REG - Residential Secure - Full Year Results to 30 September 2023
05/12/2023 07:15
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RNS Number : 6416V Residential Secure Income PLC 05 December 2023
5 December 2023
Residential Secure Income plc
("ReSI" or the "Company")
Full Year Results to 30 September 2023
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 financial results for the
year ended 30 September 2023.
Commenting on ReSI's results, Robert Whiteman CBE, Chairman of ReSI plc, said:
"We announced a review of non-core assets in our interim results, with a plan
to reduce financing costs. Following this review, our local authority
portfolio is now under offer for sale and in solicitors' hands. Completion
will enable full repayment of our existing floating rate debt. This will leave
ReSI with two portfolios focused on strong market segments - independent
retirement living and shared ownership - supported by very long-term debt with
an average drawn maturity of 23 years.
"We also announced in the interim results that in light of the higher interest
rate environment, cost inflation in retirement and fund opex increases we
would look to reset the dividend. Subsequent progress on sale of the local
authority portfolio leading to the expected repayment of floating rate debt
gives us the confidence to reset the dividend to a fully covered and
progressive 4.12p a share.
"We are very conscious of listed sector discounts widening significantly, and
ReSI is not immune to factors also affecting our peers. We will continue to
review options to reverse this situation. To further align the investment
manager with shareholders, and show its confidence in reducing the discount,
Gresham House has agreed to reduce its management fee to be more closely
aligned to the discount."
Ben Fry, Managing Director of Housing at Gresham House added:
"ReSI continues to see enormous demand for affordable homes, with record
occupancy, rent collection and like-for-like rent growth this year which has
all been achieved whilst protecting resident affordability through rent caps.
There is a particular ongoing shortage of fit-for-purpose homes for
independent living through retirement as well as a lack of routes to
affordable homeownership for young families and key workers. ReSI is well
placed to meet strong demand from both these housing segments.
"Although we are not immune to the decline in investment valuations seen
sector-wide, a sale of the local authority portfolio would leave the balance
sheet exposed to only long-term, low interest rate debt, putting ReSI in a
better position to deliver long-term earnings growth relative to other REITs
with shorter debt maturity profiles.
"As ever, we continue to focus on driving value for shareholders, including
reviewing further disposals if they support maximising value for investors,
and delivering earnings enhancement through improving the underlying
operational performance of our retirement portfolio."
Key financial and operational metrics
Income 2023 2022 Change in Year
Like-for-like rental reviews 6.1% 4.5% +1.6%
Rent collection 99% 99% -
Gross rental income £27.9mn £25.7mn +8.6%
Net rental income £18.1mn £17.0mn +6.4%
Adjusted EPRA Earnings1,2 £8.7mn £9.0mn -3.3%
Adjusted EPRA EPS1,2 4.7p 5.0p -5.7%
Dividend paid per share - paid 5.16p 5.16p -
Dividend cover3 91% 97% -6.0%
Changes in fair value of investment properties £(38.9)mn £3.2mn -1,317%
Capital 30-Sept-23 30-Sept 22 Change in Period
IFRS net assets £168.7mn £201.4mn -16.2%
IFRS NAV per share 91.1p 108.8p -16.2%
IFRS Portfolio Valuation4 £345.1mn £374.8mn -7.9%
EPRA NTA per share1 81.8p 106.1p -22.9%
EPRA NTA Total Return1 (18.1)% +3.3% -21.3%
Loan to Value 50% 47% 3%
Key financial metrics
· 6.1% like-for-like rent growth
· EPRA adjusted earnings(1) of £8.7 million (FY22: £9.0 million)
with strong rent growth offset by higher retirement portfolio energy costs,
increased floating rate debt costs and higher fund opex
· EPRA Net Tangible Assets ("NTA") total return of (18.1)% (FY22:
3.3%) to give 81.8p per share NTA
· Valuations down 10% like-for-like with 80bps outwards yield
shift, reflecting higher gilt yields
· LTV of 50% (FY22: 47%) supported by 21 year average debt maturity
· Total dividends paid of 5.16p per share (FY22: 5.16p) with 91%
dividend cover (FY22: 97%)
· IFRS NAV benefited from a reduction in the valuation of the USS
debt adding £12.3 million / 6.6p to IFRS total return (not included in EPRA
NTA) caused by the c.1.2% increase in gilt yields over the financial year
· Management fee reduction to more closely align with shareholder
interests: from 1(st) Jan 2024, fee will be based on average of NAV and
share price, instead of solely based on NAV(6)
Portfolio and operational highlights
· Diverse portfolio of 3,295 homes worth £345 million
o £78 million reversionary surplus of vacant possession value compared to
fair value (22% uplift)
· Portfolio focused on direct leases with pensioners and part home
owners
· Rent collection of over 99% for year (FY22 99%)
· Shared ownership portfolio now full occupied with record 96%
retirement occupancy at period end
· Shared ownership net income growth of 23%, driven by rent growth,
leasing and acquisitions
· Retirement net income growth curtailed to 1% due to 44% increase
in communal areas energy costs
Continuing to deliver Social and Environmental impact
· 98% of directly rented properties now EPC-rated C or higher (FY
22: 96%)
· Rent caps voluntarily implemented to balance returns with
affordability for our residents
o Shared ownership rent increases voluntarily capped at 7% increase in line
with wage inflation
o Retirees benefiting from rent increase cap of 6%
o Further rent cap and rent freeze support provided to residents most in
need
· 89% satisfaction levels with our in-house retirement property
management team(5)
Advancing sale of non-core assets announced in June
· Local Authority Portfolio now under offer and expected to
complete in early 2024
· Will allow for repayment of all floating rate debt, leaving ReSI
with only long-term drawn debt with 23 year weighted average maturity and
largest loan of £94 million fixed at 3.5% until 2043
· Rising interest rates mean positive contribution from Local
Authority portfolio less floating debt has reduced from 0.9p in FY22 to
expected 0.2p in FY24
Portfolio outlook
· Dividend target rebased to 4.12p per share for the year ended 30
September 2024, with focus on growth of covered dividend and portfolio value
· Continuing to review options for further disposals which support
maximising shareholder value
· Investing in expanded Asset Management team led by Chris Carter
Keall to drive retirement portfolio operational improvements including
rationalising portfolio footprint, driving rents and reducing leakage
· Inflation-linked rental growth outlook underpinned by continuing
lack of supply and increasing demand
Market opportunity
· Acute need for more affordable UK homes, estimated at
£34billion(7) annually
· Particular shortage of independent later living accommodation for
growing elderly population and accessible homeownership options
· Significant opportunities to scale platforms and drive returns:
o ReSI is the UK's largest provider of private independent retirement rental
homes
o Significant tenanted shared ownership opportunities driven by housing
associations need to invest in their existing stock and development programmes
Annual results and investor webinar
ReSI plc will host an online webinar and Q&A session to discuss the
results this morning, 5 December 2023, at 10:30am (GMT). Registration is
available at: register here
(https://greshamhouse.zoom.us/webinar/register/WN_vZAh8E3gQ3OURlPPrTvt_A) .
The accompanying presentation will be made available shortly after the webinar
on the Gresham House website
(https://greshamhouse.com/real-assets/real-estate-investment/residential-secure-income-plc/)
.
A copy of the pdf Annual Report is available on the Company's website at
https://greshamhouse.com/real-assets/real-estate-investment/residential-secure-income-plc/
(https://greshamhouse.com/real-assets/real-estate-investment/residential-secure-income-plc/)
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) .
Notes:
1 . Alternative performance measures
2. 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.
3. Dividend cover measured as Adjusted EPRA earnings per share divided by
dividend per share
4. Note 15 of the 2023 Annual Report and Accounts
5. Source: ReSI 2023 retirement Customer Survey
6. To further align itself with shareholders and demonstrate its confidence in
reducing the current share price discount to Net Asset Value ("NAV"), the Fund
Manager has offered and agreed with the Board to align its management fee more
closely to the share price. From 1st Jan 2024, the management fee will be
calculated by reference to the average of ReSI plc's market capitalisation and
NAV for the relevant quarter, rather than be applied to the quarterly NAV only
as at present. For example, based on a current discount of around 30% across a
quarter, this would result in a fee reduction of 15% for the relevant quarter.
The existing fee percentages will apply to the average of Market
Capitalisation and NAV (i.e. at the same basis points as currently applied to
the quarterly NAV). Should the amount be greater than the prevailing NAV for
the quarter in question, the fee will be capped at the relevant percentage of
NAV, meaning that no fee increase would result from ReSI plc's shares trading
at a premium to NAV over the quarter. "Market Capitalisation" for these
purposes means the average over the previous quarter of the mid-market price
for an ordinary share in the Company ("Ordinary Share"), as derived from
closing mid-market price published in the Daily Official List of the London
Stock Exchange for each trading day Business Day in the relevant quarter,
multiplied by the number of Ordinary Shares in issue on the last Business Day
of the relevant quarter, excluding any Ordinary Shares held by the Company in
treasury for all or such part of the quarter in question. The NAV for the
relevant quarter shall continue to be calculated, and the management fee
payable, in the current manner.
7. British Property Federation, and Legal & General, 2022
For further information, please contact:
Gresham House Real Estate
Ben Fry +44 (0) 20 7382 0900
Sandeep Patel
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
Annual Report & Accounts 2023
Residential Secure Income plc
30 September 2023
Strategy and performance
Purpose
Residential Secure Income plc (ReSI or the Company) (LSE: RESI) is a real
estate investment trust (REIT) focused on delivering secure, inflation-linked
returns in two sub-sectors in UK residential housing; independent retirement
rentals and shared ownership, which are underpinned by an ageing demographic
and untapped, strong demand for affordable homes.
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.
ReSI's subsidiary, ReSI Housing Limited (ReSI Housing), 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.
` 1
Strategic report
Investment case
Why ReSI?
ReSI delivers 97% inflation-linked income, 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
Dividends paid quarterly
ReSI's business model is:
Supported by Creating Executed by
Strong market drivers Measurable impact An expert manager
Ageing 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
· 3,295 households diversified across ages and stages of life · Underpinned by c.£423mn home value with 22% uplift from · Low retirement rents (in line with Local Housing Allowance) paid
reversionary surplus from pensions and welfare
· Subsidised shared ownership rents secured by homebuyers' stake · c.£15mn government grant supports subsidised rents for shared
ownership
Portfolio
We invest in UK affordable homes to deliver secure, inflation-linked income
3,295 £345mn 935
Homes Value of investment property Unique UK property locations
30 September 2022: 3,284 30 September 2022: £375mn 30 September 2022: 926
See note 15 on page 119
£18.0mn 5.2% 2,628
Annualised net rental income Annualised net rental yield* Counterparties
Year to 30 September 2022: £16.5mn 30 September 2022: 4.4% 30 September 2022: 2,608
See note 10 Supplementary Financial Information on page 144
See note 10 Supplementary Financial Information on page 144
* Alternative performance measure
Portfolio split by region Number of properties
East Midlands 74
East of England 840
Greater London 469
North East 19
North West 259
Scotland 5
South East 799
South West 593
Wales 53
West Midlands 91
Yorkshire and The Humber 93
Total 3,295
Portfolio split by valuation
Independent Retirement Rentals £202mn 58%
Shared Ownership £123mn 36%
Local Authority £20mn 6%
Total £345mn 100%
Our portfolio focus
Residential Secure Income plc (ReSI) has diversified, secure, inflation-linked
income streams from residential sub-sectors with strong supply and demand
imbalances and supportive property fundamentals.
Independent Retirement Rental Housing Shared Ownership Housing
(£202mn GAV/ 2,240 homes / 58% of (£123mn GAV/ 766 homes / 36% of portfolio)
portfolio)
Driver · Booming and increasingly lonely older population · Huge untapped demand for affordable homeownership
Summary · Let to elderly residents with affordable rents and assured · Homebuyers acquire, from ReSI, a share in a residential property
tenancies and rent the remainder
· Provides fit-for-purpose homes for retired people, allowing them · Helps house buyers acquire homes they would otherwise be unable
to maintain their independence without care provision to buy
· Capital grant funding from government drives a c.30% living-cost
discount compared to market level rents
Rent growth · Increase with RPI each year, generally capped at 6% · Increase contractually by RPI+ 0.5% each year
Secure income · Secure rental income paid from pensions and welfare · Subsidised, below-market rents
· Homebuyer equity stake
ReSI origination · Scale: UK's largest private independent retirement rentals · ReSI Housing: a for-profit Registered Provider of Social Housing
business
advantages
· Investment Partner of Homes England and the Greater London
· Specialist in-house 40-person team with over 20-year track record Authority for delivery of new affordable housing
Average vacant · c.£110,000 per home · c.£325,000 per home((6))
possession value
Net yield · 5.5%((5)) · 3.4%((5))
Average debt coupon · 3.5% · 1.1% with principal increasing with RPI + 0.5% (with a 0.5% floor
and 5.5% cap) ((4))
Levered yield · 7.1%((5)(7)) · 6.1%((5)(7))
Average customer stay / length of lease ((1)) · 6 years · 249 years
Like-for-like rental reviews ((2)) · 6.0% · 6.8%
September 2023 occupancy · 96% · 100% ((3))
Rent collection · 99% · 100%
(1) Assuming no staircasing
(2) Represents the rent growth for homes that were occupied and eligible for a
rent review during the year ended 30 September
(3) Includes 1 home reserved as at 4 December 2023
(4) 1.1% coupon with principal increasing with RPI + 0.5% (with a 0.5% floor
and 5.5% cap)
(5) Based on annualised Net Operating Income over fair value at September 2023
as measured by a independent third party valuer
(6) Shared ownership vacant possession value includes both the value of ReSI's
63% average equity position, and the 37% owned by the residents
(7) Debt / Equity split is as per IFRS balance sheet, with properties held at
fair value at September 2023 as measured by a independent third party valuer,
and debt at amortised cost
(1) Assuming no staircasing
(2) Represents the rent growth for homes that were occupied and eligible for a
rent review during the year ended 30 September
(3) Includes 1 home reserved as at 4 December 2023
(4) 1.1% coupon with principal increasing with RPI + 0.5% (with a 0.5% floor
and 5.5% cap)
(5) Based on annualised Net Operating Income over fair value at September 2023
as measured by a independent third party valuer
(6) Shared ownership vacant possession value includes both the value of ReSI's
63% average equity position, and the 37% owned by the residents
(7) Debt / Equity split is as per IFRS balance sheet, with properties held at
fair value at September 2023 as measured by a independent third party valuer,
and debt at amortised cost
Chairman's statement
Rob Whiteman CBE
Chairman
We have seen record occupancy and rent collection levels this year. Demand for
affordable accommodation has been strong, particularly given pay increases
generally lagging inflation. ReSI has continued to support residents,
balancing rent increases and returns in a way which is sustainable for them,
and for our shareholders.
The immediate impact on earnings has been held back by rising energy, overhead
and floating rate debt costs. As with other high-quality long-term income
assets, our valuations have been impacted by the rise in risk free rates over
the year which has moved out the yields.
We are pleased to announce our local authority portfolio is now under offer.
Completion will enable full repayment of our existing floating rate debt. This
will leave ReSI with two portfolios focused on strong market segments -
independent retirement living and shared ownership - supported by very
long-term debt with an average maturity of 21 years.
We announced in the interim results that in light of the higher interest rate
environment, cost inflation in retirement and fund opex increases we would
look to reset the dividend. Subsequent progress on sale of the local portfolio
leading to the expected repayment of floating rate debt gives us the
confidence to reset the dividend to a fully covered and progressive 4.12p a
share.
We are very conscious of listed sector discounts widening significantly, and
ReSI is not immune to factors also affecting our peers. We will continue to
review options to reverse this situation.
To further align themselves with shareholders, and show their confidence in
unwinding the discount, Gresham House have agreed to reduce their management
fee to be based on the average of share price and NAV.
FY2023 review
ReSI's portfolio has been constructed to deliver high-quality affordable
accommodation for vastly undersupplied markets and by doing so to deliver
defensive long-term income for investors and meaningful social impact. Our
customer demand continues to be incredibly strong, whether providing
fit-for-purpose homes for independent living in retirement or affordable
homeownership for young families and key workers through shared ownership.
ReSI is now the custodian of homes for 3,295 households, and we will continue
to balance returns with affordability for our residents. We have aimed to
support residents through a difficult period where pay increases have
generally lagged spiking inflation, which has in turn supported record
occupancy and rent collection levels. We continue to cap our rent increases
for our retirement residents at 6.0% and voluntarily capped our
inflation-linked rent increases in shared ownership to 7.0%, as opposed to the
contractual RPI+0.5%. Furthermore, ReSI continues to invest to improve our
homes' energy efficiency helping to keep residents' energy bills affordable.
This balance has seen ReSI deliver strong like-for-like rent growth of 6.1%
whilst increasing retirement occupancy to a record 96%, as at September 2023,
and fully occupying our shared ownership portfolio. Rent collection continues
to exceed 99%, underpinned by direct leases with a highly diversified resident
base comprising 2,628 counterparties, affordable rents, and shared ownership
equity stakes averaging c.36%.
Despite this strong top-line growth, ReSI is not immune to the continuing
wider economic challenges. Specifically, higher energy bills to heat and light
communal areas have contributed to a 13% operating cost increase in our
retirement housing portfolio, limiting retirement net income growth to 1% year
on year. Together with increased interest expenses on the 11% of our debt
which is floating rate, and increased overheads, Adjusted Earnings have
reduced by 3%.
As a result, dividend cover declined to 91% after re-achieving full coverage
in Q4 2022, which justifies the Board's decision to keep the dividend per
share flat for FY 2023 in order to absorb extraordinary cost increases.
As with all high-quality long-term income assets, our investment valuations
have been impacted by rising gilt yields with our portfolio valuation yield
rising to 5.2% from 4.4% in September 2022. Our strong rental growth has
partially mitigated this impact leading to a 10% like-for-like valuation
decline of £40mn to £345mn, taking EPRA NTA to 81.8p per share down from
106.1p at 30 September 2022. The USS debt is held at mark to market value in
IFRS NAV 1 (#_ftn1) and so the 1.2% increase in gilt yields over the year
reduced its net present value giving an IFRS gain of 6.6p vs EPRA NTA.
Market opportunity
The market opportunity across both retirement and shared ownership is both
enormous and growing, and ReSI has two strong market platforms that are primed
for growth. Despite recent operational challenges and macroeconomic headwinds,
the fundamentals underpinning ReSI's business model, and our longer-term
outlook, have never been stronger. The UK has consistently fallen short of the
government's aspiration for 300,000 new homes per year 2 (#_ftn2) with an
estimated need for £34bn 3 (#_ftn3) of annual investment over the next
decade to begin addressing the shortfall.
ReSI is the UK's largest provider of private independent retirement rental
homes. The UK population is rapidly ageing, with the demographic over 65
expected to increase by almost 50% by 2060 4 (#_ftn4) . Social isolation can
have a material impact on the health of the elderly, driving demand for
independent retirement accommodation where customers can enjoy the benefits of
living and socialising with other like-minded individuals. Our customer survey
illustrates how we can and are helping with this, indicating that 81% of our
residents have been equally or more socially active since moving in, and 60%
saying their mental health has improved. We believe that our offering is the
best way to allow people on lower to average means to focus on enjoying an
active and social retirement, without the hassles of maintaining a home. There
will be huge growth in this sector of the market, and with that a great
opportunity for ReSI to take advantage of its market leadership position.
For shared ownership, most of the population lives in areas where home
purchase is unaffordable for average earners. Continued inflation, rising
mortgage rates and the consistent demand for a permanent home have increased
demand for shared ownership as the most affordable homeownership option
(particularly in light of the end of the Help-to-Buy programme in March 2023).
Housing associations, which have historically been the primary investors in
affordable housing, are now dealing with rent caps on their social and
affordable rental portfolios in addition to allocating c.£10bn for fire
safety and c.£25bn to upgrade the energy efficiency of their social rented
stock by 2030. These financial pressures impact housing associations' ability
to continue to fund their 43,000 homes per year development programmes, with
many now looking to bring in partners to acquire some of their existing
200,000 shared ownership homes. This is continuing to drive demand and
opportunity for further long-term investment into the sector - both to fund
new homes and acquire existing shared ownership portfolios providing capital
to housing associations to invest back into their social rented stock.
Financial and dividend outlook
As the UK's largest provider of private independent retirement rental homes
and the owner of a for-profit Registered Provider, and with an experienced and
capable fund management team, the Board believes that ReSI is well positioned
to deliver long-term, inflation-linked returns to investors.
It has been a stated objective of the ReSI Board to grow the Company, however,
the public capital markets have changed substantially over the past year, and
while the Company's share price performance is not out of line with its listed
peers, we recognise that ReSI's shares are currently trading at a significant
discount to Net Asset Value.
This is particularly disappointing given the scale of investment opportunities
now available, and the work by the Fund Manager to date to create the
investment markets in retirement rental and shared ownership , and the ability
for these to enhance returns to shareholders over the medium term. Given
current cash levels, the Board does not consider it in shareholders' best
interests to increase leverage to support a programme of further share
buy-backs - as has previously been undertaken - however, we will continue to
review this and other options to reverse the discount that our shares trade to
Net Asset Value.
To further align itself with shareholders and show its confidence in unwinding
the share price discount to Net Asset Value, the Fund Manager has agreed to
reduce its management fee to be based on the average of share price and Net
Asset Value.
