey
v (#_ednref5) Source: Retirement residents customer survey
vi (#_ednref6) Company internal calculation. Full calculation and
assumptions disclosed in cost of living section of the FY 2022 accounts
vii (#_ednref7) Including 40 homes that are committed acquisitions
viii (#_ednref8) The dividend target is a target only and not a profit
forecast. There can be no assurance that this target will be met.
ix (#_ednref9) The dividend target and total return target are targets only
and are not profit forecasts. There can be no assurance that either target
will be met, and they should not be taken as an indication of the Company's
future results.
x (#_ednref10) Excluding the finance lease gross up and including £9mn of
committed acquisitions.
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