REG - Triple Point Soc.Hsg - RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2024
13/09/2024 07:00
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RNS Number : 0436E Triple Point Social Housing REIT 13 September 2024
13 September 2024
Triple Point Social Housing REIT plc
(the "Company" or, together with its subsidiaries, the "Group")
RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2024
The Board of Triple Point Social Housing REIT plc (ticker: SOHO) is pleased to
announce its unaudited results for the six months ended 30 June 2024.
Chris Phillips, Chair of Triple Point Social Housing REIT plc, commented:
"The Company's portfolio has continued to demonstrate operational and
financial resilience and the Group has benefited from strong rental growth
that has increased income.
The Group will continue to benefit from having exclusively long term fixed
priced debt and we look forward to building on the progress made in the first
half of the year particularly in relation to the increase in rent collection
and the corresponding increase in dividend cover, which ensured that the
dividend was fully covered on an adjusted earnings basis for the six months
ending 30 June 2024."
Six months to 30 June 2024 Six months to 30 June 2023 Year ended 31 December 2023
Portfolio value
IFRS basis £652.7m(1) £675.1m £678.4m
Earnings per share (basic and diluted)
- Adjusted earnings 2.74p 2.10p(2) 4.61p
- IFRS basis 1.35p 3.65p 8.81p
- EPRA basis 2.90p 2.18p 4.92p
EPRA Net Tangible Assets ("NTA") per share 112.38p 111.31p 113.76p
(equal to IFRS NAV per share)
EPRA Net Initial Yield (NIY) 5.96% 5.65% 5.57%
Loan to Value 37.2% 37.5% 37.0%
Total annualised rental income £41.2m £40.5m £41.0m
Weighted average unexpired lease term 24.0 yrs 24.8 yrs 24.3 yrs
Dividend per share 2.73p 2.73p 5.46p
(1) This excludes 13 assets with an aggregate value of £21.8 million that
have been classified as held for sale.
(2 )Restated to adjust for the movement in lease incentive debtor.
Financial highlights
· The Adjusted Earnings per Share (which includes adjustment for
non-cash items) was 2.74 pence per share for the six months ended 30 June 2024
(30 June 2023: 2.10 pence pence(1)).
· The increase in Adjusted Earnings Per Share was driven by strong
rental growth with a weighted average increase of 6.1% in respect of the
Group's leases that had their annual rent increase put through in the six
months ending 30(th) June 2024 (representing c.66% of leases, with the rest to
follow in the second half of the year).
· The Dividend was fully covered on an adjusted earnings basis.
The dividend to be paid on 4 October 2024 brings the total dividend per share
paid or declared by the Company in respect of the six-month period to 30 June
2024 to 2.73 pence per share, in line with the Company's stated target for the
year to 31 December 2024 of 5.46 pence per share.(2)
· The portfolio's total annualised contracted rental income was
£41.2 million as at 30 June 2024 (31 December 2023: £41.0 million). IFRS
Gross Revenue for the period was £20.5 million (£19.6 million for the six
months ended 30 June 2023).
· EPRA NTA per share was down by 1.2% to 112.38 pence at 30 June
2024 (31 December 2023: 113.76 pence), reflecting a small reduction in the
value of the Group's portfolio.
· The Group's portfolio was valued at £652.7 million as at 30
June 2024 (excluding 13 assets with an aggregate value of £21.8 million that
have been classified as held for sale). On a like for like basis there was
0.5% reduction in the portfolio value resulting from the net impact of strong
rental growth being offset by limited outward yield movement.
· All drawn debt is fixed (weighted average coupon of 2.74%) and
long-term (weighted average maturity of 9.1 years), which continues to offer
stability in the current interest rate environment.
· The Group maintained an Investment Grade Issuer Default Rating
from Fitch of 'A-' with a senior secured rating of 'A', with a revised outlook
from stable to negative, pending the conclusion of certain corporate
initiatives which the Group is actively working to address.
Operational highlights
· 93.3% of rent due was collected during the period, up from
90.2% for the year ended 31 December 2023). This reflects the consistent
performance of 25 out of the Group's 27 lessees which recorded no material
rent arrears.
· Progress has been made with the two lessees with material
arrears, Parasol and My Space:
o Post period end, the Group completed the transfer of all 38 properties
leased to Parasol to Westmoreland. Following the transfer of the properties we
expect rent collection to increase to between 75% and 85% of existing FRI
lease rent during an initial stabilisation period (expected to last
approximately 12 months), and thereafter up to at least 90% of existing FRI
lease rent.
o We are engaging with My Space around how best the Group can move some
or all of its 34 properties leased to My Space to alternative Registered
Providers.
· Strong operational performance was delivered across the Group's
diversified portfolio of 481 properties across 148 local authorities and
leased to 28 Approved Providers.
· As at 30 June 2023, the weighted average unexpired lease term
("WAULT") was 24.0 years.
· The Group's risk sharing lease clause, which seeks to address
general risks raised by the Regulator of Social Housing in relation to long
leases, has now been included in 66% of the Group's Registered Provider leases
and we are progressing the final roll-out, expected to complete before the end
of 2024.
· The pilot programme upgrading all of the Group's properties
to an Energy Performance Certificate ("EPC") rating of C or above is nearly
complete with 8 of the 11 pilot properties now with an EPC of C or above, and
with work due to complete on the remainder shortly. The rollout of the wider
project will now commence with budgeted costs reduced due to the availability
of grant funding.
· In June, we commenced construction on a market leading project
in conjunction with leading Specialised Supported Housing Registered Provider,
Golden Lane Housing, to deliver 12 new individual apartments for people with
learning disabilities, autism and/or mental health needs. The site in Chorley,
will be our first development to target a 10% net biodiversity gain.
Notes:
1 These are targets only and not a profit forecast and there can
be no assurance that they will be met
2 Restated to adjust for the movement in lease incentive debtor
FOR FURTHER INFORMATION ON THE COMPANY, PLEASE CONTACT:
Triple Point Investment Management LLP Tel: 020 7201 8989
(Investment Manager)
Max Shenkman
Isobel Gunn-Brown
Akur Limited (Joint Financial Adviser) Tel: 020 7493 3631
Tom Frost
Anthony Richardson
Siobhan Sergeant
Stifel Nicolaus Europe Limited (Joint Financial Adviser and Corporate Broker) Tel: 020 7710 7600
Mark Young
Rajpal Padam
Madison Kominski
Brunswick Group (Financial PR Adviser) Tel: 020 7404 5959
Nina Coad
Mara James
The Company's LEI is 213800BERVBS2HFTBC58.
Further information on the Company can be found on its website at
www.triplepointreit.com (http://www.triplepointreit.com/) .
IMPORTANT INFORMATION:
This announcement contains inside information for the purposes of Article 7 of
the Market Abuse Regulation (EU) 596/2014, as it forms part of UK Domestic Law
by virtue of the European Union (Withdrawal) Act 2018, as amended and
supplemented ("UK MAR") and is disclosed in accordance with the Company's
obligations under UK MAR. Upon the publication of this announcement, this
inside information will be considered to be in the public domain.
NOTES:
The Company invests in primarily newly developed social housing assets in the
UK, with a particular focus on supported housing. The assets within the
portfolio are subject to inflation-linked, long-term (typically from 20 years
to 30 years), Fully Repairing and Insuring ("FRI") leases with Approved
Providers (being Housing Associations, Local Authorities or other regulated
organisations in receipt of direct payment from local government). The
portfolio comprises investments into properties which are already subject to
an FRI lease with an Approved Provider, as well as forward funding of pre-let
developments but does not include any direct development or speculative
development.
There is increasing political pressure and social need to increase housing
supply across the UK which is creating opportunities for private sector
investors to help deliver this housing. The Group's ability to provide forward
funding for new developments not only enables the Company to secure fit for
purpose, modern assets for its portfolio but also addresses the chronic
undersupply of suitable supported housing properties in the UK at sustainable
rents as well as delivering returns to investors.
The Company was admitted to trading on the Specialist Fund Segment of the Main
Market of the London Stock Exchange on 8 August 2017 and was admitted to the
premium segment of the Official List of the Financial Conduct Authority and
migrated to trading on the premium segment of the Main Market on 27 March
2018. The Company operates as a UK Real Estate Investment Trust ("REIT") and
is a constituent of the FTSE EPRA/NAREIT index.
Meeting for analysts and audio recording of results available
The Company presentation for analysts will be held at 8.00am today via live
webcast. The presentation will also be accessible on-demand later in the day
via the Company website: www.triplepointreit.com
(http://www.triplepointreit.com) .
Those wishing to access the live webcast are kindly asked to contact:
marketing@triplepoint.co.uk (mailto:marketing@triplepoint.co.uk) .
The Interim Results will also be available to view and download on the
Company's website at www.triplepointreit.com (http://www.triplepointreit.com)
and hard copy will be posted to shareholders on or around 20 September 2024.
CHAIR'S STATEMENT
Introduction
The Group provides much needed homes to some of the most vulnerable members of
society. The Board's focus is on ensuring that the Group has a positive impact
on the housing crisis through providing homes in the community to adults with
care and support needs while maximising value for shareholders.
The Company's portfolio has continued to demonstrate operational and financial
resilience despite the uncertain political and macroeconomic backdrop in the
first half of the year. The Group has benefited from strong rental growth that
has increased income and largely offset any outward movement in valuation
yields.
In the first six months of 2024 annual rent increases were put through in
respect of 66% of the Group's leases, with the rest to follow in the second
half of the year, at a weighted average rate of 6.1% (in relation to leases
where rent increases were due), ensuring the Group's dividend was 1.0x covered
in the six months ended 30 June 2024.
The Market
We anticipate a move towards more supportive market conditions for real estate
valuations, with inflation close to the Bank of England's 2.0% target and the
resultant initial 25bps reduction in the base rate to 5.0% in August.
Alongside the onset of more supportive market conditions following the general
election in July, we can look forward to a period of greater political
stability, which is much needed in order for the UK to make meaningful steps
to address its housing crisis. The lack of suitable accommodation in the UK
reflects a critical societal challenge and we welcome the Labour government's
focus on delivering social housing and their target of building 1.5 million
new homes within their first five years of government. This ambition will
require close collaboration with private capital and our latest construction
project in Chorley, which we have developed in conjunction with Golden Lane a
new Registered Provider ("RP") partner, serves as a timely reminder of the
positive impact that private capital can have when working in conjunction with
a leading RP in response to an identified local need.
Whilst increased political stability should be beneficial in terms of housing
delivery, it is important to recognise that Specialised Supported Housing
("SSH") has always been relatively well-insulated from the risks of political
change. It benefits from cross-party support as an effective means of
promoting greater independence and better outcomes for individuals with care
and support needs, whilst enabling them to live within their local community.
Valuations and Rent Collection
The growing prevalence of disability in the UK continues to drive excess
demand for SSH, and together with ongoing government support for residents,
this underpins the resilience of the Group's portfolio valuation. The Group's
property portfolio was valued at £652.7 million at 30 June 2024 compared to
£678.4 million as at 31 December 2023. The difference was mainly due to
£21.8 million of assets being held for sale (and therefore not being included
in the portfolio valuation). In addition, rent increases largely offset
limited outward yield movement, leading to a £3.2 million, or 0.5%,
like-for-like reduction in the value of the Group's portfolio. Rent collection
for the Group increased to 93.3% in the six months ended 30 June 2024 (up from
90.2% for the year ended 31 December 2023).
Portfolio Sale and Capital Allocation
Following the announcement in June that the Company had agreed heads of terms
in relation to a portfolio sale with an aggregate value in excess of £20m we
had expected the sale to complete in September. Completion has now been moved
out to November to allow for sufficient time for the acquiror's debt funder to
finalise their process. The rationale behind the portfolio sale was to sell at
a price that was supportive of the book value of the properties and unlock
additional liquidity that would then be used to return capital to shareholders
through a share buyback programme and this remains the Board's objective. The
composition of the portfolio being sold is representative of the Company's
wider portfolio and contains a range of both new build and adapted properties
as well as self-contained and shared homes. EPC ratings of the properties
range from B to D. Below we have included a table that compares some of the
portfolio's key metrics to the Company's wider portfolio.