As communicated at the half year, the Fund Manager is continuing to advance
the sale of non-core assets and our local authority housing portfolio is
currently under offer and in legals with an expectation that a sale will
complete in early 2024. This will enable full repayment of the Company's
floating rate debt and leave ReSI with only its long-term debt which has a
weighted average maturity of 21 years, with our largest loan of £94mn fixed
at 3.5% until 2043. While these prospective assets sales reduce ReSI's
adjusted earnings, they will increase sustainability of income and strengthen
the balance sheet, given the removal of exposure to interest rate movements.
We announced in the interim results that in light of the higher interest rate
environment, cost inflation in retirement and fund opex increases we would
look to reset the dividend. We have subsequently progressed on sale of the
local portfolio leading to the expected repayment of floating rate debt. This
allows the Board to rebase the dividend to 4.12p per share, representing a cut
of 20%, and to have confidence that we will be able to progressively grow this
dividend on a fully covered basis, whilst continuing to invest in maximising
the growth of the portfolio value. As an illustration, if we removed the local
authority portfolio and the floating rate debt from our 2023 income, this
4.12p dividend would have been 103% covered during the year.
ReSI remains well placed to meet continued enormous demand for affordable
housing, enabling sustainable and growing, risk-adjusted returns over the long
term.
We will continue to look at how we can deliver the best value for
shareholders, with a constant focus on driving portfolio performance. This
will include ongoing review, during 2024, of the options for further disposals
should they be supportive of maximising shareholder value. Particular focus
will also be given to driving retirement portfolio operational improvements
including rationalising portfolio footprint, driving rents and reducing
leakage.
Board composition
Reflecting on the current economic environment and the impact this has had on
the growth of the Company, since the year end, we have taken the decision to
reduce the size of the Board, balancing its diversity for the benefit of
shareholders and to help promote the Company's future success.
John Carleton will retire as a Director of the Company with effect from 22
February 2024 and accordingly will not stand for re-election at the Company's
forthcoming AGM in 2024. On behalf of the Board, we are grateful for the
valuable contribution John has made to the Company during his term.
Annual General Meeting
The AGM will be held on 19 February 2024. We hope you will join us, raise any
questions or provide any feedback. As valued stakeholders your input is
welcomed. Shareholders are encouraged to make use of the proxy form provided
in order to register your votes in advance of the AGM through ReSI's Company
Secretary, Computershare.
As always, the Board is grateful for the support of shareholders, including
their 99% support at our continuation vote in January 2023.
Rob Whiteman
Chairman
Residential Secure Income plc
4 December 2023
Financial highlights
as at 30 September 2023
Income
4.7p / -6% -12.5p 6.1%
Adjusted Earnings Per Share*
IFRS (Loss)/Earnings Per Share
Like-for-like rent growth*
EPRA Adjusted Earnings Per Share Year ended 30 September 2022: 5.0p
Year ended 30 September 2022: 7.4p
Year ended 30 September 2022: 4.5%
See note 13 on page 118 See note 13 on page 118
5.16p 91% £8.7mn / -3%
Dividend per share - paid
Dividend coverage*
Recurring profit before change in fair value and property disposals*
Year ended 30 September 2022: 5.16p
Year ended 30 September 2022: 97%
Year ended 30 September 2022: £9.0mn
See note 13 on page 118 See note 13 on page 118
Capital
91.1p / -16% £345mn 3.4% (6.3mn shares )
IFRS Net Asset Value per share
Value of investment property
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 2022: 108.8p
30 September 2022: £375mn this Annual Report
See note 15 on page 119
See note 28 on page 136
(30 September 2022: 3.4% or 6.4mn shares)
50% 21 years 81.8p / -23%
Loan-to-Value ratio (LTV)
Weighted average remaining life of debt
EPRA Net Tangible Asset Value (NTA) per share*
30 September 2022: 47%
30 September 2022: 22 years
30 September 2022: 106.1p
See Supplementary See note 28 on page 137
Information note 13 on page 149
-18.1% -11.5%
Total Return (on Opening NTA)*
Total IFRS Return (on Opening NAV)
Year ended 30 September 2022: 3.3%
Year ended 30 September 2022: 7.1%
See Supplementary See Supplementary
Information note 11 on page 149 Information note 12 on page 149
*Alternative income measures
Investment portfolio
Independent retirement rental housing
£202mn Gross Asset Value / 2,240 homes / 58% of portfolio / £854 average
monthly rent
Retirement Map Data
East Midlands 25
East of England 339
Greater London 186
North East 19
North West 231
Scotland 5
South East 708
South West 526
Wales 53
West Midlands 59
Yorkshire and The Humber 89
Grand Total 2240
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 40-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 5 (#_ftn5) . As a result, 20% of the UK population is expected to be
over 65 by 2026 6 (#_ftn6) .
In particular, the core market of over 75s is projected to nearly double from
2020 to 2050 7 (#_ftn7) .
Source: ONS
Just 1% of over 60s in the UK 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 one million older people say they always or often
feel lonely(( 8 (#_ftn8) )). 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(( 9 (#_ftn9) )). 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.
CASE STUDY
Finding a safe haven and lifelong friendships in a coastal retirement
community
Interview with June - East Haven, Clacton-on-Sea
June, a woman in her mid-50s, has found her slice of paradise in East Haven, a
retirement development nestled in the coastal town of Clacton-on-Sea.
Through My Future Living, June has been renting a delightful one-bedroom
apartment since February 2023, and she couldn't be happier. Embracing the
social aspects of living in a retirement community and relishing the feeling
of safety and security, June has truly found a place she can call home.
Although June is originally from Mauritius, her heart has long belonged to the
United Kingdom. After spending most of her life in East London and, more
recently, Basildon, she decided to return to her homeland in 2017 after the
passing of her father. However, her time in Mauritius made her realise that
her true sense of belonging lay in the UK. Yearning for the companionship and
familiar surroundings she had missed, June made the decision to return.
June reflects, "After my Dad died, I thought it was the perfect opportunity to
go back to my roots. With my health challenges, I had to leave work in 2008,
and I thought the sunny climate and laid-back lifestyle in Mauritius would be
beneficial for me. However, life taught me that the grass isn't always greener
on the other side, and it didn't suit me as well as I had hoped. So, upon
returning to the UK, I faced the task of finding a new place to live, and
that's when East Haven came into my life. Although I had never been to
Clacton-on-Sea and had never considered renting, I was immediately captivated
by the charm of this development. In that moment, I knew it was the ideal
place for me."
Living alone with health concerns, June sought a supportive and friendly
community. The emergency cords placed in her apartment provided an additional
layer of reassurance, assuring her that help would be readily available if the
need arose.
June explains, "While I wanted to maintain my independence, having previously
owned my own home, I also longed for the sense of community that a retirement
development could provide. East Haven has allowed me to strike this perfect
balance. The apartment is simply wonderful, and the people within the
community are genuinely friendly and welcoming. The manager, in particular,
keeps a vigilant eye out for everyone's well-being."
June enjoys several other benefits that come with renting in a retirement
development such as the fact she no longer has to worry about maintenance and
upkeep. Also, the option of assured or lifetime tenancies provides her with
long-term security and peace of mind that she will never have to leave
providing she keeps to her tenancy agreement.
Shared ownership housing
£123mn Gross Asset Value / 766 homes / 36% of portfolio / £483 average
monthly rent
Shared Ownership Map Data
East Midlands 49
East of England 212
Greater London 283
North West 28
South East 91
South West 67
West Midlands 32
Yorkshire and The Humber 4
Grand Total 766
Part-buy, part-rent model makes shared ownership the affordable homeownership
solution
Shared ownership provides an 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 252,000 shared ownership homes across England 10 (#_ftn10) , and
around 20,000 new shared ownership homes are delivered annually 11 (#_ftn11)
, 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 like 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 £300,000 under shared ownership and outright homeownership. Shared ownerships part-buy part-rent model reduces both deposit and minimum income requirements, providing an affordable route to homeownership for a potential additional 7.9 million people
12 (#_ftn12)
across the country.
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 13 (#_ftn13) . We expect that declining homeownership rates and
outright purchase affordability worsening will continue to drive demand for
shared ownership in 2024.
Demand for shared ownership in the current economic climate
Rising interest rates have made the ambition of homeownership more expensive
for all first-time buyers, however the impact is less severe for 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 rise in interest rates one quarter of
the increase experienced by a first time buyer buying outright.
Whilst the 7% rent increase experienced by shared owners in 2023 is
significant, it is considerably lower than the 40% increase 14 (#_ftn14) in
monthly payments that will be felt by outright owners as a result of a 3.0%
increase in mortgage rates.
With outright sale affordability having worsened and with the Help-to-Buy
scheme coming to an end in March 2023, shared ownership has become the only
affordable route onto the housing ladder for an increasing number of people,
which has been reflected by the 40-50% increase in shared ownership mortgage
assessment volumes compared to 2022 15 (#_ftn15) .
There will be some residents who are no longer able to afford shared ownership
in the current economic climate, however this has been outweighed by the new
market of higher income residents keeping demand for the tenure strong,
despite the worsening affordability outlook.
Interview with Stephanie*, a shared ownership resident:
After trying to buy a home by herself, Stephanie realised that she would not
have been able to own her own home outright. Her options were continuing to
rent in the private sector or move back in with her parents, however, through
the reduced affordability requirements of shared ownership she was able to buy
her own home. Since moving in two-years ago, Stephanie said that being able to
run her own home and the benefits of not living with others had definitely
improved her quality of life. In addition, Stephanie said that she was greatly
appreciative of the cap on rent increases that ReSI applied, particularly in
the current rental market.
Stephanie emphasised the following as key benefits of her shared ownership
home:
- Affordability - "shared ownership is more cost-effective than
renting privately"
- Energy efficiency - "My energy bills are a lot cheaper than my
previous residence"
- Independence - "I have enjoyed discovering how I like to run my
own home and the benefits of not living with others"
* Not her real name
Local authority housing
£20mn Gross Asset Value / 289 homes / 6% 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.
Investment team
Gresham House has extensive experience and expertise in affordable housing:
21-person investment team - senior members with average c.17 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.
Ben Fry - Managing Director, Housing
Mike Adams - Managing Director, Real Estate
Sandeep Patel - Finance Director, Housing
Pete Redman, Executive Director, ReSI Housing
Chris Carter Keall - Head of Asset Management
Burak Varisili - Investment Director
Joe Thomas - Investment Director
Claire Cooper - Director of Shared Ownership
Matt Painter - Director of Development & Delivery
40-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 the last six 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.
Homes England and Greater London Authority Investment Partner
Reflecting Gresham House's strong relationships with government-regulated
institutions, the Fund Manager's investment vehicles have been awarded £39mn
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.
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 EPRA earnings* (£mn) Net rental income (£mn) Like-for-like rental reviews (%) EPRA cost ratio (%)* (Loss)/Profit before tax (£mn)
2023 2022 2023 2022 2023 2022 2023 2022 2023 2022
8.7 9.0 17.1 16.0 6.1 4.5 39% 36% (23.2) 13.3
KPI definition
Adjusted EPRA earnings, excluding valuation movements on investment assets and Net rental income after deducting property operating expenses including ground Like-for-like average growth on rent reviews across the portfolio. Administrative and operating costs (including costs of direct vacancy) divided (Loss)/Profit before tax is a statutory IFRS measure as presented in the
debt, and other adjustments, that are one-off in nature, which do not form rent paid. by gross rental income. Group's Consolidated Statement of Comprehensive Income.
part of the ongoing revenue or costs of the business.
Comment
2023 earnings impacted by a combination of higher finance costs on floating Increase of 6.4% delivered during the period as a result of organic growth 6.1% like-for-like rental reviews growth achieved for properties that were 2023 cost ratio impacted by higher operating costs in the retirement portfolio Decreased profit before tax driven by £39.8mn property valuation loss
rate debt, higher operating costs in the retirement portfolio because of from the portfolio due to rent increases and acquisitions in FY 2022. eligible for rent increases during the year ended September 2023. because of increased energy costs in communal areas. reflecting market repricing due to higher interest rates. The repricing of
increased energy costs in communal areas and higher fund level expenses.
real estate assets has been rapid and significantly faster than in previous
property cycles. We expect the attractive characteristics of residential
property assets, in conjunction with the supply / demand imbalance and lack of
Strong like-for-like rental growth, of 6.1%, was curtailed by a 12% increase This growth reflects the 6.0% rent increase caps on retirement leases, as well affordable housing, to continue to appeal to a wide range of property
Adjusted EPRA Earnings covered 91% of dividends in the year. in services charges, across the retirement portfolio, reducing net income as the 7.0% cap implemented for shared ownership rent increases during the investors resulting in relatively resilient yields compared to other property
growth in retirement to 1%. The increase in service charges was driven by a year. sectors.
45% increase in energy costs in communal areas.
Notes
See note 13 to the Financial Statements See note 6 to the Financial Statements See Glossary on page 151 for definition and calculation basis. See note 7 Supplementary Financial Information See Consolidated Statement of Comprehensive Income on page 101
* 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) (%) Weighted average
remaining life of debt (years)
2023 2022 2023 2022 2023 2022 2023 2022 2023 2022
81.8 106.1 91.1 108.8 (18.1) 3.3 50 47 21 22
KPI definition
EPRA NTA (Net Tangible Assets) is the market value of property assets, after IFRS NAV (Net Asset Value) 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 Average remaining term to loan maturity.
deducting deferred tax on trading assets, and excluding intangible assets and (excluding movements in valuation of debt and derivatives), expressed as a
derivatives. percentage of opening NTA. on a consolidated Group basis
Comment
23% reduction in the year ended 30 September 2023 driven by fair value Returns of minus 12.8p per share in the year reflecting 21p property valuation Returns of minus 18.0% in the year reflecting 4.7p of earnings offset by 21p Increase in LTV reflecting outward valuation yield shift as a result of market 21 years remaining life of debt reflecting the long-term nature of ReSI's
through profit and loss movements. decline, partially offset by 4.2p gain in debt valuation. property valuation loss. repricing due to higher interest rates and macro-economic environment fixed and inflation-linked debt secured on the retirement and shared ownership
portfolios.
Recurring Earnings of 4.7p covered 91% of dividends in the year. Property valuation loss was driven by a 80bps outward yield shift, leading to
a 28p decline, which was partially offset by inflation-linked rent growth
which was additive to valuations by 7p.
Notes
See note 2 Supplementary Financial Information for reconciliation from IFRS to See Consolidated Statement of Financial Position on page 102 See note 11 Supplementary Financial Information for calculation. See note 13 Supplementary Financial Information for calculation. See note 19 for information on the Group's Borrowings
EPRA performance measures
* 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. Additional detail is provided in supplementary
information on page 144.
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 4.1 per share for the period 30 September 2023. (30 September 2022: 4.4p)
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 4.7p (30 September 2022: 5.0p)
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 £151.4mn or 81.8p per share at 30 September 2023 (£196.5mn or
statements to provide stakeholders with the most relevant information on the 106.1p per share at 30 September 2022)
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 £151.4mn or 81.8p per share at 30 September 2023 (£196.5mn or
106.1p per share at 30 September 2022)
Assumes that entities buy and sell assets, thereby crystallising certain
levels of unavoidable deferred tax.
EPRA Net Disposal Value (NDV): EPRA NDV £195.3mn or 105.5p per share at 30 September 2023 (£225.5mn or
121.8p per share at 30 September 2022)
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 5.2% at 30 September 2023
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.
(4.1% at 30 September 2022)
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 5.2% at 30 September 2023
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).
(4.1% at 30 September 2022)
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 3.5% at 30 September 2023
whole portfolio. on ERV.
(5.0% at 30 September 2022)
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) 39% at 30 September 2023 (36%
vacancy) divided by gross rental income. operating costs. at 30 September 2022)
EPRA Cost Ratio (excluding direct vacancy costs) was 36% at 30 September 2023
(34% at 30 September 2022)
7. EPRA LTV
Definition Purpose Result
Net debt divided by total property value. A key (shareholder-gearing) metric to determine the percentage of debt 51% at 30 September 2023
comparing to the appraised value of the properties.
(46% at 30 September 2022)
Fund Manager's report
Ben Fry
Managing Director, Housing
The year ended 30 September 2023 has seen a continuation of the challenging
macroeconomic environment driven by a sharp and severe increase in inflation,
repeated interest rate increases and the consequential impact on the cost of
living. We have sought to insulate both shareholders and residents from this
environment by balancing inflation-linked rent increases with support for
those residents experiencing difficulties affording rent or mortgage bills.
There have been two consequences of significantly higher inflation and
interest rates for ReSI. While we have delivered strong like-for-like rent
review growth, record occupancy and collection levels, we have also
experienced higher energy bills on communal areas within our retirement
portfolio. Secondly, higher interest rates have impacted both our debt costs,
and the gilt yields which form a key component of valuations.
We took the decision during 2023 to cap rent increases below the level of
inflation, in order to protect affordability for our residents whose incomes
are under pressures not seen in decades. We believe this decision is the right
one for all stakeholders and will support ReSI in its objective to deliver
sustainable returns for the long term. These caps were set at 6% for our
retirement residents, and 7% for our shared owners and saw ReSI still deliver
strong rent growth of 6.1%.
This 6.1% rental growth, combined with the full impact of previous shared
ownership acquisitions, helped ReSI to increase net rental income by 6.4%, to
£18.1mn, despite managing 13% higher costs within our retirement portfolio,
driven by the increased energy costs of the communal areas, which limited
retirement net income growth to just 1%.
Adjusted EPRA earnings, before valuations, reduced by 3%, to £8.7mn, with the
6.4% net rental income growth offset by increased interest expenses on our
£21mn floating rate debt (11% of total debt), as well as higher audit and
regulatory fees.
As with many other holders of high-quality, long-term income assets, the
increase in gilt yields has directly impacted our portfolio valuations, with
our portfolio valuation yield rising to 5.2% from 4.4% in September 2022. Our
strong rental growth has partially mitigated this movement leading to a 10%
like-for-like valuation decrease for the year, and a total EPRA return of
(18.0%), taking EPRA NTA to 81.8p per share. This valuation decline is
disappointing but should be taken in light of the more than 40% value loss in
the 20-year gilt since the start of 2021 16 (#_ftn16) .
These valuation headwinds have increased the LTV of the Company to 50% (from
47% in FY22) in line with the Company's 50% medium-term target. The loan
balance includes £21mn of floating rate debt that is no longer as accretive
to the Company's returns and is not in line with our strategy to de-risk the
balance sheet through long-term amortising debt. This debt was originally put
in place to provide flexibility to the Company ahead of an intended fundraise,
which is no longer possible due to market conditions which have seen the
Company's shares continuing to trade at a significant discount to Net Asset
Value.
As communicated at the half year, we are continuing to advance sale of
non-core assets and our local authority housing portfolio is currently under
offer and in legals with an expectation its sale will complete in early 2024.
This will enable full repayment of floating rate debt and leave ReSI with
£183mn of long-term debt with a weighted average maturity of 23 years, with
our largest loan of £94mn fixed at 3.5% until 2043. The low cost of this
facility represents £27mn of value for shareholders compared to raising new
debt today and puts ReSI in a better position to deliver long-term earnings
growth relative to other REITs, which have significantly lower weighted
average debt maturity profiles.
We also announced at the half year that in light of the higher interest rate
environment, cost inflation in retirement and fund opex increases we would
work with the board to reset the dividend. We have subsequently progressed on
sale of the local portfolio leading to the expected repayment of floating rate
debt. This allows the Board to rebase the dividend to 4.12p per share,
representing a cut of 20%, and to have confidence that we will be able to
progressively grow this dividend on a fully covered basis, whilst continuing
to invest in maximising the growth of the portfolio value. If we removed the
net impact of the local authority portfolio from FY23 results, the new
dividend of 4.12p per share would have been 103% covered.
Rising inflation and the cost-of-living crisis continue to impact the life of
our residents, but they are relatively protected compared to their peers. Our
retirement residents typically fund rent payments with income from an
inflation-linked pension, and benefit from tailored accommodation that helps
to address loneliness. The shared ownership model helps partially insulate
residents from cost-of-living pressures: rents are rising less than mortgage
costs; mortgage rates remain well below our portfolio stress-test levels, and
our shared owners have only 36% of the exposure to mortgage rate increases
compared to full-ownership mortgages. Across the whole portfolio our continued
efforts to improve our homes' energy efficiency is helping to reduce our
residents' energy bills and we have capped rent increases in the period to
protect resident's affordability.
The quality of ReSI's operational business model, with individual resident
contractual relationships, very strong rent collection of almost 100%, and
record occupancy of 96% in retirement and 100% in shared ownership, reflects
our focus on the underserved markets of affordable purpose-built retirement
living and providing affordable homeownership to young families and key
workers. This continues to give us confidence in our portfolio of 3,295 homes
and our ability to deliver sustainable long-term returns.
Financial review
Total return
Rising gilt yields through 2023, led to an increase rate in discount rates and
yields across all high-quality long-term income assets. This drove a 10%
reduction in ReSI's like-for-like investment property values leading to an
EPRA NTA total return for the year of negative 19.1p per share (-18.0%).
This negative 19.1 pence per share EPRA NTA return, was comprised of:
- 4.7p of Adjusted EPRA Earnings (see note 13 - adjusted earnings
per share), with recurring income of £8.7mn; less
- 21.0p impact of the 10% like-for-like decrease in investment
property values, as assessed by Savills, to £345mn as at 30 September 2023.
