REG - Residential Secure - Interim Results to 31 March 2023
07/06/2023 07:00
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RNS Number : 8721B Residential Secure Income PLC 07 June 2023
7 June 2023
Residential Secure Income plc
("ReSI plc" or the "Company")
Interim Results to 31 March 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 interim results for the
six months ending 31 March 2023.
Commenting on ReSI plc's results, Robert Whiteman CBE, Chairman of ReSI plc
said:
"ReSI remains well-placed, to meet continued enormous demand for affordable
housing, enabling sustainable and growing, risk-adjusted returns over the long
term.
We have continued to support residents, balancing rent increases and returns
in a way which is sustainable for both residents and shareholders. This focus
has been rewarded with 99% rent collection from 2,613 counterparties and
resilient high-occupancy levels. These factors drive our secure income stream
which has remained unaffected despite the impact of the macroeconomic
environment on property valuations.
We are considering selective disposal of certain non-core assets, to reduce
floating rate debt levels, and will then revisit the appropriate level for a
fully covered and progressive dividend."
Ben Fry, Managing Director of Housing at Gresham House added:
"Our aim remains to deliver defensive long income for investors and meaningful
social impact by providing high-quality, secure homes for our residents - and
the fundamentals for this portfolio remain robust, with customer demand
incredibly strong, given the economic circumstances."
Key Financial Metrics
Income Six months to 31-Mar 23 Six months to 31-Mar 22 Change in Year
Like-for-like rental reviews +6.2% +4.2% +2%
Rent Collection 99% 99% -
Gross Rental Income £13.6mn £12.4mn +10%
Net Rental Income £8.8mn £8.1mn +8%
Adjusted EPRA Earnings1,2 £4.1mn £4.2mn -3%
Adjusted EPRA EPS1,2 2.2p 2.4p -8%
Dividend paid per share 2.6p 2.6p -
Dividend cover3 86% 96% -10%
Changes in fair value of investment properties £(28.5)mn £5.0mn -570%
Capital 31-Mar 23 30-Sept 22 Change in
Period
IFRS net assets £166.6mn £201.4mn -17%
IFRS NAV per share 90.0p 108.8p -17%
IFRS Portfolio Valuation £355.3mn £374.8mn -5%
EPRA NTA per share1 89.0p 106.1p -16%
EPRA NTA Total Return1 (13.7)% +3.3% -10%
Loan to Value 52% 47% +5%
Financial highlights - resilient earnings with inflation linkage of rental
income, offset by increased energy costs in communal areas and floating rate
debt costs
· £35m of shared ownership acquisitions compared to previous
year
· 6.2% rent review growth (includes shared ownership rent
increases on 1 April 2023)
· EPRA adjusted earnings(1) of £4.1 million (H1 22: £4.2
million) with strong rent growth offset by retirement cost increases, due to
rising energy costs, increased floating rate debt costs and higher fund opex
· EPRA Net Tangible Assets ("NTA") total return of (13.7)% (H1
22: 2.8%) to give 89.0p per share NTA
· Valuations down 7.2% like-for-like with 50bps outwards yield
shift, reflecting higher gilt yields
· LTV of 52% (H2 22: 47%) supported by 21 year average debt
maturity
· Total dividends paid for the half-year of 2.6p per share (H1
22: 2.6p) with 86% dividend cover (H1 22: 96%)
Portfolio and operational highlights
· Diverse portfolio of 3,298 homes worth £355mn
o £73mn reversionary surplus of vacant possession value compared to fair
value (21% uplift)
· Portfolio focused on direct leases with pensioners and part
home owners
· Rent collection of over 99% for half year (H1 22 99%)
· Shared ownership portfolio 99% occupied or reserved
o 59 new homes acquired in period with 44 occupied and further 8 reserved
· Record retirement occupancy of 94% (H1 22 93%)
· Retirement net income flat due to 77% increase in energy costs
for communal areas
Continuing to deliver Social and Environmental Impact
· 96% of directly rented properties now EPC-rated C or higher (H1
22: 94%), with the remainder on track for targeted minimum C rating by 2025,
three years ahead of government target
· Rent caps voluntarily implemented to protect resident
affordability
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
· 90% satisfaction levels with our in-house property management
team4
Outlook
· Acute need for more affordable homes with estimated need for
£34bn5 of annual investment in the UK
· Particular shortage of affordable homes for home ownership and
suitable accommodation for independent later living for the growing elderly
population
· Accelerating tenanted shared ownership opportunities as housing
associations look to fund increasing costs of investing in their existing
stock whilst maintaining development programmes
· Strong rental inflation linked growth expected to continue,
underpinned by lack of supply and increasing demand which is expected to
provide some uplift to H2 2023 dividend cover
· Market transactional evidence suggests that downward pressure
on valuations is starting to ease, however, valuations naturally remain
sensitive to movements in gilt yields which have moved out further post period
end
· Focused on operational improvements to the retirement portfolio
and sale of non-core assets
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 Source: ReSI Homes Customer Survey
5 British Property Federation, and Legal & General, 2022
Interim Report and investor webinar
ReSI plc will host an online webinar and Q&A session to discuss the
results this morning, 7 June 2023, at 11:00am (BST). Registration is available
at: https://greshamhouse.zoom.us/webinar/register/WN_cQCDXpbBTtCiD5e3uub1NQ
(https://greshamhouse.zoom.us/webinar/register/WN_cQCDXpbBTtCiD5e3uub1NQ)
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 Interim 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 Interim 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) .
For further information, please contact:
Gresham House Real Estate
Ben Fry +44 (0) 20 7382 0900
Sandeep Patel
Peel Hunt LLP +44 (0) 20 7418 8900
Luke Simpson
Huw Jeremy
gh@kl-communications.com (mailto:gh@kl-communications.com)
KL Communications +44 (0) 20 3995 6673
Charles Gorman
Charlotte Francis
About ReSI plc
Residential Secure Income plc ("ReSI plc" LSE: RESI) is a real estate
investment trust (REIT) focused on delivering secure, inflation-linked returns
with a focus on two resident sub-sectors in UK residential - independent
retirement rentals and shared ownership - underpinned by an ageing demographic
and untapped and strong demand for affordable home ownership.
As at 31 March 2023, including committed acquisitions, ReSI plc's portfolio
comprises 3,298 properties, with an (unaudited) IFRS fair value of £355mn.
ReSI plc's purpose is to deliver affordable, high-quality, safe homes with
great customer service and long-term stability of tenure for residents. We
achieve this through meeting demand from housing developers, housing
associations, local authorities, and private developers for long-term
investment partners to accelerate the development of socially and economically
beneficial affordable housing.
ReSI plc's subsidiary, ReSI Housing Limited, is registered as a for-profit
Registered Provider of social housing, and so provides a unique proposition to
its housing developer partners, being a long-term private sector landlord
within the social housing regulatory environment. As a Registered Provider,
ReSI Housing can acquire affordable housing subject to s106 planning
restrictions and housing funded by government grant.
About Gresham House and Gresham House Real Estate
Gresham House is a London Stock Exchange quoted specialist alternative asset
manager committed to operating responsibly and sustainably, taking the long
view in delivering sustainable investment solutions.
Gresham House Real Estate has an unparalleled track record in the affordable
housing sector over 20 years, with senior members having an average of c.30
years' experience.
Gresham House Real Estate offers long-term equity investments into UK housing,
through listed and unlisted housing investment vehicles, each focused on
addressing different areas of the affordable housing problem. Each fund aims
to deliver stable and secure inflation-linked returns whilst providing social
and environmental benefits to its residents, the local community, and the
wider economy.
Further information on ReSI plc is available at www.resi-reit.com
(http://www.resi-reit.com) , and further information on Gresham House is
available at www.greshamhouse.com (http://www.greshamhouse.com)
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 aging 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.
Strategic report
Investment case
Why ReSI?
ReSI delivers 97% inflation-linked income, which is generated from affordable
and secure rents and supported by strong market drivers in shared ownership
housing and independent retirement living.
Secure long-term inflation-linked income
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
· 3,298 households diversified across ages and stages of life · Underpinned by c.£428mn home value with 21% 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 snapshot
We invest in UK affordable homes to deliver secure, inflation-linked income
3,298 £355mn 935
Homes Value of investment property Unique UK property locations
30 September 2022: 3,284 30 September 2022: £383mn including £9mn committed acquisitions 30 September 2022: 926
See note 12 on page 43
£17.2mn 4.8% 2,613
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 61
See note 10 Supplementary Financial Information on page 61
* Alternative performance measure
Portfolio split by region Number of properties
East Midlands 74
East of England 840
Greater London 472
North East 19
North West 259
Scotland 5
South East 800
South West 592
Wales 53
West Midlands 91
Yorkshire and The Humber 93
Grand Total 3298
Portfolio split by valuation
Independent Retirement Rentals £209mn 59%
Shared Ownership £125mn 35%
Local Authority £21mn 6%
Total £355mn 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 Living Housing Shared Ownership Housing
(£209mn GAV / 2,240 Homes / 59% of portfolio) (£125mn GAV / 769 Homes / 35% of portfolio)
Driver § Booming and increasingly lonely older population § Huge untapped demand for affordable homeownership
Summary § Let to elderly residents with affordable rents and assured tenancies § Homebuyers acquire, from ReSI, a share in a residential property and rent
the remainder
§ Provides fit-for-purpose homes for retired people, allowing them to
maintain their independence without care provision § Helps house buyers acquire homes they would otherwise be unable to buy
§ Capital grant funding from government drives a c.40% 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 business § ReSI Housing - for-profit Registered Provider of Social Housing
advantages § Specialist in-house 30-person team with over 20-year track record
Average vacant § c.£110,000 per home § c.£334,000 per home((6))
possession value
Net yield § 5.4% § 3.5%((5))
Average debt coupon § 3.5% § 1.1% ((4))
Levered yield § 6.7% § 8.7%((5))
Average customer stay / length of lease ((1)) § 6 years § 249 years
Like-for-like rental reviews ((2)) § 5.8% § 7.0% applied on 1 April 2023
March 2023 occupancy § 94% § 99% ((3))
Rent collection § 100% § 99%
(1) Assuming no staircasing
(2) Represents the rent growth for homes that were occupied and eligible for a
rent review during the six months ended March 2023. Including all homes that
were occupied during H1 2023, Independent Retirement Like-for-Like reviews
would be 2.3%. Shared ownership rents increased on April 1 2023, after the
half-year ended March 2023
(3) Includes 8 homes reserved as at 6 June 2023
(4) 1.1% average blended coupon over the remaining loan term, with principal
increasing with RPI + 0.5% (with a 0.5% floor and 5.5% cap)
(5) Based on 1 April 2023 rents
(6) Shared ownership vacant possession value includes both the value of ReSI's
63% average equity position, and the 37% owned by the residents
Financial Highlights
Income
(16.2p) (13.7%) (14.9%)
IFRS Earnings Per Share Total Return (on Opening NTA)* Total IFRS Return (on Opening NAV)
Period ended 31 March 2022: 4.5p Period ended 31 March 2022: 2.8% Period ended 31 March 2022: 4.2%
See note 11 on page 41 See note 11 Supplementary Financial Information on page 62 See note 12 Supplementary Financial Information on page 62
£4.1mn / (3%) 2.2p 2.6p
Recurring profit before change in fair value and property disposals* EPRA Adjusted Earnings Per Share* Dividend per share
Period ended 31 March 2022: £4.2mn Period ended 31 March 2022: 2.4p Period ended 31 March 2022: 2.6p
See note 11 on page 41 See note 11 on page 41
* Alternative performance measure
CAPITAL
90.0p / -17.3% £355mn 3.7%
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 as at the date of this
report
30 September 2022: 108.8p 30 September 2022: £383mn inc. £9mn committed acquisitions. (30 September 2022: 3.3% or 6.4mn shares)
See note 12 on page 43
See note 24 on page 54
52% 21 Years 89.0p / -16.1%
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 note 13 Supplementary Financial Information on page 63 See note 24 on page 54
* Alternative performance measure
Chairman's Statement
Rob Whiteman CBE
Chairman
"ReSI remains well-placed, to meet continued enormous demand for affordable
housing, enabling sustainable and growing, risk-adjusted returns over the long
term.