Sale Portfolio Group Portfolio
EPC A to C 69% 71%
EPC D 30% 22%
WAULT 19 years 24 years
New build / purpose built((1)) 25% 42%
Adapted((2)) 75% 58%
Notes:
(1) A new build property was contracted or fully renovated as SSH in the
last 10 years at the point of acquisition;
(2) An adapted property is typically a residential property that has been
refurbished and adapted for the specific needs of identified residents.
Following the completion of the portfolio sale the Board will consider further
portfolio sales in order to return additional capital to shareholders with
consideration also given to leverage levels and any debt repayment
obligations.
Investment Management Arrangements
In May 2024, the Board initiated a comprehensive review of the investment
management arrangements (the "IMA Review") as part of its commitment to
explore all avenues for delivering value to Shareholders. The Board
anticipates that the IMA Review process will be concluded in the near-term,
and further information will be notified to the market in due course.
Portfolio Performance
In the Investment Manager's Report, we are pleased to include enhanced
disclosures on both the performance of the Group's property portfolio and the
top 10 lessees (excluding My Space and Parasol which are discussed
separately). These demonstrate strong rent collection and occupancy amongst
the Group's principle Registered Provider partners as well as the quality of
the services provided to the properties' residents. All of this is unlocked
due to the collaborative approach the Group takes to engaging with its
Registered Provider and care provider partners.
Recognising the highly operational nature of its properties the Group has
always focused on working closely with its partners to promote the strong
operational performance of the portfolio, thereby ensuring that both financial
returns and resident outcomes are optimised. This involves everything from
routine property visits, to quarterly data collection across a wide range of
metrics, to engaging directly with Local Authorities to address any
operational issues that arise within the portfolio.
My Space and Parasol
The Group has made progress with both My Space and Parasol, the only two RPs
within the Group's portfolio with material arrears. On 19 August 2024, post
period end, the Group successfully completed the transfer of the Group's
leases away from Parasol to Westmoreland. This included a comprehensive tenant
consultation process which ensured the needs of the residents were
prioritised. Post-completion of the transfer, the Group expects to increase
rent collection from the properties to between 75% to 85% of existing FRI
lease rent during an initial stabilisation period (expected to last
approximately 12 months), and thereafter up to at least 90% of existing FRI
lease rent. An increase in rent collection, combined with JLL's favourable
view of Westmoreland, should result in an increase in value of the properties
post the transfer. Further information on the transfer is included in the
Investment Manager's Report, demonstrating that leases can be moved away from
underperforming Registered Providers in a way that preserves the delivery of
good homes to residents as well as shareholder value.
Following the successful transfer of leases away from Parasol we are engaging
with My Space on how best to transfer some or all of the Group's leases to
alternative Registered Providers, a full update is provided in the Investment
Manager's Report.
Financial Results
The Group has continued to demonstrate strong financial resilience. EPRA
earnings increased by 31% to £11.4 million from £8.7 million in the
comparative period. This is a result of index linked rental uplifts during the
period, and managing our cost base to mitigate the challenges posed by
relatively high levels of inflation. These two factors have also helped ensure
a lower EPRA cost ratio, and crucially, that the dividend was covered on an
Adjusted Earnings basis. There was a slight fall in the EPRA NTA from 113.76
pence at 31 December 2023 to 112.38 pence at 30 June 2024. In August, Fitch
Ratings Ltd reaffirmed the Company's existing Investment Grade, long-term
Issuer Default Rating (IDR) of 'A-' and a senior secured rating of 'A' for the
Group's existing loan notes, for the third consecutive time. I am pleased to
report that we continue to pay dividends in line with our annual targets, as
we have done consistently since IPO. For the six months ended 30 June 2024,
dividend cover, based on adjusted earnings, was 1.0x.
Overall, we are proud of another set of resilient financial results which
build on our performance to date and the encouraging operational progress made
during the period. This would not have been possible without the support of
our stakeholders, all of whom played an important role in helping deliver on
our investment strategy. You can read more about our financial performance
during the period in our Key Highlights section, along with a more in-depth
review in the Investment Manager's Report.
Social Impact
Social Impact continues to be of central importance to the Board when making
decisions and is integral to our business model. This set of results once
again demonstrates our conviction that financial performance and social impact
are mutually reinforcing. The independent Impact Report prepared by The Good
Economy identifies that our properties have delivered £3.08 of Total Social
Value for every £1.00 invested in the six months ending 30 June 2024. You can
read more on the social value and impact that our properties create in the
Impact Report prepared by the Good Economy, available separately on our
website.
Outlook
We look forward to building on the progress made in the first half of the year
particularly in relation to the increase in rent collection and the
corresponding increase in dividend cover which ensured that dividends were
fully covered on an adjusted earnings basis for the six months ending 30 June
2024. The Group will continue to benefit from having exclusively long term
fixed priced debt which leverages the positive impact of recent strong rental
growth. Now that the Group's 38 properties previously leased to Parasol have
been moved to Westmoreland, we expect to generate additional rental income,
which combined with the cost savings expected to be unlocked through the new
investment management arrangements, should continue to support strong dividend
cover.
We will therefore focus on working with Westmoreland to ensure that the post
transfer stabilisation period is a success and rent collection increases
in-line with expectations. Now that we have successfully concluded the Parasol
lease transfer process, a key objective for the next 6 months is to work with
My Space to determine how best to transfer the Group's leases to alternative
providers with a focus on prioritising the interests of residents and
increasing rent collection.
It is important to recognise that the vast majority of the Group's lessees
continue to perform well, as demonstrated in the Portfolio Performance section
of the Investment Manager's Report. We will work closely with our Registered
Provider partners to ensure that we continue to monitor the performance of the
Group's portfolio at a granular level and help to promote its ongoing strong
performance. This routine monitoring and engagement will be complemented by a
focus on delivering on key strategic initiatives which over the next six
months will include finalising the roll-out of the new risk sharing clause
into the Group's existing leases, and commencing the wider rollout of the
Group's Eco-Retrofit project with a focus on reducing fuel consumption and
positively impacting the cost of utilities to both our Registered Providers
and their residents.
We expect to conclude the portfolio sale in the coming months which will
enable us to return capital to shareholders. The Board remains committed to
addressing the performance of the Group's share price, and working to narrow
the share price discount to EPRA NTA whilst preserving the long-term
performance and fundamentals of the Group. The Board will continue to engage
with shareholders around actions for the benefit of the Group overall.
On behalf of the Board, I would like to thank all of our advisers for their
continued hard work and dedication to our investment strategy. Most
importantly, I would like to thank our shareholders and other stakeholders for
their continued support as we work to evolve and execute our strategy to
deliver good homes and long-term sustainable returns.
Chris Phillips
Chair
12 September 2024
INVESTMENT MANAGER'S REPORT
Specialised Supported Housing Market
Labour's commitment to deliver 1.5 million new homes over the next five years
with priority given to social housing and brownfield sites is both ambitious -
it represents a 50% increase relative to the previous government - and
welcome, given the acute shortage of social housing in the UK. However, it is
unlikely that much of the grant funding made available to help meet this
target will find its way to Specialised Supported Housing ("SSH"). Therefore,
it will be largely down to Registered Providers and private capital to provide
additional specialist homes that enable people with care and support needs to
live independently within their local communities. As has been the case since
we first started investing in the sector, demand continues to increase for
SSH, driven by an increase in the prevalence of disability and a desire to
promote independent living where possible. Given that the previous government
estimated an additional 125,000 supported housing homes were required by 2030,
private capital will need to play a critical role in delivery as demand
continues to outstrip supply.
The reduction in the rate of inflation has led to a return of a more normal
operating environment for our care provider and Registered Provider partners.
After the operational obstacles of COVID, followed by the challenges of
managing increasing costs in the ensuing high inflation period, it is
reassuring that the Group's operating partners successfully overcame these
challenges and should now find conditions more supportive. Demand for SSH
continues to underpin the performance of our portfolio and we are grateful to
our Registered Provider and care provider partners for the services they
provide to residents. It is their work and our active approach to asset
management that enables us to demonstrate the strong operational and financial
performance of the Group's properties as detailed in the Portfolio Performance
section of our report.
The government has not renewed its temporary 7% cap on social housing rent
levels that was put in place for twelve months from 1 April 2023. There is,
therefore, no intention to cap the rent increases in the Group's leases as we
did last year, and they will revert to increasing in line with inflation (CPI
in most cases). Registered Providers should also find it easier to agree the
annual increases in the service and maintenance charges they reclaim through
housing benefit now that forward-looking cost projections are less impacted by
unusually high inflation.
The Regulator of Social Housing ("Regulator") has not issued any new
judgements or notices about the Group's lessees since April 2023. In the
intervening period we have seen those Registered Providers who have been
subject to regulatory notices continue to respond positively and seek to move
their organisations towards compliance with the Regulator's standards. These
efforts need to be driven by their respective boards of directors and require
consideration of a broad range of factors, including: the quality of the
intensive housing management services provided, risk management and
stress-testing the organisation's business plan in a range of different
scenarios. The Group aims to progress the sector, as such, we are focused on
supporting the boards of our Registered Provider partners in these endeavours,
as evidenced by the continued roll-out of our risk-sharing clause, which we
cover later in this report.
This supportive operating environment coupled with our Registered Providers'
desire to move forward and respond positively to observations made by the
Regulator have together helped to ensure that the Group is able to demonstrate
another period of strong financial performance. Rent collection has increased
to 93.3% of rent due (up from 90.2% for the year ended 31 December 2023) and
the Group continues to benefit from exclusively long-term fixed priced debt
which has a weighted average fixed cost of 2.74%. This, in conjunction with
strong rental growth and a reduced cost base, ensured that the dividend was
fully covered on an adjusted earnings basis in the six months ended 30 June
2024. The Group's portfolio has reduced in value from £678.4 million on 31
December 2023 to £652.7 million on 30 June 2024, mainly as a result of 13
assets, with an aggregate value of £21.8 million, being held for sale at the
period end and therefore being excluded from the portfolio valuation. There
was a 0.5%, or £3.2 million, reduction in the like-for-like portfolio value
(representing the net impact of strong rental growth being offset by limited
outward yield movement). Finally, on 1 August 2024, Fitch renewed their A-
investment grade issuer rating of the Group for the third time in a row.
Financial Review
We are pleased to present resilient financial results for the six months ended
30 June 2024, as highlighted earlier. The Group's financial performance is
underpinned by increases in annualised rental income from its CPI and
RPI-linked leases(2). The dividend was fully covered in the period, and we
expect dividend cover to continue to increase during the second half of the
year now that leases have been moved away from Parasol to Westmoreland.
Key Highlights:
- The EPRA Earnings per Share ("EPRA EPS") excludes the fair value
movement on investment properties and is measured on the weighted average
number of shares in issue during the period. EPRA EPS was 2.90 pence for the
period compared to 2.18 pence for the same period in 2023, the increase was
driven by strong rental growth.
- The Adjusted Earnings per Share ("Adjusted EPS") includes adjustment
for non-cash items and is measured on the weighted average number of shares in
issue during the year. Adjusted EPS was 2.74 pence per share for the six
months ended 30 June 2024, compared to 2.10 pence(2) for the same period in
2023, again this increase was driven by strong rental growth.
- The annualised contracted rental income of the Group was £41.2
million as at 30 June 2024, compared to £41.0 million on 31 December 2023.
- The EPRA NIY has increased from 5.57% at 31 December 2023 to 5.96%
at 30 June 2024 following the rental uplifts in the period.
- The EPRA NTA per share at 30 June 2024 was 112.38 pence per share,
the same as the IFRS NAV per share, compared to 113.76 pence as at 31 December
2023.
- At the period end, the portfolio was valued at £652.7 million on
an IFRS basis compared to £678.4 million at 31 December 2023. The reduction
in value was mainly due to 13 assets, with a value of £21.8 million, being
held for sale resulting in them being excluded from the portfolio valuation.
There was a like-for like reduction in portfolio value of £3.2 million
resulting from the net impact of strong rental growth being offset by limited
outward yield movement. The portfolio value of £652.7 million reflects a
valuation uplift of 13.2% against the portfolio's aggregate purchase price
(including acquisition costs).