This decrease was primarily driven by a c.80 bps increase in the weighted
average valuation yield since September 2022 to 5.2%, despite like-for-like
income growth of 6.1%; and
- 2.5p impact of USS debt indexation (£4.5mn), reflecting the
index-linked nature of the debt which follows the increase in shared ownership
rent reviews up to a cap of 5.5%; less
- 0.3p one-off costs (£0.6mn) primarily attributable to aborted
fundraising in Autumn 2022, following the Company's share price moving from a
premium to substantial discount to NAV rendering equity raising dilutive to
shareholders.
The movement in the EPRA NTA position during the year, from 106.1p to 81.8p
per share, is after total dividend payments of 5.2p per share (£9.6mn).
Movement in EPRA NTA pence per share for the year
EPRA NTA at 30/09/22 106.1
Net income 4.7
Dividend paid -5.2
Movement in FV of Investment Properties -21.0
One-off costs -0.3
Debt indexation -2.5
EPRA NTA at 30/09/23 81.8
A total IFRS return of -12.5p per share (-11.5%) was delivered for the year.
The difference to EPRA NTA returns reflects an increase in the fair value of
debt (IFRS) of 6.6p (£12.3mn) versus the amortised cost value of debt (EPRA)
caused by the c.1.2% increase in gilt yields over the year, which reduce the
mark to market value of the USS debt. The IFRS NAV decreased by 17.7p after
dividends paid.
Movement in IFRS NAV at 30 September 2023 (pence per share)
NAV at 30/09/22 108.8
Net income 4.7
Dividend paid -5.2
Movement in FV of Investment Properties -21.0
Debt valuation change 4.1
One off costs -0.3
NAV at 30/09/23 91.1
Movement in IFRS NAV at 30 September 2023 (pence per share)
Statement of Comprehensive Income
Adjusted Earnings reduced by 3% to £8.7mn with 6% net rental income growth
offset by increased interest expenses on our £21mn floating rate debt (11% of
total debt), as well as higher overheads which are explained further below.
2023 2022 Variance
(£'000) (£'000)
Net rental income 18,097 17,016 6.4%
First tranche sales profits 417 510 (18.2%)
Net finance costs (6,500) (5,588) 16.3%
Management fees (1,885) (1,867) 1.0%
Overheads (1,456) (1,119) 30.1%
Adjusted Earnings / Adjusted EPRA Earnings 8,673 8,952 (3.1%)
Adjusted EPS 4.68p 4.97p (5.8%)
Dividend coverage 91% 97% (6.2%)
Property valuation movements (38,944) 3,200 (1,317.0%)
Debt valuation movements 7,747 1,809 328.2%
Loss on property disposal (11) (24) (54.2%)
One-offs (619) (603) 2.7%
IFRS (Loss)/Earnings (23,154) 13,334 (273.6%)
IFRS EPS (12.5)p 7.4p (268.9%)
Net rental income:
Net rental income before ground rents (NRI) grew by 6.4% year-over-year to
£18.1mn, driven by the following underlying factors:
- Retirement rent growth of 1% to £11.2mn with strong like-for-like
rent review growth of 6.0%, being largely offset by 13% cost inflation
- Shared ownership rent growth of 23% from £4.1mn to £5.0mn due
to:
o £0.3mn from 6.8% like for like rental increases;
o £0.4mn from full occupancy and annualised income of our shared ownership
portfolio; and
o £0.2mn from £13mn shared ownership acquisitions completed in the
financial year.
These factors were also underpinned by:
- Consistent rent collection of over 99%
FY 2022 £17.0
Shared ownership - acquisitions £0.3
Shared ownership - leasing £0.4
Shared ownership - rent growth £0.3
Retirement - rent growth £0.7
Retirement - cost inflation -£0.6
FY 2023 £18.1
1. Top-line retirement growth offset by cost pressure:
- Income growth delivered: £0.7mn / 1% / 0.1 pence per share 17
(#_ftn17)
Retirement gross rental revenue grew 6.4% year-over-year to £20.6mn, ahead of
the 3.8% growth in the prior year. This was mainly driven by 6% like-for-like
rent growth, in line with an annual cap applied to the RPI-linked rental
increases, combined with an average occupancy of 94% (FY22: 94%).
We believe our decision to cap rent increases is the right one, to both
protect our residents and support the long-term stability of our income, and
we have continued to combine this support to residents in financial hardship
with rental freezes or reduced increases. These moves generated an annual
saving for residents of c.£1.1mn / c.£565 per resident.
Occupancy growth has continued to improve throughout the year and reached a
record level of 96% at year end, reflecting the great customer service of
ReSI's in-house property manager, My Future Living. Revenue growth was offset
by 12.9% year-over-year operating expense growth to £9.4mn, which was
primarily driven by 45% increase to c.£1.5mn in the energy costs for common
areas as well as a 14% increase in property management fees as we restructure
the team in order to drive future net income growth.
Looking forwards, we are working closely with My Future Living across several
asset management initiatives, in order to boost income and offset cost
inflation. These include:
- restructuring the property management team to take advantage of
technology;
- re-tendering repairs and maintenance contracts to increase
value-for-money on unit refurbishments;
- improving retirement re-letting timing to continue driving
occupancy growth, which involves improving start times on refurbishment works
for unit turnovers;
- completing capital works and energy efficiency improvement
projects; and
- rationalising the footprint of the retirement portfolio via
selective disposals and recycling capital into core areas to drive local
economies of scale.
2. Strong and accelerating rent growth in shared ownership:
- Income growth delivered: £0.4mn / 0.1 pence per share 18
(#_ftn18)
Shared ownership rents within the portfolio, usually increase annually on 1
April generally with RPI + 0.5%, and grew by 6.8% like-for-like to £3.9mn
compared to the prior year.
This year rents were due to increase by 12.4% on 1 April, however we have
capped this increase at 7% (by way of a rebate), a level which reflects wage
growth and the inflation rate excluding the impact of energy bills. This cap
will help to protect affordability for our residents when their incomes are
under pressure. This decision is within our control but we have chosen to
match the cap that the government has applied to general social housing
properties.
3. Full occupancy and annualised impact of our shared ownership portfolio:
- Income growth delivered: £0.3mn / 0.2 pence per share 19
(#_ftn19)
Demand for ReSI's shared ownership properties remains robust, reflecting its
position as the most affordable form of homeownership. ReSI benefited from
full-period income from Orbit, HSPG and Brick-by-Brick units that leased
during FY 2022, and ReSI's portfolio is now fully occupied.
4. Shared ownership acquisitions:
- Income growth delivered: £0.3mn / 0.1 pence per share 20
(#_ftn20)
ReSI's earnings grew by c.£0.3mn from capital deployment in the year into
shared ownership investments and letting activity (excluding the impact of
first tranche sales).
ReSI acquired 59 new homes (£9mn net commitment) from Brick By Brick that
were delivered on phased basis between September 2022 and March 2023 as they
reached construction completion. At the date of this report, 58 were occupied,
with the final home reserved ahead of resident move-in, taking the portfolio
to full occupancy. This leasing activity illustrates the depth of demand for
shared ownership, which continues to play an essential role in helping
mid-to-low earners onto the housing ladder. We expect this demand to further
increase in this macroeconomic environment which is characterised by high
inflation and rising interest rates, particularly with the Help-to-Buy
programme having ended in March 2023.
These acquisitions were funded by the residual proceeds from the £15mn equity
raise in February 2022 and debt drawn on the USS credit facility in March 2022
and committed to during FY2022.
- Consistent rent collection:
ReSI's cash flow is supported by a highly diversified set of income streams
from residents who pay affordable rents. Our retirement residents typically
pay their rent from pensions and savings, and residents benefitted from a
10.1% increase in state pensions in April 2023, compared to the 6% rental
growth caps in place across our retirement portfolio. On average, ReSI's
shared ownership residents own c.36% of their homes and generally pay
below-market rent. The remainder of ReSI's rental income comes from local
authority housing, which is leased to Luton Borough Council. ReSI has no
leases with asset-light, lease-funded, housing associations or charities.
ReSI's rent collection rate exceeded 99% in FY 2023 and the affordability of
ReSI's rents, as well as the strength of creditworthiness in ReSI's
counterparties has helped keep rental arrears at c.1% of rent roll in 2023. To
address those arrears, we are working with residents to find solutions that
benefit both parties, which can include buying back part of shared owners'
home equity to provide liquidity, helping retirement residents utilise all
government welfare resources and subsidies available to them, or occasionally
helping residents find local authority accommodation if they cannot afford to
remain living in their home.
First tranche sales profits
First tranche sales profits reduced by 18% to £0.4mn. This 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.
Net finance costs
Net finance costs increased by 16% to £6.5mn, caused by a 20% increase in
interest on borrowings to £6.5mn, with ground rent expenses remaining at
£1.0mn. Interest expenses have been driven by the 400 basis points increase
in SONIA year on year on ReSI's £21mn of floating rate debt, as well as the
fully year impact of £20mn additional long-term debt drawn from USS in March
2022 to finance shared ownership acquisitions.
ReSI continues to advance the sale of non-core assets which will enable
pay-down of floating rate debt, leaving the Company with long-term fixed or
inflation-linked debt with a weighted average maturity of 21 years.
The £184mn book value of ReSI's debt has a weighted average life of 21 years,
and the value of this debt is recognised with a mark to market value of
£157mn, representing £27mn of value for shareholders compared to raising new
debt today. This puts ReSI in a better position than other REITs, which have
significantly lower weighted average debt maturity profiles, to deliver
long-term earnings growth.
Administrative and other expenses
Recurring overheads, excluding management fee and one offs, have increased 30%
in FY 2023 to £1.5mn. The increase has been attributable to higher audit and
interim review fees payable to the Group's auditors together with the costs in
relation the governance of our Registered Provider of Social Housing, ReSI
Housing, as it grows and matures. ReSI Housing is the regulated entity which
holds all of ReSI's shared ownership homes and is registered with the
Regulator of Social Housing.
Management fees were flat on the year at £1.9mn, and based on the September
2023 Net Asset Value will decline by 11% next year as a result of the decline
driven by outward yield shifts.
Dividend coverage:
ReSI's dividend was 91% covered by recurring income in FY 2023, down 6% from
97% in FY 2022.
The Adjusted Earnings 3% decline reflected strong gross rental income growth
of 9% being more than offset by increases in retirement property expenses,
increased floating rate interest cost and an increase in fund operating
expenses.
Dividends paid, while flat on a pence per share basis, increased by 4% as a
result of the £15mn issuance in February 2022.
FY 2022 EPRA adjusted earnings 5.0p
Share issuance dilution -0.2p
Net Shared ownership 0.5p
Retirement rent inflation 0.4p
Retirement cost inflation -0.3p
Net finance costs -0.5p
Fund expenses -0.2p
FY 2023 EPRA adjusted earnings 4.7p
Dashed Line 5.2p
Dividend coverage improved through the year, with 86% in the first half to 95%
in the second half reflecting the impact of rental increases throughout the
year, particularly in shared ownership, which generally occur on 1 April.
Through the year, Adjusted EPRA Earnings have been bolstered by strong growth
in gross rental income but this has been more than offset by inflationary
increases in overheads, property expenses and higher finance costs
attributable to floating rate debt.
The board announced in the interim results that in light of the higher
interest rate environment, cost inflation in retirement and fund opex
increases we would look to reset the dividend. As the Chair has outlined, ReSI
is focused on increasing the sustainability of its income stream, and paying a
progressive and covered dividend that contributes to an attractive level of
total return. The former is to be achieved firstly through the full occupancy
of our shared ownership portfolio, which replaces first tranche sales profit
with recurring rental income, and secondly through repayment of ReSI's £21mn
of floating rate debt.
This short-term debt was originally put in place to provide flexibility to the
Company ahead of an intended fundraise, which is no longer possible due to
market conditions which have the Company continuing to trade at a significant
discount to its Net Asset Value. Our local authority housing portfolio is now
under offer and in legals, with an expectation that this will complete in
early 2024 allowing full repayment of our floating rate debt.
The local authority portfolio provided net rental income of around £1.9mn,
1.0p per share during FY 2023, but this reduced to £0.9mn (0.4p per share)
net of the floating rate debt costs - and is expected to reduce to £0.4mn
(0.2p per share) for FY 2024 with the increase in floating rate debt costs. As
previously mentioned the disposal of this portfolio will enable full repayment
of floating rate debt and leave ReSI with only its long-term debt that has a
weighted average maturity of 23 years, with our largest loan of £94mn fixed
at 3.5% until 2043.
While these prospective assets sales will reduce ReSI's adjusted earnings,
they increase the sustainability of income and strengthen the balance sheet,
via the removal of exposure to interest rate moves. Our progress in the sale
of these assets gives the Board confidence about future income levels,
allowing the Board to rebase the dividend to 4.12p per share, representing a
cut of 20%, and to have confidence that we will be able to progressively grow
this dividend on a fully covered basis, whilst continuing to invest in
maximising the growth of the portfolio value. If we removed the net impact of
the local authority portfolio from FY 2023 results, the new dividend of 4.12p
per share would have been 103% covered.
Valuations
During the year, we have seen significant disruption to the UK property
investment market due to macroeconomic and geopolitical issues. A significant
increase in interest rates has driven a sharp increase in cost of capital and
pushed property yields higher.
Valuers have been quick to reprice to this higher rate environment, with
valuation declines reported almost entirely across the listed REIT space. The
inherent inflation linkage of the ReSI portfolio, has limited the full impact
of the outward yields shifts. We expect valuations of higher quality assets
generating stable income flows, such as the ReSI portfolio, to stabilise more
quickly and prove more resilient.
Furthermore, in addition to the stable and predictable income generation,
ReSI's portfolio naturally benefits from valuation tailwinds, due to the
chronic undersupply in affordable housing across the demographic spectrum in
the UK.
Savills Advisory Services Limited (Savills) are appointed to value the
Company's property investments, in accordance with the Regulated Investment
Company requirements, on a quarterly basis. ReSI's property valuation, as
assessed by Savills, decreased by £39.6mn during the year - a 10% decrease on
a like-for-like fair value basis to a total of £345mn as of 30 September
2023. This was driven by c.80 bps increase in the weighted average valuation
yield applied to the portfolio, with both shared ownership and retirement
valuation yield shifts of c.50 bps to 5.5% and 3.4% respectively. This shift
in valuation yields has been partially negated via the rental growth of 6.1%
on 2,763 properties (84% of portfolio).
Balance Sheet
30-Sep-23 30-Sep-22 Variance
(£'000) (£'000)
Total Investments 345,138 374,785 -8%
Inventories - First tranche Shared Ownership properties available for sale 431 1,203 -64%
Cash and cash equivalents 8,805 15,984 -45%
Borrowings amortised cost (199,039) (194,701) 2%
Other (3,882) (787) 393%
EPRA Net Tangible Assets 151,453 196,484 -23%
EPRA NTA per share (pence) 81.8 106.1 -23%
EPRA Net Disposal Value (NDV) 195,303 225,455 -21%
EPRA NDV per share (pence) 105.2 121.8 -21%
IFRS NAV 168,679 201,388 -17%
IFRS NAV per share (pence) 91.1 108.8 -17%
Book Value of Debt 181,747 189,705 -4%
Investment valuations declined by £30.3mn (8%) reflecting a £38.4mn (10%)
like-for-like decline caused by a c.80 bps increase in the weighted average
valuation yield and the completion of £9mn of new shared ownership
acquisitions from Brick By Brick.
Inventories reflect the amount of unoccupied shared ownership properties that
are expected to be sold to shared owners and are held at cost. The 64%
decrease reflects the leasing of 59 vacant shared ownership homes between
September 2022 and September 2023 with five remaining vacant on 30 September
of which four have been subsequently occupied and the final one reserved at
the date of signing the FY 2024 financial statements.
The £7mn decline in cash balance primarily reflected the completion in March
2023 of £9mn of previously committed acquisitions for 59 new shared ownership
homes from Brick By Brick.
Total borrowings (amortised cost) increased by £4mn during the year to
£199mn as of 30 September 2023, reflecting the indexation on the USS credit
facility. The £199mn amortised cost of ReSI's debt has a weighted average
life of 21 years, and the value of this debt is recognised with a mark to
market value of £157mn, representing £42mn of value for shareholders
compared to raising new debt today. This puts ReSI in a better position to
deliver long-term earnings growth than other REITs, which have significantly
lower weighted average debt maturity profiles. This £42mn of value is
recognised in ReSI's NDV of 105.1p per share.
The IFRS NAV includes the present value of the USS debt, but not the long-term
debt with Scottish Widow, and so at £184mn is part way between the full
amortised cost (£199mn) and mark to market (£157mn).
The EPRA NTA and IFRS NAV measures exclude the reversionary surplus in our
portfolio which stands at £78mn. 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 23%
discount, on average, to its reversionary value.
Financing and Capital Structure
At the 30 September 2023 balance sheet date, ReSI had c.£199mn (notional
value) of debt in place, of which 90% is either long-term fixed rate or
inflation linked. This represents a 2% increase in debt since September 2022,
reflecting the indexation of the inflation-linked USS debt. LTV has increased
by 3% from 47% to 50% over the year and is in line with the 50% leverage
target.
Our reversionary loan-to-value is 41% when taking into account the £422mn
vacant possession value of the portfolio. This £78mn reversionary surplus
(compared to £345mn of fair value) 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 22%
discount, on average, to its reversionary value.
FY 2023 FY 2022
Total debt £182mn £190mn
LTV (target 50%) 50% 47%
Leverage on reversion value 44% 42%
Weighted average fixed-debt coupon (49% of ReSI's debt) 3.5% 3.5%
Weighted average inflation-linked debt coupon (41% of ReSI's debt) 1.1% 21 (#_ftn21) 0.9%
Weighted average maturity 21 years 22 years
Capital stack
FY 2023
Debt £182mn
Equity £169mn
Grant Funding £15mn
Reversionary Surplus £78mn
Total £444mn
The drop in property investment values and increase in debt fair value has
narrowed headroom in the Santander working capital facility's loan-to-value
covenant which is £21mn drawn and represents 11% of ReSI's outstanding debt
balance. As at 30 September 2023, the working capital facility's LTV level was
51%, with c.£25mn of property value headroom (7%) before a covenant breach is
triggered. We estimate that ReSI's weighted average valuation yield would need
to shift outward by a further c.40bps for this valuation loss to be realised,
on top of the c.80bps widening since September 2022.
This short-term debt was originally put in place to provide flexibility to the
Company ahead of an intended fundraise, which is no longer possible due to
market conditions which have seen the Company's shares continuing to trade at
a significant discount to Net Asset Value. We stated in June our intention to
dispose of non-core assets and our local authority housing portfolio is now
under offer and in legals, with an expectation that the sale will complete in
early 2024, allowing us to repay the Santander facility and extinguish our
short-term floating rate debt. This would leave the Company with long-term
fixed or inflation-linked drawn debt with a weighted average maturity of 23
years.
ReSI's other LTV covenants and ICR covenants still have ample headroom and
ReSI's USS debt on its shared ownership portfolio is fully amortising and so
does not have a loan-to-value debt covenant.
During the year, our £12mn loan with NatWest matured and was replaced by
drawing down further from ReSI's working capital facility with Santander. ReSI
currently has c.£3mn of unrestricted cash as well as £4mn of additional
liquidity available via its working capital facility.
Loan covenants by portfolio 22 (#_ftn22)
Covenant Shared Ownership / USS Retirement / Scottish Widows Total Portfolio / Santander
Current debt balance 23 (#_ftn23) £69mn £94mn £21mn
LTV - Threshold N/A <58% <55%
LTV - Reported N/A 45% 51%
Value - Headroom (%) N/A 24% 7%
Value - Headroom (£) N/A £50mn £25mn
ICR / DSCR - Threshold >0.95x >2.0x >1.5x
ICR / DSCR - Reported 6.4x 3.2x 3.0x
NOI - Headroom 85% 40% 49%
SONIA Interest Rate - Breach Threshold 24 (#_ftn24) Fixed-rate Fixed-rate 31%
Social and environmental:
We remain committed to delivering measurable social and environmental impact
for the benefit of our residents and the UK.
This year shared ownership rents were due to increase by 13.1% on 1 April,
however we have voluntarily capped this increase at 7% (by way of a rebate),
in line with wage growth and the core inflation rate excluding the impact of
energy bills. This decision is entirely in our control but matches the cap
that the government has applied to general needs social housing properties.
The 7% rent cap has saved residents £222k on an annualised basis.
Our retirees have benefited from ReSI's decision to apply a 6% cap to
contractual rent increases to all directly rented retirement properties, which
has generated annualised savings of £1.0mn for our residents this year. In
addition, further rent caps and rent freezes have been provided to residents
who are most in need, representing £68k of annualised benefit as at September
2023.
The rental increase caps we offer to residents highlight ReSI's commitment to
ensuring housing remains affordable for our residents. We believe this will
help residents stay with ReSI for longer, and increase demand for our product,
which should help us to deliver long-term, stable returns to investors.
To ensure that our intended social impact outcomes are being experienced by
residents, ReSI conducted its annual survey of its shared ownership and
retirement rental residents in 2023, as well as instructing impact consultant,
The Good Economy, to perform an impact assessment of the Company. Highlights
from the survey results are shown below and a summary of the results of The
Good Economy's report is in the Social Impact section of the Environmental and
Social Impact Report.
These positive survey results help to confirm that the outcomes that ReSI
intends to deliver are being experienced by residents. We aim to continue
delivering high-quality of service to our residents as a best-in-class
provider of affordable housing.