We have continued to support residents, balancing rent increases and returns
in a way which is sustainable for both residents and shareholders. This focus
has been rewarded with 99% rent collection from 2,613 counterparties and
resilient high-occupancy levels. These factors drive our secure income stream
which has remained unaffected despite the impact of the macroeconomic
environment on property valuations.
We are considering selective disposal of certain non-core assets, to reduce
floating rate debt levels, and will then revisit the appropriate level of a
fully covered and progressive dividend."
ReSI's portfolio is handpicked to provide 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
affordable homeownership for young families and key workers through shared
ownership or providing fit-for-purpose homes for independent living in
retirement.
ReSI has delivered strong like-for-like rent reviews with growth of 6.2%
whilst maintaining retirement occupancy at 94% and virtually fully occupying
our shared ownership portfolio. Rent collection continues to exceed 99%,
underpinned by direct leases with a highly diversified resident base
comprising 2,613 counterparties, affordable rents, and shared ownership equity
stakes averaging c.37%. Given the sharp and significant spike in inflation and
interest rates, we have continued to balance rent increases with shareholder
returns, in a way which is sustainable both for our residents and for our
shareholders. We have aimed to support residents through a difficult period
where pay increases may have lagged spiking inflation, which has in turn
supported occupancy and rent collection levels.
Nevertheless, 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, keeping retirement net income flat year on year. Together with
increased interest expenses on the 10% of our debt which is floating rate, and
increased overheads, Adjusted Earnings have reduced by 3%.
As a result, dividend cover declined to 86% after re-achieving full coverage
in Q4 2022, which justifies the Board's decision to keep the dividend per
share flat in order to absorb extraordinary cost increases.
As with all long-term income assets, our investment valuations have been
impacted by rising gilt yields, but our strong rental growth has partially
mitigated this with a 7.2% like-for-like decline to £355mn, taking EPRA NTA
to 89.0p per share down from 106.1p at 31 September 2022. Market transactional
evidence suggests that downward pressure on valuations is starting to ease,
however, valuations naturally remain sensitive to movements in gilt yields
which have moved out further post period end.
ReSI is now the custodian of homes for 3,298 households, and we will continue
to balance returns with affordability for our residents. Our retirement
portfolio leases are contractually capped at 6.0%. We have 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.
Market outlook
Despite recent operational challenges and macroeconomic headwinds, the
fundamentals underpinning ReSI's business model, and our longer-term outlook,
remain positive.
The UK's structural housing shortfall continues and most of the population
lives in areas where home purchase is unaffordable for average earners, with
an estimated need for £34bn 1 (#_ftn1) of annual investment over the next
decade to begin addressing the shortfall. Persistent 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 Help to Buy programme's end in March 2023). The
UK population demographic is rapidly aging and social isolation can have a
material impact on the health of the elderly, driving demand for independent
retirement accommodation.
Housing associations, who have historically been the primary investors in
affordable housing, are now dealing with rent caps on their social and
affordable rent portfolios in addition to allocating c.£10bn for fire safety
and c.£25bn to upgrade the energy efficiency of their social rented stock by
2030. These financial pressures impact their 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 outlook
As the owner of a for-profit registered provider and as the UK's largest
provider of private independent retirement rental homes, and with an
experienced and capable fund management team, the Board believes that ReSI
remains well positioned to deliver affordable housing to residents and 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 in a short amount of
time, and while the Company's share price has performed better than many of
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, particularly in shared ownership, given the work by the Fund
Manager to create this market, and the ability for these to enhance returns to
shareholders over the medium term. The Board has considered undertaking
further share buy-backs but given current cash levels, does not consider it in
shareholders' best interests to increase leverage to support buy-backs.
Instead, the Fund Manager is exploring the sale of non-core assets. This would
enable repayment of floating rate debt and leave ReSI with only its long-term
debt that has a weighted average maturity of 21 years. While assets sales
would reduce ReSI's adjusted earnings, we expect they will increase
sustainability of income given the removal of exposure to interest rate moves.
The Board continues to seek to pay a progressive dividend which is more than
covered. To ensure that ReSI can continue to grow sustainably despite the
current economic conditions, the Board will revisit the appropriate level of
dividend following any asset sales, and in the light of the then prevailing
economic and market conditions. ReSI remains well-placed, to meet continued
enormous demand for affordable housing, enabling sustainable and growing,
risk-adjusted returns over the long term.
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
6 June 2023
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)
H1 2022 H1 2023 H1 2022 H1 2023 H1 2022 H1 2023 H1 2022 H1 2023 H1 2022 H1 2023
4.2 4.1 7.6 8.3 4.2 6.2 37% 41% 7.8 (30.0)
KPI definition
Adjusted EPRA earnings, excluding valuation movements on investment assets and Gross rental income after deducting property operating expenses including Like-for-like average growth on rent reviews across the portfolio. Administrative and operating costs (including costs of direct vacancy) divided (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 ground rent paid. by gross rental income. Group's Consolidated Statement of Comprehensive Income.
part of the ongoing revenue or costs of the business.
Comment
H1 2023 earnings impacted by higher finance costs on floating rate debt and Increase of 9% delivered during the period as a result of organic growth from 6.2% like-for-like rental reviews growth achieved for properties that were H1 2023 cost ratio impacted by higher operating costs in the retirement Decreased profit before tax driven by property valuation loss reflecting
higher operating costs in the retirement portfolio because of increased energy the portfolio due to rent increases and acquisitions in H2 2022. eligible for rent increases during the six months ended March 2023, adjusted portfolio because of increased energy costs in communal areas. market repricing due to higher interest rates and increased valuation of debt.
costs in communal areas. for shared ownership rent increases which occurred on 1 April 2023. The repricing of 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 affordable housing, to continue to appeal to a wide range of
This growth reflects the 6.0% rent increase caps on retirement leases, as well property investors resulting in relatively resilient yields compared to other
as the 7.0% cap implemented for shared ownership rent increases which took property sectors.
effect on 1 April, 2023.
Notes
See note 11 to the financial statements See note 5 to the financial statements See Glossary on page 65 for definition and calculation basis. See note 7 Supplementary Financial Information See Consolidated Statement of Comprehensive Income on page 31.
* 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)
FY 2022 H1 2023 FY 2022 H1 2023 H1 2022 H1 2023 FY 2022 H1 2023 FY 2022 H1 2023
106.1 89.0 108.8 90.0 2.8 (13.7) 47 52 22 21
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
16.1% reduction in the six months to 31 March 2023 driven by fair value Returns of minus 17 pence per share in the six-month period reflecting Returns of minus 13.7% in H123 reflecting property valuation decline and debt 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. property valuation decline and debt valuation. valuation. repricing due to higher interest rates and macro-economic environment fixed and inflation-linked debt.
Notes
See note 2 Supplementary Financial Information for reconciliation from IFRS to See Consolidated Statement of Financial Position See note 11 Supplementary Financial Information for calculation. See note 13 Supplementary Financial Information for calculation. See note 16 for information on the Group's Borrowings
EPRA performance measures
* Alternative performance measures
Fund Manager's Report
Ben Fry
Managing Director Housing
"Our aim remains to deliver defensive long-term income for investors and
meaningful social impact by providing high-quality, secure homes for our
residents - and the fundamentals for this portfolio remain robust, with
customer demand incredibly strong, given the economic circumstances."
The first six months of FY23 have 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 with 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, very high 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.
Our rent review growth has been strong at 6.2%, including 7% rent increases on
the shared ownership portfolio effective from 1 April 2023. 45% of the
portfolio experienced rent reviews in the first half, driving 2.9%
like-for-like rental growth in the period. This rent growth reflects the
underlying strong demand for our affordable homes and our decision to cap
inflation-linked rental increases in order to protect affordability for our
residents when their incomes are under pressures not seen in recent decades.
This rental growth, combined with the full impact of previous shared ownership
acquisitions, helped ReSI increase net rental income by 8% to £8.3mn, despite
managing 13% higher costs in our retirement portfolio, driven by increased
energy costs in the communal areas, that kept retirement net income flat.
Adjusted EPRA earnings, before valuations, reduced by 3% to £4.1mn with net
rental income growth offset by increased interest expenses on our £21mn
floating rate debt (10% of total debt), as well as higher professional, legal
and audit fees.
As with many other REITs and investment companies, the increase in gilt yields
has directly impacted our portfolio valuations, which are down 7.2%
like-for-like for the half year to March 2023. This valuation reduction has
driven a total EPRA return of (13.7%) taking EPRA NTA to 89.0p per share.
While valuations naturally remain sensitive to moves in gilt yields, as at
period end we see downward pressure on valuations starting to ease, with
inflationary pressures which are hopefully nearing their peak, even if they
remain stubborn.
These valuation headwinds have increased the LTV of the Company to 52%. While
this is broadly in line with the Company's 50% medium-term target, it 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 derisk 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 the Company continuing to
trade at a significant discount to its Net Asset Value. Our proposed sale of
certain non-core assets, as referred to in the Chairman's statement, will
allow ReSI to de-leverage its more expensive floating rate debt, leaving a
strong balance sheet reinforced only by ultra-long debt with an average
maturity of 21 years.
These sales will reduce Adjusted Earnings but should reduce volatility and
increase the sustainability of our income through the removal of exposure to
interest rate moves. Following any asset sales, we will work with the Board to
rebase the dividend, targeting a higher level of dividend cover to support a
progressive dividend that grows sustainably in line with ReSI's underlying
inflation-linked rents.
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. 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
37% of the exposure to mortgage rate increases compared to full-ownership
mortgages. Our retirement residents typically fund rent payments with income
from an inflation-linked pension, and benefit from tailored accommodation that
helps to address loneliness. 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
very high levels of occupancy, reflects our focus on the under-served 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 3,298 homes. We believe that the shared
ownership portfolio's investment thesis will continue to prove out as rents
uplift with direct inflation-linkage and de-risk through residents staircasing
and repaying mortgages over time.
Financial review
Total Return
EPRA NTA total return was a negative 14.5p per share (-13.7%) for the half
year, driven by a reduction in like-for-like investment property values
following increases in gilt yields.
This negative 14.5 pence per share EPRA return, comprises:
- 2.2p of Adjusted EPRA earnings (see note 11 - adjusted earnings
per share), with recurring income of £4.1mn; less
- 15.3p reduction in valuation on investment property as assessed
by Savills representing a 7.2% decrease on a like-for-like fair value basis to
a total of £355mn as at 31 March 2023. This valuation decrease was primarily
driven by a c.50 bps increase (inclusive of 1 April 23 rent reviews in shared
ownership) in the weighted average valuation yield since September 2022; and
- 1.2p impact of USS debt indexation (£2.2mn), 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
- 0.2p one-off costs (c.£400k), attributable to aborting
fundraising in Autumn 2022, following the Company's share price moving from a
premium to substantial discount in NAV rendering equity raising dilutive to
shareholders.
The movement in the NTA position during the half year, from 106.1p to 89.0p
per share, is after total dividend payments of 2.6p per share (£4.8mn).
Movement in NTA pence per share for the six-month period
NTA at 30/09/22 106.1
Net income 2.2
Movement in Fair Value of Investment Properties -15.3
One-off costs -0.2
Debt indexation -1.2
Dividend paid -2.6
NTA at 31/3/23 89.0
A total IFRS return of -16.2p per share (-14.9%) was delivered for the half
year. The difference to EPRA NTA returns reflects an increase in the fair
value of debt (IFRS) of 1.6p (£2.9mn) versus the amortised cost value of debt
(EPRA) caused by reducing credit spreads in the period, partly offset by an
increase in revaluation of trading properties of 0.1p (£0.2mn). IFRS NAV
decreased by 18.8p after dividends paid.