- The EPRA cost ratio is calculated as the total administrative and
operating costs expressed as a percentage of the gross rental income. The EPRA
cost ratio for the period was 18.71% compared to 20.60% for the year ended 31
December 2023.
- The Group held cash and cash equivalents of £29.3 million as at 30
June 2024 of which £0.4 million was restricted or ring-fenced, compared to
£29.5 million as at 31 December 2023, of which £0.4 million was restricted
or ring fenced, leaving available cash of £28.9 million as at 30 June 2024.
Debt Financing
All of the Group's debt is fixed-price and long-term with the earliest debt
maturity occurring in mid-2028, providing strong protection from higher
interest rates. As at 30 June 2024, the Group's debt structure comprised two
facilities with a combined value of £263.5 million. Both facilities are fixed
price (with a weighted average coupon of 2.74%), long-term (with a weighted
average maturity of 9.1 years) and fully drawn. The Group continues to
maintain significant covenant headroom across both facilities while also
having additional liquidity in the form of cash and £72.2 million of
unencumbered properties as at 30 June 2024.
Portfolio Performance
The financial performance detailed in the previous section is underpinned by
the strong performance of the Group's portfolio. Through the enhanced
disclosures in this report, we have sought to further demonstrate the
operational and financial performance of the Group's properties. These
disclosures are made possible through the proactive approach we take to asset
management. We conduct routine property inspections, and focus on quarterly
data collection on the operational, financial and governance performance of
our partners and properties. We also emphasise close engagement between our
asset management team and key stakeholders throughout the organisational
hierarchy of the Registered Providers we work with (this ensures engagement
with housing managers through to Managing Directors and Boards). It is through
these comprehensive inspections and dedicated engagement that we are able to
ensure we have the qualitative and quantitative data we need to have a
granular understanding of the performance of the Group's portfolio. It also
allows us to take action to support performance if and when required. In the
tables below, we have organised the data between general operational updates
and additional disclosures on the Group's top 10 lessees by rent roll
(excluding My Space and Parasol who are covered in a separate section).
Inclusion 2007 4,192 31.2% 100% 88%
Falcon 2008 996 9.0% 100% 89%
Chrysalis 2003 451 5.7% 100% 90%
BeST(3) 2010 1,454 5.3% 94% 89%
Hilldale 2009 943 5.2% 100% 94%
Auckland 2010 975 4.8% 100% 93%
Blue Square 2012 280 3.9% 100% 90%
Care HA 2003 445 3.9% 100% 86%
Highstone 2012 286 3.6% 100% 96%
Sunnyvale 2012 89 1.6% 100% 90%
Percentage of homes with EPC rating C+ 71%
CQC ratings of partner care providers who have been inspected of good or 84%
outstanding
Renewal rate of RP/CP SLA contracts 96%
Residents receiving over 20 hours of care and support a week 77%
Residents receiving over 50 hours of care and support a week 47%
Resident satisfaction scores from latest The Good Economy Survey
Residents satisfied with their level of physical health in their current home 87%
Residents in contact with their family or friends at least two to three times 62%
per week
Residents satisfied that when they need help in their current home, there 93%
are people there to support
Residents satisfied with their level of confidence in their current home 91%
Residents satisfied with their level of independence in their current home 90%
SSH typically provides long term homes to vulnerable residents and is bespoke
to their care and support needs. Demand for Specialised Supported Housing is
therefore specific and there is a rigorous process to follow when a resident
is nominated into a new home. This takes time and requires input and
consultation with a wide range of stakeholders to ensure both the suitability
of the home and the success of the move in process. We would therefore expect
occupancy for a mature portfolio of SSH properties to be around 90%, which is
in line with the occupancy levels demonstrated by the Group's top Registered
Provider partners by rent roll as show in the first table above.
Occupancy is supported by the quality of services being provided to residents
and it is critical that residents in SSH receive the care and support on which
they rely. Over 77% of residents living in properties owned by the Company
receive over 20 hours of care and support a week, with 47% receiving over 50
hours of care and support. Every year The Good Economy (a leading, independent
advisory firm with expertise in impact measurement and management) undertakes
a survey of some of the residents living in properties owned by the Group. The
results of the latest survey, published in March 2024, stated that over 90% of
residents surveyed were satisfied with their level of confidence, their
independence and the level of support they receive in their home
Care is typically provided by a care provider (independent of the Registered
Provider lessee) regulated by the Care Quality Commission ("CQC"). Of the
Group's partner care providers which have been inspected, 84% have been rated
good or outstanding by the CQC. Care is typically contracted with, and paid
for by, the Local Authority often on 5 to 10 year agreements, with a
corresponding 5 to 10 year Service Level Agreement between the care provider
and the Registered Provider. Under the Service Level Agreement, amongst other
things, the care provider has the right to nominate residents into the
property and typically undertakes to cover the cost of void units. Since the
Company's IPO in August 2017, there has been a high renewal rate of Service
Level Agreements in the Group's portfolio. Where the initial term has expired
96% have been renewed. Where the Service Level Agreement has not been renewed
in most cases a new care provider has been contracted with by the Local
Authority in order to ensure continuity of care and support to residents
Forward Funding Update
In June we commenced construction on a market leading project in conjunction
with leading SSH Registered Provider, Golden Lane Housing. The development
which will see us deliver 12 new individual apartments for people who have
learning disabilities, autism requirements and/or mental health needs. The
project received commissioner support from the Head of Service for Learning
Disabilities, Autism and Mental Health at Lancashire County Council and it was
noted that the location of the site, close to the centre of Chorley, is ideal
for enabling residents to integrate into the community. It will also be our
first development to target a 10% net biodiversity gain.
My Space and Parasol Update
On 19 August 2024 the Group successfully completed the transfer of all 38
properties leased to Parasol to Westmoreland. Prior to the transfer these
properties had an aggregate value of £55.7 million and contracted rent of
£4.0 million (excluding the impact of the ongoing creditor's agreement). The
transfer was the culmination of a four-month process focused on prioritising
the welfare of residents, enabling proactive engagement with the Regulator by
both Parasol and Westmoreland, and ensuring the transfer was undertaken in a
collaborative way to minimise costs and maximise rental income generated from
properties going forward.
The decision to move properties was taken due to Parasol only paying the Group
c.60% of rent due for c.20 months. Whilst the Parasol board and management
team were strengthened over the course of 2023, the persistent nature of the
arrears led to the decision to transfer all properties to Westmoreland.
Westmoreland manage 950 SSH homes. The current management team was appointed
in 2020 and have successfully restructured Westmoreland, delivering four years
of annual surplus and growing turnover in a sustainable way to over £15
million per annum whilst steadily increasing Westmoreland's cash position.
As part of our due diligence, as well as our review of operational, financial
and governance information, we engaged with the Westmoreland management team
at length on the quality of services that will be provided to residents and
their approach to property management and maintenance. This included visits to
properties managed by Westmoreland to confirm that the level of services
provided to residents meets the expected standards for the Group's homes.
Following the transfer of the properties we expect rent collection to increase
to between 75% to 85% of existing FRI lease rent during an initial
stabilisation period (expected to last approximately 12 months), and
thereafter up to at least 90% of existing FRI lease rent. For the purposes of
the Group's portfolio valuation dated 30 June 2024, the properties were valued
assuming the continuation of their existing Parasol leases. We have consulted
with JLL about the expected impact of the completed lease transfer and expect
the transfer to have a positive impact on the valuation of the 38 properties.
The Group currently has 34 properties leased to My Space representing 8.1% of
rent roll. Following the successful transfer of properties away from Parasol
to Westmoreland, we are engaging with My Space around how best the Group can
move some or all of its My Space properties to alternative Registered
Providers. Any property transfers will prioritise the interest of residents
whilst looking to promote the strong operational and financial performance of
the relevant properties. Further updates will be provided when lease
assignments are agreed.
Eco-Retrofit Update
In August, the Labour Government confirmed that there will be a requirement
for private rental properties to have a minimum EPC of C by 2030. Whilst this
target has not been specifically confirmed for social landlords, it emphasises
the importance of our Eco-retrofit project which will see all of the Group's
properties that currently have an EPC rating of below a C upgraded to a C or
above.
The project will ensure that the Group's portfolio remains ahead of regulation
whilst also reducing fuel consumption and improving the thermal performance of
the Group's properties, and reducing the relative cost of utilities for the
Group's lessees and their residents. As previously reported, we have been
undertaking an initial pilot project involving 11 of the Group's properties to
understand which technologies work best, who our preferred suppliers are, and
how to minimise any disruption to residents when the wider project is rolled
out. Of the 11 properties 8 now have an EPC of C or above. Of the remaining 3
properties work is ongoing in one, one is awaiting the outcome of a new EPC
rating, and one has been replaced by two additional properties where grant
funding can be accessed to fund over 60% of the cost of works and where works
are now ongoing.
The pilot project will come in below budget, in part because of our having
been able to access grant funding. Until we have surveyed all of the
properties included in the wider project it will not be possible to
definitively forecast costs, but we currently estimate that, once grant
funding is accounted for, the wider project should cost the Group between
£2.5m and £5.0m to complete (subject to the ongoing availability of grant
funding).
Surveys of the residents impacted by the pilot project show that 100% were
satisfied with communication throughout the project and the quality of the
contractors' work. We have learned a number of important lessons in the pilot
project which give us the confidence that we can deliver the wider project at
a manageable cost to the Group, well in advance of any regulatory deadlines,
and in a way that has a positive impact on both the value of the properties
and the wellbeing of residents.
Risk Sharing Lease Clause Roll-Out
In the Group's 2023 Annual Report we detailed the key terms of the Group's
risk sharing clause. We want to ensure the Group is able to assist its
Registered Provider partners to move forward and respond positively to the
observations made by the Regulator around the risks attached to long leases.
This clause, aimed at promoting the compliance of the Group's Registered
Provider partners, was reviewed by the Group's valuers and lenders and shared
with the Regulator before being introduced towards the end of 2023. The clause
has now been included in 66% of the Group's Registered Provider leases and we
are hoping to conclude the roll-out before the end of 2024.
Portfolio Sale and Further Portfolio Sales
As described in more detail in the Chairman's statement we expect to conclude
the sale of a portfolio of properties in excess of £20m in November. The
portfolio is reflective of the Group's wider portfolio and the sale should
allow for capital to be returned to shareholders (with consideration given to
leverage levels and any debt repayment obligations).
Property Portfolio
As at 30 June 2024, the portfolio comprised 481 properties with 3,297 units
(excluding the units relating to the properties classified as assets held for
sale) and represented a broad geographic diversification across the UK. The
four largest concentrated areas by market value were the North West (18.4%),
West Midlands (17.6%), Yorkshire (15.0%) and East Midlands (11.3%). This
excludes 13 assets with an aggregate value of £21.8 million that have been
classified as held for sale.
Rental Income
In total, the Group had 378 leases (excluding the leases associated with the
properties classified as assets held for sale) which at the period end,
generated total annualised contracted rental income of £41.2 million.
At the period end, the Group's three largest Approved Providers by rental
income and units were Inclusion (£12.8 million and 921 units), Parasol (£4.0
million(4) and 246 units) and Falcon (£3.7 million and 304 units).
As at 30 June 2024, the portfolio had a WAULT of 24.0 years. The WAULT
includes the initial lease term upon completion as well as any reversionary
leases and put/call options available to the Group at expiry of the initial
term. At present the Group's WAULT is anticipated to remain above 20 years.
100% of the Group's contracted income is generated under leases which are
indexed against either CPI (91.9%) or RPI (8.1%), noting that for leases that
now include the new risk sharing clause annual rent increases are set at the
lower of the relevant inflation index and prevailing government policy in
relation to social housing rent increases as it applies to SSH. Given that
government has recently stated that it expects social housing rents to be able
to increase annually by CPI +1% for the next ten years, these inflation
linkages provide the Group and its investors with the comfort that the rental
income will generally increase in line with inflation.
Of the Group's leases, 8.3% have an index 'premium' under which the standard
rental increase is based upon CPI or RPI plus a further percentage point,
reflecting top-ups by local authorities. A small portion of the Group's leases
(5.0% of rental income) contain a cap and collar on rental increases. For the
purposes of the portfolio valuation, JLL assumed CPI and RPI to increase at
2.0% per annum and 2.5% per annum, respectively, over the term of the relevant
leases. JLL's inflation assumptions remain unchanged from previous periods
given the Group's long-term outlook, with a WAULT and contracted income
streams of 24.0 years as at 30 June 2024.