ReSI continued to invest in improving the energy efficiency of its retirement
portfolio and is targeting upgrading all directly rented properties to at
least a C by 2025, with 98% now at this target. We will continue to push ahead
with this target, despite the government scrapping implementation of a minimum
requirement of C for rental homes. We believe energy efficiency will continue
to be a focus for residents and reducing energy bills will support
affordability and help drive long-term value for our portfolio. For the whole
portfolio, 86% 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 25 (#_ftn25) .
(1) English Housing Survey, 2021-2022
Investing in the energy efficiency of our properties is one important step in
our broader net zero plan for ReSI. This year, we continued to work 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 found that whilst improving property energy efficiency will
drive a significant reduction in carbon emissions, it is not possible for the
portfolio to reach net zero through retrofitting alone. 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 renewable energy sources for its properties. This is an option that
the Fund Manager is currently exploring, and will feed into ReSI's net zero
strategy to work with industry partners to achieve complete net-zero
(including embodied carbon) by 2050 at the latest, in line with government
targets.
Management team transition
Gresham House has recently hired six senior real estate investment
professionals to join me and the Housing team to bolster resources,
experience, and to help drive further growth.
Mike Adams joined in February 2023 as Managing Director of the expanded
Gresham House Real Estate business and has overall responsibility for all Real
Estate strategies. Other recent senior hires were: Sandeep Patel in December
2022 as the division's Finance Director, Burak Varisli in February 2023 as
Investment Director, Chris Carter Keall in August 2023 as Head of Asset
Management, Matthew Painter in October 2023 as Director of Development &
Delivery and Claire Cooper in November 2023 as Director of Shared Ownership.
The last three will be focused on driving operational performance across our
portfolio.
Alex Pilato fully retired in June 2023, completing a transition that commenced
in March 2020 with the sale of the Fund Manager to Gresham House. Alex
continues to have a very strong interest in the success of ReSI and has
significant shareholdings.
Summary and outlook:
ReSI continues to see enormous demand for affordable homes and is well placed
to meet the particular shortage of fit for purpose homes for independent
living through retirement and the lack of affordable homeownership routes for
young families and key workers.
During FY 2023 ReSI has delivered strong like-for-like rental growth of 6.1%
whilst achieving record occupancy and with rent collection stable at almost
100% reflecting our focus on individual resident contractual relationships.
This positions ReSI well for the future but the short-term positive impact
above has been more than offset by inflationary increases in retirement
property expenses, increased floating rate interest costs and an increase in
fund operating expenses, leaving Adjusted Earnings down 3% and reducing
dividend cover by 6%.
From a capital perspective, it has been incredibly disappointing to see the
10% decline in our investment valuations, and the resulting 18% negative EPRA
total return, despite strong rental growth, but this has been market led
across all high-quality assets with a 40% value loss in the 20-year gilt since
the start of 2021 26 (#_ftn26) .
The sale of the local authority portfolio will allow ReSI to pay down its
floating rate debt leaving the Company with long-term fixed or
inflation-linked debt with an average maturity of 23 years, and our largest
loan of £94mn fixed at 3.5% until 2043. This puts ReSI in a better position
to deliver long-term earnings growth relative to other REITs, which have
significantly lower weighted average debt maturity profiles.
We have worked with the Board to rebase the dividend at 4.12p, targeting full
dividend cover to support a progressive dividend that grows sustainably in
line with ReSI's underlying inflation-linked rents and operational
optimisation initiatives. As we move into 2024, we will continue to look at
how we can drive best value for shareholders and add value to our portfolio,
including reviewing the options for further disposals should they support our
aim of maximising shareholder value and enable us to reverse the discount to
Net Asset Value at which our shares trade.
Our immediate focus is on driving the underlying operational performance of
our retirement portfolio, working closely with My Future Living, our
dedicated in-house property management team, to drive earnings. These
operational improvements will be led by our expanded Asset Management team,
led by Chris Carter Keall and are anticipated to be delivered via two primary
channels. Firstly, capital recycling via strategic disposals and reinvestment,
allowing rationalisation of the portfolio from a geographic perspective,
enabling cost savings and yield enhancement. Secondly, active asset management
initiatives will be employed to continue to drive lower voids and higher rents
on re-lets. Both these initiatives will deliver yield and earnings enhancement
while providing good quality housing for retirees at a fair and reasonable
rent.
To further align ourselves with shareholders, and reflecting our confidence in
unwinding the share price discount, Gresham House is reducing its management
fee to be based on the average of share price and NAV. This reflects our
confidence in the strength of the ReSI platform and the opportunity it can
deliver.
With strong demand, inflation-linked rents, and wide support for more
investment in affordable housing the outlook for ReSI remains strong. As
always, we are very grateful for the support of our shareholders during these
challenging times.
Ben Fry
Managing Director, Housing
4 December 2023
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 53.
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 Fund Manager
incorporates such ESG factors into the investment process through the ESG
decision tool, 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 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 through engagement with counterparties on
such matters.
The Fund Manager gives appropriate consideration to corporate governance and
the representation of shareholder interests. This is applied both as a
positive consideration and 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/2023/07/Real-Estate-UK-Housing-Sustainable-Investment-Policy-July-23.pdf
Housing Sustainable Investment Framework
At Gresham House, we break down the key environmental and social factors of
our investment strategy into six themes, which form the Housing Sustainable
Investment Framework ("the Housing Framework"). Measurable objectives and KPIs
have been identified for each theme.
Target outcome Measure of success
Additionality Increase the supply of UK affordable housing • # of new homes delivered
Affordability Construct new, high-quality housing affordable to low and average workers • % of affordable homes
• Affordability metrics - house price and ongoing costs
Customer service Achieve best-in-class customer service • Customer survey results
• Staircasing / moving home
Resident experience Ensuring delivery of high quality, safe homes • # of homes with access to outdoor and working space
• Walkscore
Environmental benefits Ensure new builds are energy-efficient and manage environmental footprint • % of homes with renewable generation on site
• % EPC A+, A and B
Community regeneration Investments that regenerate a particular site / area • % of housing in areas of need as defined by local authority
This year's reporting of the Company's performance against the measures of
success has been focused on those measures that relate to the ongoing
management of the portfolio. The key measures of success relating to ongoing
management are EPC ratings and the results of the customer survey. ReSI's
performance against these metrics is detailed in the Fund Manager's report.
The Company has not committed to any new acquisitions during the year and
hence hasn't reported on its performance against the measures of success that
relate to new acquisitions.
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 Housing Framework and to identify
potential ESG risks and opportunities. 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 Housing
Framework. 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.
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 August
2023, it was announced that Gresham House had met the expected standard of
reporting for 2022 and remained a signatory to the UK Stewardship Code 2020
for the third 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)
.
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% 27 (#_ftn27) 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. To this end, ReSI has
partnered with the consultancy, Kamma Data ("Kamma") to estimate the Scope 1,
Scope 2 and Scope 3 carbon emissions generated by its property portfolio in
the period.
ReSI is committed to improving the energy efficiency of its portfolio through
retrofitting where possible, ensuring that it remains ahead of government
legislation. During the year, ReSI instructed Kamma to produce a report on the
retrofitting procedures that are required to improve the energy efficiency of
ReSI's property portfolio further. The report found that whilst improving
property energy efficiency will drive a significant reduction in carbon
emissions, it is not possible for the portfolio to reach net zero through
retrofitting alone.
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 renewable energy sources for its properties.
This is an option that the Fund Manager is currently exploring, and will feed
into ReSI's net zero strategy to work with industry partners to achieve
complete net-zero (including embodied carbon) by 2050 at the latest, in line
with government targets.
Assessing the energy efficiency of ReSI's portfolio
ReSI monitors the energy efficiency of its portfolio 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.
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.
During the year, the government withdrew its proposal to mandate that directly
rented properties have a minimum EPC of C. This would have applied to new
rental tenancies from 2025 and all rental tenancies from 2028. This
consultation would not have applied to shared ownership which is classified as
owner-occupied rather than rented accommodation.
The change in government policy has not changed ReSI's target to upgrade 100%
of its directly rented EPC D rated units to a minimum of C by 2025 as part of
Project D, described in the Targets and Progress section of this Annual
Report. We believe energy efficiency will continue to be a focus for residents
and reducing energy bills will support affordability and help drive long-term
value for our portfolio.
Calculating ReSI's environmental impact: energy efficiency ratings (EPCs)
At the year end date, 86% of ReSI's portfolio was EPC rated C or higher, up
from 85% last year. This rises to 98% for ReSI's directly-rented homes, up
from 96% last year.
Less than 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.
(2) English Housing Survey, 2021-2022
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 3,295, sample of 96% assessed
· Total directly-rented properties 1,915, 100% of properties assessed
Our targets and progress
ReSI is committed to positioning its portfolio ahead of government
requirements, not only to prevent homes with poor energy efficiency ratings
from being rented, but because we believe improving the efficiency of our
homes will increase demand from residents. To this end, the following steps
have been taken in FY 2023 as part of Project D.
Directly Rented Units: ReSI has continued to make progress on Project D, the
workstream to upgrade 100% of its non-exempt directly rented properties to a
minimum of EPC C by 2025. During the year, a further 33 directly rented
properties were upgraded from a D to a C, with 146 (78%) of the properties
that were D rated at the beginning of Project D now having been upgraded to a
C. The remaining non-exempt directly rented D rated properties are expected to
be upgraded to a C by 2025
Housing Manager Flats (HMFs): In addition to upgrading the directly rented
units, ReSI has continued to make progress on upgrading the energy efficiency
of the HMFs in its retirement portfolio. The HMFs are on license to a third
party who is responsible for the maintenance of the properties, however ReSI
has worked with the counterparty to improve the efficiency of the portfolio,
evidenced by the percentage of HMFs with an EPC rating of D or below dropping
from 25% in FY 2022 to 19% in FY 2023.
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. The energy efficiency improvements
carried out during the year came at a cost of £517k, evidencing ReSI's
commitment to reducing carbon emissions across the portfolio.
The potential impact of climate change on ReSI and mitigation methods
In addition to the regulatory risks relating to property energy efficiency,
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.
- Demand: Our sales and letting teams continue to see higher levels of
demand for more energy efficient homes as first identified in 2022, 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.
Sustainable approach to new investment
ReSI's policy for acquiring new build homes is that they must have a minimum
EPC rating of a B. 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.
Calculating ReSI's environmental impact: carbon emissions
Kamma have estimated the carbon emissions produced by ReSI during the period.
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.
ReSI's carbon emissions for the period are disclosed in line with the
recommended EPRA disclosures in the section below.
The Company invests in UK residential real estate only and hence all emissions
disclosed relate to UK residential real estate investment.
Scope 1 and 2 emissions
EPRA sBPR Performance Measures Assessed: GHG-Dir-Abs
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, as is the case for some shared ownership
properties that were vacant during the year, they are classified as Scope 1.
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 classified under Scope 3.
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. As a result, the Company's Scope 1 and 2 emissions are
equivalent to the landlord's emissions.
Emissions Category The Landlord's Carbon Emissions - Tonnes Co2
2022 2023
Scope 1 1.5 11.7
Scope 2 74.1 51.0
Total 75.6 62.7
Scope 1 emissions have increased due to a higher number of shared ownership
properties which use gas being vacant during the period and Scope 2 emissions
have decreased due to reduced consumption from the vacant retirement
properties.
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 2023 annual reporting.
None of ReSI's properties were in development during the financial year and
hence Scope 3 emissions from embodied carbon emitted during the development
process were 0 for the period. This is compared to 1,172 tonnes Co(2) in FY
2022, driving a significant decrease in total Scope 3 emissions for the
period.
Scope 3 emissions - residents and shared owners
The carbon emissions produced by residents in 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. ReSI's carbon emissions have been calculated in line with the
PCAF Global GHG Accounting and Reporting Standard.
These values are presented for 3,295 properties that ReSI had acquired at 30
September 2023 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
EPRA sBPR Performance Measures Assessed: GHG-Indir-Abs
2022 2023
Number of 28 (#_ftn28) properties Total Energy Consumption (GWh) Tonnes Co2 emissions Number of properties Total Energy Consumption (GWh) Tonnes Co2 emissions
ReSI plc 3,243 40 3,670 3,295 38 3,552
Scope 3 Emissions Intensity
EPRA sBPR Performance Measures Assessed: Energy-Int, GHG-int
2022 2023
Total m^2 Energy Intensity (kWh / m^2) Emissions Intensity (Kg co2 / m^2) Total m^2 Energy Intensity (kWh / m^2) Emissions Intensity (Kg co2 / m^2)
ReSI plc 158,446 162,260
254 22 239 21
Total energy consumption across the portfolio has decreased by 4% and carbon
emissions decreased by 2%, despite the number of properties having increased
by 2%. Energy and emissions per floor area also reduced year on year, by 6%
and 4% respectively. The decrease in total emissions and emissions per floor
area is due to the Company completing on new build shared ownership properties
in FY 2023 with high levels of energy efficiency and due to the work done
through Project D to improve the efficiency of the retirement portfolio.
Energy consumption by energy source 29 (#_ftn29)
EPRA sBPR Performance Measures Assessed: Elec-Abs, Fuels-Abs
2022 2023
Gas Electricity LPG Renewable Total Gas Electricity LPG Renewable Total
ReSI plc (GWh) 7.60 32.91 0.15 0.00 40.65 7.28 31.68 0.16 0.00 39.12
There has not been a material change in the source of the energy used by the
Company. The energy used by the company materially comes from gas and
electricity, with consumption from both sources decreasing during the year due
to the improved energy efficiency of the portfolio.
Total carbon emissions summary
Emissions Category EPRA Disclosure Code Total Carbon Emissions - Tonnes Co2
2022 2023
Scope 1 GHG-Dir-Abs 1.5 11.7
Scope 2 GHG-Dir-Abs 74.1 51.0
Scope 3 GHG-Indir-Abs 4,643.9 3,418.4
Total carbon emissions 4,719.5 3,481.1
ReSI will continue to push forward with its sustainable investment targets in
FY 2024, with the intention of reducing its carbon emissions further.
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, as well as instructing impact consultant, The
Good Economy, to perform an impact assessment of the Company.
The Good Economy report
The Good Economy ('TGE'), are an independent impact consultant who have been
instructed by ReSI to produce an impact report that quantifies the impact
generate by the Company during the year.
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/).
Social Outcomes
The Good Economy's report focused on the four key impact objectives for ReSI.
How has ReSI performed against TGE's impact objectives?
Objective
Shared Ownership 72% of properties in the least affordable local authorities 99.7% of homes are affordable at the green and amber levels Room for improvement: ReSI did not have sufficient capital invest in new build properties during FY
2023.
Some residents living in apartments dissatisfied
Average resident saves £44 per month compared to privately renting the with maintenance of communal
equivalent property
areas and rise
in service charges
Retirement 95% valued the assured 23% of residents in receipt of Housing Benefit 85% of residents satisfied would recommend ReSI to a friend 31 (#_ftn31) Merge with cell above
lifetime tenancy
as important Retirement rents are below the average lower quartile private rent level 30
(#_ftn30)
Address social need
Shared ownership: House prices in England are on average eight times greater
than the average person's earnings 32 (#_ftn32) , making the average home
unaffordable to the average worker. TGE has found that 72% 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.
Retirement: ReSI's retirement portfolio provides residents with specialist
accommodation that is well maintained, offers security of tenure, and allows
retirees to be part of a community. 95% of residents said they valued the
assured lifetime tenancy offered by ReSI as important, with the low void rate
of ReSI's properties evidencing the demand for the tenure.
Provide affordability and value for money
Shared ownership: When assessed through TGE's person centred affordability
calculator, 99.7% 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.
TGE found that on average, ReSI's shared ownership residents save £44 per
month when compared with renting an equivalent home locally on the open
market. ReSI has ensured its properties remain affordable to residents through
capping rent increases below inflation at 7%.
Retirement: The rents charged on ReSI's retirement properties include service
charge, providing residents with, amongst other things, 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, evidenced through 23% of residents funding rent
payments through housing benefit.
ReSI ensured that retirement rents remained affordable to residents during the
year by continuing to apply a 6% rent cap to rent increases. The rent cap has
generated annualised savings of £1.0mn for residents compared to increasing
rents with RPI.
In addition to applying the rent cap, ReSI works collaboratively with
residents who are in financial difficulty, offering bespoke solutions such as
checking welfare eligibility, offering residents cheaper properties within the
development and reduced rent increases. The reduced rent increases offered by
ReSI generated a total annualised saving for residents of £68k, taking the
total annualised saving from ReSI capping rents to £1.1mn.
Build quality partnerships
Shared ownership: For the 62% of properties where ReSI owns the freehold, it
has appointed its internal property manager, ReSI Property Management Limited
(RPML), as the property manager. 77% of residents in RPML managed buildings
said they were happy or not dissatisfied with the service provided.
For the 38% of properties where ReSI owns the long leasehold rather than the
freehold (apartments), it is unable to appoint the property manager or the
managing agent and hence is less able to directly influence building
management, in particular the management of communal areas and setting the
service charge levels. ReSI continues to work proactively with its external
property managers and ensures that they comply with KPIs, however going
forward ReSI will target investing in properties where it is able to own the
freehold to give it greater control over management.
Retirement: RPML manages the majority of the retirement portfolio and has
continued to provide a high quality service to residents. When asked to rate
the likelihood of recommending My Future Living to a friend, 85% said 6 or
higher (with 10 being the highest). In addition, 89% of residents said they
were happy or not dissatisfied with their property management service.
Increase supply
There have been no significant changes to either the shared ownership or
retirement rental portfolio over that last year due to ReSI having completed
its deployment and being unable to raise new capital with its share price
trading at a discount to Net Asset Values.
Cost of living
Rising interest rates, inflation and energy bills have increased the cost of
living for everyone over the past year. 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.
Rent increases
ReSI took the decision to cap the April 2023 shared ownership rent increase at
7%, below their contractual level of 13.1%, saving residents £222k in
annualised rent.
For the retirement portfolio, ReSI chose to apply the contractual cap to rent
increases of 6%, generating annualised savings of £1.0mn for resident
compared to increasing rents with RPI.
With UK wage inflation for the period averaging 8.5% 33 (#_ftn33) , the rent
caps applied by ReSI have ensured that rent levels remain affordable to the
average resident.
Mortgage rates
2023 has seen interest rates rise significantly in the UK, with the best
widely available rate on a two-year fixed rate mortgage currently at 5.5% 34
(#_ftn34) . With rates having been elevated since October 2022, many of our
residents will now be on mortgages with higher rates. As shared owners only
own a portion of their home (37% on average for our residents), the impact of
increased mortgage costs is significantly reduced compared to someone who owns
outright.
Energy bills
Energy prices have reduced from their peak last winter, with the energy price
cap falling to £1,834 in October 35 (#_ftn35) . That said, the cost of
energy is still 61% 36 (#_ftn36) greater than its level in 2021.
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, compared to the average for a UK property of
EPC D. The energy efficiency of ReSI's properties is saving shared ownership
and retirement residents £661 and £248 37 (#_ftn37) per year respectively
compared to the cost of energy at an average UK property, helping to insulate
residents from the full impact of elevated energy costs. This saving was
calculated by The Good Economy, and has been scaled up for the change in the
energy price cap since The Good Economy's calculation date.
Annual cost of energy Saving compared to typical UK property - EPC D
Property with efficiency of average for ReSI shared ownership portfolio - EPC £1,173 £661
B
Property with efficiency of average for ReSI retirement rental portfolio - EPC £1,586 £248
C
Cost-of-living: Financial impact on our residents
To assess the impact of the rising cost of living on residents holistically,
we have quantified the different housing cost increases experienced for a
typical resident.
Shared owners
The table below shows that a typical shared ownership resident who is
refinancing their mortgage at today's rates can expect to see an increase in
their housing costs and energy bills of 12% compared to April 2022, whilst
residents with mortgage rates that are fixed will see their costs increase by
4%. Whilst ReSI acknowledges that a rise of up to 12% in housing costs is
significant, these cost increases are driven by mortgage rates outside of our
control, and shared ownership remains significantly cheaper than renting the
equivalent property privately or owning outright, with a typical outright
owner who is refinancing seeing a 25% increase in their housing costs this
year.
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 7,688 8,226 538 7%
rates 38 (#_ftn38)
Mortgage Costs 3,579 4,644 1,065 30%
Energy Bills 39 (#_ftn39) 1,261 1,173 -88 -7%
Total 12,528 14,043 1,515 12%
Typical ReSI Shared ownership Resident with fixed rate mortgage Rent and service charge 7,688 8,226 538 7%
Mortgage Costs 3,579 3,579 -00 0%
Energy Bills 1,261 1,173 -88 -7%
Total 12,528 12,978 450 4%
Typical UK outright owner 40 (#_ftn40) Mortgage Costs 14,315 18,577 4,263 30%
Energy Bills 1,971 1,834 -137 -7%
Total 16,286 20,411 4,126 25%
Typical UK rental accommodation 41 (#_ftn41) Housing Costs 14,700 16,244 1,544 11% 42 (#_ftn42)
Energy Bills 1,971 1,834 -137 -7%
Total 16,671 18,078 1,407 8%
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 for the typical average private renter.
2022 2023 Increase %
£ £ £
ReSI Retirement resident 43 (#_ftn43) Rent 10,200 10,812 612 6%
Energy Bills 44 (#_ftn44) 1,704 1,586 -118 -7%
Total 11,904 12,398 494 4%
Equivalent average private rental property 45 (#_ftn45) Rent 10,200 11,271 1,071 11% 46 (#_ftn46)
Energy Bills 1,971 1,834 -137 -7%
Total 12,171 13,105 934 8%
The assessment shows that although retirement residents have seen their costs
increase significantly in 2023, the increase will have been 47% less than the
increase that they could have expected to have experience if they were renting
the equivalent property (with an EPC rating of D, the UK average) on the open
market.