Movement in IFRS NAV at 31 March 2023 (pence per share)
NAV at 30/09/22 108.8
Net Income 2.2
Movement in Fair Value of Investment Properties -15.4
Movement in fair value of debt -2.8
One-off costs -0.2
Dividend paid -2.6
NAV at 31/03/23 90.0
Statement of Comprehensive Income
Adjusted Earnings reduced by 3% to £4.1mn with 8% net rental income growth
offset by increased interest expenses on our £21mn floating rate debt (10% of
total debt), as well as higher overheads which are explained further below in
the Fund Manager's Report.
H1 2023 H1 2022 Variance
(£'000) (£'000)
Net rental income 8,768 8,096 +8%
First tranche sales profits 231 336 -31%
Net Finance Costs (3,132) (2,775) +13%
Management fees (1,051) (907) +16%
Overheads (700) (528) +33%
Adjusted Earnings / Adjusted EPRA Earnings 4,116 4,222 -3%
Adjusted EPS 2.2p 2.4p -8%
Dividend Coverage 86% 96% -11%
Property Valuation movements (28,502) 4,975
Debt Valuation movements (5,187) (1,033)
One-offs (405) (328)
IFRS (Loss)/Earnings (29,974) 7,836 -483%
IFRS EPS (16.2p) 4.5p -462%
Net Rental Income:
Net rental income before ground rents (NRI) grew by 8% year-over-year to
£8.8mn, driven by four underlying factors:
- flat income in retirement of £5.4mn with strong rental reviews
growth of 5.8% offset by 13% cost inflation;
- shared ownership rent growth of 5.5% to £1.8mn;
- full occupancy and annualised income of our like-for-like shared
ownership portfolio; and
- shared ownership acquisitions from the investment of our £15mn
fundraise in February 2022 providing £0.4mn
These four factors were also underpinned by:
- consistent rent collection of over 99%.
H1 2022 Net Rent £8.1mn
Shared ownership - acquisitions £0.4mn
Shared ownership - leasing £0.1mn
Shared ownership - rent growth £0.1mn
Retirement - rent growth £0.3mn
Retirement - cost inflation -£0.3mn
H1 2023 Net Rent £8.8mn
1. Top-line retirement growth offset by cost pressure:
- Income growth delivered: £0m / 0% / 0.0 pence per share 2
(#_ftn2)
Retirement rental revenue grew 5.6% year-over-year to £10.1mn, up from 3.4%
in the prior year. This was driven by rental caps of 6% applied to the RPI
linked rental increases, combined with ReSI supporting residents in financial
hardship with rental freezes or reduced increases. We believe our decision to
cap rental increases is the right one, to both protect our residents and
support the long-term stability of our income. These moves generated an annual
saving for residents of c.£0.5mn / c.£690 per resident.
Revenue growth was offset by 13.1% year-over-year operating expense growth to
£4.6mn, which was primarily driven by 77% increase to c.£0.53mn in the
energy costs for common areas as well as a 15% increase in property management
fees as we restructure the team. This resulted in flat net income over the
period.
Occupancy continues to improve to a record 94%, reflecting the great customer
service of ReSI's in-house property manager, ReSI Property Management Limited
(RPML).
Looking forwards, we are working closely with RPML across several asset
management initiatives, in order to boost income and offset cost inflation
including:
- 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; and
- completing capital works and energy efficiency improvement
projects
2. Strong and accelerating rent growth in shared ownership:
- Income growth delivered: £0.1mn / 5.5% / 0.1 pence per share 3
(#_ftn3)
Shared ownership rents increase annually on 1 April generally with RPI + 0.5%,
and grew by 5.5% like-for-like to £1.8mn compared to the same period last
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), in line with 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
like never before. This decision is entirely in our control but matches the
cap that the government has applied to general needs social housing
properties. The impact of this 7% rent increase will be reflected in our
income over 12 months from 1 April.
3. Full occupancy and annualised impact of our shared ownership portfolio:
- Income growth delivered: £0.1mn / 0.1 pence per share 4
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 Clapham Park and Auckland Rise units that leased
during H1 2022, and the same-store portfolio owned by ReSI at September 2022
is fully leased.
4. Shared ownership acquisitions:
- Income growth delivered: £0.4mn / flat on pence per share
basis 5
ReSI's earnings grew by c.£0.4mn from recent capital deployment into shared
ownership investments and letting activity (excluding the impact of first
tranche sales).
H1 2023 results include the full impact of ReSI's £24mn acquisition of 182
fully occupied homes from Orbit last March, and 21 homes from HSPG last
September. Both of these acquisitions were occupied and immediately income
generating, providing immediate earnings enhancement for ReSI.
ReSI also acquired 59 new homes (£11mn) 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, 44 were occupied,
with 8 reserved ahead of resident move-in and 7 remaining available,
representing a take-up rate of c.6 units a month. Overall, the shared
ownership portfolio is 99% sold or reserved. 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 £15mn of equity raised in February 2022 and
debt drawn on the USS credit facility in March 2022, and are expected to be
earnings accretive to ReSI's financial performance on a fully stabilised
basis. The transactions with Orbit Group and Brick By Brick were repeat
transactions with counterparties transacted with during FY 2021 - evidencing
the growing strength of ReSI's relationship network.
5. 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.37% 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 exceed 99% in H1 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 H1 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 31% to £0.2mn. 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 13% to £3.1mn, caused by a 21% increase in
interest on borrowings to £2.6mn, with ground rent expenses remaining at
£0.5mn. Interest expenses have been driven by the 3% average increase in
SONIA year on year on ReSI's £21mn of floating rate debt, as well as £20mn
long-term debt drawn from USS in March 2022 to finance shared ownership
acquisitions.
ReSI is exploring the sale of non-core assets in order to pay-down its
short-term floating rate debt and leave the Company with long-term fixed or
inflation-linked debt with a weighted average maturity of 21 years.
Administrative and other expenses
Administrative and other expenses, including management fees and other costs
of running the Group, were £2.1mn (six months to 31 March 2022: £1.5mn). The
year-on-year increase has been predominately driven by £0.3mn of exceptional
costs recognised in the period in relation to an aborted equity raise. Prior
to the market dislocation, in September 2022, the Company was well advanced
with preparations for an equity raise to enable the execution of accretive
shared ownership acquisitions which were under exclusivity.
Management fees have also increased to £1.0mn (six months to 31 March 2022:
£0.9mn) year on year, reflecting the impact of February 2022's fundraise as
well as a higher NAV than 12 months ago. The management fee is measured in
advance based on the prior quarter NAV, with an annual adjustment ensuring the
fee for the full financial year is charged in reference to an average NAV over
the full financial year. Accordingly, the management fee is expected to reduce
and for the full year ending 30 September 2023 be broadly aligned with
financial year ending September 2022.
The balance of the increase, in administrative and other expenses, is
attributable to costs related to investment in the regulation and 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.
Dividend coverage:
ReSI's dividend was 86% covered by recurring income in H1 2023, reflecting an
11% year-on-year decline in dividend coverage.
Dividends paid were flat on a per share basis but increased in absolute
quantum by the 8% increase in share count, reflecting the £15mn share
issuance in February 2022. Rental income increased by 10% year on year, but
this was more than offset by inflationary increases in retirement property
expenses, increased floating rate interest costs and increase in fund
operating expenses, to leave Adjusted Earnings down 3% and reduce dividend
cover by 11%.
We anticipate some uplift in H2 2023 dividend coverage resulting from the 7%
shared ownership rent increases on 1 April 2023, completion of lettings in the
shared ownership portfolio, further rent increases in retirement, and
operational initiatives that RPML is currently pursuing to reduce retirement
operating costs.
Valuations
During the period, 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 indiscriminately across the listed REIT
space. We expect that higher quality assets generating stable income flows,
such as the ReSI portfolio, will stabilise more quickly and prove more
resilient. Furthermore, in addition to the stable 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 £28.5mn during the half year - a 7.2%
decrease on a like-for-like fair value basis to a total of £355mn as of 31
March 2023. This was driven by c.50 bps increase (inclusive of 1 April 23 rent
reviews in shared ownership) in the weighted average valuation yield applied
to the portfolio, with both shared ownership and retirement valuation yield
shifts of c.50 bps to 5.4% and 3.5% respectively. This shift in valuation
yields partly reflects rental growth of 6.2% on 1,477 properties (45% of
portfolio) driving 2.9% like-for-like growth for the six months to 1 April
2023. Valuations of course remain sensitive to moves in gilt yields, but we
see downward pressure on valuations starting to ease.
Balance Sheet
31-Mar-23 30-Sep-22 Variance
(£'000) (£'000)
Total Investments 355,333 374,785 -5%
Inventories - First tranche Shared Ownership properties available for 1,817 1,203 +51%
sale
Cash and cash equivalents 9,906 15,984 -38%
Borrowings amortised cost (203,107) (194,701) +4%
Other 827 (787) -205%
EPRA Net Tangible Assets 164,776 196,484 -16%
EPRA NTA per share (pence) 89.0 106.1 -16%
EPRA Net Disposal Value (NDV) 185,435 225,455 -18%
EPRA NDV per share (pence) 100.1 121.8 -18%
IFRS NAV 166,635 201,388 -17%
IFRS NAV per share (pence) 90.0 108.8 -17%
Book Value of Debt 195,664 189,705 +3%
Reversionary Surplus (excluded from NTA) 73,190 47,971 +53%
Reversionary Surplus per share (pence) 39.5 25.9 +53%
Investment valuations declined by £19.5mn (6%) reflecting a £28.5mn (7.2%)
like-for-like decline caused by a c.50 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 51%
increase reflects the acquisition of 59 vacant shared ownership homes between
September 2022 and March 2023, with 23 remaining vacant on 31 March of which 8
have subsequently been occupied and a further 8 are reserved.
Total borrowings (amortised cost) increased by £8mn over the six-month period
to £203mn as of 31 March 2023, reflecting quarterly indexation on the USS
credit facility as well as an increase in short term borrowings for committed
acquisitions.
The EPRA NTA and IFRS NAV measures exclude the reversionary surplus in our
portfolio which stands at £73mn. 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 17%
discount, on average, to its reversionary value.
Financing and Capital Structure
ReSI has c.£203mn (notional value) of debt in place, of which 90% is either
long-term fixed rate or inflation-linked. This represents a 3% increase in
fair value of debt since September 2022, reflecting changes in fair value on
the inflation-linked USS debt resulting from recurring indexation (£2.2mn).
LTV has increased by 5% from 47% to 52% over the last six months ahead of our
target of 50% leverage. 4% of this LTV increase was driven by a 7.2% decline
in ReSI's property valuations since September 2022, with 1% driven by the
impact of recurring quarterly indexation on the USS credit facility.
Our reversionary loan-to-value is 47% when taking into account the £428mn
vacant possession value of the portfolio. This £73mn reversionary surplus
(compared to £355mn 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 17%
discount, on average, to its reversionary value.
H1 2023 FY 2022
Total debt £196mn £190mn
LTV (target 50%) 52% 47%
Leverage on reversion value 46% 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% 6 (#_ftn6) 0.9%
Weighted average maturity 21 years 23 years
Capital stack
H1 FY 2023
Debt £196mn
Equity £141mn
Grant Funding £15mn
Reversionary Surplus £73mn
Total £425mn
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 £8mn drawn and represents 4% of ReSI's outstanding debt
balance. As at 31 March 2023, the working capital facility's LTV covenant was
53%, with c.£12mn of property value headroom (3%) before a covenant breach is
triggered. We estimate that ReSI's weighted average valuation yield would need
to shift outward by a further c.20bps for this valuation loss to be realised,
on top of the c.50bps (inclusive of 1 April 23 rent reviews) widening since
September 2022.