Rental income by approved provider
Rental income by lease length
Outlook
Looking forward, focus remains on maximising the rental income generated by
the Group's properties and providing good homes to residents. The recent
transfer of leases from Parasol to Westmoreland has enabled us to deliver on
both of these objectives and our focus is now on working closely with
Westmoreland to ensure that the stabilisation period is successful and rent
collection increases in-line with expectations. Similarly, we continue to
engage with My Space to ensure that rental income generated from the Group's
34 properties leased to My Space is maximised, and this will involve moving
properties to alternative Registered Providers. As always when properties are
transferred the welfare of residents will be prioritised.
We expect the Group to continue to benefit from strong rental growth in the
latter half of the year with 50.4% of the Group's remaining annual lease rent
increases for 2024 being linked to the September 2023 CPI figure of 6.7%. This
will increase rental income and should help ensure a high level of dividend
cover in the latter half of the year.
One of the Group's key strategic projects is the wider roll-out of the
Eco-Retrofit project, and invaluable learnings have been gained during the
pilot phase which will enable the Group to continue to improve the energy
efficiency of its portfolio. In turn, this positively impacts the utility
costs of our Registered Provider partners and their residents and such
improvements can then be applied to the Group's remaining properties with an
EPC of C or below. This combined with the roll-out of the risk sharing clause
and the market leading forward funding project, developed in conjunction with
Golden Lane, will help to ensure that the Group remains at the forefront of an
evolving sector.
We will continue to work with all of our Registered Provider and care provider
partners to promote the strong performance of the Group's portfolio. Following
the recent decline in inflation, the return to a more supportive operating
environment is welcome, and we expect the vast majority of the Group's lessees
to continue to perform inline with expectations. We also hope that ongoing
constructive engagement with the Regulator and the positive impact of the new
risk sharing clause will help ensure that the Registered Providers we work
with will continue to make progress in terms of addressing historic
observations from the Regulator, and compliance with the Regulator's
standards.
The Group benefits from a compelling capital structure with all debt being
long term and fixed price with a blended cost of 2.74%. This combined with the
recent increases in rent collection, and strong rental growth delivered
through annual rent increases ensured that the dividend was covered for the
six months ending 30 June 2024. We expect these factors to continue to support
the strong financial performance of the Group in the latter half of the year
and beyond. Financial performance is underpinned by ongoing excess demand for
SSH and the proactive approach we take to engaging with our Registered
Provider and care provider partners. This will continue to be the bedrock of
stable operational performance going forward, and will allow the Group to
focus on its aim of providing good homes to people with care and support needs
whilst maximising value for shareholders.
Max Shenkman
Head of Investment
12 September 2024
Notes:
1 5.0% of our leases are capped.
2 Restated to adjust for the movement in lease incentive debtor.
3 We are engaging with BeST around their proposed merger with
Westmoreland (as reported in the Company's 2023 Annual Report). BeST have not
allowed for their most recent rent increases in their H1 rent payments to the
Company which has caused rent collection to reduce to 94%. We expect to
resolve this issue in H2 of 2024 and as such do not expect there to be rent
arrears going forward.
4 The £4.0m represents the rent due under Parasol leases before the
impact of the creditor's agreement which reduced rent due by 40% and which was
in place until all of the Groups properties leased to Parasol were transferred
to Westmoreland in August 2024. Following the completion of the transfer of
the properties to Westmoreland the Group had no remaining exposure to Parasol.
PORTFOLIO SUMMARY
By Location
Region Properties** % of Funds Invested*
North West 94 18.2
West Midlands 81 16.7
Yorkshire 64 15.2
East Midlands 53 11.3
North East 51 10.2
South East 57 8.9
London 27 8.9
South West 30 5.1
East 21 4.3
Scotland 2 1.1
Wales 1 0.1
Total 481 100.0
* calculated excluding acquisition costs
** excluding assets held for sale
KEY PERFORMANCE INDICATORS
In order to track the Group's progress the following key performance
indicators are monitored:
KPI AND DEFINITION RELEVANCE TO STRATEGY PERFORMANCE COMMENT
1. Dividend
Dividends paid to shareholders and declared during the year. The dividend reflects the Company's ability to deliver a low risk but growing Total dividends of 2.73 pence per share were paid or declared in respect of The Company has declared a dividend of 1.365 pence per Ordinary share in
income stream from the portfolio. the six months ended 30 June 2024. respect of the period 1 April 2024 to 30 June 2024, which will be payable on
or around 4 October 2024.
Further information is set out in Note 17.
(30 June 2023: 2.73 pence)
Total dividends paid and declared for the period are in line with the
Company's target.
2. EPRA Net Tangible Assets (NTA)
The EPRA NTA is equal to IFRS NAV as there are no deferred tax liabilities or EPRA NTA measure that assumes entities buy and sell assets, thereby 112.38 pence per share as at 30 June 2024. The EPRA NTA (equivalent to IFRS NAV) per share at IPO was 98 pence.
other adjustments applicable to the Group under the REIT regime. crystallising certain levels of deferred tax liability.
(31 December 2023: 113.76 pence per share) This represents an increase of 14.7% since IPO driven primarily by yield
Further information is set out in the Unaudited Performance Measures. compression at acquisition and subsequent annual rental uplifts.
3. Loan to Value (LTV)
A proportion of our portfolio is funded through borrowings. Our medium to The Company uses gearing to enhance equity returns. 37.2% LTV as at 30 June 2024. Borrowings comprise two private placements of loan notes totalling £263.5
long-term target LTV is 35% to 40% with a maximum of 50%.
million provided by MetLife Investment Management and Barings.
(31 December 2023: 37.0% LTV)
Further information is set out in Note 15.
4. EPRA Earnings per Share
EPRA Earnings per share (EPRA EPS) excludes gains or losses from fair value A measure of a Group's underlying operating results and an indication of the 2.90 pence per share for the six months ended 30 June 2024, based on earnings EPRA EPS increased compared to the comparative period due to the increase in
adjustment on investment property that are included in the IFRS calculation extent to which current dividend payments are supported by earnings. excluding the fair value loss on properties calculated on the weighted average rental income driven by rental uplifts.
for Earnings per share. number of shares in issue during the period.
Further information is set out in Note 22. (30 June 2023: 2.18 pence)
5. Adjusted Earnings per Share
2.74 pence per share for the six months ended 30 June 2024, based on earnings
after adjusting for any fair value movement on investment properties,
Adjusted earnings per share includes adjustment for non-cash items. The A key measure which reflects actual cash flows supporting dividend payments. amortisation of loan arrangement fees, and the movement in lease incentive This demonstrates the Company's ability to meet dividend payments from net
calculation is shown in Note 22. debtor; calculated on the weighted average number of shares in issue during cash inflows. It represents a dividend cover for the six months ended 30 June
the year. 2024 of 1.0x.
(30 June 2023: 2.10 pence per share(1))
6. Weighted Average Unexpired Lease Term (WAULT)
The average unexpired lease term of the investment portfolio, weighted by 24.0 years as at 30 June 2024 (includes put and call options).
annual passing rents.
The WAULT is a key measure of the quality of our portfolio. Long lease terms
(31 December 2023: 24.3 years) As at 30 June 2024, the portfolio's WAULT stood at 24.0 years.
Further information is set out in the Investment Manager's Report. underpin the security of our income stream.
7. Exposure to Largest Approved Provider
The percentage of the Group's gross assets that are leased to the single 30.1% of Gross Asset Value as at 30 June 2024. Our maximum exposure limit is 30% of GAV.
largest Approved Provider.
(31 December 2023: 29.5%)
The exposure to the largest Approved Provider must be monitored to ensure that
we are not overly exposed to one Approved Provider in the event of a default
scenario. This represents the Group's aggregate exposure to both Inclusion Housing CIC
and Inclusion Homes CIC which is expected to reduce below the 30% limit
following the realisation of the remaining rental uplifts due for the
portfolio this year.
8. Total Return
Change in EPRA NTA plus total dividends paid during the period. EPRA NTA per share was 112.38 pence as at 30 June 2024. The EPRA NTA per share at 30 June 2024 was 112.38 pence. Adding back dividends
paid during the period of 2.73 pence per Ordinary Share to the EPRA NTA per
The Total Return measure highlights the gross return to investors including share at 30 June 2024 results in an increase of 1.2%.
dividends paid since the prior year.
(30 June 2023: 111.31 pence)
The Total Return since IPO is 49.13% at 30 June 2024.
Total dividends paid for the six months ended 30 June 2024 were 2.73 pence per
share.
Total return was 1.18% for the six months ended 30 June 2024.
(30 June 2023: 4.57%)
Notes:
1 Restated to adjust for the movement in lease incentive
debtor
EPRA PERFORMANCE MEASURES
The table shows additional performance measures, calculated in accordance with
the Best Practices Recommendations of the European Public Real Estate
Association (EPRA). We provide these measures to aid comparison with other
European real estate businesses.
Full reconciliations of EPRA Earnings and NAV performance measures are
included in Notes 22 and 23 of the condensed Group interim financial
statements and Notes 1 and 3 of the Unaudited Performance Measures,
respectively. A full reconciliation of the other EPRA performance measures is
included in the Unaudited Performance Measures section.
KPI AND DEFINITION PURPOSE PERFORMANCE
1. EPRA Earnings per share
EPRA Earnings per share excludes gains or losses from fair value adjustment on A measure of a Group's underlying operating results and an indication of the 2.90 pence per share for the six months ended 30 June 2024.
investment properties that are included in the IFRS calculation for Earnings extent to which current dividend payments are supported by earnings.
per share.
(30 June 2023: 2.18 pence)
2. EPRA Net Reinstatement Value (NRV) per share
The EPRA NRV adds back the purchasers' costs deducted from the IFRS valuation. A measure that highlights the value of net assets on a long-term basis. The EPRA NRV adds back the purchasers' costs deducted from the IFRS valuation.
£489.6 million / 124.43 pence per share as at 31 December 2023.
3. EPRA Net Tangible Assets (NTA)
The EPRA NTA is equal to IFRS NAV as there are no deferred tax liabilities or A measure that assumes entities buy and sell assets, thereby crystallising £442.2 million / 112.38 pence per share as at 30 June 2024.
other adjustments applicable to the Group under the REIT regime. certain levels of deferred tax liability.
£447.6 million / 113.76 pence per share as at 31 December 2023.
4. EPRA Net Disposal Value (NDV)
The EPRA NDV provides a scenario where deferred tax, financial instruments, A measure that shows the shareholder value if assets and liabilities are not £504.6 million / 128.23 pence per share as at 30 June 2024.
and certain other adjustments are calculated as to the full extent of their held until maturity.
£503.7 million / 128.02 pence per share as at 31 December 2023.
liability.
5. EPRA Net Initial Yield (NIY)
Annualised rental income based on the cash rents passing at the statement of A comparable measure for portfolio valuations. This measure should make it 5.96% at 30 June 2024.
financial position date, less non-recoverable property operating expenses, easier for investors to judge for themselves how the valuation of a portfolio
divided by the market value of the property, increased with (estimated) compares with others.
purchasers' costs.
5.57% at 31 December 2023.
6. EPRA "Topped-Up" NIY
This measure incorporates an adjustment to the EPRA NIY in respect of the The topped-up net initial yield is useful in that it allows investors to see 5.99% at 30 June 2024.
expiration of rent-free periods (or other unexpired lease incentives such as the yield based on the full rent that is contracted at 30 June 2024.
discounted rent periods and step rents).
5.72% at 31 December 2023.
7. EPRA Vacancy Rate
Estimated Market Rental Value (ERV) of vacant space divided by ERV of the A "pure" percentage measure of investment property space that is vacant, based 0.32% at 30 June 2024.
whole portfolio. on ERV.
0.33% at 31 December 2023.
8. EPRA Cost Ratio
Administrative and operating costs (including and excluding costs of direct A key measure to enable meaningful measurement of the changes in the Group's 18.71% at 30 June 2024.
vacancy) divided by gross rental income. operating costs.