In addition, the state pension is expected to increase in April 2024 at around
8% in line with earnings September 2023 earnings 47 (#_ftn47) . This increase
is well above the capped rent increase of 6.0%
Governance
Governance and ethics
The Directors and the Fund Manager 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 an 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.
Acquisitions of regulated housing tenures, such as shared ownership, are
subject to additional governance and ethics oversight. These assets are owned
by ReSI's wholly owned subsidiary, ReSI Housing, which is registered with the
Regulator of Social Housing (RSH) as a for-profit Registered Provider, and
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;
• Gillian Rowley, former Head of Private Finance at the Homes &
Communities Agency; and
• Mark Rogers, former Chief Executive of Circle Anglia Housing Group.
More information on the ReSI Housing Board can be found on page 67.
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), this will move to 33% female
representation post the retirement of John Carleton with effect from 22
February 2024.
The ReSI Housing Board contains three non-executive directors that are
independent of the Fund Manager, (with 33% 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.
Information regarding the Company's Board Diversity Policy and compliance with
FCA Listing Rule 9.8.6R(9) can be found on pages 78, 79 and 80.
Board information
It is the responsibility of the 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 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 64 to 82.
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 continued to work with The Good Economy,
and Kamma Data to quantify our impact (see pages 40 to 50).
In addition, the Fund Manager maintains a 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 21 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 Chair meets separately with ReSI's largest shareholders.
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
and helping retirees live with likeminded peers), fiscal savings (e.g. lower for service improvement and to learn from any complaints about service
costs for housing those at risk of homelessness and savings to the NHS), and delivery. The safety and wellbeing of residents is of the highest priority and
wider economic benefits (e.g. by enabling people to live and find work in when making an investment the Fund Manager is rigorous in using the skills and
otherwise unaffordable parts of the country). The social impact delivered by expertise of its property team to provide high quality homes and identify and
ReSI is reported on page 46 mitigate all risks to residents.
In addition, the Fund Manager conducts an annual satisfaction survey for
ReSI's retirement and shared ownership residents, affording these residents an
opportunity to comment on the services received. This is supported by, in the
case of shared ownership residents, opportunities to speak at ReSI Housing's
Service Improvement panel, established as part of its Customer Engagement
Strategy.
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. to its objectives and investment policy and strategy.
The Fund Manager performs investment management services to ReSI in accordance The Board receives and reviews regular reports and presentations from the Fund
with the Alternative Investment Fund Managers Directive 2011/61/EU as Manager and seeks to maintain regular contact to maintain a constructive
implemented into UK law by the Alternative Investment Fund Managers working relationship.
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
has access to high quality homes to lease to its residents, improving quality The Fund Manager has regular contact with property managers, estate managers
of 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 153 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 continued appointment is in the best interests of the
Company's shareholders. Throughout the year-ended 30 September 2023, the Board
had 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.
Each of these grant providers is a long-term investment partner in ReSI
Housing.
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
Rebasing of dividend Shareholders The Board discussed and approved on 22 November the rebasing of the dividend
from 5.16 pence per share to 4.12 pence per share
The Board's decision was based on the impact of rising interest rates on
dividend cover, as well as the desire to pay a full-covered progress dividend
whilst investing to maximise the growth of the portfolio value.
Disposal of non-core assets Shareholders, Fund Manager The Board has discussed and approved the in principle disposal and/or
restructuring of Eaton Green Court and Wesley House, being the Company's local
authority portfolio subject to end leases with Luton Borough Council.
An in principal disposal of the local authority portfolio was discussed as
being in the best interest of shareholders as it would eliminate ReSI's
floating rate debt and leave ReSI with only its long term debt that has a
weighted average maturity of 21 years. Further, it would focus ReSI on
retirement and shared-ownership which are expected to deliver superior
long-term returns.
As at the date of this Annual Report, these assets are under offer and in
legals with an expectation this will complete in early 2024.
Repayment of debt secured on non-core assets Shareholders, Lenders The Board approved the repayment of all amounts owing to National Westminster
Bank plc.
The final repayment date in the floating rate loan provided from National
Westminster Bank plc had been extended and additional extensions were no
longer considered economical and additive to shareholders. Unencumbering the
non-core assets was also considered beneficial ahead of their disposal.
Aborting the Company's intended equity raise in Autumn 2022 Shareholders The Board intended to look to raise further capital in Autumn 2022 in order to
grow ReSI and drive shareholder returns. This was postponed following the
Residents market dislocation in September 2022 and later aborted due to the persistent
discount to net asset value, which would have rendered equity raising dilutive
Property Managers & Developers to shareholders.
Fund Manager
Risk Management
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. This year, the Fund Manager undertook a
rationalising exercise to enhance the clarity of the risk reporting for the
Board.
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 currently be the principal risks and
uncertainties:
Risk Risk mitigation Party responsible Party responsible for monitoring Change in risk over last financial year
Company and its Operations
The Company is not managed or promoted in a way that generates investor · Ongoing review of Fund Manager's investment performance and performance of Fund Manager Board No Change
demand, allows it to scale or allows the Company to meet its investment or all service providers
return objective
· Engagement of corporate broker
· Regular review of NAV and share price performance including discount to
listed REIT sector
· Fund Manager and corporate broker monitor discount/premium and Board
considers this at each meeting
· Fund Manager monitors marketing and distribution activity undertaken by the
Company
· Appointment of a financial public relationship firm
· Leveraging of the expertise and network of the Gresham House marketing and
distribution teams
· Board monitors investment performance and risk against investment
objectives and strategy at each meeting and as necessary
· Board monitors portfolio against investment restrictions
· The Fund Manager has a sustainable investment policy, which is used to
inform investment decisions, and has partnered with The Good Economy, Kamma
and other knowledgeable third parties to understand our impact on the
environment and enhance our reporting
The Company's Ongoing Charges are too high · Future Fund Manager fee has been reduced to average of NAV and share price Fund Manager Board Higher
(previously just based on NAV). See note 31.
· Fund Manager is not entitled to any performance related fee or fees in
connection with any sales of assets to the Group
· Fund Manager looks to benchmark fees of third parties where possible
· Fund Manager conducts Value Assessments under the FCA's Consumer Duty
The Company's targeted returns are based on estimates and assumptions that are · Fund Manager regularly monitors assumptions Fund Manager Board Higher
inherently subject to significant uncertainties and contingencies, and the
actual rate of return may be materially lower than the targeted returns · Legal and property due diligence performed to confirm rights and condition
of stock
· Use of reputable third-party valuers
Investment Philosophy
Assumptions underpinning leverage are subject to uncertainties and · Debt has been and will typically be structured to match the anticipated Fund Manager Board Higher
contingencies cash flows from the secured assets
· Rating agency review of ReSI Housing's debt provides independent review of
this leverage
· Amortisation of ReSI Housing's debt is generally financed out of
staircasing cash flows , whose long-term average rate is 2.5% per annum and
which typically range between 1% and 5% (where staircasing rates are lower
than expected the sales proceeds account, containing staircasing proceeds, can
be accessed for amortisation purposes). If staircasing rates are low, this
could require net rental income to be re-directed to funding this debt
amortisation, and will not be available for dividends
The Group's investments will be illiquid and may be difficult or impossible to · The Group's aim is to hold the assets for long-term income and the Group Fund Manager Board No Change
realise at a particular time will not look to sell them if the market conditions are not right
· Returns targets are not premised on capital appreciation and disposals
· Debt has been and will be used to match the underlying cash flows of the
asset (and the Group is not therefore incentivised to dispose of assets that
will create a mismatch)
Significant or material fall in the value of the property market · The aim of the Group is to hold the assets for long-term inflation-linked Fund Manager Board No change
income (typically 20 years and longer)
· The Board will assess market forecasts on a quarterly basis to put in place
mitigations in the event of 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 / approach accordingly
· The Company does not intend to rely on realised revaluation gains to cover
dividend payments
· The Company focuses on areas of the market with limited and ideally
countercyclical exposure to the wider property market
Liquidity
The Group has insufficient liquidity available to meet obligations as they · The Fund Manager regularly reviews the Group's Business Plan against the Fund Manager Board Higher
fall due (including any debt repayment obligations) Group's recent and anticipated activities to assess future liquidity
requirements
· The Group typically uses long-term amortising debt, reducing refinancing
risk
· The Group has access to a working capital facility with Santander of £25mn
on which £20.6mn is currently drawn (there is a scheduled clean down in
December 2024 that is expected to be met through asset sales, which are
currently in exclusivity. Further contingency plans, including bridge
financing and raising additional secured portfolio debt, have been reviewed
and assessed)
Exposure to SONIA · Revolving debt facility is typically used for working capital and bridging Fund Manager Board Higher
purposes only
· Liability management is kept under constant review
· Restructuring and sales efforts for the local authority portfolio are
ongoing (and are expected to enable the paydown of revolving amounts drawn)
Breach of Loan Covenant (particularly in light of falling property values) · Strong suite of covenant reporting prepared quarterly Fund Manager Board Higher
· Ongoing Fund Manager review of loan performance and covenant headroom
· Liability management under constant review
· Board is kept up-to-date
Legal, Regulatory & Taxation
Failure of ReSI Housing to continue to meet the Regulatory · The Fund Manager continues to develop ReSI Housing's governance and · The Fund Manager continues to develop ReSI Housing's governance and Fund Manager Board Higher
operational structure with third parties, reflecting the maturity and growth operational structure with third parties, reflecting the maturity and growth
Standards of its portfolio of its portfolio
· ·
Failure to remain a qualified REIT, rental income and gains become subject to · The Company utilises third party legal, accounting and tax advisors · The Company utilises third party legal, accounting and tax advisors Fund Manager Board Higher
UK corporation tax
· The Fund Manager monitors HMRC, FCA and other public announcements for any · The Fund Manager monitors HMRC, FCA and other public announcements for any
relevant release affecting the Company relevant release affecting the Company
Going Concern and Viability Statement
Going concern
In light of the current macroeconomic backdrop, the Directors have placed a
particular focus on the appropriateness of adopting the going concern basis in
preparing the Group's and Company's financial statements for the year ended 30
September 2023. In assessing the going concern basis of accounting the
Directors have had regard to the guidance issued by the Financial Reporting
Council.
Financial models have been prepared 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.
Liquidity
The Directors have considered the Group's cash position, income and expense
flows. As at 30 September 2023 the Group's net assets were £168.7mn and the
Group held cash and cash equivalents of £8.8mn. Net rental income for the
year ended 30 September 2023 was £17.1mn. The total ongoing operating
expenses (excluding finance costs, taxation and aborted acquisition and
fundraising costs) for the period ended 30 September 2023 were £3.3mn,
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 and are checked for affordability.
The secure long-term nature of the income is further evidenced by:
· the Company's shared ownership portfolio is fully occupied, and rents
are typically 30% below market value;
· the Company's stabilised retirement portfolio occupancy rates are
typically in excess of 94%, and currently at 96%, 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.
Refinancing events
The Santander facility includes a contractual clean down provision requiring
the facility to be paid down on the 31 December 2024. It can subsequently be
redrawn five business days later. The clean down is expected to be met via the
sale of the local authority portfolio, for which the Group has received a
number of offers and which are in an advanced sales process with reputable
purchasers, with financial close expected in early 2024. In the event sales do
not complete, the Board have assessed and concluded the following mitigants,
are realisable, enabling the clean down to be met:
· Securing a bridge facility
· Upsizing of the Scottish Widows facility and securing additional debt
secured on unencumbered assets
Aside from the Santander facility, the Group has a 21-year weighted average
debt maturity with the earliest refinancing requirement of June 2043.
Covenants and stress testing
The ReSI portfolio delivers high-quality cash flows that are resilient through
economic cycles. ReSI also has headroom on its financial covenants and, after
conducting various stress tests and sensitivity analyses, could withstand a
prolonged drop in net income of 40% 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.
The Group's tightest local to value covenant is in its working capital
facility with Santander, currently 51% compared to the covenant of 55%.
Sensitivity analysis shows that a fall of more than 7% in the value of the
secured assets would result in a loan covenant breach. We estimate that ReSI's
weighted average valuation yield would need to shift outward by a further
c.40bps for this valuation loss to be realised, on top of the c.80bps widening
since September 2022. The local authority portfolio is under offer and in
legals for sale with an expectation that these will complete in early 2024,
and allow us to repay the Santander facility. ReSI's other LTV covenants still
have ample headroom and ReSI's USS debt on its shared ownership portfolio is
fully amortising and so does not have a loan to value debt covenant.
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 58 to 60 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 2028.
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 for working
capital and the reduction or suspension of dividend payments.
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 2028. 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 is 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 4 December
2023.
Rob Whiteman
Chairman of the Board of Directors
4 December 2023
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 CIPFA Business Ltd
Director of the Koru Project CIC F
Director of Eagles Crest (Poole) Limited
Director of Lilliput Advisory Ltd
Chair, University Hospitals Dorset NHS Foundation Trust
Robert Gray
Senior Non-Executive 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
27 April 2020
Skills, competence and experience:
Significant housing and construction experience, with a strong background
running complex organisations and projects.
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 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 an 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 David Orr, Gilian Rowley, Ben Fry, Mark
Rogers, Pete Redman and Sandeep Patel. 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.
Mark Rogers
Non-executive Director
Appointed
31 August 2023
Mark was previously 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.
Mark stepped down from his executive role, over the summer of 2023, but
continues as a Non-execuctive director of ReSI Housing. Prior to joining,
TradeRisks and ReSI Capital Management in 2018, 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.
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 2023.
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 Statement beginning on page 76, which forms part of the Directors'
Report.
Powers of the Board
The general powers of the Directors are set out in Article 100 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 loss for the year was £23.2 mn and the IFRS earnings per
share were (12.5)p. 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 4.
A full portfolio listing can be made available on request.
Dividend policy
Following the non-core asset disposals and subsequent dividend rebasing, the
Company is targeting, to pay on a quarterly basis an annual dividend of 4.12p,
which the Company then expects to progressively increase. It is the Company's
intention to pay dividends to shareholders on a quarterly basis and in
accordance with the REIT Regime.
The Company is 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 2023
In line with the Company's historic 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 5.16p was paid as PID. These were declared
in December 2022 and January, June and July 2023 with the first being the
fourth interim dividend for the year ended 30 September 2022.
The Board declared a fourth interim dividend in respect of the quarter to 30
September 2023 of 1.03p per Ordinary Share, which will be payable on 17
January 2024 to shareholders on the register at the close of business on 15
December 2023. The ex-dividend date is 14 December 2023 and the full amount
will be paid as PID.
Management - Fund Manager
During the year under review, ReSI Capital Management Limited (part of the
Gresham House group) was 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.
Appointment of the Fund Manager
The Board has discretion to monitor the performance of the Fund Manager and,
to appoint a replacement Fund Manager.
Since year end, and with effect from 1 October 2023, the Company agreed to
novate their appointment of ReSI Capital Management Limited as alternative
investment fund manager to Gresham House Asset Management Limited. ReSI
Capital Management Limited and Gresham House Asset Management Limited have
common ultimate beneficial owners and, accordingly, there is no substantive or
operational changes and the fund management delivery team remains unchanged.
The change of the Fund Manager is considered by the Board to be in the best
interests of shareholders as a whole. The performance of the current team is
satisfactory and the Fund Manager is well placed 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.
Fund Management Fee
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, 607,947 Ordinary Shares were awarded to the Fund Manager as part
of the Fund Management Fee.
Since year end, as per the announcement on 3 October 2022, 157,271 Ordinary
Shares were purchased in the secondary market at an average price of 60p 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 £1,978,000 (2022: £1,769,000)
in respect of costs incurred in providing property management services and
£155,000 (2022: £166,000) in respect of non-recurring costs.
Depositary
During the year under review, Thompson Taraz Depositary Limited was appointed
as depositary to provide cash monitoring, safekeeping and asset verification
and oversight functions as prescribed by the UK AIFM Regime.
Since year end and with effect from 1 October 2023, the Company approved the
replacement of Thompson Taraz Depositary Limited with Indos Financial Limited
as the Company's depositary.
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 2023 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. As at 30 September 2023, 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.
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 154.
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 allot shares
The authority to issue new shares granted at the Annual General Meeting (AGM)
held on 31 January 2023 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 £3370,326.56 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 120 and 11 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.
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 2023, 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 31 January 2023 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 22 February 2024. 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 going concern of the Company is set out on
pages 61 to 63.
Continuation vote
Under the Articles of Association of the Company, the Directors were 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.
The first continuation resolution was presented and passed by shareholders at
the AGM on 31 January 2023, with 99.96% of proxy votes cast in favour of the
resolution. The next continuation vote is scheduled to be presented to
shareholders at the AGM in 2028.
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 to be convened by the Board for a date not
more than six months after the date of the meeting at which the continuation
resolution was not passed.
Significant shareholdings
As at 30 September 2023, 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
Schroders plc 20,571,781 11.11%
Close Asset Management Limited 18,427,998 9.95%
CG Asset Management Ltd 13,206,949 7.72%
Halb Nominees Limited 11,560,797 6.76%
Gravis Capital Management 9,049,470 5.29%
City of Bradford - West 9,750,000 5.27%
Yorkshire Pension Fund
Premier Miton Group plc 7,699,945 4.50%
City Asset Management PLC 6,958,858 3.76%
Since 30 September 2023 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
Schroders plc 22,296,708 12.04%
Close Asset Management Limited 4,373,477 2.36%
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 51 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 2023.
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 2023.
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 46.
Under Listing Rule 15.4.29®, 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 40 to 50.
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 70 to 71 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 22 February 2024 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 13, 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 (2022: nil).
Future developments
The outlook for the Company is discussed in the Chairman's Statement on page
8.
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 2022 to 31 March 2023.
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 During the period, the Company has not issued or allotted any equity
securities within the meaning of LR 9.8.4 (7), (8) and (9).
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
4 December 2024
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, which 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 2023, 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 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 65 to 66.
The Board believes that during the year ended 30 September 2023 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.
Reflecting on the current economic environment and the impact this has had on
the growth of the Company, the Board has decided to take steps to reduce the
size the Board as well as balance the diversity of the Board for the benefit
of the Company's members and to help promote the success of the Company. With
this in mind, since year end, the Board has agreed that John Carleton will
retire as a Director of the Company with effect from 22 February 2024 and
accordingly will not stand for re-election at the Company's forthcoming AGM in
2024.
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 remained a focus during the
year. 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 and re-appointment policy (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 78 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,
Directors will stand for annual re-election and the performance of each
Director will be appraised by the Board annually, prior to the AGM. In light
of John Carleton's planned retirement with effect from 22 February 2024, he
will not seek re-election at the Company's forthcoming AGM in 2024.
Accordingly, resolutions to re-elect Rob Whiteman, Robert Gray and Elaine
Bailey 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/).
In accordance with the AIC Code, 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 has held 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 pages 83 to 85.
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 89.
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 Audit Committee
(6 meetings held) (3 meetings held)
Rob Whiteman 6 3
Robert Gray 6 3
John Carleton 6 3
Elaine Bailey 6 3
There were six Board meetings and three Audit Committees meetings held during
the year to 30 September 2023. Additional sub-committee meetings of the Board
were also held during the year in respect of payment of dividends, approval of
NAV, approval of financial statements and results, and other administrative
matters and approval of documentation. All Directors also attended a Company
Strategy Session in March 2023.
Board diversity
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 FTSE Women Leaders Review, the Hampton-Alexander
Review, the Parker Review and the FCA Listing Rules and Disclosure Guidance
and Transparency Rules.
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 the composition of the Board,
taking into consideration the steps being taken to reduce the size the Board
as well as balance the diversity of the Board. its current composition. One
Director (25% increased to 33% from 22 February 2024) of the ReSI Board,
Elaine Bailey, is female.
The below tables set out the directors' gender or sex and ethnic background:
In accordance with Listing Rule 9 Annex 2.1, the below tables, show the gender
and ethnic background of the Directors as at 30 September 2023.
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*
(2 as of 22 February 2024) (67% as of 22 February 2024)
Women 1 25%
(33% as of 22 February 2024)
Not specified/prefer not to say - -
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*
Mixed/Multiple Ethnic Groups 0 0 0
Asian/Asian British 0 0 0
Black/African/Caribbean/Black British 0 0 0
Other ethnic group, including Arab 0 0 0
Not specified/ prefer not to say 0 0 0
* This column is not applicable as the Company is an externally managed real
estate investment trust and does not have executive management functions,
specifically it does not have a chief executive officer or chief financial
officer. The chair of the Board and the Senior Independent Director are both
men. The chair of the Audit Committee is also male.
The information presented in the above tables was collected on a
self‑reporting basis by the Directors, who were asked to indicate which of
the categories specified in the prescribed tables were most applicable to
them.
As at 30 September 2023, the Company has not met the following targets on
board diversity set out in the FCA Listing Rule 9.8.6R(9):
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
Although supportive of the targets, the Company has not been able to meet the
targets set by the FCA Listing Rules. For reasons set out above, the target of
at least one senior board positions held by a women is not applicable to the
Company.
As a Board of four Directors, the size of the Board and the Company provides a
challenge to achieving the FCA Listing Rules gender and ethnicity 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. Although 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, John Carleton will not be standing for re-election at the 2024
AGM, which will increase the gender diversity of the Board from 25% to 33%
women.
In light of the current economic environment and the impact this has had on
the growth of the Company, the Board does not believe that at this time it
would be in the best interests of the Company and its members to incur the
expense of appointing an additional director.