However, market transactional evidence as at period end suggests that we may
be past the worst of valuation yield movements. Furthermore, taking into
account ReSI's high-quality assets generating stable income flows, and the
speed at which valuers have marked down portfolios across the listed REIT
sector, we believe ReSI's portfolio is well placed to provide resilience
against further material outward yield shifts.
As a wholly proactive measure, ReSI has held positive discussions with
Santander in relation to the LTV covenant. Santander acknowledge the strong
long-term and income generating fundamentals of the ReSI property portfolio;
accordingly, they are open to relaxing the LTV covenant until yields
stabilise. Execution of the change to the LTV covenant is expected to conclude
by the end of June (subject to credit approval).Additionally, we are actively
exploring the sale of non-core assets in order to pay-down our short-term
floating rate debt. This would leave the Company with long-term fixed or
inflation-linked debt with a weighted average maturity of 21 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.
Loan Covenants by Portfolio 7 (#_ftn7)
Covenant Shared Ownership / USS Retirement / Scottish Widows Local Authority / NatWest Total Portfolio / Santander
Current debt balance 8 (#_ftn8) £83mn £94mn £12mn £8mn
LTV - Threshold N/A <59% <60% <55%
LTV - Reported N/A 45% 42% 53%
Value - Headroom (%) N/A 23% 30% 3%
Value - Headroom (£) N/A £47mn £9mn £12mn
ICR / DSCR - Threshold >0.95x >2.0x >2.5x >1.5x
ICR / DSCR - Reported 6x 3x 3x 3x
NOI - Headroom 85% 33% 21% 53%
SONIA Interest Rate - Breach Threshold 9 (#_ftn9) Fixed-rate Fixed-rate >4%(3) 30%
ReSI currently has £17mn of remaining liquidity available via its working
capital facility as well as £5mn of unrestricted cash. Near-term debt
maturities consist of £12.1mn of floating rate NatWest debt, which matures in
October 2023. We expect to fully repay the loan in H2 2023 with proceeds from
asset disposals, at which point ReSI's floating-rate-debt exposure will
consist of borrowings on the revolving working credit facility.
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 12.4% on 1 April,
however we have voluntarily capped this increase at 7% (by way of a rebate),
in line with wage growth and the 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 is projected to save residents c.£204,000 over the next 12 months.
Our retirees benefit from the rent increase cap of 6% being applied to all
directly rented retirement properties, which currently generates annualised
savings of c.£464,000 as at March 2023. In addition, further rent caps and
rent freezes have been provided to residents who are most in need,
representing £38,000 of annualised benefit as at March 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, which should help us to deliver
long-term, stable returns to investors.
Our in-house property manager, RPML, received resident survey feedback
indicating c.90% resident satisfaction rates across our retirement and shared
ownership portfolios. More generally, 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, three years ahead of the government target with 96% now at
this target. For the whole portfolio, 85% of the properties are rated C or
higher, leaving ReSI well ahead of the average for the social sector and the
overall UK housing market 10 (#_ftn10) .
Management Team Transition
Gresham House has recently hired three senior real estate investment
professionals to join the Housing team to bolster resources, experience and
help to drive further growth and to work with me and the existing team.
Mike Adams is the newly appointed Managing Director of the expanded Gresham
House Real Estate business and will be ultimately responsible for all Real
Estate strategies.
Mike Adams joined with Burak Varisli in February 2023 and, Sandeep Patel
joined in December 2022 as the divisional finance director.
Alex Pilato will fully retire on 9 June, 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 with
significant shareholdings.
Summary and outlook:
ReSI continues to see enormous demand for affordable homes, with a particular
shortage of affordable homeownership routes for young families and key workers
and fit for purpose homes for independent living through retirement, demand
which ReSI is well placed to meet.
ReSI has delivered strong like-for-like rental review growth of 6.2%,
inclusive of 7% rent increases on the shared ownership portfolio effective 1
April 2023, with continued high occupancy, rent collection stable at almost
100% and good demand for new homes 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, to leave Adjusted Earnings down 3% and reduce
dividend cover by 11%.
We are focused on operational improvements to the retirement portfolio,
working closely with RPML, our dedicated in-house property management team, to
drive earnings whilst exploring the sale of non-core assets to allow ReSI to
pay down its floating rate debt and leave the Company with long-term fixed or
inflation-linked debt with an average maturity of 21 years. We will then work
with the Board to rebase the dividend, likely targeting a higher level of
dividend cover to support a progressive dividend that grows sustainably in
line with ReSI's underlying inflation-linked rents.
Valuations have been impacted by rising gilt yields, and of course remain
sensitive to future moves, but we see downward pressure on valuations starting
to ease, while inflationary pressures are hopefully nearing their peak.
With strong demand, inflation-linked rents and wide support for more
investment in affordable housing the outlook for ReSI remains strong.
Ben Fry
Managing Director, Housing
6 June 2023
Environmental, Social and Governance
The Board and the Fund Manager believe that sustainable investment involves
the integration of Environmental, Social and Governance (ESG) factors within
the investment process and that these factors should be considered alongside
financial and strategic issues during assessment and at all stages of the
investment process.
The Board and Fund Manager recognise their responsibility to manage and
conduct business in a socially responsible way and many of the Company's
investors, residents and other counterparties have the same values. Good
governance and social responsibility require that the Company seeks to
implement a collaborative approach to understanding and improving
environmental and social performance. The Fund Manager is responsible for
engagement on ESG matters and dedicates a significant amount of time and
resource to focusing on the ESG characteristics of the properties in which it
invests. Such ESG factors, which were traditionally not part of financial
analysis, are incorporated and prioritised as part of the investment and due
diligence process through the ESG decision tool, which has been developed by
Gresham House's dedicated Sustainable Investment Team. Ongoing monitoring of
ESG related risks is carried out through investment reviews.
The Fund Manager also gives appropriate consideration to corporate governance
and the representation of shareholder interests. This is applied both as a
positive consideration, and also to exclude certain investments where the Fund
Manager does not believe the interests of shareholders will be prioritised.
Gresham House has a clear commitment to sustainable investment as part of its
business mission, exemplified by being awarded the Green Economy Mark from the
London Stock Exchange and being a signatory to the UK Stewardship Code.
Based on its Sustainable Investment Framework, Gresham House has developed a
range of policies and processes for all asset classes which the Fund Manager
uses to integrate sustainability into its investment approach. More details
can be found in the Housing Sustainable Investment Policy here
(https://greshamhouse.com/wp-content/uploads/2022/04/Real-Estate-UK-Housing-Sustainable-Investment-Policy-April-22.pdf)
.
Housing Sustainable Investment Framework
The Fund Manager, with support from Gresham House's dedicated Sustainable
Investment team, has developed the Housing Sustainable Investment Framework to
structure analysis, monitoring and reporting of ESG issues and opportunities
within the lifecycle of our investments. The Housing Sustainable Investment
Framework addresses the most material themes for housing investments from the
broader Gresham House Sustainable Investment Framework.
Principal Risks and Uncertainties
The Board recognises the importance of risk management in achieving ReSI's
strategic aims.
The principal risk and uncertainties for the Group continue to be those
outlined on pages 80 to 86 of the Annual Report for the year ended 30
September 2022 and the Board expects those to remain valid for the remainder
of the financial year.
An assessment of any changes to the risks in the six months ending 31 March
2023 are listed below:
Risk Risk mitigation Party responsible Party responsible for monitoring Change in risk since 2022 Annual Report
Real estate
Significant or material fall in the value of the property market • ReSI's aim is to hold the assets for the long-term and generate N/A Board Increased
inflation-linked income
• ReSI focuses on areas of the market with limited exposure to the wider
property market
• ReSI's portfolio aims to address chronic undersupply therefore is
underpinned by strong valuation tailwinds
Increase on ReSI's floating rate debt is payable based on a margin over SONIA • Floating rate debt as a proportion of total debt is 10% N/A Board New
•We aim to hedge prudently our SONIA exposure, keeping the hedging strategy
under review to balance the risk of exposure to rate movements against the
cost on implementing hedging instruments
•ReSI is targeting the sale of non-core assets which will enable full
repayment of floating rate debt
An adverse change in our property valuations may lead to a breach of our • We manage our activities to operate within our banking covenants and N/A Board New
banking covenants. A severe fall in values may result in us selling assets to constantly monitor our covenant headroom on Loan to Value and Interest cover
reduce our loan commitments, resulting in a fall in our NAV
Directors' Responsibilities in respect of the Interim Accounts
Each of the directors, whose names are listed on page 68, confirm that to the
best of their knowledge:
§ the condensed set of financial statements has been prepared in accordance
with IAS 34 as adopted by the United Kingdom; and
§ the Strategy and Performance overview on pages 8 to 11, the Fund Manager's
Report and Key Performance Measures on pages 12 to 23, Principal Risks and
Uncertainties on page 25 and the Related Party Disclosure on page 56 (note 26)
include a fair review of the information required by DTR 4.2.7 and DTR 4.2.8
of the Disclosure and Transparency rules of the United Kingdom's Financial
Conduct Authority namely:
(a) an indication of important events that have occurred during the first
six months since 1 October 2022 and their impact on the condensed financial
statements and a description of the principal risks and uncertainties for the
remaining six months of the financial year; and
(b) disclosure of any material related party transactions in the period are
included in note 26 to the condensed consolidated financial statements.
The Interim Report has been reviewed by the Company's auditor and was approved
by the Board of Directors on 6 June 2023.
For and on behalf of the Board
Rob Whiteman
Chairman
6 June 2023
Independent Review Report to the members of Residential Secure Income plc
Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 31 March 2023 is not prepared, in
all material respects, in accordance with UK adopted International Accounting
Standard 34 and the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
We have been engaged by the Company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 31
March 2023 which comprises the Condensed Consolidated Statement of
Comprehensive Income, the Condensed Consolidated Statement of Financial
Position, the Condensed Consolidated Cash Flow Statement, the Condensed
Consolidated Statement of Changes in Equity, and related notes.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410, "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" ("ISRE (UK) 2410"). A review of interim
financial information consists of making enquiries, primarily of persons
responsible for financial and accounting matters, and applying analytical and
other review procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly,
we do not express an audit opinion.
As disclosed in note 2, the annual financial statements of the Group are
prepared in accordance with UK adopted international accounting standards. The
condensed set of financial statements included in this half-yearly financial
report has been prepared in accordance with UK adopted International
Accounting Standard 34, "Interim Financial Reporting".
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410, however future events or conditions may cause the Group to
cease to continue as a going concern.
Responsibilities of directors
The directors are responsible for preparing the half-yearly financial report
in accordance with the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
In preparing the half-yearly financial report, the directors are responsible
for assessing the Company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to
liquidate the Company or to cease operations, or have no realistic alternative
but to do so.
Auditor's responsibilities for the review of the financial information
In reviewing the half-yearly report, we are responsible for expressing to the
Company a conclusion on the condensed set of financial statement in the
half-yearly financial report. Our conclusion, including our Conclusions
Relating to Going Concern, are based on procedures that are less extensive
than audit procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
Our report has been prepared in accordance with the terms of our engagement to
assist the Company in meeting the requirements of the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct Authority and for
no other purpose. No person is entitled to rely on this report unless such a
person is a person entitled to rely upon this report by virtue of and for the
purpose of our terms of engagement or has been expressly authorised to do so
by our prior written consent. Save as above, we do not accept responsibility
for this report to any other person or for any other purpose and we hereby
expressly disclaim any and all such liability.
BDO LLP
Chartered Accountants
London, UK
6 June 2023
BDO LLP is a limited liability partnership registered in England and Wales
(with registered number OC305127).