20.60% at 31 December 2023
PRINCIPAL RISKS AND UNCERTAINTIES
The Audit Committee, which assists the Board with its responsibilities for
managing risk, considers that the principal risks and uncertainties as
presented on pages 75 to 79 of our 2023 Annual Report were unchanged during
the period and will remain unchanged for the remaining six months of the
financial year ending 31 December 2024.
The Board undertakes a formal risk review, with the assistance of the Audit
Committee twice a year to assess the principal risks and uncertainties. The
Investment Manager on an ongoing basis has responsibility for identifying
potential risks and escalating these in accordance with the risk management
procedures.
The risks are summarised below:
Financial Risks:
• Default of one or more approved provider lessees
• Non-payment of voids cover by care providers
• Property valuations may be subject to change over time
• Higher than projected levels of inflation may impact approved
providers' ability to pay rent due under the group's leases
• Unable to operate within debt covenants
Regulatory Risks:
• Risk of an approved provider being deemed non-compliant with the
governance and viability standard by the regulator
• Risk of changes to the social housing regulatory regime and
changes to government policy in relation to social housing and housing benefit
• Risk of poor or inadequate housing management (including
compliance) or poor provision of care services by the group's approved
providers lessees and care providers respectively
Strategic Risks:
• Reliance on the Investment Manager
• The potential impact of climate change on the valuation
of the group's properties
DIRECTORS' RESPONSIBILITY STATEMENT
The Directors confirm that to the best of their knowledge this unaudited
condensed set of financial statements has been prepared in accordance with
UK-adopted International Accounting Standard (IAS) 34 'Interim Financial
Reporting' and that the operating and financial review above includes a fair
review of the information required by DTR 4.2.7 and DTR 4.2.8 of the
Disclosure Guidance and Transparency Rules of the United Kingdom's Financial
Conduct Authority namely:
· an indication of important events that have occurred during
the six months ended 30 June 2024 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
· material related party transactions in the six months ended 30
June 2024 as disclosed in Note 19 and any material changes in the related
party transactions disclosed in the 2023 Annual Report.
Shareholder information is as disclosed on the Triple Point Social Housing
REIT plc website.
Approval
This Directors' responsibilities statement was approved by the Board of
Directors and signed on its behalf by:
Chris Phillips
Chair
12 September 2024
GROUP FINANCIAL STATEMENTS
CONDENSED GROUP STATEMENT OF COMPREHENSIVE INCOME
For the six months ended 30 June 2024
For the six months ended 30 June 2024 For the six months ended 30 June 2023 For the year ended 31 December 2023
(unaudited) (unaudited) (audited)
Note £'000 £'000 £'000
Income
Rental income 4 20,540 19,576 39,839
Expected credit loss 4 (1,436) (3,157) (4,593)
Other income 3 - -
Total income 19,107 16,419 35,246
Expenses
Directors' remuneration (150) (156) (312)
General and administrative expenses (1,344) (1,446) (3,245)
Management fees 5 (2,349) (2,339) (4,651)
Total expenses (3,843) (3,941) (8,208)
(Loss}/gain from fair value adjustment on investment properties 8 (6,122) 5,886 15,477
Operating profit 9,142 18,364 42,515
Finance income 22 29 52
Finance costs 6 (3,864) (3,777) (7,578)
Profit before tax 5,300 14,616 34,989
Taxation 7 - - -
Profit and total comprehensive income 5,300 14,616 34,989
IFRS Earnings per share - basic and diluted 22 1.35p 3.65p 8.81p
CONDENSED GROUP STATEMENT OF FINANCIAL POSITION
As at 30 June 2024
30 June 2024 30 June 2023 31 December 2023
Note (unaudited) (unaudited) (audited)
£'000 £'000 £'000
Assets
Non-current assets
Investment properties 8 648,848 665,422 675,497
Trade and other receivables 10 5,036 3,042 4,233
Total non-current assets 653,884 668,464 679,730
Current assets
Assets held for sale 9 21,755 7,871 -
Trade and other receivables 11 3,054 3,063 3,864
Cash, cash equivalents and restricted cash 12 29,260 23,843 29,452
Total current assets 54,069 34,777 33,316
Total assets 707,953 703,241 713,046
Liabilities
Current liabilities
Trade and other payables 13 3,153 2,556 2,722
Total current liabilities 3,153 2,556 2,722
Non-current liabilities
Other payables 14 1,304 1,522 1,524
Bank and other borrowings 15 261,320 261,178 261,183
Total non-current liabilities 262,624 262,700 262,707
Total liabilities 265,777 265,256 265,429
Total net assets 442,176 437,985 447,617
Equity
Share capital 3,940 3,940 3,940
Share premium reserve 203,753 203,753 203,753
Treasury shares reserve (378) (378) (378)
Capital redemption reserve 16 93 93 93
Capital reduction reserve 16 155,359 155,359 155,359
Retained earnings 79,409 75,218 84,850
Total Equity 442,176 437,985 447,617
IFRS Net asset value per share - basic and diluted 23 112.38p 111.31p 113.76p
The Condensed Group Financial Statements were approved and authorised for
issue by the Board on 12 September 2024 and signed on its behalf by:
Chris Phillips
Chair
12 September 2024
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY
For the six months ended 30 June 2024
For the six months ended 30 June 2024 (unaudited) Note Share capital £'000 Share premium reserve Treasury shares reserve Capital redemption reserve £'000 Capital reduction reserve £'000 Retained earnings £'000 Total equity £'000
£'000
£'000
Balance at 1 January 2024 3,940 203,753 (378) 93 155,359 84,850 447,617
Profit and total comprehensive income for the period - - - - - 5,300 5,300
Transactions with owners
Dividends paid 17 - - - - - (10,741) (10,741)
Balance at 30 June 2024 (unaudited) 3,940 203,753 (378) 93 155,359 79,409 442,176
For the six months ended 30 June 2023 (unaudited) Note Share capital £'000 Share premium reserve Treasury shares reserve Capital redemption reserve £'000 Capital reduction reserve £'000 Retained earnings £'000 Total equity £'000
£'000
£'000
Balance at 1 January 2023 4,033 203,753 (378) - 160,394 71,483 439,285
Profit and total comprehensive income for the period - - - - - 14,616 14,616
Transactions with owners
Dividends paid 17 - - - - - (10,881) (10,881)
Shares repurchased 16 (93) - - 93 (5,035) - (5,035)
Balance at 30 June 2023 (unaudited) 3,940 203,753 (378) 93 155,359 75,218 437,985
For the year ended 31 December 2023 (audited) Note Share capital £'000 Share premium reserve Treasury shares reserve Capital redemption reserve £'000 Capital reduction reserve £'000 Retained earnings £'000 Total equity £'000
£'000
£'000
Balance at 1 January 2023 4,033 203,753 (378) - 160,394 71,483 439,285
Profit and total comprehensive income for the year - - - - 34,989 34,989
-
Transactions with owners
Dividends paid 17 - - - - - (21,622) (21,622)
Shares repurchased 16 (93) - - 93 (5,035) - (5,035)
Balance at 31 December 2023 (audited) 3,940 203,753 (378) 93 155,359 84,850 447,617
CONDENSED GROUP STATEMENT OF CASH FLOWS
For the six months ended 30 June 2024
For the six months ended 30 June 2024 For the six months ended 30 June 2023 For the year ended 31 December 2023
(unaudited) (unaudited) (audited)
Note £'000 £'000 £'000
Cash flows from operating activities
Profit before income tax 5,300 14,616 34,989
Adjustments for:
Expected credit loss 1,436 3,157 4,593
(Loss)/gain from fair value adjustment on investment properties 8 6,122 (5,886) (15,477)
Finance income (22) (29) (52)
Finance costs 6 3,864 3,777 7,578
Operating results before working capital changes 16,700 15,635 31,631
Increase in trade and other receivables (1,429) (2,101) (5,528)
Increase/(decrease) in trade and other payables 96 (402) (240)
Net cash generated from operating activities 15,367 13,132 25,863
Cash flows from investing activities
Purchase of / additions to investment properties (1,113) 147 67
Disposal proceeds from sale of assets - - 7,472
Restricted cash - paid 65 - 5
Interest received - 7 8
Net cash (used in)/generated from investing activities (1,048) 154 7,552
Cash flows from financing activities
Ordinary Shares repurchased - (5,035) (5,035)
Loan arrangement fees paid - (52) (212)
Dividends paid 17 (10,741) (10,881) (21,622)
Interest paid (3,705) (3,614) (7,228)
Net cash used in financing activities (14,446) (19,582) (34,097)
Net decrease in cash and cash equivalents (127) (6,296) (682)
Cash and cash equivalents at the beginning of the period 29,014 29,696 29,696
Cash and cash equivalents at the end of the period 12 28,887 23,400 29,014
NOTES TO THE CONDENSED GROUP INTERIM FINANCIAL STATEMENTS (UNAUDITED)
For the six months ended 30 June 2024
1. CORPORATE INFORMATION
Triple Point Social Housing REIT plc (the "Company") is a Real Estate
Investment Trust ("REIT") incorporated in England and Wales under the
Companies Act 2006 as a public company limited by shares on 12 June 2017. The
address of the registered office is The Scalpel, 18th Floor, 52 Lime Street,
London, United Kingdom, EC3M 7AF. The Company is registered as an investment
company under section 833 of the Companies Act 2006 and is domiciled in the
United Kingdom.
The principal activity of the Company is to act as the ultimate parent company
of Triple Point Social Housing REIT plc and its subsidiaries (the "Group") and
to provide shareholders with an attractive level of income, together with the
potential for capital growth from investing in a portfolio of social homes.
2. BASIS OF PREPARATION
These condensed Group interim financial statements for the six months ended 30
June 2024 have been prepared in accordance with IAS 34 "Interim Financial
Reporting" and also in accordance with the measurement and recognition
principles of UK-adopted international accounting standards. They do not
include all of the disclosures that would otherwise be required in a complete
set of financial statements and should be read in conjunction with the 2023
Annual Report.
The comparative figures for the financial year ended 31 December 2023
presented herein do not constitute the full statutory accounts within the
meaning of section 434 of the Companies Act 2006. Those accounts have been
reported on by the Group's auditors and delivered to the registrar of
companies. The report of the auditor (i) was unqualified, (ii) did not include
a reference to any matters to which the auditor drew attention by way of
emphasis without qualifying their report and (iii) did not contain a statement
under section 498 (2) or (3) of the Companies Act 2006.
The condensed Group interim financial statements for the six months ended 30
June 2024 have been reviewed by the Company's Auditor, BDO LLP, in accordance
with International Standard on Review Engagements 2410, Review of Interim
Financial Information Performed by the Independent Auditor of the Entity. The
condensed Group interim financial statements are unaudited and do not
constitute statutory accounts for the purposes of the Companies Act 2006.
The condensed Group interim financial statements have been prepared on a
historical cost basis, as modified for the Group's investment properties,
which have been measured at fair value. Gains or losses arising from changes
in fair values are included in profit or loss.
The Group has applied the same accounting policies and method of computation
in these condensed Group interim financial statements as in its 2023 annual
financial statements and are expected to be consistently applied during the
year ending 31 December 2024. At the date of authorisation of these financial
statements, there were a number of standards and interpretations which were in
issue but not yet effective. The Group has assessed the impact of these
amendments and has determined that the application of these amendments and
interpretations in current and future periods will not have a significant
impact on the financial statements.
2.1. Going concern
The Group benefits from a secure income stream from long leases which are not
overly reliant on any one tenant and present a well-diversified risk. The
Directors have reviewed the Group's forecast which shows the expected
annualised rental income exceeds the expected operating costs of the Group.
93.3% of rental income due and payable for the six months ended 30 June 2024
has been collected, rent arrears are predominantly attributable to two
Approved Providers, My Space Housing Solutions and Parasol Homes.
The Directors believe that the Group is still well placed to manage its
financing and other business risks and that the Group will remain viable,
continuing to operate and meet its liabilities as they fall due. During the
period, Fitch Ratings Limited assigned the Company an investment Long-Term
Issuer Default Rating 'A-' with a negative outlook and a senior secured rating
of 'A' for the Group's existing loan notes.