In order to take steps towards embedding the Board Diversity Policy and the
Board Tenure Policy, encouraging diversity, and achieving the FCA Listing Rule
diversity targets, the Board will continue to review succession plans during
the year ending 30 September 2024. The centrepiece of which will be the gender
and ethnic diversity of the Board. In accordance with the Company's 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. The Board will ensure that
active steps are taken to search for, and attract, gender and ethnically
diverse candidates when recruiting new directors.
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 2024. The Board remains 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 70.
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 58 to 60.
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 90 and the Going Concern and Viability Statement is on pages 61 to 63.
The Independent Auditor's Report is on pages 92 to 99.
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 regulations
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 58 to 60. 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 53 to 57.
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 40 to 50 for
details.
For and on behalf of
Computershare Company Secretarial Services Limited
Company Secretary
4 December 2023
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. As endorsed by the AIC Code, 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 as he was independent on appointment and remains independent. His
contributions are beneficial to the Audit Committee due to his recent and
relevant financial experience. Details of the Committee members' experience
can be found on page 65 to 66.
Meetings
There have been three Audit Committee meetings during the year ended 30
September 2023. 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 78.
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
2023:
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 annual 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
2023 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 58 to 60.
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 audit of the 2023 Annual Report and Accounts
was £259,000 (30 September 2022: £228,000 - including overrun fees of
£50,000). 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 18
September 2023, 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 £45,000 in respect of non-audit services in the
year to 30 September 2023 (2022: £34,000). These services were in respect of
the interim review of the Interim Report for the period ended 31 March 2022
(£34,000). 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 2023 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. The fees set out above are exclusive of VAT
and disbursements.
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, Richard Levy, was appointed as the audit partner from
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 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.
CMA Order
Throughout the year ended 30 September 2023, the Company has complied with the
provisions of the Statutory Audit Services Order 2014, issued by the
Competition and Markets Authority (CMA Order).
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 2023, 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
4 December 2023
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 92 to 99.
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 78. 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.
The resolution was passed with proxies representing 99.16% of the shares voted
being in favour of the resolution.
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 2024. A
copy of the policy is included in the Company's Annual Report for the year
ended 30 September 2021. 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 97.
A non-binding ordinary resolution to approve the Directors' Remuneration
Implementation Report contained in the Annual Report for the period ended 30
September 2022 was put forward and passed at the AGM held on 31 January 2023.
The votes cast by proxy were as follows:
Directors' Remuneration Report
Number of votes Percentage of votes cast
For and discretionary 109,110,051 99.61%
Against 425,253 0.39%
Votes Withheld 13,149 -
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.
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 are annually considered by the Board for re-election. Rob
Whiteman, Robert Gray and Elaine Bailey will retire and stand for re-election
on a voluntary basis at the AGM on 22 February 2024.
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 2023.
Directors' emoluments for the year ended 30 September 2023 (audited)
The Directors who served during the year received the following remuneration
for qualifying services.
Fees from 1 October 2022 to 30 September 2023 Fees from 1 October 2021 to 30 September 2022 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
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.
2023 2022 Change
£'000 £'000 £'000
Net Property Income 18,514 17,526 988
Directors' fees 155 155 0
Operating expenses 3,805 3,221 584
Dividends paid and payable to shareholders 9,553 9,194 359
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 percentage of Dividends and Expenses.
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 2023, the
Directors' beneficial shareholdings were as follows:
30 September 2023 30 September 2022
Robert Whiteman 100,000 80,000
Robert Blackburn Gray 399,238 207,148
John Carleton 4,850 4,850
Elaine Bailey 5,000 5,000
There have been no changes in the Director's beneficial shareholdings between
30 September 2023 and the date of this report.
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 2023:
(a) the major decisions on Directors' remuneration;
(b) any substantial changes relating to Directors' remuneration made during
the financial year ended 30 September 2023; and
(c) the context in which the changes occurred and decisions have been taken.
Rob Whiteman
Chairman of the Board of Directors
4 December 2023
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 2 to 63, 69 to 75,
86 to 89 and 76 to 82 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 65 to 66,
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 position, performance, business model and strategy.
For and on behalf of the Board
Rob Whiteman
Chairman
4 December 2023
Financials
CONSOLIDATED STATEMENT OF COMPREHENSIVE Note
INCOME FOR THE YEAR ENDED 30 SEPTEMBER 2023
2023 2022
£'000 £'000
Income 6 33,554 31,785
Cost of sales 6 (15,040) (14,259)
Net income 18,514 17,526
Fund management fee 7 (1,885) (1,867)
General and administrative expenses 7 (1,456) (1,128)
Aborted fundraising costs 7 (273) -
One-off expenses 7 (191) (225)
Administrative expenses (3,805) (3,220)
Operating profit before property disposals and change in fair value 14,709 14,306
Loss on disposal of investment properties (11) (24)
Change in fair value of investment properties 11 (38,944) 3,200
Change in fair value of borrowings 11 7,747 1,809
Debt one-off fees 10 (155) (369)
Operating (loss)/profit before finance costs (16,654) 18,922
Finance income 10 220 67
Finance costs 10 (6,720) (5,655)
(Loss)/profit for the period before taxation (23,154) 13,334
Taxation 12 - -
(Loss)/profit for the period after taxation (23,154) 13,334
Other comprehensive income: - -
Total comprehensive income for the period attributable to the shareholders of (23,154) 13,334
the Company
(Loss)/Earnings per share - basic and diluted - pence 13 (12.5) 7.4
All of the activities of the Group are classified as continuing.
The notes on pages 105 to 138 form part of these financial statements.
CONSOLIDATED STATEMENT OF Note 2023 2022
FINANCIAL POSITION AS AT 30 SEPTEMBER 2023
£'000 £'000
Non-current assets
Investment properties 15 376,727 406,127
Total non-current assets 376,727 406,127
Current assets
Inventori-s - shared ownership properties 14 431 1,203
Trade and other receivables 16 3,470 3,390
Deposits paid for property purchases - 827
Cash and cash equivalents 17 8,805 15,984
Total current assets 12,706 21,404
Total assets 389,433 427,531
Current liabilities
Trade and other payables 18 6,833 4,891
Borrowings 19 23,327 14,285
Lease liabilities 27 1,005 994
Total current liabilities 31,165 20,170
Non-current Liabilities
Borrowings 19 158,420 175,420
Recycled Capital Grant Fund 21 585 205
Lease liabilities 27 30,584 30,348
Total non-current liabilities 189,589 205,973
Total liabilities 220,754 226,143
Net assets 168,679 201,388
Equity
Share capital 22 1,941 1,941
Share premium 23 14,605 14,605
Treasury shares reserve 23 (8,295) (8,293)
Retained earnings 24 160,428 193,135
Total interests 168,679 201,388
Total equity 168,679 201,388
Net asset value per share - basic and diluted (pence) 28 91.1 108.8
The financial statements were approved and authorised for issue by the Board
of Directors on and signed on its behalf
by:
Rob Whiteman
Chairman
4 December 2023
The notes on pages 105 to 138 form part of these financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 SEPTEMBER 2022 Note
2023 2022
£'000 £'000
Cash flows from operating activities
(Loss)/profit for the period (23,154) 13,334
Adjustments for items that are not operating in nature:
Loss/(gain) in fair value of investment properties 11 38,944 (3,200)
Movement in rent smoothing adjustments 11 (1,192) (1,148)
Profit in fair value of borrowings 11 (7,747) (1,809)
Loss on disposal of investment properties 11 24
Shares issued in lieu of management fees 30 482 467
Finance income 10 (220) (67)
Finance costs 10 6,720 5,655
Debt one-off fees 10 155 369
Operating result before working capital changes 13,999 13,625
Changes in working capital
(Increase)/decrease in trade and other receivables (80) 659
Decrease in inventories 772 2,597
Increase/(decrease) in trade and other payables 2,129 (2,754)
Net cash flow generated from operating activities 16,820 14,127
Cash flow from investing activities
Purchase of investment properties 15 (11,833) (30,635)
Grant received 15 1,148 672
Disposal of investment properties 3,396 1,475
Deposits used for acquisition - (513)
Interest received 10 220 67
Net cash flow from investing activities (7,069) (28,934)
Cash flow from financing activities
Share issue (net of issue costs) 22 - 14,635
Purchase of own shares (484) (245)
New borrowings raised 19 16,800 28,100
New borrowing costs 19 (18) (215)
Bank loans repaid 19 (17,281) (4,978)
Finance costs 20 (6,394) (5,681)
Dividend paid 26 (9,553) (9,195)
Net cash flow generated from financing activities (16,930) 22,421
Net increase in cash and cash equivalents (7,179) 7,614
Reclassification of restricted cash balances 17 - 2,684
Cash and cash equivalents at the beginning of the period 17 15,984 5,686
Cash and cash equivalents at the end of the period 17 8,805 15,984
The notes on pages 105 to 138 form part of these financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 SEPTEMBER Share Share premium Treasury shares Retained earnings Total equity
2023
capital reserve
£'000 £'000 £'000 £'000 £'000
Balance at 30 September 2021 1,803 108 (8,515) 188,996 182,392
Profit for the period - - - 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
Loss for the period - - - (23,154) (23,154)
Other comprehensive income - - - - -
Total comprehensive income - - - (23,154) (23,154)
Contributions by and distributions to shareholders
Issue of management shares - - 482 (482) -
Share based payment charge - - - 482 482
Purchase of own shares - - (484) - (484)
Dividends paid - - - (9,553) (9,553)
Balance at 30 September 2023 1,941 14,605 (8,295) 160,428 168,679
The notes on pages 105 to 138 form part of these financial statement.
Notes to the Consolidated Financial Statements
For the year ended 30 September 2023
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 2023 or 30 September 2022, but is derived
from those financial statements. Financial statements for the year ended 30
September 2022 have been delivered to the Registrar of Companies and those for
the year ended 30 September 2023 will be delivered following the Company's
Annual General Meeting. The auditor's reports on both the 30 September 2022
and 30 September 2023 financial statements are 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 consolidated financial statements cover the year to 30 September 2023,
including comparative figures to the year to 30 September 2023, and include
the results and net assets of the Group.
The consolidated financial statements have been prepared in accordance with:
· UK-adopted international accounting standards and with the
requirements of the Companies Act 2006 as applicable to companies reporting
under those standards
· The Disclosure and Transparency Rules of the Financial Conduct
Authority
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 61 to 63.
ReSI is subject to covenants on debt secured on its shared ownership and
retirement properties (which are ringfenced to that particular portfolio) and
on its holding company working capital facility with Santander (see note 19 on
pages 124 to 125). Sensitivity analysis has been performed, showing headroom
on all covenants (see Fund Manager Report on page 36), including all debt
servicing and valuation metrics. Due to the long-term nature of the company's
assets and their strong underlying cash flows, the Directors do not forecast a
breach of any debt covenants.
The Santander facility includes a contractual clean down provision requiring
the facility to be paid down on the 31 December 2024. It can subsequently be
redrawn five business days later. The clean down is expected to be met via the
sale of the local authority portfolio, for which the Group has received a
number of offers and which are in an advanced sales process with reputable
purchasers, with financial close expected in early 2024. In the event sales do
not complete, the Board have assessed and concluded mitigants are in place, as
described on pages 61 to 63, which will enable the clean down to be met.
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.
b) Changes to accounting standards and interpretations
Adoption of new and revised standards
In the current financial year, the Group has adopted a number of minor
amendments to standards effective in the year issued by the IASB as adopted by
the UK Endorsement Board, none of which have had a material impact on the
Group.
There was no material effect from the adoption of other amendments to IFRS
effective in the year. They have no significant impact on the Group as they
are either not relevant to the Group's activities or require accounting which
is consistent with the Group's current accounting policies.
Standards and interpretations in issue not yet adopted
The following are new standards, interpretations and amendments, which are not
yet effective, and have not been early adopted in this financial information,
that will or may have an effect on the Group's future financial statements:
· Amendments to IAS 1 which are intended to clarify the
requirements that an entity applies in determining whether a liability is
classified as current or non-current. The amendments are intended to be
narrow-scope in nature and are meant to clarify the requirements of IAS 1
rather than modify the underlying principles (effective for periods beginning
on or after 1 January 2024).
The amendments include clarifications relation to:
- How events after the of the reporting period affect liability
classification
- What the rights of an entity must be in order to classify a
liability as non-current
- How an entity assesses compliance with the conditions of a liability
(e.g. bank covenants)
- How conversion features in liabilities affect this classification
The amendment is not expected to have an impact on the presentation of
classification of the liabilities in the Group based on rights that are in
existence at the end of the reporting period.
· IFRS S1 General Requirements for Disclosure of
Sustainability-related Financial Information. IFRS S1 set out general
requirements for the disclosure of material information about
sustainability-related financial risks and opportunities and other general
reporting requirements (periods beginning after 1 January 2024).
· IFRS S2 Climate-related Disclosures. IFRS S2 set out disclosure
requirements that are specific to climate-related matters (period beginning
after 1 January 2024).
The Group acknowledges the issue of these new standards by the International
Sustainability Standards Board (ISSB) and will monitor the consultation and
decision process being undertaken by the UK Government and FCA in determining
how these standards are implemented by UK companies.
There are other new standards and amendments to standards and interpretations
which have been issued that are effective in future accounting periods, and
which the Group has decided not to adopt early. None of these are expected to
have a material impact on the consolidated financial statements of the Group.
3. Significant accounting policies
The principal accounting policies applied in the preparation of the
consolidated financial statements are set out below.
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 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 2023, 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 11) or in the finance income or
expenses line (note 10), except where the movement relates to a change in own
credit risk which is recognised in other comprehensive income.
At 30 September 2023, 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 discount rates and comparable market transactions. Further
information is provided in note 15.
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 15
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 19.
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).
Judgements:
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 2023, 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
2023 2022
Net property income First tranche sales Total Total
£'000 £'000 £'000 £'000
Gross Rental income 27,930 - 27,930 25,670
First tranche property sales - 5,624 5,624 6,115
Total income 27,930 5,624 33,554 31,785
Service charge expenses (5,522) - (5,522) (4,927)
Property operating expenses (4,241) - (4,241) (3,717)
Impairment of receivables (70) - (70) (10)
First tranche cost of sales - (5,207) (5,207) (5,605)
Total cost of sales (9,833) (5,207) (15,040) (14,259)
Net rental income/gross profit before ground rents 18,097 417 18,514 17,526
Ground rents disclosed as finance lease interest (978) - (978) (996)
Net rental income/gross profit after ground rents disclosed as finance lease 17,119 417 17,536 16,530
asset
Included within gross rental income is a £1,192,000 (2022: £1,148,000) 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 11 & 15).
Gross rental income includes service charges collected from tenants, included
in rent collected but not separately invoiced, of £5,518,000 during the year
(2022: £4,622,000). 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 £4,000 (2022: £305,000).
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. Administration Expenses
2023 2022
£'000 £'000
Fund management fee (note 30) 1,885 1,867
Administration expenses (note 8 and note 9) 1,456 1,119
Aborted acquisition costs - 9
Aborted fundraising costs 273 -
One-off expenses 191 225
3,805 3,220
Aborted fundraising costs of £273,000 (30 September 2022: £nil) represent
sunk costs incurred in relation to an aborted equity raise in Autumn 2022
which was postponed following the market dislocation in September 2022. During
the year, due to the persistent discount to net asset value the equity raise
was aborted with all costs incurred written off in full.
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.
One off expenses of £191,000 (30 September 2022: £225,000) comprise
restructuring costs of £165,000 (30 September 2022: £166,000) to move ReSI
Property Management Limited into 3 regional teams which led to redundancy
costs. During FY 2022 these charges related to residual set-up costs
associated with the transfer to ReSI Property Management Limited which
straddled the 2021-year end. £26,000 (30 September 2022: £59,000) was
incurred in relation to costs associated with improving the energy efficiency
of the Group's retirement portfolio.
8. Directors' fees and expenses
2023 2022
£'000 £'000
Fees 155 155
Taxes 17 17
172 172
Fees paid to directors of subsidiaries 53 48
225 220
The Group had no employees during the year (2022: 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:
Net asset value Annual fee
Up to £100,000,000 £40,000
£100,000,000 to £200,000,000 £50,000
£200,000,000 to £350,000,000 £60,000
Thereafter £70,000
Each of the Directors, save the Chairman, is entitled to receive a fee linked
to the Net Asset Value of the Group as follows:
Net asset value Annual fee
Up to £100,000,000 £30,000
£100,000,000 to £200,000,000 £35,000
Thereafter £40,000
During the year ending September 2022, the Net Asset Value of the Company
increased to over £200mn therefore the Directors became eligible for a fee
increase under the Remuneration Policy. However, in consideration of the
macro-economic environment and ensuing impact on the Company and wider listed
investment trust market, the Directors agreed to waive an increase in fees.
None of the Directors received any advances or credits from any Group entity
during the year (2022: Nil).
9. Fees paid to the Company's Auditor
2023 2022
£'000 £'000
Audit fees
Parent and consolidated financial statements 125 75
Audit of subsidiary undertakings 201 143
Additional fees payable to the auditors in relation to prior year audit 62 18
Total audit fees 388 236
Audit related services
Review of interim report 57 42
Non-audit fees
Corporate Finance Fees - 44
Total fees 445 322
Fees paid to the Company's Auditors are inclusive of irrecoverable VAT. These
fees have increased significantly partly due to additional audit work now
required under IAS 315.
10. Net finance costs
2023 2022
£'000 £'000
Finance income
Interest income 220 67
220 67
Finance expense
Interest payable on borrowings (5,365) (4,300)
Amortisation of loan costs (288) (268)
Debt programme costs (89) (91)
Lease interest (978) (996)
(6,720) (5,655)
Net finance costs (6,500) (5,588)
One-off shared ownership facility set up costs - (300)
Debt one-off fees (155) (69)
Debt one-off costs (155) (369)
The Group's interest income during the year relates to cash held on deposit
with banks and 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".
Debt one-off fees incurred in the year relate to costs incurred in charging
assets to the facility with Scottish Widows Limited.
11. Change in fair value
2023 2022
£'000 £'000
(Loss)/gain on fair value adjustment of investment properties (37,752) 4,348
Adjustments for lease incentive assets and rent straight line assets
recognised
Start of the year 2,070 922
End of the year (3,262) (2,070)
(38,944) 3,200
Gain on fair value adjustment of borrowings (note 19) 7,747 1,809
Shared ownership facility set up costs - (300)
(31,197) 4,709
Gain 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. In
the prior 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 upfront.
12. Taxation
2023 2022
£'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:
2023 2022
£'000 £'000
(Loss)/profit before tax (23,154) 13,334
Tax at the UK corporation tax rate of 25% (2022: 19%) (5,788) 2,533
Tax effect of:
UK tax not payable due to REIT exemption (3,329) (1,995)
Investment property revaluation not taxable 9,736 (608)
Expenses that are not deductible in taxable profit (691) (27)
Unutilised residual current year tax losses 72 97
Tax charge for the year - -
The Company and its subsidiaries operate as UK Group REIT. Subject to
compliance with certain rules, the UK REIT regime exempts the profits of the
Group's property rental business from UK corporation tax. To operate as a UK
Group REIT a number of conditions had to be satisfied in respect of the
Company, the Group's qualifying activity and the Group's balance of business.
All conditions have been met.
13. Earnings per share
EPRA Earnings per share 2023 2022
£'000 £'000
(Loss)/Earnings per IFRS income statement (23,154) 13,334
Changes in value of investment properties 38,944 (3,200)
Losses on disposal of investment properties 11 24
Profits on sales of trading properties (417) (510)
Changes in fair value of financial instruments and associated close-out costs (7,747) (1,809)
EPRA earnings 7,637 7,839
Deduction of non-recurring set up costs 191 225
Deduction of debt set up costs 155 369
Deduction of aborted acquisition costs 273 9
Profits on sales of trading properties 417 510
Adjusted EPRA earnings 8,673 8,952
Weighted average number of ordinary shares (thousands) 185,163 180,159
IFRS earnings per share (pence)
- 2023 (pence) (12.5)
- 2022 (pence 7.4
EPRA earnings per share (pence)
- 2023 (pence) 4.1
- 2022 (pence) 4.4
Adjusted EPRA earnings per share (pence)
- 2023 (pence) 4.7
- 2022 (pence) 5.0
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.
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 2023 is 91% based on an
adjusted earnings figure of £8.67mn and dividends paid over the year of
£9.55mn.
14. Inventories - finished properties available for sale
2023 2022
£'000 £'000
Shared ownership properties 431 1,203
431 1,203
The costs of inventories recognised in cost of sales as an expense in the year
is £5,207,000 (2022: £5,605,000). The amount of inventories written down to
net realisable value is Nil (2022: Nil).
15. Investment properties
2023 2022
£'000 £'000
At beginning of period 406,127 372,335
Property acquisitions at cost 11,163 30,827
Grant receivable (1,148) (672)
Capital expenditure 1,497 652
Property disposals (3,407) (1,498)
Movement in head lease gross up 247 135
Change in fair value during the period (37,752) 4,348
At end of period 376,727 406,127
Valuation provided by Savills 345,138 374,785
Adjustment to fair value - finance lease asset 31,589 31,342
Total investment properties 376,727 406,127
The investment properties are divided into:
2023 2022
£'000 £'000
Leasehold properties 282,073 293,734
Freehold properties * 63,065 81,051
Head lease gross up 31,589 31,342
Total investment properties 376,727 406,127
*Includes Fuehold 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 2023. 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).