Financials
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE PERIOD Note
1 OCTOBER 2022 TO 31 MARCH 2023
Unaudited Unaudited
6 months to
6 months to
31 March
31 March
2023
2022
£'000 £'000
Income 5 17,022 17,721
Cost of sales 5 (8,022) (9,290)
Net income 9,000 8,431
Administrative and other expenses 6 (2,066) (1,466)
Operating profit before property disposals and change in fair value 6,934 6,965
Profit/ (loss) on disposal of investment properties 3 (27)
Change in fair value of investment properties 9 (28,502) 4,975
Change in fair value of borrowings 9 (5,187) (1,033)
Debt set up costs 8 (89) (269)
Operating (loss)/profit before finance costs (26,841) 10,611
Finance income 8 98 1
Finance costs 8 (3,231) (2,776)
(Loss)/Profit for the period before taxation (29,974) 7,836
Taxation 10 - -
(Loss)/Profit for the period after taxation (29,974) 7,836
Other comprehensive (expenses)/income: - -
Total comprehensive (expenses)/income for the period attributable to the (29,974) 7,836
shareholders of the Company
(Loss)/Earnings per share - basic and diluted - pence 11 (16.2) 4.5
All of the activities of the Group are classified as continuing.
The notes on pages 35 to 58 form part of these financial statements.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH 2023
Note Unaudited Audited
31 March
30 September
2023
2022
£'000 £'000
Non-current assets
Investment properties 12 386,910 406,127
Total non-current assets 386,910 406,127
Current assets
Inventories - properties available for sale 1,817 1,203
Trade and other receivables 13 2,459 3,390
Deposits paid for acquisition - 827
Cash and cash equivalents 14 9,906 15,984
Total current assets 14,182 21,404
Total assets 401,092 427,531
Current liabilities
Trade and other payables 15 6,751 4,891
Borrowings 16 14,803 14,285
Lease liabilities 23 1,003 994
Total current liabilities 22,557 20,170
Non-current Liabilities
Borrowings 16 180,861 175,420
Recycled Capital Grant Fund 465 205
Lease liabilities 23 30,574 30,348
Total non-current liabilities 211,900 205,973
Total liabilities 234,457 226,143
Net assets 166,635 201,388
Equity
Share capital 17 1,941 1,941
Share premium 18 14,605 14,605
Treasury shares reserve 19 (8,296) (8,293)
Retained earnings 20 158,385 193,135
Total interests 166,635 201,388
Total equity 166,635 201,388
Net asset value per share - basic and diluted (pence) 24 90.0 108.8
The condensed consolidated financial statements were approved by the Board of
Directors on and signed on its behalf by:
Rob Whiteman
Chairman
Date:
The notes on pages 35 to 58 form part of these financial statements.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE PERIOD 1 OCTOBER 2022
TO 31 MARCH 2023
Unaudited 6 months to 31 March 2023 Unaudited 6 months to 31 March 2022
£'000 £'000
Cash flows from operating activities
(Loss)/profit for the period (29,974) 7,836
Adjustments for items that are not operating in nature:
Loss/(Gain) in fair value of investment properties 9 28,502 (4,975)
Movement in rent smoothing adjustments 5 (559) (564)
Loss in fair value of borrowings 9 5,187 1,033
Loss/(profit) on disposal of investment properties (2) 27
Shares issued in lieu of management fees 263 227
Finance income 8 (98) (1)
Finance costs 8 3,231 2,776
Debt set up costs 8 89 269
Operating result before working capital changes 6,639 6,628
Changes in working capital
Increase in trade and other receivables 595 476
Decrease/(increase) in inventories (614) 3,483
(Decrease)/increase in trade and other payables 2,034 (1,002)
Net cash flow generated from operating activities 8,654 9,585
Cash flow from investing activities
Purchase of investment properties 12 (11,292) (3,139)
Grant received 12 1,484 168
Disposal of investment properties 2,483 517
Deposits paid for acquisition - (2,056)
Interest received 8 98 1
Amounts transferred into restricted cash deposits 14 - -
Net cash flow from investing activities (7,227) (4,509)
Cash flow from financing activities
Share issue (net of issue costs) 17 / 18 - 14,735
Purchase of own shares 19 (266) (117)
New borrowings raised (net of expenses) 16 4,733 19,731
Bank loans repaid (4,118) (2,936)
Finance costs 8 (3,078) (2,620)
Dividend paid 22 (4,776) (4,416)
Net cash flow (utilised in )/generated from financing activities (7,505) 24,377
Net increase in cash and cash equivalents (6,078) 29,453
Reclassification of restricted cash balances 14 - 2,684
Cash and cash equivalents at the beginning of the period 14 15,984 5,686
Cash and cash equivalents at the end of the period 14 9,906 37,823
The notes on pages 35 to 58 form part of these financial statements.
Condensed Consolidated Statement of Changes in Equity
For the period 1 October 2022 to 31 March 2023
Share Share Own shares Retained Total
capital premium reserve earnings equity
£'000 £'000 £'000 £'000 £'000
Balance at 30 September 2021 1,803 108 (8,515) 188,996 182,392
Profit for the period - - - 7,836 7,836
Other comprehensive income - - - - -
Total comprehensive income - - - 7,836 7,836
Contributions by and distributions to shareholders
Issue of shares 138 14,862 - - 15,000
Share issue costs - (265) - - (265)
Issue of management shares - - 227 (227) -
Share based payment charge - - - 227 227
Purchase of own shares - - (117) - (117)
Dividends paid - - - (4,416)) (4,416)
Balance at 31 March 2022 1,941 14,705 (8,405) 192,416 200,657
Profit for the period - - - 5,498 5,498
Other comprehensive income - - - - -
Total comprehensive income - - - 5,498 5,498
Contributions by and distributions to shareholders
Issue of shares - - - - -
Share issue costs - (100) - - (100)
Issue of management shares - - 240 (240) -
Share based payment charge - - - 240 240
Purchase of own shares - - (128) - (128)
Dividends paid - - - (4,779) (4,779)
Balance at 30 September 2022 1,941 14,605 (8,293) 193,135 201,388
Loss for the period - - - (29,974) (29,974)
Other comprehensive expenses - - - - -
Total comprehensive expenses - - - (29,974) (29,974)
Contributions by and distributions to shareholders
Issue of management shares - - 263 (263) -
Share based payment charge - - - 263 263
Purchase of own shares - - (265) - (266)
Dividends paid - - - (4,776) (4,776)
Balance at 31 March 2023 1,941 14,605 (8,295) 158,385 166,635
The notes on pages 35 to 58 form part of these financial statements
Condensed Notes to the Financial Statements
For the period 1 October 2022 to 31 March 2023
1. General information
The financial information set out in this report covers the six months to 31
March 2023 and includes the results and net assets of the Company and its
subsidiaries. The comparatives presented for the Statement of Comprehensive
Income and Statement of Cash Flows are for the six months to 31 March 2022.
The comparatives presented for the Statement of Financial Position are as at
30 September 2022.
This consolidated interim financial information has not been audited by the
Company's auditor.
Residential Secure Income plc (ReSI or 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, England, 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
These condensed financial statements for the period ended 31 March 2023 have
been prepared in accordance with IAS 34 "Interim Financial Reporting" as
adopted by the United Kingdom. The interim report should be read in
conjunction with the annual Financial Statements for the year ended 30
September 2022, which were prepared in accordance with international
accounting standards in conformity with the requirements of the Companies Act
2006 and in accordance with UK adopted international financial reporting
standards.
The condensed financial statements have been prepared on a historical cost
basis, except for investment properties, derivative financial instruments and
certain bank borrowings which have been measured at fair value.
The condensed financial statements have been rounded to the nearest thousand
and are presented in Sterling, except when otherwise indicated.
The condensed financial statements for the period are unaudited and do not
constitute statutory accounts for the purposes of the Companies Act 2006. The
annual report and financial statements for the year ended 30 September 2022
have been filed at Companies House. The independent auditor's report on the
annual report and financial statements for the year ended 30 September 2022
was unqualified, did not draw attention to any matters by way of emphasis, and
did not contain a statement under sections 498 (2) or 498 (3) of the Companies
Act 2006.
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 has the resources to continue
in business for the foreseeable future. The Group expects to refinance the
NatWest facility which is due to expire in October 2023. The drawn balance of
the NatWest Facility at the signing date was £12.0mn and the undrawn headroom
in the Santander RCF is £17.1mn. Accordingly in the event non-core asset
sales were delayed the Group has access to sufficient capital to pay down the
NatWest facility. Furthermore, the Directors are not aware of any material
uncertainties that may cast significant doubt upon the Group's ability to
continue as a going concern. Therefore, the financial statements have been
prepared on the going concern basis.
ReSI is subject to covenants on debt secured on its shared ownership,
retirement and Local Authority portfolios (see note 16 on page 48).
Sensitivity analysis has been performed, showing a large amount of headroom on
all covenants, including all debt servicing and valuation metrics. Due to the
long-term nature of the Company's assets and strong cash flows, the Directors
do not forecast a breach of any debt covenants.
Financial models have been prepared for the going concern period which
consider liquidity at the start of the period and key financial assumptions at
the Company level as well as at level of the subsidiaries of ReSI. These
financial assumptions include expected cash generated and distributed by the
portfolio companies available to be distributed to the Company, 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
Amendments to standards adopted during the year
The IASB and IFRIC have issued or revised a number of standards. None of these
amendments have led to any material changes in the Group's accounting policies
or disclosures during the year.
Standards in issue but not yet effective
Certain amendments and interpretations to existing standards have been
published that are mandatory for the Group's accounting periods beginning on
or after 1 October 2023 and whilst the Directors are considering these,
initial indications are that these changes will have no material impact on the
Group's financial statements.
3. Significant accounting policies
The significant accounting policies applied in the preparation of the
financial statements are consistent with those applied in the Group's
statutory accounts for the year ended 30 September 2022 and are expected to be
consistently applied for the year ending 30 September 2023. The policies have
been consistently applied throughout the period.
4. Significant accounting judgements and estimates
There have been no new or material revision to the nature and amount of
judgements and reported in the Annual Report 2022, other than changes to
certain assumptions applied in the valuation of properties and USS debt.
5. Income less cost of sales
Unaudited Unaudited
6 months to
6 months to
31 March
31 March
2023
2022
Net property income First tranche sales Total Total
£'000 £'000 £'000 £'000
Gross rental income 13,583 - 13,583 12,394
First tranche property sales - 3,439 3,439 5,327
Total income 13,583 3,439 17,022 17,721
Service charge expenses (2,704) - (2,704) (2,398)
Property operating expenses (2,081) - (2,081) (1,898)
Impairment of receivables (29) - (29) (3)
First tranche cost of sales - (3,208) (3,208) (4,991)
Total cost of sales (4,814) (3,208) (8,022) (9,290)
Net Income before ground rents 8,769 231 9,000 8,431
Ground rents disclosed as finance lease interest (478) - (478) (513)
Net Income after ground rents disclosed as finance lease asset 8,291 231 8,522 7,918
'Rent straight line adjustments' represent the recognition of lease incentives
and contractual fixed annual rent increases on a straight-line basis over the
term of the underlying leases.
Included within rental income is a £559,000 (2022: £564,000) 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 be
accounted for on a straight-line basis over the lease term. During the period
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.
Gross rental income includes service charges collected from tenants, included
in rent collected but not separately invoiced, of £2,654,423 during the
period (2022: £2,234,630). 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 £7,028 (2022: £163,042).
The Net Income 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.
6. Administration and other expenses
Unaudited Unaudited
6 months to
6 months to
31 March 2023
31 March 2022
£'000 £'000
Fund management fee (note 26) 1,051 907
General administration expenses 699 527
Non-recurring costs 9 32
Aborted fundraising costs 307 -
2,066 1,466
7. Directors' fees and expenses
The Group has no employees in the current period. The Directors, who are the
key management personnel of the Company, are appointed under letters of
appointment for services. Directors' remuneration, all of which are fees for
services provided, was as follows:
Unaudited Unaudited
6 months to
6 months to
31 March 2023
31 March 2022
£'000 £'000
Fees 78 77
Taxes 11 11
Expenses - -
89 88
Fees paid to directors of subsidiaries 25 23
114 111
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 and £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 and £200,000,000 £35,000
Thereafter £40,000
None of the Directors received any advances or credits from any Group entity
during the period (2022: Nil).