The Directors have performed an assessment of the ability of the Group to
continue as going concern, for a period of at least 12 months from the date
these condensed Group interim financial statements have been authorised for
issue. The Directors have considered the expected obligations of the Group for
the next 12 months and are confident that all will be met.
The Directors have also considered the financing provided to the Group.
Norland Estates Limited and TP REIT Propco 2 Limited have bank facilities with
MetLife and MetLife and Barings respectively.
The loans secured by Norland Estates Limited and TP REIT Propco 2 Limited are
subject to asset cover ratio covenants and interest cover ratio covenants
which can be found in the table below. The Directors have also considered
reverse stress testing and the circumstances that would lead to a covenant
breach. Given the level of headroom, the Directors are of the view that the
risk of scenarios materialising that would lead to a breach of the covenants
is remote.
Norland Estates Limited TP REIT Propco 2 Limited
Asset Cover Ratio (ACR)
Asset Cover Ratio Covenant x2.00 x1.67
Asset Cover Ratio at 30 June 2024 x2.73 x1.93
Blended Net initial yield 5.98% 6.24%
Headroom (yield movement) 201bps 90bps
Interest Cover Ratio (ICR)
Interest Cover Ratio Covenant 1.75x 1.75x
Interest Cover Ratio at 30 June 2024 4.81x 4.62x
Headroom (rental income movement) 64% 59%
Under the downside model the forecasts have been stressed to show the effect
of some Care Providers ceasing to pay their voids liability, and as a result
Approved Providers defaulting under some of the Group's leases. Under the
downside model the Group will be able to settle its liabilities for a period
of at least 12 months from the date these condensed Group interim financial
statements have been authorised for issue. As a result of the above, the
Directors are of the opinion that the going concern basis adopted in the
preparation of the condensed Group interim financial statements is
appropriate.
The Group has no short or medium-term refinancing risk given the 9.1 year
average maturity of its long-term debt facilities with MetLife and Barings,
the first of which expires in June 2028, and which are fully fixed at an
all-in weighted average rate of 2.74%.
Based on the forecasts prepared and the intentions of the Group, the Directors
consider that the Group will be able to settle its liabilities for a period of
at least 12 months from the date these condensed Group interim financial
statements have been authorised for issue and therefore has prepared these
condensed Group interim financial statements on the going concern basis.
2.2. Reporting period
These condensed Group interim financial statements have been prepared for the
six months ended 30 June 2024. The comparative periods are the six months
ended 30 June 2023 and the year ended 31 December 2023.
2.3. Currency
The Group's financial information is presented in Sterling which is also the
Group's functional currency.
2.4 Assets held for sale
An asset is classified as held for sale in line with IFRS 5 'Non-Current
Assets Held for Sale and Discontinued Operations' if its carrying value is
expected to be recovered through a sale transaction rather than continuing
use. Such assets are generally measured at the lower of their carrying amount
and fair value less costs to sell. An asset will be classified in this way
only when a sale is highly probable, management are committed to selling the
asset at the year-end date, the asset is available for immediate sale in its
current condition and the asset is expected to be disposed of within 12 months
after the date of the statement of financial position. Impairment losses on
initial classification as held for sale and subsequent gains and losses on
remeasurement are recognised in profit or loss.
3. SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
In the application of the Group's accounting policies, the Directors are
required to make judgements, estimates and assumptions about the carrying
amounts of assets and liabilities that are not readily apparent from other
sources. In the Directors' view, there have been no significant changes since
the annual report for the year ended 31 December 2023, to the extent of
estimation uncertainty, key assumptions or valuation techniques relating to
investment properties as a result of the current macroeconomic environment.
Further details can be found in note 8.
3.1 Expected Credit Losses (ECL)
The Group recognised an additional ECL provision of £1.4 million in the
current period (30 June 2023: £3.2 million, 31 Dec 2023: £4.6 million)
resulting in a total ECL provision of £8.1 million as at 30 June 2024 (30
June 2023: £5.2 million, 31 Dec 2023: £6.7 million) which relates to arrears
for two of the Group's Approved Providers. A default probability for each of
the Approved Providers, representing the estimated percentage likelihood of
them paying arrears due at 30 June 2024, was determined based on their latest
known financial position and any repayment plans that had been agreed or
discussed. For each Approved Provider the estimated percentage probability of
receiving arrears has been multiplied by the arrears as at the statement of
financial position date. These figures have been aggregated to arrive at the
ECL provision as at the reporting date.
3.2 Lease incentive debtor
The lease incentive debtor recognised from rent smoothing adjustments are not
considered to be financial assets as the amounts are not yet contractually
due. As such, the requirements of IFRS 9 (including the expected credit loss
method) are not applied to those balances. The credit risk associated with the
tenant is considered in the determination of the fair value of the related
property. In the current period, the income recognised in respect of such rent
smoothing amounted to £763,000 (30 June 2023: £453,000).
4. RENTAL INCOME
For the six months ended 30 June 2024 For the six months ended 30 June 2023 For the year ended 31 December 2023
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Rental income - freehold assets 19,290 18,415 37,473
Rental income - leasehold assets 1,250 1,161 2,366
20,540 19,576 39,839
Expected credit loss (1,436) (3,157) 4,593
The lease agreements between the Group and the Approved Providers are fully
repairing and insuring leases. The Approved Providers are responsible for the
settlement of all present and future rates, taxes, costs and other impositions
payable in respect of the properties. As a result, no direct property expenses
were incurred by the Group.
All rental income arose within the United Kingdom.
The Group's credit losses started to occur during the year ended 31 December
2022 for the first time since IPO. The expected loss rates are adjusted for
current and forward-looking information affecting the Group's tenants. The ECL
provision recognised during the period was £1.4 million which mostly relates
to a single tenant.
5. MANAGEMENT FEES
For the six months ended 30 June 2024 For the six months ended 30 June 2023 For the year ended 31 December 2023
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Management fees 2,349 2,339 4,651
2,349 2,339 4,651
On 20 July 2017 Triple Point Investment Management LLP ("TPIM") was appointed
as the delegated investment manager of the Company by entering into the
property management services and delegated portfolio management agreement.
Under this agreement the delegated investment manager will advise the Company
and provide certain management services in respect of the property portfolio.
A Deed of Variation was signed on 23 August 2018. This defined cash balances
in the Net Asset Value calculation in respect of the management fee as
"positive uncommitted cash balances after deducting any borrowings".
The management fee is an annual management fee which is calculated quarterly
in arrears based upon a percentage of the last published Net Asset Value of
the Group (not taking into account uncommitted cash balances after deducting
borrowings) as at 31 March, 30 June, 30 September and 31 December in each year
on the following basis with effect from Admission:
(a) on that part of the Net Asset Value up to and including £250
million, an amount equal to 1% of such part of the Net Asset Value;
(b) on that part of the Net Asset Value over £250 million and up to and
including £500 million, an amount equal to 0.9% of such part of the Net Asset
Value;
(c) on that part of the Net Asset Value over £500 million and up to
and including £1 billion, an amount equal to 0.8% of such part of the Net
Asset Value; and
(d) on that part of the Net Asset Value over £1 billion, an amount
equal to 0.7% of such part of the Net Asset Value.
Management fees of £2,349,000 were chargeable by TPIM during the six months
ended 30 June 2024 (six months ended 30 June 2023: £2,339,000, year ended 31
December 2023: £4,651,000). At the period end, £1,166,000 was due to TPIM
(30 June 2023: £1,156,000, 31 December 2023: £1,180,000).
By two agreements dated 30 June 2020, the Company appointed TPIM as its
Alternative Investment Fund Manager by entering into an Alternative Investment
Fund Management Agreement and (separately) documented TPIM's continued
appointment as the provider of portfolio and property management services by
entering into an Investment Management Agreement
6. FINANCE COSTS
For the six months ended 30 June 2024 For the six months ended 30 June 2023 For the year ended 31 December 2023
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Interest payable on bank borrowings 3,609 3,609 7,217
Amortisation of loan arrangement fees 137 141 307
Lender property valuation fees 91 - -
Head lease interest expense 22 22 44
Total finance cost for financial liabilities not held at fair value through 3,859 3,772 7,568
profit or loss
Bank charges 5 5 10
Total finance costs 3,864 3,777 7,578
Lender property valuation fees were previously included as loan arrangement
fees and amortised.
7. TAXATION
As a UK REIT, the Group is exempt from corporation tax on the profits and
gains from its property investment business, provided it meets certain
conditions as set out in the UK REIT regulations. For the six months ended 30
June 2024, the Group did not have any non-qualifying profits and accordingly
there is no tax charge in the period. If there were any non-qualifying profits
and gains, these would be subject to corporation tax.
It is assumed that the Group will continue to be a group UK REIT for the
foreseeable future, such that deferred tax has not been recognised on
temporary differences relating to the property rental business.
8. INVESTMENT PROPERTIES
Operational assets
£'000
As at 1 January 2024 675,497
Acquisitions and additions* 1,226
Fair value adjustment** (6,122)
Movement in head lease ground rent liability 2
Reclassified to assets held for sale*** (21,755)
As at 30 June 2024 (unaudited) 648,848
As at 1 January 2023 667,713
Acquisitions and additions* (308)
Fair value adjustment** 5,886
Movement in head lease ground rent liability 2
Reclassified to assets held for sale before disposal*** (7,871)
As at 30 June 2023 (unaudited) 665,422
As at 1 January 2023 667,713
Acquisitions and additions* (224)
Fair value adjustment** 15,875
Movement in head lease ground rent liability 4
Reclassified to assets held for sale before disposal*** (7,871)
As at 31 December 2023 (audited) 675,497
*Additions in the table above differs to the total investment cost of new
properties in the period in the front end due to improvement works in relation
to the Eco-Retrofit project being included here as well as retentions no
longer payable which were credited to Investment Property additions.
**(Loss)/gain from fair value adjustment on investment properties in the
condensed Group statement of comprehensive income include loss on disposal of
assets of £nil (six months ended 30 June 2023: £nil, year ended 31 December
2023: loss of £0.11 million) and loss from fair value adjustments on assets
held for sale of £nil (six months ended 30 June 2023: £nil; year ended 31
December 2023: £0.28 million).
*** 13 assets with fair value of £21.5 million have been reclassified as
assets held for sale during the period (30 June 2023: 4 assets with fair value
of £7.9 million). See note 9 for further details.
Reconciliation to independent valuation:
30 June 2024 30 June 2023 31 December 2023
£'000 £'000 £'000
Investment property valuation 652,689 667,237 678,358
Fair value adjustment - head lease ground rent 1,243 1,462 1,463
Fair value adjustment - lease incentive debtor* (5,084) (3,277) (4,324)
648,848 665,422 675,497
*Excluding lease incentive debtors related to the properties reclassified as
assets held for sale as at 30 June 2024.
The carrying value of leasehold properties at 30 June 2024 was £28.9 million
(30 June 2023: £40.8 million, 31 December 2023: £41.1 million). The
investment property valuation above excludes the fair value of the assets held
for sale at the end of each reporting period.
In accordance with "IAS 40: Investment Property", the Group's investment
properties have been independently valued at fair value by Jones Lang LaSalle
Limited ("JLL"), an accredited external valuer with recognised and relevant
professional qualifications. JLL provide their fair value of the Group's
investment property portfolio every three months.
JLL were appointed as external valuer by the Board on 11 December 2017. The
proportion of the total fees payable by the Company to JLL's total fee income
is minimal. Additionally, JLL has a rotation policy in place whereby the
signatories on the valuations rotate after seven years.