2023 2022
£'000 £'000
Total investment properties 376,727 406,127
Adjustment to fair value - finance lease asset (31,589) (31,342)
Committed properties with purchase contracts exchanged - 8,635
Total investment properties including committed properties with purchased 345,138 383,420
contracts exchanged
Included within the carrying value of investment properties at 30 September
2023 is £3,262,000 (2022: £2,070,000) 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 2023 was
£347,117,000 (2022: £339,012,000).
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 2023 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 £31,589,000 (£31,342,000 at 30
September 2022) representing the present value of ground rents payable for the
properties held by the Group under leasehold - further information is provided
in note 27. 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.
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-linkedinflation-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 19).
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 2023 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.
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 7.3% to 8.9%.
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 7.0% for CPI and 2.7%
to 6.3% 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 -12.5% to +7.5%.
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 property staircases 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
2.0% to 3.0%.
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 2023 Updated Valuation Updated Valuation
£mn £mn £mn
Retirement Regional Discount Rate +/- 25bps 201,804 195,108 207,181
Consumer Price Index (CPI) 48 (#_ftn48) +/- 25bps 201,804 192,282 210,420
Retail Price Index (RPI) 49 (#_ftn49) +/- 25bps 201,804 209,717 192,794
Shared ownership Rental Discount Rate +/- 25bps 123,434 121,733 125,025
Retail Price Index (RPI) +/- 25bps 123,434 125,611 120,444
House Price Index (HPI) +/- 25bps 123,434 124,985 121,765
Staircasing Sensitivity Analysis +/- 100bps 123,434 121,807 124,886
16. Trade and other receivables
2023 2022
£'000 £'000
Trade debtors 469 385
Prepayments 2,836 2,623
Other debtors 165 382
3,470 3,390
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.
17. Cash and cash equivalents
2023 2022
£'000 £'000
Cash at bank 3,221 12,739
Cash held as investment deposit 2 2
3,223 12,741
Restricted cash 5,582 3,243
8,805 15,984
The Group has defined restricted cash as cash which is subject to restrictions
with a third party where the terms of the account do not prevent the Group
from accessing the cash. Included within cash at the year-end was an amount
totalling £5,582,000 (£3,243,000 at 30 September 2022) 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.
£1,411,000 (2022: £1,324,000) 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 ReSI Housing due on 1 October 2023.
£3,811,000 (2022: £1,564,000) was held by US Bank in respect of funds
required as a debt service reserve for the shared ownership debt.
£360,000 (2022: £354,000) 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 £13.7bn AUM, hence the Group's investment deposit represents an
immaterial proportion of the fund.
18. Trade and other payables
2023 2022
£'000 £'000
Trade payables 2,328 1,173
Accruals 2,615 1,238
VAT payable 3 4
Deferred income 117 797
Other creditors 1,770 1,679
6,833 4,891
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.
19. Borrowings
2023 2022
£'000 £'000
Loans 183,899 192,126
Unamortised borrowing costs (2,152) (2,421)
181,747 189,705
Current liability 23,327 14,285
Non-current liability 158,420 175,420
181,747 189,705
The loans are repayable as follows:
Within one year 23,327 14,285
Between one and two years 3,043 9,851
Between three and five years 8,699 9,088
Between six and ten years 14,261 14,887
Between eleven and twenty years* 105,381 29,452
Over twenty years 27,036 112,142
181,747 189,705
*£77.6mn of this is due at the maturity date of the loan in 2043.
Movements in borrowings are analysed as follows:
Fair value through profit or loss Held at amortised cost 2023 2022
£'000 £'000 £'000 £'000
At 30 September 2022 77,703 112,002 189,705 168,339
Drawdown of facility - 16,800 16,800 28,100
New borrowing costs - (18) (18) (215)
Amortisation of loan costs - 288 288 268
Fair value movement (7,747) - (7,747) (1,809)
Repayment of borrowings (676) (16,605) (17,281) (4,978)
At 30 September 2023 69,280 112,467 181,747 189,705
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
2023 2022 2023 2022
Held at amortised cost £'000 £'000 £'000 £'000 %
Scottish Widows Ltd 97,000 97,000 91,972 92,506 Jun-43 3.5 Fixed (average)
National Westminster Bank Plc - 21,550 - 12,704 July-23 1.50% over SONIA
Santander 20,650 7,100 20,495 6,791 May-25 2.25% over SONIA
117,650 125,650 112,467 112,001
Held at fair value
Universities Superannuation Scheme 77,500 77,500 69,280 77,704 May-65 0.94% (average) *
77,500 77,500 69,280 77,704
Total borrowings 195,150 203,150 181,747 189,705
*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 2023 was £76.9mn (2022: £77.5mn) with an amortised cost of
£87.2mn (2022: £82.7mn).
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 2023
was 1.47% (2022: 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 2023
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 £0.9mn.
The fair value of borrowings held at amortised cost at 30 September 2023 was
£88.1mn (£90.5mn at 30 September 2022). The fair value of the long term
fixed Scottish Widows facility at 30 September 2023 was £67.4mn (£70.6mn at
30 September 2022).
The Scottish Widows facility is secured by a first charge over retirement
properties with a fair value of £200.3mn.
The Universities Superannuation Scheme facility is secured by a first charge
over shared ownership properties with a fair value of £123.4mn, cash of
£0.6mn and restricted cash balances of £3.8mn.
The revolving capital facility with Santander UK plc has a £25mn limit at a
margin of 2.25%. There is a commitment fee of 2.25% on 30% of the undrawn
balance of the facility. As at the year end, £20.7mn had been drawn down
under the facility. The facility bears interest at SONIA plus 2.25%.
20. Financial instruments
The table below sets out the categorisation of the financial instruments held
by the Group as at 30 September 2023. Borrowings held at amortised cost have a
fair value of £88.1mn. The carrying amount of other financial instruments
approximates to their fair value.
2023 2022
£'000 £'000
Financial assets
Loans and receivables
Trade and other receivables 634 767
Cash and cash deposits 8,805 15,984
9,439 16,751
Financial liabilities
At amortised cost
Borrowings 112,467 112,002
Trade and other payables 6,713 4,090
119,180 116,092
At fair value through profit or loss
Borrowings 69,280 77,703
69,280 77,703
188,460 193,795
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 143 years (2022: 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 2023 and 30 September 2022 were:
Nil rate assets and liabilities Floating rate assets Fixed rate liability Fixed rate Inflation-linked liability Floating rate liability Total
£'000 £'000 £'000 £'000 £'000
2023
Trade and other receivables 634 - - - - 634
Cash and cash equivalents - 8,805 - - - 8,805
Trade and other payables (6,713) - - - - (6,713)
Bank borrowings - - (91,972) (69,280) (20,495) (181,747)
Obligations under finance leases - - (31,589) - - (31,589)
(6,079) 8,805 (123,561) (69,280) (20,495) (210,610)
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 - - (92,507) (77,703) (19,495) (189,705)
Obligations under finance leases - - (31,342) - - (31,342)
(3,323) 15,984 (123,849) (77,703) (19,495) (208,386)
The Group has primarily financed its activities with fixed rate or
inflation-linked 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 £206,500. Conversely, if
market interest rates decreased by 1% the Group's finance costs for existing
debt facilities would decrease by £206,500.
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
2023 2022
£'000 £'000
Trade and other receivables 634 767
Cash and cash equivalents 8,805 15,984
9,439 16,751
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 27 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 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
2023
Borrowings 23,327 11,742 146,678 181,747
Interest on borrowings 5,227 15,601 49,980 70,808
Obligations under finance leases 1,005 4,000 130,946 135,951
Payables and accruals 6,713 - - 6,713
36,272 31,343 327,604 395,219
2022
Borrowings 14,285 18,456 156,964 189,705
Interest on borrowings 3,824 14,611 53,435 71,870
Obligations under finance leases 994 3,975 127,953 132,922
Payables and accruals 4,090 - - 4,090
23,193 37,042 338,352 398,587
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 19), cash and cash
equivalents (note 17) and equity attributable to the shareholders of the
Company (comprising share capital, retained earnings and the other reserves as
referred in notes 22 to 24).
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.
2023 2022
£'000 £'000
Obligations under finance leases 31,589 31,342
Borrowings (book value) 181,747 189,705
Cash and cash equivalents (8,805) (15,984)
Net debt 204,531 205,063
Equity attributable equity holders 168,679 201,388
Net debt to equity ratio 1.21 1.02
Borrowings excluding finance lease liability 181,747 189,705
Available cash* (6,998) (12,675)
Net debt excluding lease liability and cash 174,749 177,030
Total assets less finance lease gross up and cash 349,040 380,205
Loan to Value ("LTV") leverage ratio 0.50 0.47
* 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 2023 to
its medium term target LTV leverage ratio of 0.50.
f) Reconciliation of financial liabilities to financing activities:
Borrowings due within one year (note 19) Borrowings due in more than one year Lease liabilities (note 27) Interest payable Total
(note 19)
£'000 £'000 £'000 £'000 £'000
At 1 October 2022 14,285 175,420 31,342 564 221,611
Cash flows
Borrowings advanced - 16,800 - - 16,800
Borrowings repaid (17,281) - - - (17,281)
Debt arrangement fees paid - (18) - - (18)
Interest and commitment fees paid - - - (6,394) (6,394)
Non-cash flows
Reclassification of borrowings 26,323 (26,323) - - -
Amortisation of debt set up fees - 288 - - 288
Change in fair value of borrowings - (7,747) - - (7,747)
Recognition of headlease liabilities acquired - - 247 - 247
Interest and commitment charge - - - 6,586 6,586
At 30 September 2023 23,327 158,420 31,589 756 214,092
Borrowings due within one year (note 19) Borrowings due in more than one year Lease liabilities (note 27) Interest payable Total
(note 19)
£'000 £'000 £'000 £'000 £'000
At 1 October 2021 2,984 165,355 31,207 489 200,035
Cash flows
Borrowings advanced - 28,100 - - 28,100
Borrowings repaid (4,978) - - - (4,978)
Debt arrangement fees paid - (215) - - (215)
Interest and commitment fees paid - - - (5,681) (5,681)
Non-cash flows
Reclassification of borrowings 16,279 (16,279) - - -
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
Interest and commitment charge - - - 5,756 5,756
At 30 September 2022 14,285 175,420 31,342 564 221,611
21. Recycled Capital Grant
2023 2022
£'000 £'000
Grants brought forward 205 38
Transfer on staircasing 380 167
At 30 September 2023 585 205
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 2023 was £585,000 (2022: £205,000).
22. Share capital account
Number of Ordinary 1 p £'000
shares
At 30 September 2022 194,149,261 1,941
Issue of shares - -
At 30 September 2023 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.
Treasury shares do not hold any voting rights.
23. Reserves
The nature and purpose of each of the reserves included within equity at 30
September 2023 are as follows:
· Share premium reserve: represent the surplus of the gross
proceeds of share issues over the shares, net of the direct costs of equity
issues.
· Treasury shares reserve: represent value of shares purchased by
the Company in excess of nominal value.
£'000
Share premium 14,605
At 30 September 2022 and 30 September 2023
£'000
At 30 September 2022 (8,293)
Purchase of treasury shares (484)
Transferred as part of Fund Management fee 482
At 30 September 2023 (8,295)
The only movement in these reserves during the year are disclosed in the
statement of changes in equity.
The Company held 8,985,980 shares in treasury as at 30 September 2023 (2022:
8,985,980).
24. Retained earnings
£'000
At 30 September 2022 193,135
Profit for the period (23,154)
Share based payment charge 482
Issue of management shares (482)
Dividends (9,553)
At 30 September 2023 160,428
Retained earnings incorporate all gains and losses and transactions with
shareholders (e.g. dividends) not recognised elsewhere.
25. 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
RHP Holdings Limited 100% UK UK Holding company
ReSI Portfolo 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 Portfolo Holdings Limited 5 New Street Square, London. EC4A 3TW
RHP Holdings Limited 5 New Street Square, London, England. EC4A 3TW
The Retirement Housing Limited Partnership First Floor 2 Tangier Central, Castle Street, Taunton, Somerset, TA1 4AS
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.
26. Dividends
2023 2022
£'000 £'000
Amounts recognised as distributions to shareholders in the period:
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
4th interim dividend for the year ended 30 September 2022 of 1.29p per share 2,389 -
1st interim dividend for the year ended 30 September 2023 of 1.29p per share 2,388 -
2nd interim dividend for the year ended 30 September 2023 of 1.29p per share 2,388 -
3rd interim dividend for the year ended 30 September 2023 of 1.29p per share 2,388 -
9,553 9,195
Amounts not recognised as distributions to shareholders in the period:
4th interim dividend for the year ended 30 September 2022 of 1.29p per share - 2,389
4th interim dividend for the year ended 30 September 2023 of 1.03p per share 1,903 -
Categorisation of dividends for UK tax purposes:
Amounts recognised as distributions to shareholders in the period:
Property Income Distribution (PID) 9,553 7,345
Non-PID - 1,850
9,553 9,195
On 18 January 2023, the Company declared its final dividend of 1.29p per share
for the period 1 Jul 2022 to 30 September 2022.
On 1 February 2023, the Company declared its first interim dividend of 1.29p
per share for the period 1 January 2023 to 31 March 2023.
On 14 July 2023, the Company declared its second interim dividend of 1.29p per
share for the period 1 July 2023 to 30 September 2023.
On 11 September 2023, the Company declared its third interim dividend of 1.29p
per share for the period 1 July 2023 to 30 September 2023.
On 5 December 2023, the Company announced the declaration of a fourth interim
dividend of 1.03 pence per share for the period 1 July 2023 to 30 September
2023 which will be payable on 17 January 2024 to Shareholders on the register
at the close of business on 15 December 2023.
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.
27. Lease arrangements
The Group as lessee
The interest expense in respect of lease liabilities for the period was
£978,000 (2022: £996,000).
There was no expense relating to variable lease payments in the period (2022:
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 £978,000 (2022: £996,000).
At 30 September 2023, the Group had outstanding commitments for future minimum
lease payments under non-cancellable leases, which fall due as follows:
As at 30 September 2023 Less than one year Two to five years Six to ten years Ten to twenty years More than twenty years Total
£'000 £'000 £'000 £'000 £'000 £'000
Minimum lease payments 1,005 4,000 5,000 10,001 115,945 135,951
Interest - (292) (433) (1,512) (102,125) (104,362)
Present value at 30 September 2023 1,005 3,708 4,567 8,489 13,820 31,589
As at 30 September 2022 Less than one year Two to five years Six to ten years Ten to twenty years More than twenty 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 4,538 8,435 13,690 31,342
The above commitment is in respect of ground rents payable for properties held
by the Group under leasehold. There are 2,207 properties (2022: 2,182) held
under leasehold with an average unexpired lease term of 123 years (2022: 155
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:
2023 2022
£'000 £'000
Receivable within 1 year 8,689 7,987
Receivable between 1-2 years 6,353 5,817
Receivable between 2-3 years 5,359 5,723
Receivable between 3-4 years 5,160 4,728
Receivable between 4-5 years 4,441 4,530
Receivable between 5-10 years 22,166 19,039
Receivable between 10-20 years 44,283 37,978
Receivable after 20 years 435,467 373,735
531,918 459,537
The total of contingent rents recognised as income during the period was £nil
(2022: £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:
2023 2022
£'000 £'000
Receivable within 1 year 29,138 25,099
Receivable between 1-2 years 25,118 21,547
Receivable between 2-3 years 20,940 18,590
Receivable between 3-4 years 18,154 15,286
Receivable between 4-5 years 15,328 13,221
Receivable between 5-10 years 56,214 44,784
Receivable between 10-20 years 69,698 54,455
Receivable after 20 years 451,628 382,089
686,218 575,071
28. Net asset value per share
2023 2022
£'000 £'000
Net assets 168,679 201,388
168,679 201,388
Ordinary shares in issue at period end (excluding shares held in treasury) 185,163,281 185,163,281
Basic NAV per share (pence) 91.1 108.8
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
2023 2022
£'000 £'000
IFRS NAV per the financial statements 168,679 201,388
Revaluation of trading properties 66 93
Fair value of financial instruments (17,292) (4,997)
Real estate transfer tax - -
EPRA NTA 151,453 196,484
Fully diluted number of shares 185,163 185,163
EPRA NAV per share (pence) 81.8 106.1
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
reflects the amortised cost of the debt rather than its fair value
29. Contingent liabilities and commitments
ReSI's shared ownership portfolio has been supported by £15.0mn 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 21).
There are no provisions for fines and settlements specified for ESG
(Environmental, Social or Governance) or any other issues.
30. 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 2023, 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 8, Directors' fees and
expenses.
For the year ended 30 September 2023, ReSI Capital Management Limited acted 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.
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; or
d) on that part of the Net Asset Value over £1,000mn, 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.
For the year ended 30 September 2023, the Company incurred £1,885,000 (2022:
£1,867,000) in respect of fund management fees of which £315,000 was
outstanding as at 30 September 2023 (2022: £nil). The above fee was split
between cash and equity as per the Fund Management Agreement with the cash
equating to £1,414,000 (2022: £1,401,000) and the equity element of
£471,000 (2022: £467,000) being paid as 601,947 Ordinary Shares (2022:
444,717) at an average price of £0.78 per share (2022: £1.05 per share).
In addition, the Fund Manager was paid a fee, pursuant to the Fund Management
Agreement, of £nil (2022: £143,000) in respect of its arrangement of
borrowings for the Group and £nil was outstanding at 30 September 2023
(September 2022: £nil).
On the 4 December 2023, an amendment to the Fund Management agreement was
signed in relation to the measurement of the management fee as described in
note 31.
During the period the Directors and the Fund Manager received dividends from
the Company of £23,000 (2022: £15,000) and £109,000 (2022: £149,000)
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 £1,978,000 (2022: £1,738,000) in respect of costs
incurred in providing property management services and £155,000 (2022:
£166,000) in respect of non-recurring costs to cover redundancy costs as we
restructured the RPML team into 3 regional teams.
.
31. Post balance sheet event
On 1 October 2023, Residential Secure Income PLC changed its alternative
investment fund manager from ReSI Capital Management Limited ("RCML") to
Gresham House Asset Management Limited ("GHAM"). Both RCML and GHAM are wholly
owned subsidiaries of Gresham House plc. The change of AIFM arises as a result
of a rationalisation of regulatory permissions within the Gresham House plc
group and will have no impact on the day-to-day management of ReSI plc's
portfolio as the current team will continue to manage its assets.
Alongside this change of alternative investment fund manager Residential
Secure Income PLC changed its depositary from Thompson Taraz Depositary
Limited to Indos Financial Limited.
On 4 December 2023, an amendment to the Fund Management agreement was signed
in relation to the measurement of the management fee. To further align itself
with shareholders and demonstrate its confidence in reducing the current share
price discount to Net Asset Value ("NAV"), the Fund Manager has agreed with
the board to align its management fee more closely to the share price. From
1st Jan 2024, the management fee will calculated by reference to the average
of ReSI plc market capitalisation and NAV for the relevant quarter, rather
than applied to the quarterly NAV only as at present. For example, based on a
current discount of around 30% this would result in a fee reduction of 15% for
the relevant quarter.
The existing fee percentages will apply to the average of Market
Capitalisation and NAV (i.e. at the same basis points as currently applied to
the quarterly NAV). Should the amount be greater than the prevailing NAV for
the quarter in question, the fee will be capped at the relevant percentage of
NAV, meaning that no fee increase would result from ReSI plc's shares trading
at a premium to NAV over the quarter.
"Market Capitalisation" for these purposes means the average over the previous
quarter of the mid-market price for an ordinary share in the Company
("Ordinary Share"), as derived from closing mid-market price published in the
Daily Official List of the London Stock Exchange for each Business Day in the
relevant quarter, multiplied by the number of Ordinary Shares in issue on the
last Business Day of the relevant quarter, excluding any Ordinary Shares held
by the Company in treasury for all or such part of the quarter in question.
The NAV for the relevant quarter shall continue to be calculated, and the
management fee payable, in the current manner.
There have been no other significant events that require disclosure to, or
adjustment in the financial statements as at 30 September 2023.
Company Statement of Financial Position Note 2023 2022
As at 30 September 2022
£'000 £'000
Non-current assets
Investment in subsidiary undertakings 5 169,913 189,018
Total non-current assets 169,913 189,018
Current assets
Trade and other receivables 6 86 715
Cash and cash equivalents 80 42
Total current assets 166 757
Total assets 170,079 189,775
Current liabilities
Trade and other payables 7 1,400 367
Total current liabilities 1,400 367
Net assets 168,679 189,408
Equity
Share capital 8 1,941 1,941
Share premium 14,605 14,605
Own shares reserve (8,295) (8,293)
Retained earnings 160,428 181,155
Total interests 168,679 189,408
Total equity 168,679 189,408
The notes on pages 141 to 143 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 (loss) / profit attributable to the Parent
Company for the year ended 30 September 2023 amounted to £(11.2)mn (2022:
£6.8mn).