8. Net finance costs
Unaudited Unaudited
6 months to
6 months to
31 March 2023
31 March 2022
£'000 £'000
Finance income
Interest income 98 1
98 1
Finance expense
Interest payable on borrowings (2,555) (2,061)
Amortisation of loan costs (156) (154)
Debt programme costs (42) (48)
Lease interest (478) (513)
(3,231) (2,776)
Net finance costs (3,133) (2,775)
One-off shared ownership facility costs (62) (256)
Debt one off fees (27) (13)
Debt set up costs (89) (269)
The Group's interest income during the period relates 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 six months ended 31 March 2023 relate to the
costs incurred in charging assets to the facility with Scottish Widows
Limited.
9. Change in fair value
Unaudited Unaudited
6 months to
6 months to
31 March 2023
31 March 2022
£'000 £'000
(Loss)/Gain on fair value adjustment of investment properties (27,943) 5,541
Adjustments for lease incentive assets and rent straight line assets
recognised
Start of the year 2,070 922
End of the period (2,629) (1,488)
(28,502) 4,975
Loss on fair value adjustment of borrowings (note 16) (5,187) (1,033)
Debt one off costs (62) (269)
(33,751) 3,673
Loss on fair value adjustment of borrowings arises from debt raised against
the shared ownership portfolio, which the Company has 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. An
election has been made to value this debt at fair value through profit or
loss, therefore all fees associated with this debt are expensed in entirety as
they occur.
10. Taxation
Unaudited Unaudited
6 months to
6 months to
31 March 2023
31 March 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:
Unaudited Unaudited
6 months to
6 months to
31 March 2023
31 March 2022
£'000 £'000
(Loss)/Profit before tax (29,974) 7,836
Tax at the UK corporation tax rate of 19% (2022: 19%) (5,695) 1,489
Tax effect of:
UK tax not payable due to REIT exemption 253 (577)
Investment property revaluation not taxable 5,415 (945)
Expenses that are not deductible in taxable profit (22) (1)
Unutilised residual current year tax losses 48 34
Tax charge for the period - -
As a UK REIT the Group is exempt from corporation tax on the profits and gains
from its property rental business provided it meets certain conditions set out
in the UK REIT regulations.
The government has announced that the corporation tax standard rate is to
remain at 19% until 31 March 2023. From 1 April 2023 the rate will increase to
25%.
11. Earnings per share
Unaudited Unaudited
6 months to
6 months to
31 March 2023
31 March 2022
£'000 £'000
(Loss)/Profit attributable to Ordinary shareholders (29,974) 7,836
Deduction of fair value movement on investment properties and borrowings 33,687 (3,942)
Add back: non-recurring costs 9 32
Add back: one-off shared ownership facility costs 62 256
Add back: one-off costs relating to debt 27 13
Deduction of abortive costs 307 -
Loss/(profit) on property disposals (2) 27
Adjusted earnings 4,116 4,222
Weighted average number of ordinary shares (thousands) 185,163 175,128
Basic earnings per share (pence)
- 2023 (pence) (16.19)
- 2022 (pence 4.47
Adjusted earnings per share (pence)
- 2023 (pence) 2.22
- 2022 (pence 2.41
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. Basic and diluted earnings per
share are the same as the Company only has Ordinary shares in issue.
The adjusted earnings are presented to provide what the Board believes is a
more appropriate assessment of the operational income accruing to the Group's
activities. Hence, the Group adjusts basic earnings for income and costs which
are not of a recurrent nature or which may be more of a capital nature.
EPRA Earnings per share
Unaudited Unaudited
6 months to
6 months to
31 March
31 March
2023
2022
£'000 £'000
(Loss)/Earnings per IFRS income statement (29,974) 7,836
Changes in value of investment properties 28,502 (4,975)
Profits/(losses) on disposal of investment properties (2) 27
Profits on sales of trading properties incl. impairment charges in respect of (232) (336)
trading properties.
Changes in fair value of financial instruments and associated close-out costs 5,187 1,033
EPRA Earnings 3,481 3,585
Weighted average number of ordinary shares (thousands) 185,163 175,128
EPRA Earnings per Share (EPS) (Pence) 1.88 2.05
Adjusted EPRA Earnings per share
Unaudited Unaudited
6 months to
6 months to
31 March 2023
31 March 2022
£'000 £'000
EPRA Earnings 3,481 3,585
Company specific adjustments:
Exclude one off costs 405 301
Include shared ownership first tranche sales 232 336
Company specific Adjusted Earnings 4,118 4,222
Company specific Adjusted EPS 2.22 2.41
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.
12. Investment properties
Unaudited Audited
31 March
30 September
2023
2022
£'000 £'000
At beginning of period 406,127 372,335
Property acquisitions at cost 11,460 30,827
Grant receivable (1,148) (672)
Capital expenditure 659 652
Property disposals (2,480) (1,498)
Movement in head lease gross up 235 135
Change in fair value during the period (27,943) 4,348
At end of period 386,910 406,127
Valuation provided by Savills 355,333 374,785
Adjustment to valuation - finance lease asset 31,577 31,342
Total investment properties 386,910 406,127
The investment properties are divided into:
Unaudited Audited
31 March
30 September
2023
2022
£'000 £'000
Leasehold properties 291,093 293,734
Freehold properties * 64,240 81,051
Head lease gross up 31,577 31,342
Total investment properties 386,910 406,127
*Includes Feuhold properties, the Scottish equivalent of Freehold.
The table below shows the total value of the Group's investment properties
including committed properties with purchase contracts exchanged at 31 March
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). Committed properties with purchase contracts
exchanged have been included to provide an indication of the value of all
properties to which the Group is contractually committed at 31 March 2023.
Unaudited Audited
31 March
30 September
2023
2022
£'000 £'000
Total investment properties 386,910 406,127
Adjustment to fair value - finance lease asset (31,577) (31,342)
Committed properties with purchase contracts exchanged - 8,635
Total investment properties including committed properties with purchased 355,333 383,420
contracts exchanged
Included within the carrying value of investment properties at 31 March 2023
is £2,629,000 (30 September 2022: £2,070,000) in respect of the smoothing of
fixed contractual rent uplifts as described in note 5. 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 31 March 2023 was
£348,070,000 (30 September 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 31 March 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 £31,577,000 (£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 23. This is because the independent valuations are shown net
of all payments expected to be made. However, for financial reporting purposes
in accordance with IAS 40, "Investment Property", the carrying value of the
investment properties includes the present value of the minimum lease payments
in relation to these leases. The related lease liabilities are presented
separately on the Statement of Financial Position.
'Rent straight line adjustments' represent the recognition of lease incentives
and contractual fixed annual rent increases on a straight-line basis over the
term of the underlying leases.
The Group's investment objective is to provide shareholders with an attractive
level of income, together with the potential for capital growth, from
acquiring portfolios of homes across residential asset classes that comprise
the stock of statutory registered providers.
The Group intends to hold its investment property portfolio over the long
term, taking advantage of upward-only inflation-linked leases. The Group will
not be actively seeking to dispose of any of its assets, although it may
dispose of investments should an opportunity arise that would enhance the
value of the Group as a whole.
The Group has pledged all of its investment properties (including inventory)
to secure loan facilities granted to the Group (see note 16).
13. Trade and other receivables
Unaudited Audited
31 March
30 September
2023
2022
£'000 £'000
Trade debtors 127 385
Prepayments 2,227 2,623
Other debtors 105 382
2,459 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 aging.
There is no significant difference between the fair value and carrying value
of trade and other receivables at the Statement of Financial Position date.
14. Cash and cash equivalents
Unaudited Audited
31 March
30 September
2023
2022
£'000 £'000
Cash at bank 5,245 12,739
Cash held as investment deposit 2 2
5,247 12,741
Restricted cash 4,659 3,243
9,906 15,984
Included within cash at the period end was an amount totalling £4,659,000
(£3,243,000 at 30 September 2022) held in separate bank accounts which the
Group considers restricted cash. This relates to cash that is subject to
restrictions with a third party where the terms of the account do not prevent
the Group from accessing the cash. 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.
£1,349,000 (£1,324,000 at 30 September 2022) was held by the managing agent
of the retirement portfolio in respect of tenancy rental deposits.
Other funds were held by the management agent in an operating account to pay
service charges in respect of the RHP Portfolio due on 1 October 2022.
£2,954,000 (£1,564,000 at 30 September 2022) was held by US Bank in respect
of funds required as a debt service reserve for the shared ownership debt.
£423,000 (£354,000 at 30 September 2022) 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 £14.8bn AUM, hence the Group's investment deposit represents an
immaterial proportion of the fund.
15. Trade and other payables
Unaudited Audited
31 March
30 September
2023
2022
£'000 £'000
Trade payables 2,007 1,173
Accruals 2,923 1,238
VAT payable - 4
Deferred income 115 797
Other creditors 1,706 1,679
6,751 4,891
16. Borrowings
Unaudited Audited
31 March
30 September
2023
2022
£'000 £'000
Loans 197,947 192,126
Unamortised borrowing costs (2,283) (2,421)
195,664 189,705
Current liability 14,803 14,285
Non-current liability 180,861 175,420
195,664 189,705
The loans are repayable as follows:
Within one year 14,803 14,285
Between one and two years 11,450 9,851
Between three and five years 8,704 9,088
Between six and ten years 11,099 14,887
Between eleven and twenty years 26,195 29,452
Over twenty years* 123,413 112,142
195,664 189,705
*£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 Unaudited Audited
31 March
30 September
2023
2022
£'000 £'000 £'000 £'000
At 30 September 2022 77,703 112,002 189,705 168,339
Drawdown of facility - 4,750 4,750 28,100
New borrowing costs - (17) (17) (215)
Amortisation of loan costs - 156 156 268
Fair value movement 5,187 - 5,187 (1,809)
Repayment of borrowings - (4,117) (4,117) (4,978)
Period ended 31 March 2023 82,890 112,774 195,664 189,705
The table below lists the Group's borrowings:
Lender Original facility Outstanding debt Maturity date Annual interest rate
Held at amortised cost £'000 £'000 %
Scottish Widows Ltd 97,000 92,241 Jun-43 3.5 Fixed (Avg)
National Westminster Bank Plc 14,450 12,164 Oct-23 2.0 over SONIA
Santander UK PLC 8,600 8,368 Mar-25 2.25 over SONIA
120,050 112,773
Held at fair value
Universities Superannuation Scheme 77,500 82,891 May-65 1.2 (Avg)*
Total borrowings 197,550 195,664
*The principal will increase at a rate of RPI+0.5% annually, on a quarterly
basis; RPI is capped between 0% and 5% on a pro-rated basis.
The Group has elected to fair value through Profit and Loss the Universities
Superannuation Scheme borrowings. This is considered a more appropriate basis
of recognition than amortised cost given the inflation-linked nature of the
debt, which has been negotiated to inflate in line with the RPI linked rent in
ReSI's shared ownership leases. The notional outstanding debt at 31 March 2023
was £77.5mn (30 September 2022: £77.5mn) with an amortised cost of £84.9mn
(30 September 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 31 March 2022 was
1.58% (30 September 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 31 March 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 £1.3mn.
The fair value of the £92.2mn of fixed rate borrowings held at amortised cost
at 31 March 2023 was £75.7mn (£70.6mn at 30 September 2022).
The Scottish Widows facility is secured by a first charge over retirement
properties with a fair value of £209.3mn.
The NatWest facility is secured by a first charge over Local Authority Housing
properties with a fair value of £23.0mn.