% Key Statistics
Portfolio Metrics 30 June 2024 30 June 2023 31 December 2023
Capital Deployed (£'000)* 556,473 581,735 574,827
Number of Properties*** 481 497 493
Number of Tenancies 378 394 390
Number of Approved Providers 28 27 27
Number of Local Authorities 148 153 153
Number of Care Providers 109 123 116
Average Net Initial Yield** 5.97% 5.69% 5.71%
* calculated excluding acquisition costs
**calculated using IAS 40 valuations (excluding forward funding acquisitions)
*** excluding 13 properties that have been classified as assets held for sale
at 30 June 2024
Regional exposure
30 June 2024** 30 June 2023 31 December 2023
Region *Cost £'000 % of funds invested *Cost £'000 % of funds invested *Cost £'000 % of funds invested
North West 101,466 18.2 115,063 19.8 109,880 19.1
West Midlands 92,993 16.7 94,760 16.3 93,635 16.3
Yorkshire 84,498 15.2 86,293 14.8 87,148 15.2
East Midlands 62,853 11.3 69,429 11.9 63,979 11.1
North East 56,653 10.2 51,986 9.0 56,653 9.9
London 49,626 8.9 49,626 8.5 49,626 8.6
South East 49,490 8.9 54,848 9.4 53,674 9.3
South West 28,108 5.1 27,466 4.7 27,466 4.8
East 24,206 4.3 23,704 4.1 24,206 4.2
Scotland 5,900 1.1 5,900 1.0 5,900 1.0
Wales 680 0.1 2,660 0.5 2,660 0.5
Total 556,473 100.0 581,735 100.0 574,827 100
* excluding acquisition costs
** excluding 13 properties that have been classified as assets held for sale
at 30 June 2024
Fair value hierarchy
Date of valuation Total Quoted prices in active markets Significant observable inputs Significant unobservable inputs
(Level 1) (Level 2) (Level 3)
£'000 £'000 £'000 £'000
Assets measured at fair value: 30 June 2024 648,848 - - 648,848
Investment properties
Investment properties 30 June 2023 665,422 - - 665,422
Investment properties 31 December 2023 675,497 - - 675,497
There have been no transfers between Level 1 and Level 2 during the period,
nor have there been any transfers between Level 2 and Level 3 during the
period.
The valuations have been prepared in accordance with the RICS Valuation -
Professional Standards (incorporating the International Valuation Standards)
by JLL, one of the leading professional firms engaged in the social housing
sector.
As noted previously all of the Group's investment properties are reported as
Level 3 in accordance with IFRS 13 where external inputs are "unobservable"
and value is the Directors' best estimate, based upon advice from relevant
knowledgeable experts.
In this instance, the determination of the fair value of investment properties
requires an examination of the specific merits of each property that are in
turn considered pertinent to the valuation.
These include i) the regulated social housing sector and demand for the
facilities offered by each Specialised Supported Housing (SSH) property owned
by the Group; ii) the particular structure of the Group's transactions where
vendors, at their own expense, meet the majority of the refurbishment
costs of each property and certain purchase costs; iii) detailed financial
analysis with discount rates supporting the carrying value of each property;
iv) underlying rents for each property being subject to independent
benchmarking and adjustment where the Group considers them too high
(resulting in a price reduction for the purchase or withdrawal from the
transaction); and v) a full repairing and insuring lease with annual
indexation based on CPI or CPI+1% and effectively 25 years outstanding, in
most cases with a Housing Association itself regulated by the Regulator of
Social Housing.
Descriptions and definitions relating to valuation techniques and key
unobservable inputs made in determining fair values are as follows:
Valuation techniques: Discounted cash flows
The discounted cash flows model considers the present value of net cash flows
to be generated from the properties, taking into account the expected rental
growth rate and lease incentive costs such as rent-free periods. The expected
net cash flows are then discounted using risk-adjusted discount rates.
There are two main unobservable inputs that determine the fair value of the
Group's investment properties:
1. The rate of inflation as measured by CPI; it should be noted that all
leases benefit from either CPI or RPI indexation; and
2. The discount rate applied to the rental flows.
Key factors in determining the discount rates to assess the level of
uncertainty applied include the performance of the regulated social housing
sector and demand for each specialist supported housing property owned by the
Group, costs of acquisition and refurbishment of each property, the
anticipated future underlying cash flows for each property, benchmarking of
each underlying rent for each property (passing rent), and the fact that all
of the Group's properties have the benefit of full repairing and insuring
leases entered into by a Housing Association.
All of the properties within the Group's portfolio benefit from leases with
annual indexation based upon CPI or RPI. The fair value measurement is based
on the above items, highest and best use, which does not differ from their
actual use. The valuer also considers the resulting net initial yield for each
property for appropriateness.
Sensitivities of measurement of significant unobservable inputs
The Group's property portfolio valuation is open to judgements and is
inherently subjective by nature. The estimates and associated assumptions have
a significant risk of causing a material adjustment to the carrying amounts of
investment properties. The valuation is based upon assumptions including
future rental income (with growth in relation to inflation) and the
appropriate discount rate.
As a result, the following sensitivity analysis has been prepared:
Key unobservable inputs - discount rate and inflation:
The average discount rate used in the Group's property portfolio valuation is
7.4% (30 June 2023: 7.2%, 31 December 2023: 7.3%).
The range of discount rates used in the Group's property portfolio valuation
is from 6.6% to 10.5%. (30 June 2023: 6.5% to 9.8%, 31 December 2023: 6.5% to
10.0%).
For the purposes of the valuation, CPI and RPI is assumed to increase by 2%
per annum and 2.5% per annum respectively over the term of the relevant
leases.
-0.5% change in +0.5% change in +0.25% change in -0.25% change in
Discount Rate Discount Rate CPI CPI
£'000 £'000 £'000 £'000
Changes in the IFRS fair value of investment properties as at 30 June 2023 39,438 (35,994) 20,296 (19,425)
Changes in the IFRS fair value of investment properties as at 31 December 2023 38,653 (35,403) 19,143 (18,377)
-1% change in +1% change in +0.5% change in -0.5% change in
Discount Rate Discount Rate CPI CPI
£'000 £'000 £'000 £'000
Changes in the IFRS fair value of investment properties as at 30 June 2024 76,400 (64,140) 38,033 (35,170)
Assumptions used in December 2023 and June 2023 (+/- 0.5% DCR, +/-0.25% CPI)
have been increased to +/-1% DCR and +/-0.5% CPI.
The valuations have not been influenced by climate related factors due to
there being little measurable impact on inputs at present.
9. ASSETS HELD FOR SALE
Management considers 13 of the Group's properties (30 June 2023: 4; 31
December 2023: nil) to meet the conditions relating to assets held for sale,
as per IFRS 5: Non-current Assets Held for Sale and Discontinued Operations.
The properties are expected to be disposed of during the next 12 months.
Assets held for sale are disclosed at their fair value.
The fair value of these properties, and its comparative value, is disclosed in
the table below along with associated assets and liabilities:
30 June 2024 (unaudited) 30 June 2023 (unaudited) 31 December 2023 (audited)
£'000 £'000 £'000
Assets held for sale 21,755 7,871 -
21,755 7,871 -
10. TRADE AND OTHER RECEIVABLES (non-current)
30 June 2024 (unaudited) 30 June 2023 (unaudited) 31 December 2023 (audited)
£'000 £'000 £'000
Lease incentive debtor 4,881 2,876 4,072
Other receivables 155 166 161
5,036 3,042 4,233
The Directors consider that the carrying value of trade and other receivables
approximate their fair value. All amounts are due to be received in more than
one year from the reporting date.
11. TRADE AND OTHER RECEIVABLES (current)
30 June 2024 (unaudited) 30 June 2023 (unaudited) 31 December 2023 (audited)
£'000 £'000 £'000
Rent receivable 2,273 2,184 2,436
Lease incentive debtor 207 401 252
Prepayments 209 117 189
Other receivables 365 361 987
3,054 3,063 3,864
The Directors consider that the carrying value of trade and other receivables
approximate their fair value. All amounts are due to be received within one
year from the reporting date. Rent receivable and other receivables are
presented net of ECL provision of £8.1 million as at 30 June 2024 (30 June
2023: £5.2 million and 31 December 2023: £6.7 million).
The Group applies the general approach in providing for expected credit losses
under IFRS 9 for other receivables. Where the credit loss relates to revenue
already recognised in the statement of comprehensive income, the expected
credit loss allowance is recognised in the Statement of Comprehensive Income.
Expected credit losses totalling £1.4 million (30 June 2023: £3.2 million,
31 December 2023: £4.6 million) were charged to the Statement of
Comprehensive Income in the period.
12. CASH, CASH EQUIVALENTS AND RESTRICTED CASH
30 June 2024 30 June 2023 31 December 2023
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Cash at bank 28,878 23,370 29,014
Restricted cash 373 443 438
Cash held by lawyers 9 30 -
29,260 23,843 29,452
Cash held by lawyers is money held in a client account in relation to the
forward funding deal completed in June 2024. Since 30 June 2024 the funds have
been returned to the Group. These funds are available immediately on demand.
Restricted cash represents monies held in escrow in relation to the transfer
of leases during 2020.
30 June 2024 30 June 2023 31 December 2023
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Total cash, cash equivalents and restricted cash 29,260 23,843 29,452
Restricted cash (373) (443) (438)
Cash reported on Statement of Cash Flows 28,887 23,400 29,014
13. TRADE AND OTHER PAYABLES
30 June 2024 (unaudited) 30 June 2023 (unaudited) 31 December 2023 (audited)
£'000 £'000 £'000
Trade payables 103 36 -
Accruals 2,262 1,982 2,270
Head lease ground rent 40 40 40
Assets held for sale liability 222 - -
Other creditors 526 498 412
3,153 2,556 2,722
The Other Creditors balance consists of retentions due on completion of
outstanding works and accrued acquisition costs. The Directors consider that
the carrying value of trade and other payables approximate their fair value.
All amounts are due for payment within one year from the reporting date.
14. OTHER PAYABLES
30 June 2024 (unaudited) 30 June 2023 (unaudited) 31 December 2023 (audited)
£'000 £'000 £'000
Head lease ground rent 1,204 1,422 1,424
Rent deposit 100 100 100
1,304 1,522 1,524
15. BANK AND OTHER BORROWINGS
30 June 2024 (unaudited) 30 June 2023 (unaudited) 31 December 2023 (audited)
£'000 £'000 £'000
Bank and other borrowings drawn at period end 263,500 263,500 263,500
Unamortised costs at beginning of period (2,317) (2,411) (2,412)
Less: loan issue costs incurred - (52) (212)
Add: loan issue costs amortised 137 141 307
Unamortised costs at period end (2,180) (2,322) (2,317)
Balance at period end 261,320 261,178 261,183
At 30 June 2024 there were no undrawn bank borrowings (30 June 2023: £nil
million, 31 December 2023: £nil).
As at 30 June 2024, the Group's borrowings comprised two debt facilities:
• a long-dated, fixed rate, interest only financing arrangement
in the form of a private placement of loan notes in an amount of £68.5
million with MetLife Investment Management (and affiliated funds); and
• £195.0 million long-dated, fixed rate, interest only
sustainability-linked loan notes through a private placement with MetLife
Investment Management clients and Barings.
Loan Notes
The Loan Notes of £68.5 million are secured against a portfolio of specialist
supported housing assets throughout the UK, worth approximately £186.9
million (30 June 2023: £187.8 million, 31 December 2023: £192.5 million).
The Loan Notes represented a loan-to-value of 40% of the value of the secured
pool of assets on inception of the Loan Notes and are split into two tranches:
Tranche-A, is an amount of £41.5 million, has a term of 10 years from
utilisation and is priced at an all-in coupon of 2.924% pa; and Tranche-B, is
an amount of £27.0 million, has a term of 15 years from utilisation and is
priced at an all-in coupon of 3.215% pa. On a blended basis, the weighted
average term is 12 years carrying a weighted average fixed rate coupon of
3.04% pa. At 30 June 2024, the Loan Notes have been independently valued at
£58.1 million (30 June 2023: £54.1 million, 31 December 2023: £59.3
million) which has been used to calculate the Group's EPRA Net Disposal Value
in note 2 of the Unaudited Performance Measures. The fair value is determined
by comparing the discounted future cash flows using the contracted yields with
the reference gilts plus the margin implied. The reference gilts used were the
Treasury 4.026% 2028 Gilt (Tranche A) and Treasury 4.039% 2033 Gilt (Tranche
B), with an implied margin that is unchanged since the date of fixing.