These financial statements were approved and authorised for issue by the Board
of Directors on 4 December 2023 and signed on its behalf by:
Robert Whiteman
Chairman
4 December 2023
Company Statement of Changes in Equity
For the year to 30 September 2023
Own
Share Share shares Retained
capital premium reserve earnings Total equity
£'000 £'000 £'000 £'000 £'000
Balance at 30 September 2021 1,803 108 (8,515) 183,522 176,918
Profit for the period - - - 6,828 6,828
Other comprehensive income - - - - -
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)
Dividend paid - - - (9,195) (9,195)
Balance at 30 September 2022 1,941 14,605 (8,293) 181,155 189,408
Loss for the period - - - (11,174) (11,174)
Other comprehensive income - - - - -
Total comprehensive income - - - (11,174) (11,174)
Contributions by and distributions to shareholders
Issue of shares - - - - -
Share issue costs - - - - -
Issue of management shares - - 482 (482) -
Share based payment charge - - - 482 482
Purchase of own shares - - (484) - (484)
Dividends paid - - - (9,553) (9,553)
Balance at 30 September 2023 1,941 14,605 (8,295) 160,428 168,679
The notes on pages 141 to 143 form part of these financial statements.
Notes to Company 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").
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
2. Significant accounting judgements and estimates
In preparing the financial statements of the Company, the Directors have made
the following judgements:
· Determine whether there are any indicators of impairment of the
investments in subsidiaries. Factors taken into consideration in reaching such
a decision include the financial position and expected future performance of
the subsidiary entities.
3. Summary of significant accounting policies
The principal accounting policies applied in the preparation of these
financial statements are in line with group with the company specific policies
set out below:
Investment in subsidiaries
The investments in subsidiary companies are included in the Company's
statement of financial position at cost less provision for impairment.
4. Fees paid to the Company's Auditor
The remuneration of the auditor in respect of the Company's consolidated and
individual financial statements for the year was £180,000 (2022: £137,000).
Fees payable for audit and non-audit services provided to the company and the
rest of the Group are disclosed in the note 6 to the Group financial
statements.
5. Investments
2023 2022
£'000 £'000
At beginning of period 189,018 174,390
Additions - 14,628
Impairment reversal/(impairment) (19,105) -
At end of period 169,913 189,018
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 2023:
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 First Floor 2 Tangier Central, Castle Street, Taunton, Somerset, TA1 4AS
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.
6. Trade and other receivables
2023 2022
£'000 £'000
Amounts due from group undertakings - 697
Prepayments 45 18
Other debtors 41 -
86 715
Amounts due from group undertakings are unsecured, interest free and repayable
on demand.
All amounts fall due for repayment within one year.
7. Trade and other payables
2023 2022
£'000 £'000
Amounts owed to group undertakings 215 -
Trade payables 443 37
Accruals 742 330
1,400 367
Amounts due to group undertakings are unsecured, interest free and repayable
on demand.
8. Share capital
Details of the share capital of the Company are disclosed in note 22 to the
Group financial statements.
9. Related party transactions
Details of related party transactions are disclosed in note 30 to the Group
financial statements.
Supplementary information
The Group is a member of the European Public Real Estate Association ("EPRA").
EPRA has developed and defined performance measures to give transparency,
comparability and relevance of financial reporting across entities which may
use different reporting standards.
The Group presents adjusted earnings per share ("EPS"), dividend per share,
total accounting return, total cost ratio, LTV ration and EPRA Best Practice
Recommendations, calculated in accordance with EPRA guidelines, as Alternative
Performance Measures ("APMs") to assist stakeholders in assessing performance
alongside the Group's statutory results reported under IFRS. APMs are among
the key performance indicators used by the board to assess the Group's
performance.
EPRA Best Practice Recommendations have been used to facilitate comparison
with the Group's peers through consistent reporting of key real estate
specific performance measures. Certain other APMs may not be directly
comparable with other companies adjusted measures and are not intended to be a
substitute for, or superior to, any IFRS measures of performance.
1) EPRA Earnings Recurring earnings from core operational activities
2023 2022
£'000 £'000
(Loss)/Earnings per IFRS income statement (23,154) 13,334
Changes in value of investment properties 38,944 (3,200)
Losses on disposal of investment properties 11 24
Profits on sales of trading properties (417) (510)
Changes in fair value of financial instruments and associated close-out costs (7,747) (1,809)
EPRA Earnings 7,637 7,839
Basic number of shares 185,163 180,159
EPRA Earnings per Share (EPS) (Pence) 4.12 4.35
Adjusted EPRA Earnings per share
2023 2022
£'000 £'000
Company specific adjustments:
Exclude debt one-off fees 155 369
Exclude one-off administration costs 191 225
Exclude one-off aborted acquisition costs 10 9
Exclude one-off aborted fundraise costs 263 -
Include shared ownership first tranche sales 417 510
Company specific Adjusted EPRA Earnings 8,673 8,952
Company specific Adjusted EPRA Earnings EPRA per share (pence) 4.68 5.00
2) EPRA Net Tangible Assets (NTA)
2023 2022
£'000 £'000
IFRS NAV per the financial statements 168,679 201,388
Revaluation of trading properties 66 93
Fair value of financial instruments (17,292) (4,997)
Real estate transfer tax - -
EPRA NTA 151,453 196,484
Fully diluted number of shares 185,163 185,163
EPRA NTA per share (pence) 81.8 106.1
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 £12.3mn which represents
the difference between fair value and what amortised cost would have been had
the Group carried the debt at amortised cost.
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)
2023 2022
£'000 £'000
IFRS NAV per the financial statements 168,679 201,388
Revaluation of trading properties 66 93
Fair value of financial instruments (17,292) (4,997)
Real estate transfer tax - -
EPRA NRV 151,453 196,484
Fully diluted number of shares 185,163 185,163
EPRA NRV per share (pence) 81.8 106.1
4) EPRA Net Disposable Value (NDV)
2023 2022
£'000 £'000
IFRS NAV per the financial statements 168,679 201,388
Revaluation of trading properties 66 93
Fair value of financial instruments 26,558 23,974
Real estate transfer tax - -
EPRA NDV 195,303 225,455
Fully diluted number of shares 185,163 185,163
EPRA NDV per share (pence) 105.5 121.8
5) EPRA Net Initial Yield (NIY) AND EPRA "Topped Up" NIY
2023 2022
£'000 £'000
Investment property - wholly owned 345,138 374,785
Trading property (including share of JVs) 431 1,203
Completed property portfolio 345,569 375,988
Allowance for estimated purchasers' costs estimated as 6% of property 20,734 22,559
portfolio
Gross up completed property portfolio valuation 366,303 398,547
Annualised cash passing rental income 28,836 24,809
Property outgoings (9,833) (8,653)
Annualised net rents 19,003 16,156
Add: notional rent expiration of rent-free periods or other lease incentives - -
Topped-up net annualised rent 19,003 16,156
EPRA NIY 5.2% 4.1%
EPRA Topped up NIY 5.2% 4.1%
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
2023 2022
£'000 £'000
Estimated Rental Value of vacant space 1,060 1,368
Estimated rental value of the whole portfolio 30,114 27,292
EPRA Vacancy Rate 3.5% 5.0%
7) EPRA Cost Ratios
2023 2022
£'000 £'000
Administrative/operating expense line per IFRS income statement 3,805 3,221
Net service charge costs/fees 5,552 4,927
Management fees less actual/estimated profit element 2,099 1,739
Other property operating expenses 2,212 1,988
Service charge costs recovered through rents but not separately invoiced (5,138) (4,622)
EPRA Costs (including direct vacancy costs) 8,530 7,253
Direct vacancy costs (659) (527)
EPRA Costs (excluding direct vacancy costs) 7,841 6,726
Gross Rental Income less ground rents - per IFRS 26,952 24,673
Less: service fee and service charge costs components of Gross Rental Income (5,138) (4,622)
Gross Rental Income 21,814 20,051
EPRA Cost Ratio (including direct vacancy costs) 39% 36%
EPRA Cost Ratio (excluding direct vacancy costs) 36% 34%
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 £5,518,000 during the
period (2022: £4,622,000 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 £4,000 (2022: £305,000).
Management fees less actual/estimated profit element is made up of property
management fees paid during the period.
8) EPRA LTV
2023 2022
£'000 £'000
Borrowings 181,747 189,705
Net payables 3,516 -
Less cash (8,805) (15,984)
Net debt 176,458 173,721
345,138 374,785
Investment properties at fair value
Net receivables - 325
Total property value 345,138 375,110
51% 46%
EPRA LTV
9) AIC Ongoing Ratio
Total expenses ratio
Management fee 1,885 1,867
Fund operating expenses 846 742
2,731 2,609
Average Net Asset Valuation * 185,034 191,890
Annualised total expenses ratio 1.5% 1.4%
*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 fair value of investment property represents the
unlevered rental income return on the Group's capital deployed into
acquisition of investment properties. In previous periods net yield was
calculated on the Group's historic cost of investment property.
2023 2022
£'mn £'mn
Annualised net rental income at balance sheet date 18.0 16.5
Fair value of investment properties 345.1 374.8
Net yield 5.2% 4.4%
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.
2023 2022
£'mn £'mn
Operating profit before property disposals and change in fair value 14.7 14.3
Valuation movement of investment properties (39.0) 3.2
Finance costs (6.7) (6.0)
Debt Indexation (4.5) (5.2)
Revaluation of trading properties - (0.2)
Property return (35.5) 6.1
IFRS NAV at beginning of the prior year 201.4 182.4
Revaluation of trading properties 0.1 0.3
Fair value of financial instruments (5.0) 2.0
Real estate transfer tax - -
Opening EPRA NTA 196.5 184.7
Movement in share capital - 14.9
Increase/(decrease) in the year (45.0) (3.1)
Closing EPRA NTA 151.5 196.5
Total return on opening NTA (%) (18.1)% 3.3%
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.
2023 2022
£'mn £'mn
Net income (23.2) 13.3
Share issuance costs - (0.3)
Total Return (23.2) 13.0
Net Asset Value at the beginning of the year 201.4 182.4
Total IFRS return on opening NAV (%) (11.5)% 7.1%
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 2023 to
its medium target LTV leverage ratio of 0.50.
2023 2022
£'000 £'000
Borrowings excluding lease liability 181,747 189,705
Available cash (6,998) (12,675)
Net debt excluding lease liability and cash increase/(decrease) in year 174,749 177,030
Total assets less finance lease gross up and cash 349,040 380,206
Loan to Value ("LTV") leverage ratio 0.50 0.47
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 Indos
Financial Limited.
Dividend Income receivable from an investment in shares.
DSCR Debt service cover ratio
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.
Fund Manager Gresham House Asset Management Limited, a company incorporated in England and
Wales with company number 09447087 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
ICR Interest cover ratio
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.
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 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.
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.
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
Gresham House Asset 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
100 BishopsgateLondonEC2n 4AG
Tax Adviser
Evelyn Partners Group Limited
45 Gresham Street
London
EC2V 7BG
Depositary
Indos Financial Limited The Scalpel 18th Floor 52 Lime Street
London
EC3M 7AF
Administrator
MGR Weston Kay LLP
55 Loudoun Road
St John's Wood
London
NW8 0DL
Company Secretary
Computershare Company Secretarial Services Limited
The Pavilions
Bridgwater Road
Bristol
BS13 8AE
Registrar
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol
BS13 8AE
Auditors
BDO LLP
55 Baker Street
London
W1U 7EU
Public Relations Adviser
Kaso Legg Communications Ltd
40 Queen Street
London
EC4R 1DD
Valuers
Savills (UK) Limited
33 Margaret Street
London
W1G 0JD
Notice of Annual General Meeting
Annual General Meeting 2024
In line with the requirements of the Companies Act 2006 (the Act), 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 Company Secretary at ReSI-CoSec@Computershare.co.uk
(mailto:ReSI-CoSec@Computershare.co.uk) by Monday 19 February 2024.
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
ReSI-CoSec@Computershare.co.uk (mailto:ReSI-CoSec@Computershare.co.uk) by
Monday 19 February 2024 or 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/uk-housing/residential-secure-income-plc/
(https://greshamhouse.com/real-assets/uk-housing/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 160 to
162.
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 9 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
10 to 13 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/uk-housing/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 Computershare, the
Company Secretary, Floor 3, Moor House, 120 London Wall, London, EC2Y 5ET on
22 February 2024 at 12.45 p.m. for the following purposes:
To consider and if thought fit pass the following resolutions of which
resolutions 1 to 9 will be proposed as ordinary resolutions and resolutions 10
to 13 will be proposed as special resolutions.
Ordinary Resolutions
1. To receive the Company's Annual Report and Accounts for the year ended
30 September 2023, 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 2023.
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 Elaine Bailey as a Director of the Company.
6. 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.
7. To authorise the Directors to fix the remuneration of the Auditor until
the conclusion of the next Annual General Meeting of the Company.
8. 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.
9. That the Directors be and are hereby generally and unconditionally
authorised in accordance with section 551 of the Act (in substitution for all
subsisting authorities to the extent unused) to exercise all the powers of the
Company to allot Ordinary Shares of one penny each in the capital of the
Company up to an aggregate nominal amount equal to £370,326.56 (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 a general meeting) at
the conclusion of the Annual General Meeting of the Company to be held in 2025
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
10. That, subject to the passing of resolution 9, 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 Act to allot equity securities (within the meaning of section 560
of the Act) for cash either pursuant to the authority conferred by resolution
9 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 £185,163.28 (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 2025 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.
11. That, subject to the passing of resolution 9 and in addition to the
authority granted in resolution 10, 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 Act
to allot equity securities (within the meaning of section 560 of the Act) for
cash either pursuant to the authority conferred by resolution 9 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 £185,163.28 (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 2025 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.
12. That the Company be and is hereby generally and unconditionally
authorised in accordance with section 701 of 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 2025 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.
13. 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
4 December 2023
Notes to the Resolutions
Notes to resolution 1
Ordinary resolution: Annual report and accounts for the year ended September
2023
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 2023. These are
contained in the Company's Annual Report and Audited Financial Statements for
the year ended 30 September 2023 (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 2023. The Directors' Remuneration Implementation Report, which can
be found on pages 86 to 89 of the Annual Report, gives details of the
Directors' remuneration and remuneration policy for the year ended 30
September 2023.
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 3-5
Ordinary resolution: Re-election of directors
In line with best practice and the Board Tenure Policy, the Board has resolved
that all Directors will be submitted for re-election on an annual basis.
Robert Whiteman, Robert Gray and Elaine Bailey will retire, and being
eligible, offer themselves for re-election. John Carleton will retire from the
Board with effect from 22 February 2024 and will not stand 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 standing for re-election 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 standing for re-election is able to commit sufficient
and appropriate time to their board responsibilities.
Full biographies for Robert Whiteman, Robert Gray and Elaine Bailey are set
out in the Company's Annual Report on pages 65 to 66.
Notes to resolution 6
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 2025. 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. 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. The current lead partner was
appointed from the audit for the financial year beginning 1 October 2021. No
partners or senior staff associated with the audit may transfer to the Group.
Notes to resolution 7
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 £259,000 (2022: £228,000).
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 £45,000 in respect of
non-audit services in the year to 30 September 2022 (2022: £34,000). These
services were in respect of the interim review of the Interim Report for the
period ended 31 March 2022 (£34,000). The consolidated financial statements
provides details of the remuneration of the Company's external auditor. This
can be found on page 116 of the Annual Report.
Notes to resolution 8
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 9
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 AGM to be held in 2025, 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 10 and 11
Special resolution: Disapplication of pre-emption rights
If the Directors wish to exercise the authority under resolution 9 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 £370,326.56, 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 10 is passed, but resolution 11 is not passed,
the Directors will only be authorised to issue Ordinary Shares up to an
aggregate nominal value of £185,163.28, 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 10 and 11 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 10 and 11 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 10 and 11 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 2025 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 12
Special resolution: Purchase of own shares
The current authority of the Company to make market purchases of up to
approximately 14.99 per centum 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 per centum 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 AGM to be
held in 2025.
Notes to resolution 13
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 Act, is available from
https://greshamhouse.com/real-assets/uk-housing/residential-secure-income-plc/
(https://greshamhouse.com/real-assets/uk-housing/residential-secure-income-plc/)
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 Tuesday, 20 February 2024 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 Act 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 Tuesday, 20 February 2024 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 Act 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 Act
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 Act, 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) Under EPRA NTA this debt is held at amortised cost
2 (#_ftnref2) House of Commons Library, "Tackling the under-supply of
housing" from February 2022 -
https://researchbriefings.files.parliament.uk/documents/CBP-7671/CBP-7671.pdf
(https://researchbriefings.files.parliament.uk/documents/CBP-7671/CBP-7671.pdf)
3 (#_ftnref3) Department for Levelling Up, Housing and Communities (2021)
and House of Commons Library (2022), British Property Federation, and Legal
& General, 2022
4 (#_ftnref4) Cushman & Wakefield -
Housing_For_An_Ageing_Population_Report_In_Association_With_The_BPF 2023
5 (#_ftnref5) ONS, Past and projected period and cohort life tables:
2020-based, UK, 1981 to 2070, January 2022
6 (#_ftnref6) ONS, 2020-based Interim National Population Projections,
January 2022
7 (#_ftnref7) ONS, 2020-based Interim National Population Projections,
January 2022
8 (#_ftnref8)
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
9 (#_ftnref9) Boomer & Beyond quantitative research study 2022
10 (#_ftnref10) ONS, Registered Provider social housing stock and rents in
England 2022 to 2023
11 (#_ftnref11) ONS, Affordable Housing Supply, 2021 - 2022
12 (#_ftnref12) Gresham House and Office for National Statistics.
Assumptions: Initial Property OMV £300k; first tranche sale percentage 25%;
initial mortgage LTV 90%; mortgage term 30 years; mortgage interest 5.5%;
service charge £1,500 p.a, shared ownership rent 2.75%; maximum housing costs
as a percentage of net income 40%; assumes 1.5x earners per home
13 (#_ftnref13) YouGov (May 2021) 'Who does - and doesn't - want to own a
home?'
14 (#_ftnref14) Assumptions: 2022 interest rate 2.5%; 2023 interest rate
5.5%
15 (#_ftnref15) Metro Finance, October 2023
16 (#_ftnref16) UK TREASURY 3.25% 20/01/2044. Price of 142 on 1/1/2022 and
81 on 13/11/2023
17 (#_ftnref17) FY 2022 versus FY 2023
18 (#_ftnref18) FY 2022 versus FY 2023
19 (#_ftnref19) FY 2022 versus FY 2023
20 (#_ftnref20) FY 2022 versus FY 2023
21 (#_ftnref21) 1.1% coupon with principle increasing with RPI + 0.5% (with
a 0.5% floor and 5.5% cap).
22 (#_ftnref22) Based on lender covenant reporting. The covenants presented
do not represent a comprehensive set of debt covenants. This is not a
performance forecast and there can be no guarantee that ReSI will continue to
meet its debt covenants in the future.
23 (#_ftnref23) As at 30 September 2023. USS debt balance shown at fair
value, reflecting the impact of recurring quarterly indexation and movements
in gilt yields and credit spreads.
24 (#_ftnref24) Interest rate breach threshold based on last-twelve-month
net rental income.
25 (#_ftnref25) As defined in the English Housing Survey, 2020 to 2021
26 (#_ftnref26) UK TREASURY 3.25% 20/01/2044. Price of 142 on 1/1/2022 and
81 on 13/11/2023
27 (#_ftnref27) Department for Business, Energy and Industrial Strategy
28 (#_ftnref28) Number of properties excludes committed investments in 2022
29 (#_ftnref29) Includes Scope 1, 2 and 3 emissions
30 (#_ftnref30) When cost of service charge, paid for by the Company, is
removed from the residents rent level
31 (#_ftnref31) Defined as percentage of residents who responded with a 6
out of 10 or above when asked how likely they were to recommend ReSI to a
friend.
32 (#_ftnref32) ONS - House price to workplace-based earnings ratio, 2022
33 (#_ftnref33) Annual growth in employees' average total pay (including
bonuses) - ONS, September 2023
34 (#_ftnref34) Money Supermarket - 80% LTV, 1 November 2023
35 (#_ftnref35)
https://www.moneysavingexpert.com/utilities/what-is-the-energy-price-cap/
36 (#_ftnref36) Energy Price cap at October 2023 vs Energy Price cap at
April 2021
37 (#_ftnref37) TGE saving for EPC B and EPC C properties vs EPC D of £460
and £171 respectively with energy price cap at March 2021 level. Saving
scaled up for October 2023 price cap
38 (#_ftnref38) Shared ownership assumptions: OMV £300k; First Tranche
Sale: 25%; Deposit: 10%; Mortgage term: 30 years; initial interest 3.3%;
refinanced interest 5.5%; Rent level 2.75% rent increase 7%; Service charge:
£1,500 p.a; EPC B
39 (#_ftnref39) 2022 energy bills as of April 2022 price cap. 2023 energy
bills as of October 2023 price cap
40 (#_ftnref40) Outright owner assumptions; OMV: £300k; Mortgage LTV 90%;
initial interest 3.3%; refinanced interest 5.5%; EPC D
41 (#_ftnref41) Rental Assumptions - OMV: £300k; Rental Yield: 4.9%; EPC D
42 (#_ftnref42) Rental Market Report, Zoopla - September 2023
43 (#_ftnref43) Retirement Assumptions: Rent £850pcm; Rent increase 6%; EPC
C
44 (#_ftnref44) 2022 energy bills as of April 2022 price cap. 2023 energy
bills as of October 2023 price cap
45 (#_ftnref45) Private Rental Assumptions: Rent £850pcm; EPC D
46 (#_ftnref46) Rental Market Report, Zoopla - September 2023
47 (#_ftnref47) Annual growth in employees' average total pay - including
bonuses of 8.5% and excluding bonuses 7.8% - ONS, September 2023
48 (#_ftnref48) Applied to operating expenses and rents at the end of
contractual periods
49 (#_ftnref49) Applied to contractual rent increases
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