The Universities Superannuation Scheme facility is secured by a first charge
over shared ownership properties with a fair value £124.4mn, cash of £2.1mn,
related inventory of £1.8mn, and restricted cash balances of £3.0mn.
The Group has a revolving capital facility of £25mn with Santander UK plc. As
at the period end, £8.6mn has been drawn down under the facility. Each draw
under the facility must be repaid within two years of drawdown, at 31 March
2023 £8.6mn is due for repayment within two years.
17. Share capital account
Number of Ordinary 1 p £'000
shares
At 30 September 2022 194,149,261 1,941
Issue of shares - -
At 31 March 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, and no privileges are attached to any
shares in the Company. All the shares are freely transferable, except as
otherwise provided by law. The holders of Ordinary Shares are entitled to
receive dividends as declared from time to time and are entitled to one vote
per share at meetings of the Company. All shares rank equally with regard to
the Company's residual assets.
Treasury shares do not hold any voting rights.
18. Share premium account
£'000
At 30 September 2022 14,605
Issue of shares -
Share issue costs -
At 31 March 2023 14,605
The share premium account relates to amounts subscribed for share capital in
excess of nominal value.
19. Treasury shares reserve
£'000
At 31 March 2022 (8,405)
Purchase of own shares (128)
Transferred as part of Fund Management fee 240
At 30 September 2022 (8,293)
Purchase of own shares (266)
Transferred as part of Fund Management fee 263
At 31 March 2023 (8,296)
The treasury shares reserve relates to the value of shares purchased by the
Company in excess of nominal value.
During the period ended 31 March 2023, the Company purchased 277,557 of its
own 1p ordinary shares at a total gross cost of £264,981 (£261,238 cost of
shares and £3,743 associated costs).
During the period, 227,557 1p Ordinary Shares were transferred from its
treasury shares reserve to the Fund Manager, in lieu of the management fee in
accordance with the Fund Management Agreement.
As at 31 March 2023, 8,985,980 (30 September 2022: 8,985,980) 1p Ordinary
Shares are held by the Company.
20. Retained earnings
£'000
At 31 March 2022 192,416
Profit for the period 5,498
Share based payment charge 240
Issue of management shares (240)
Dividends (4,779)
At 30 September 2022 193,135
Loss for the period (29,974)
Share based payment charge 263
Issue of management shares (263)
Dividends (4,776)
At 31 March 2023 159,385
Retained earnings incorporate all gains and losses and transactions with
shareholders (e.g. dividends) not recognised elsewhere.
21. 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 Portfolio Holdings Limited 100% UK UK Holding company
The Retirement Housing Limited Partnership 100% UK UK Property investment
ReSI Housing Limited 100% UK UK Social housing Registered Provider
Wesley House (Freehold) Limited 100% UK UK Property investment
Eaton Green (Freehold) Limited 100% UK UK Property investment
Name of entity Registered address
RHP Holdings Limited 5 New Street Square, London, EC4A 3TW
ReSI Portfolio Holdings Limited 5 New Street Square, London, EC4A 3TW
The Retirement Housing Limited Partnership Glanville House, Frobisher Way, Taunton, Somerset, TA2 6BB
ReSI Housing Limited 5 New Street Square, London, EC4A 3TW
Wesley House (Freehold) Limited 5 New Street Square, London, EC4A 3TW
Eaton Green (Freehold) Limited 5 New Street Square, London, EC4A 3TW
All Group entities are UK tax resident.
22. Dividends
Unaudited Unaudited Unaudited
6 months to
6 months to
6 months to
31 March
31 March
30 September
2023
2022
2022
£'000 £'000 £'000
Amounts recognised as distributions to shareholders in the period to 31 March
2023:
4(th) interim dividend for the year ended 30 September 2022 of 1.29p per share 2,388 2,208 -
(2021: 1.29p)
1(st) interim dividend for the year ended 30 September 2023 of 1.29p per share 2,388 2,208 -
(2022: 1.29p)
4,776 4,416
Categorisation of dividends for UK tax purposes:
Amounts recognised as distributions to shareholders in the period:
Property Income Distribution (PID) 4,776 2,568
Non-PID - 1,848
4,776 4,416
Amounts not recognised as distributions to shareholders in the period:
2(nd) interim dividend for the year ended 30 September 2022 of 1.29p per share 2,388
(2021: 1.25p)
3(rd) interim dividend for the year ended 30 September 2022 of 1.29p per share 2,388
(2021: 1.25p)
4,776
On 9 December 2022, the Company declared its fourth interim dividend of 1.29
pence per share for the period 1 July 2022 to 30 September 2022.
On 10 February 2023, the Company declared its first interim dividend of 1.29
pence per share for the period 1 October 2022 to 31 December 2022.
The Company intends to continue to pay dividends to shareholders on a
quarterly basis in accordance with the REIT regime.
Dividends are not payable in respect of its Treasury shares held.
23. Lease arrangements
The Group as lessee
The interest expense in respect of lease liabilities for the period was
£478,000 (31 March 2022: £513,000).
There was no expense relating to variable lease payments in the period (31
March 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 £478,000 (31 March 2022:
£513,000).
At 31 March 2023, the Group had outstanding commitments for future minimum
lease payments under non-cancellable leases, which fall due as follows:
As at 31 March 2023 Less than one year Two to five years 6-10 10-20 More than 20 years Total
years years
£'000 £'000 £'000 £'000 £'000 £'000
Minimum lease payments 1,003 4,012 5,014 10,029 112,540 132,598
Interest - (294) (435) (1,519) (98,773) (101,021)
Present value at 31 March 2023 1,003 3,718 4,579 8,510 13,767 31,577
As at 30 September 2022 Less than one year Two to five years 6-10 10-20 More than 20 years Total
years years
£'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 (30 September 2022:
2,182) held under leasehold with an average unexpired lease term of 154 years
(30 September 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:
Unaudited Audited
31 March
30 September
2023
2022
£'000 £'000
Receivable within 1 year 8,445 7,987
Receivable between 1-2 years 6,260 5,817
Receivable between 2-3 years 5,586 5,723
Receivable between 3-4 years 5,039 4,728
Receivable between 4-5 years 4,581 4,530
Receivable between 5-10 years 21,237 19,039
Receivable between 10-20 years 42,411 37,978
Receivable after 20 years 417,544 373,736
511,103 459,538
The total of contingent rents recognised as income during the period was £nil
(31 March 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:
Unaudited Audited
31 March
30 September
2023
2022
£'000 £'000
Receivable within 1 year 28,338 25,099
Receivable between 1-2 years 24,500 21,547
Receivable between 2-3 years 20,714 18,590
Receivable between 3-4 years 17,640 15,286
Receivable between 4-5 years 15,126 13,221
Receivable between 5-10 years 54,089 44,784
Receivable between 10-20 years 66,697 54,455
Receivable after 20 years 432,803 382,089
659,907 575,071
24. Net asset value per share
Unaudited Audited
31 March 2023
30 September
2022
£'000 £'000
Net assets 166,635 201,388
166,635 201,388
Ordinary shares in issue at period end (excluding shares held in treasury) 185,163,281 185,163,281
Basic NAV per share (pence) 90.0 108.8
The net asset value ('NAV') per share 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) and EPRA Net Reinstatement Value (NRV) per
share
Unaudited Audited
31 March
30 September
2023
2022
£'000 £'000
IFRS NAV per the financial statements 166,635 201,388
Revaluation of trading properties 194 93
Fair value of financial instruments (2,053) (4,997)
Real estate transfer tax - -
EPRA NTA 164,776 196,484
Fully diluted number of shares (thousands) 185,163 185,163
EPRA NTA per share (pence) 89.0 106.1
The Group has debt which it has 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 £2.1mn which represents
the difference between fair value and what amortised cost would have been had
the Group carried the debt at amortised cost (30 September 2022: £5.0mn).
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.
25. Contingent liabilities and commitments
ReSI's shared ownership portfolio has been supported by £15mn government
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.
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 31 March 2023 was £465,000 (30 September 2022: £205,000).
There are no provisions for fines and settlements specified for ESG
(Environmental, Social or Governance) or any other issues.
26. 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 period ended 31 March 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 7, Directors' fees and expenses.
ReSI Capital Management Limited acts as alternative investment fund manager
(the Fund Manager), in compliance with the provisions of the AIFMD, 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 period ended 31 March 2023, the Company incurred £1,050,681 (period
ended 31 March 2022: £907,048) in respect of fund management fees of which
£372,432 was outstanding as at 31 March 2023 (31 March 2022: £337,300). The
above fee was split between cash and equity as per the Fund Management
Agreement with the cash equating to £762,339 (31 March 2022: £680,286) and
the equity fee of £254,446 (31 March 2022: £226,621) being paid as 277,556
Ordinary Shares (31 March 2022: 214,713) at an average price of £0.96 per
share (31 March 2022: £1.06 per share).
In addition, the Fund Manager was paid a fee, pursuant to the Fund Management
Agreement, of £nil (31 March 2022: £143,271) in respect of its arrangement
of borrowings for the Group. The amount was outstanding at 31 March 2023 was
£nil (31 March 2022: £143,271)
During the period the Directors and the Fund Manager received dividends from
the Company of £68,201 (31 March 2022: £7,018) and £50,335 (31 March 2022:
£38,616) 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 period,
RPML charged fees of £910,924 (31 March 2022: £804,059) in respect of
property management services.
27. Post balance sheet events
There have been no significant events that require disclosure to, or
adjustment in the financial statements as at 31 March 2023
Supplementary Financial Information
For the period 1 October 2022 to 31 March 2023
1) EPRA Earnings Recurring earnings from core operational activities
H1 2023 H1 2022
£'000 £'000
(Loss)/Earnings per IFRS income statement (29,974) 7,836
Changes in value of investment properties 28,502 (4,975)
Profits or losses on disposal of investment properties (2) 27
Profits or losses on sales of trading properties incl. impairment charges in (232) (336)
respect of trading properties.
Changes in fair value of financial instruments and associated close-out costs 5,187 1,033
EPRA Earnings 3,481 3,585
Basic number of shares 185,163 175,128
EPRA Earnings per share (EPS) (pence) 1.9 2.0
Adjusted EPRA Earnings per share
H1 2023 H1 2022
£'000 £'000
Company specific adjustments:
Exclude one off costs 405 301
Include shared ownership first tranche sales 232 336
Company specific Adjusted Earnings 4,118 4,222
Company specific Adjusted EPRA Earnings per share (pence) 2.2 2.4
2) EPRA Net Tangible Assets (NTA)
H1 2023 2022
£'000 £'000
IFRS NAV per the financial statements 166,635 201,388
Revaluation of trading properties 194 93
Fair value of financial instruments (2,053) (4,997)
Real estate transfer tax - -
EPRA NTA 164,776 196,484
Fully diluted number of shares 185,163 185,163
EPRA NTA per share (pence) 89.0 106.1
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 £2.1mn 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)
H1 2023 2022
£'000 £'000
IFRS NAV per the financial statements 166,635 201,388
Revaluation of trading properties 194 93
Fair value of financial instruments (2,053) (4,997)
Revaluation of intangibles to fair value - -
Real estate transfer tax - -
EPRA NRV 164,776 196,484
Fully diluted number of shares 185,163 185,163
EPRA NRV per share (pence) 89.0 106.1
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 NRV
should reflect the amortised cost of the debt rather than its fair value. In
the current period, an adjustment has been made for £2.1mn 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.