In August 2021, the Group put in place Loan Notes of £195.0 million which
enabled the Group to refinance the full £130.0 million previously drawn under
its £160.0 million RCF with Lloyds and NatWest. The Loan Notes are secured
against a portfolio of specialist supported housing assets throughout the UK,
worth approximately £375.9 million (June 2023: £397.5 million, 31 December
2023: £392.6 million). The Loan Notes represented a loan-to-value of 40% of
the value of the secured pool of assets on inception of the Loan Notes and are
split into two tranches: Tranche-A, is an amount of £77.5 million, has a term
of 10 years from utilisation and is priced at an all-in coupon of 2.403% pa;
and Tranche-B, is an amount of £117.5 million, has a term of 15 years from
utilisation and is priced at an all-in coupon of 2.786% pa. On a blended
basis, the weighted average term is 13 years carrying a weighted average fixed
rate coupon of 2.634% pa. At 30 June 2024, the Loan Notes have been
independently valued at £140.9 million (30 June 2023: £130.5 million, 31
December 2023: £145.7 million) which has been used to calculate the Group's
EPRA Net Disposal Value in note 2 of the Unaudited Performance Measures. The
fair value is determined by comparing the discounted future cash flows using
the contracted yields with the reference gilts plus the margin implied. The
reference gilts used were the Treasury 4.006% 2031 Gilt (Tranche A) and
Treasury 4.232% 2036 Gilt (Tranche B), with an implied margin that is
unchanged since the date of fixing.
The valuation of these loans are considered to be a Level 2 fair value
measurement for the purposes of the EPRA Net Disposal Value.
The Group has complied with all the financial covenants related to the above
loans throughout the period.
16. CAPITAL REDUCTION RESERVE
30 June 2024 (unaudited) 30 June 2023 (unaudited) 31 December 2023 (audited)
£'000 £'000 £'000
Balance at beginning of period 155,359 160,394 160,394
Share buybacks - (5,035) (5,035)
Balance at end of period 155,359 155,359 155,359
The capital reduction reserve is a distributable reserve that was created on
the cancellation of share premium.
No shares were repurchased in the current period.
CAPITAL REDEMPTION RESERVE
30 June 2024 (unaudited) 30 June 2023 (unaudited) 31 December 2023 (audited)
£'000 £'000 £'000
Balance at beginning of period 93 - -
Original shares repurchased & cancelled - 93 93
Balance at end of period 93 93 93
The Capital Redemption Reserve is the nominal value of the shares cancelled
from the share buybacks in the prior year.
17. DIVIDENDS
For the six months ended 30 June 2024 For the six months ended 30 June 2023 For the year ended 31 December 2023
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
1.365p for the 3 months to 31 December 2022 paid on 29 March 2023 - 5,498 5.498
1.365p for the 3 months to 31 March 2023 paid on 28 June 2023 - 5,383 5,382
1.365p for the 3 months to 30 June 2023 paid on 29 September 2023 - - 5,371
1.365p for the 3 months to 30 September 2023 paid on 15 December 2023 - - 5,371
1.365p for the 3 months to 31 December 2023 paid on 22 March 2024 5,371 - -
1.365p for the 3 months to 31 March 2024 paid on 14 June 2024 5,370 - -
10,741 10,881 21,622
On 12 September 2024 the Company declared an interim dividend of 1.365 pence
per Ordinary Share for the period 1 April 2024 to 30 June 2024. The total
dividend of £5,370,000 will be paid on 4 October 2024 to Ordinary
shareholders on the register on 20 September 2024.
The Company intends to pay dividends to shareholders on a quarterly basis and
in accordance with the requirements of the REIT regime. Dividends are not
payable in respect of the Treasury shares held by the Company.
18. SEGMENTAL INFORMATION
All of the Group's properties are engaged in a single segment business with
all revenue, assets and liabilities arose in the UK, therefore, no
geographical segmental analysis is required by IFRS 8 for the reasons provided
in the 31 December 2023 Annual Report.
19. RELATED PARTY DISCLOSURE
Directors
Directors are remunerated for their services at such rate as the Directors
shall from time to time determine. The Chairman receives a director's fee of
£75,000 per annum (30 June 2023: £75,000, 31 December 2023: £75,000), and
the other Directors of the Board receive a fee of £50,000 (30 June 2023:
£50,000, 31 December 2023: £50,000) per annum. The Directors are also
entitled to an additional fee of £7,500 in connection with the production of
every prospectus by the Company. No prospectus was produced in the year ended
31 December 2023 nor in the current period.
Dividends of the following amounts were paid to the Directors during the
period:
Chris Phillips: £1,498 (30 June 2023: £1,498, 31 December 2023: £2,995)
Peter Coward: £2,186 (30 June 2023: £2,186, 31 December 2023: £4,372)
Paul Oliver: £nil (30 June 2023: £2,129, 31 December 2023: £2,128) (Resigned on 30 June
2023)
Tracey Fletcher-Ray: £1,030 (30 June 2023: £1,030, 31 December 2023: £2,060)
No shares were held by Cecily Davis & Ian Reeves as at 30 June 2024 (31
December 2023 and 30 June 2023: nil).
Investment Manager
The Company considers Triple Point Investment Management LLP (the 'Investment
Manager') as a key management personnel and therefore a related party. Further
details of the investment management contract and transactions with the
Investment Manager are disclosed in note 5.
20. POST BALANCE SHEET EVENTS
Dividends
On 12 September 2024, the Company declared an interim dividend of 1.365 pence
per Ordinary Share for the period 1 April 2024 to 30 June 2024. The total
dividend of £5,370,000 million will be paid on 4 October 2024 to Ordinary
shareholders on the register on 20 September 2024.
Parasol lease transfer
On 19 August 2024, all 38 properties previously leased to Parasol Homes Ltd
were transferred to Westmoreland Housing Association. Up to the point of
transfer, Parasol continued to pay rent in accordance with the existing
creditor's agreement, being 60% of full lease rent. The transfer does not give
rise to an adjustment of the valuation of investment properties at 30 June
2024.
21. CAPITAL COMMITMENTS
The Group does not have capital commitments in both the prior year and the
current period.
22. EARNINGS PER SHARE
Earnings per share ("EPS") amounts are calculated by dividing profit for the
period attributable to ordinary equity holders of the Company by the weighted
average number of Ordinary Shares in issue during the period. As there are no
dilutive instruments outstanding, both basic and diluted earnings per share
are the same.
The calculation of basic and diluted earnings per share is based on the
following:
For the six months ended 30 June 2024 For the six months ended 30 June 2023 For the year ended 31 December 2023
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Calculation of Basic Earnings per share
Net profit attributable to ordinary shareholders (£'000) 5,300 14,616 34,989
Weighted average number of ordinary shares (including treasury shares) 393,466,490 400,608,159 397,007,975
IFRS Earnings per share - basic and diluted 1.35p 3.65p 8.81p
Calculation of EPRA Earnings per share
For the six months ended 30 June 2024 For the six months ended 30 June 2023 For the year ended 31 December 2023
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Net profit attributable to ordinary shareholders (£'000) 5,300 14,616 34,989
Changes in value of fair value of investment properties (£'000) 6,122 (5,886) (15,477)
EPRA earnings (£'000) 11,422 8,730 19,512
Non cash adjustments to include:
Movement in lease Incentive Debtor (763) - (1,500)
Amortisation of loan arrangement fees (£'000) 137 141 307
Adjusted earnings (£'000) 10,796 8,871 18,319
Weighted average number of ordinary shares (including treasury shares) 393,466,490 400,608,159 397,007,975
EPRA Earnings per share - basic and diluted 2.90p 2.18p 4.92p
Adjusted earnings per share - basic and diluted 2.74p 2.10p* 4.61p
* restated to adjust for the movement in lease incentive debtor
Adjusted earnings is a performance measure used by the Board to assess the
Group's dividend payments. The metric adjusts EPRA earnings for non cash
items, including amortisation of ongoing loan arrangement fees and the
movement in the lease incentive debtor. In prior years the movement in lease
incentive debtor has not been reflected in the calculation of adjusted
earnings as it was not material. The comparative for the six months ended 30
June 2023 has been restated for consistency. The Board sees these adjustments
as a reflection of actual cashflows which are supportive of dividend payments.
The Board compares the Adjusted earnings to the available distributable
reserves when considering the level of dividend to pay.
For this EPRA measure and proceeding EPRA measures, please refer to
explanations and definitions of the EPRA performance measures that can be
found below.
23. NET ASSET VALUE PER SHARE
Basic Net Asset Value per share is calculated by dividing net assets in the
Condensed Group Statement of Financial Position attributable to Ordinary
equity holders of the Company by the number of Ordinary Shares outstanding at
the end of the period. Although there are no dilutive instruments outstanding,
both basic and diluted NAV per share are disclosed below.
Net asset values have been calculated as follows:
30 June 2024 30 June 2023 31 December 2023
(unaudited) (unaudited) (audited)
Net assets at end of period (£'000) 442,176 437,985 447,617
Shares in issue at end of period (excluding shares held in treasury) 393,466,490 393,466,490 393,466,490
IFRS NAV per share - basic and dilutive 112.38p 111.31p 113.76p
24. UNAUDITED PERFORMANCE MEASURES
1. EPRA Net Reinstatement Value
30 June 2024 30 June 2023 31 December 2023
IFRS NAV/EPRA NAV (£'000) 442,176 437,985 447,617
Include:
Real Estate Transfer Tax* (£'000) 41,754 41,638 41,962
EPRA Net Reinstatement Value (£'000) 483,930 479,623 489,579
Fully diluted number of shares 393,466,490 393,466,490 393,446,490
EPRA Net Reinstatement value per share 122.99p 121.90p 124.43p
* Purchaser's costs
2. EPRA Net Disposal Value
30 June 2024 30 June 2023 31 December 2023
IFRS NAV/EPRA NAV (£'000) 442,176 437,985 447,617
Include:
Fair value of debt* (£'000) 62,385 76,635 56,106
EPRA Net Disposal Value (£'000) 504,561 514,620 503,723
Fully diluted number of shares 393,466,490 393,466,490 393,446,490
EPRA Net Disposal Value per share** 128.23p 130.79p 128.02p
* Difference between interest-bearing loans and borrowings included in
Condensed Group statement of financial position at amortised cost, and the
fair value of interest-bearing loans and borrowings.
** Equal to the EPRA NNNAV disclosed in previous reporting periods.
3. EPRA NTA
30 June 2024 30 June 2023 31 December 2023
IFRS NAV/EPRA NAV (£'000) 442,176 437,985 447,617
EPRA NTA (£'000) 442,176 437,985 447,617
Fully diluted number of shares 393,466,490 393,466,490 393,446,490
EPRA NTA per share * 112.38p 111.31p 113.76p
*Equal to IFRS NAV and previous EPRA NAV metric as none of the EPRA Net
Tangible Asset adjustments are applicable as at 30 June 2023, 31 December 2023
or 30 June 2024.
4. EPRA net initial yield (NIY) and EPRA "topped up" NIY
30 June 2024 30 June 2023 31 December 2023
£'000 £'000 £'000
Investment Properties - wholly owned (excluding head lease ground rents) 647,605 663,960 674,033
Assets held for sale 21,755 7,871 -
Completed property portfolio 669,360 671,831 674,033
Allowance for estimated purchasers' costs 41,754 41,638 41,962
Gross up completed property portfolio valuation 711,114 713,469 715,995
Annualised passing rental income 42,362 40,299 39,912
Annualised net rents 42,362 40,299 39,912
Contractual increases for lease incentives 256 244 1,059
Topped up annualised net rents 42,618 40,543 40,971
EPRA NIY 5.96% 5.65% 5.57%
EPRA Topped Up NIY 5.99% 5.68% 5.72%
5. Ongoing Charges Ratio
30 June 2024 30 June 2023 31 December 2023
£'000 £'000 £'000
Annualised ongoing charges 6,797 7,151 7,242
Average undiluted net assets 444,896 438,635 443,451
Ongoing charges 1.53% 1.63% 1.63%
6. EPRA Vacancy Rate
30 June 2024 30 June 2023 31 December 2023
£'000 £'000 £'000
Estimated Market Rental Value (ERV) of vacant spaces 138 138 138
Estimated Market Rental Value (ERV) of whole portfolio 42,756 40,680 40,971
EPRA Vacancy Rate 0.32% 0.34% 0.33%
7. EPRA Cost Ratio
30 June 2024 30 June 2023 31 December 2023
£'000 £'000 £'000
Total administrative and operating costs 3,843 3,941 8,208
Gross rental income 20,540 19,576 39,839
EPRA cost ratio 18.71% 20.13% 20.60%
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