4) EPRA Net Disposable Value (NDV)
H1 2023 2022
£'000 £'000
IFRS NAV per the financial statements 166,635 201,388
Revaluation of trading properties 194 93
Fair value of fixed interest rate debt 18,606 23,974
EPRA NDV 185,435 225,455
Fully diluted number of shares 185,163 185,163
EPRA NDV per share (pence) 100.1 121.8
5) EPRA Net Initial Yield (NIY) and EPRA "Topped Up" NIY
H1 2023 2022
£'000 £'000
Investment property - wholly owned 355,333 374,785
Trading property (including share of JVs) 1,817 1,203
Completed property portfolio 357,150 375,988
Allowance for estimated purchasers' costs estimated as 6% of property 21,429 22,560
portfolio
Gross up completed property portfolio valuation 378,579 398,548
Annualised cash passing rental income 25,145 24,809
Property outgoings (9,629) (8,653)
Annualised net rents 15,516 16,156
Add: notional rent expiration of rent-free periods or other lease incentives - -
Topped-up net annualised rent 15,516 16,156
EPRA NIY 4.1% 4.1%
EPRA Topped up NIY 4.1% 4.1%
6) EPRA Vacancy Rate
H1 2023 2022
£'000 £'000
Estimated Rental Value of vacant space 1,449 1,368
Estimated rental value of the whole portfolio 26,907 27,292
EPRA Vacancy Rate 5% 5%
7) EPRA Cost Ratios
H1 2023 H1 2022
£'000 £'000
Administrative/operating expense line per IFRS income statement 2,067 1,466
Net service charge costs/fees 2,704 2,398
Management fees less actual/estimated profit element 1,006 973
Other property operating expenses 1,104 928
Service charge costs recovered through rents but not separately invoiced (2,537) (2,235)
EPRA Costs (including direct vacancy costs) 4,344 3,530
Direct vacancy costs (317) (273)
EPRA Costs (excluding direct vacancy costs) 4,027 3,257
Gross Rental Income less ground rents - per IFRS 13,105 11,881
Less: service fee and service charge costs components of Gross Rental Income (2,537) (2,235)
Gross Rental Income 10,568 9,646
EPRA Cost Ratio (including direct vacancy costs) 41% 37%
EPRA Cost Ratio (excluding direct vacancy costs) 38% 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 £2,537,000 during the
period (H1 2022: £2,235,000). 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 £167,000 (H1 2022: £63,000).
Management fees less actual/estimated profit element is made up of property
management fees paid during the period.
8) EPRA LTV
H1 2023 2022
£'000 £'000
Borrowings 195,664 189,705
Net payables 2,940 -
Less cash (9,906) (15,984)
Net debt 188,698 173,721
355,333 374,785
Investment properties at fair value
Net receivables - 325
Total property value 355,333 375,110
53% 46%
EPRA LTV
9) AIC Ongoing Ratio
H1 2023 2022
Total expenses ratio £'000 £'000
Management fee 1,051 1,867
Fund operating expenses* 441 742
1,492 2,609
Annualised total expenses 2,984 2,609
Average Net Asset Valuation ** 183,484 191,890
Annualised total expenses ratio 1.6% 1.4%
* Fund operating expenses has been revised to only include the direct costs at
the fund level and not subsidiary level. No adjustment was made in the prior
year.
** The average Net Asset Valuation is calculated as the average of the opening
and closing NAV for the financial year.
10) Net rental yield
The net yield on the Group's historical cost of investment property represents
the unlevered rental income return on the Group's capital deployed into
acquisition of investment properties.
H1 2023 2022
£'m £'m
Annualised net rental income at balance sheet date 17.2 16.5
Fair value of investment properties 355.3 374.8
Net yield 4.8% 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.
H1 2023 H1 2022
£'mn £'mn
Operating profit before property disposals and change in fair value 6.9 7.0
Valuation movement of investment properties (28.5) 4.9
Finance costs (3.2) (3.0)
Debt Indexation* (2.1) (3.1)
Revaluation of trading properties (0.1) (0.3)
Property return (27.0) 5.2
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 (31.7) 1.0
Closing EPRA NTA 164.8 200.6
Total return on opening NTA (%) (13.7)% 2.8%
* The Group elected to carry this debt at fair value through profit and loss.
In accordance with the EPRA Best Practice Recommendations, EPRA NTA should
reflect the amortised cost of the debt rather than its fair value. In the
current period, an adjustment has been made for £2.1mn which represents the
difference between fair value and what amortised cost would have been had the
Group carried the debt at amortised cost.
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.
H1 2023 H1 2022
£mn £mn
Net (expenses)/income (30.0) 7.8
Share issuance costs - (0.2)
Total Return (30.0) 7.6
Net Asset Value at the beginning of the year 201.4 182.4
Total IFRS return on opening NAV (%) (14.9)% 4.2%
13) Loan to Value Ratio
The LTV leverage ratio has been presented to enable a comparison of the
Group's borrowings as a proportion of Gross Assets as at 31 March 2023 to its
medium target LTV leverage ratio of 0.50.
H1 2023 2022
£'000 £'000
Borrowings excluding lease liability 195,664 189,705
Available cash (8,135) (12,675)
Net debt excluding lease liability and cash increase/(decrease) in year 187,529 177,030
Total assets less finance lease gross up and cash 359,608 380,206
Loan to Value ("LTV") leverage ratio 0.52 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 An investment vehicle under AIFMD. Under AIFMD (see below) the Company is
classified as an AIF.
or "AIF"
Alternative Investment Fund Managers Directive or "AIFMD" A European Union directive which came into force on 22 July 2013 and has been
implemented in the UK.
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 Means 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 AIFMD.
A depositary's duties include, inter alia, safekeeping of assets, oversight
and cash monitoring. The Company's current depositary is Thompson Taraz
Depositary Limited.
Dividend Income receivable from an investment in shares.
Ex-dividend date The date from which you are not entitled to receive a dividend which has been
declared and is due to be paid to shareholders.
Financial Conduct Authority or "FCA" The independent body that regulates the financial services industry in the UK.
Functional Home Means both a Unit and an aggregation of multiple Units offering elderly care
facilities, assisted living facilities, sheltered housing or supported housing
that are made available, by a Tenant, Occupant or Nominator (as the case may
be) to a Resident/Residents.
Fund Manager Means ReSI Capital Management Limited, a subsidiary of Gresham House plc, a
company incorporated in England and Wales with company number 07588964 in its
capacity as Fund Manager to the Company.
Gearing A way to magnify income and capital returns, but which can also magnify
losses. A bank loan is a common method of gearing.
Housing Association Means a regulated independent society, body of trustees or company established
for the purpose of providing social housing.
HMRC HM Revenue & Customs
Investment company A company formed to invest in a diversified portfolio of assets.
Leverage An alternative word for "Gearing".
Under AIFMD, leverage is any method by which the exposure of an AIF is
increased through borrowing of cash or securities or leverage embedded in
derivative positions.
Under AIFMD, leverage is broadly similar to gearing, but is expressed as a
ratio between the assets (excluding borrowings) and the net assets (after
taking account of borrowing). Under the gross method, exposure represents the
sum of the Company's positions after deduction of cash balances, without
taking account of any hedging or netting arrangements. Under the commitment
method, exposure is calculated without the deduction of cash balances and
after certain hedging and netting positions are offset against each other.
Like-for-like rental review The change in gross rental income in a period for homes that were occupied and
eligible for a rent review during the period under review. Applies to
changes in gross rents on a comparable basis and excludes the impact of
acquisitions, disposals and resident turnover.
Liquidity The extent to which investments can be sold at short notice.
Loan to Value (LTV) Ratio Ratio of total debt outstanding, excluding the finance lease liability,
against the total assets excluding the adjustment for finance lease gross up.
Market Rental Home Means both a Unit of residential accommodation and an accommodation block
comprising multiple Units facilities that is/are made available, by a Tenant,
Occupant or Nominator, to a resident/residents at a market rent.
Net assets Means 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 Means 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 Means 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 Means 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 Means a Property Rental Business fulfilling the conditions in section 529 of
the CTA 2010.
REIT Real estate investment trust.
Rental Agreement Comprise Leases, Occupancy Agreements and Nominations Agreements.
Rental growth The change in gross rental income in a period as a result of rent increases,
tenant renewals or a change in tenants. Applies to changes in gross rents on a
comparable basis and excludes the impact of acquisitions, disposals and
changes resulting from refurbishments.
Reputable Care Provider Means a Statutory Registered Provider or other private entity in the business
of building, managing and/or operating Functional Homes in the United Kingdom
that the Fund Manager considers reputable in light of its investment grade
equivalent debt strategy.
Reversionary Surplus The increase in valuation if the portfolio is valued on a vacant possession
basis compared to the IFRS fair value.
RPI The Retail Price Index (RPI) is a measure of inflation, which in turn is the
rate at which
prices for goods and services are rising.
Share buyback A purchase of a company's own shares. Shares can either be bought back for
cancellation or held in treasury.
Share price The price of a share as determined by a relevant stock market.
Shared Owner Means the part owner of a shared ownership home that occupies such shared
ownership home in return for the payment of rent to the co-owner.
Social impact per share The social, economic and environmental impact and value of investments
calculated using two key analysis frameworks, Social Return on Investment
(SROI) and Economic Impact, divided by the number of shares outstanding.
Sub-Market Rental Home Means a Unit of residential accommodation that is made available, by a Tenant,
Occupant or Nominator, to a resident to rent at a level below the local market
rent.
Total return A measure of performance that takes into account both income and capital
returns.
Treasury shares A company's own shares which are available to be sold by a company to raise
funds.
UK AIFM Regime Together, The Alternative Investment Fund Managers Regulations 2013 (as
amended by
The Alternative Investment Fund Managers (Amendment etc.) (EU Exit)
Regulations 2019)
and the Investment Funds Sourcebook forming part of the FCA Handbook, in each
case
as amended from time to time.
Company Information
Directors
Robert Whiteman
(Non-executive Chairman)
Robert Gray
(Senior Independent Director)
John Carleton
(Non-executive Director)
Elaine Bailey
(Non-executive Director)
Registered Office
The Pavilions
Bridgwater Road
Bristol
BS13 8FD
Company Information
Company Registration Number: 10683026
Incorporated in the United Kingdom
Fund Manager
ReSI Capital Management Limited
5 New Street Square
London
EC4A 3TW
Corporate Broker
Peel Hunt LLP
7(th) Floor, 100 Liverpool Street
London
EC2M 2AT
Legal and Tax Adviser
Cadwalader, Wickersham & Taft LLP
Dashwood House
69 Old Broad Street
London EC2M 1QS
Tax Adviser
Evelyn Partners Group Limited
(formerly Smith & Williamson)
45 Gresham Street
London
EC2V 7BG
Depositary
Thompson Taraz LLP
4th Floor, Stanhope House
47 Park Lane
Mayfair
London
W1K 1PR
Administrator
MGR Weston Kay LLP
55 Loudoun Road
St John's Wood
London
NW8 0DL
Company Secretary
Computershare Governance Service, UK
The Pavilions
Bridgwater Road
Bristol
BS13 8FD
Registrar
Computershare Governance Service, UK
The Pavilions
Bridgwater Road
Bristol
BS13 8FD
Auditors
BDO LLP
55 Baker Street
London
W1U 7EU
Public Relations Adviser
KL Communications
40 Queen Street
London
EC4R 1DD
Valuers
Savills (UK) Limited
33 Margaret Street
London
W1G 0JD
1 Department for Levelling Up, Housing and Communities (2021) and House of
Commons Library (2022), British Property Federation, and Legal & General,
2022
2 H1 2022 versus H1 2023
3 H1 2022 vs H1 2023
4 H1 2022 vs H1 2023
5 H1 2022 vs H1 2023
6 1.1% average blended coupon over the remaining loan term, with principal
increasing with RPI + 0.5% (with a 0.5% floor and 5.5% cap).
7 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.
8 As at 31 March 2023. USS debt balance shown at fair value, reflecting the
impact of recurring quarterly indexation and movements in gilt yields and
credit spreads.
9 Interest rate breach threshold based on last-twelve-month net rental
income of c.£1.8mn.
10 As defined in the English Housing Survey, 2020 to 2021
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