REG - Triple Point Soc.Hsg - RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2023
07/09/2023 07:00
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RNS Number : 6335L Triple Point Social Housing REIT 07 September 2023
7 September 2023
Triple Point Social Housing REIT plc
(the "Company" or, together with its subsidiaries, the "Group")
RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2023
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 2023.
Chris Phillips, Chair of Triple Point Social Housing REIT plc, commented:
"The Company has continued to demonstrate strong rental growth and valuation
resilience during the first half of 2023, despite the uncertain macro-economic
backdrop. We were pleased to announce the recent portfolio sale of
properties principally in line with book value, demonstrating continued
liquidity and the resilience of valuations in the sector.
The Investment Grade rating of our long-term fully fixed priced debt was
reaffirmed last month and our focus remains on the operating performance of
our portfolio. Our proactive approach to asset management, paired with the
inflation protection offered through our rental income, and the growing demand
for specialised supported housing, means that we are well positioned to ensure
the sustainability of our investments over the long-term."
Six months to 30 June 2023 Six months to 30 June 2022 Year ended 31 December 2022
Portfolio value
- IFRS basis £675.1m £669.6m £669.1m
EPRA Net Tangible Assets ("NTA") per share 111.31p 111.80p 109.06p
(equal to IFRS NAV per share)
EPRA Net Initial Yield (NIY) 5.65% 5.28% 5.46%
Loan to Value 37.5% 36.8% 37.4%
Earnings per share (basic and diluted)
- IFRS basis 3.65p 6.19p 6.18p
- EPRA basis 2.18p 2.43p 4.78p
- Adjusted earnings 2.21p 2.57p 5.03p
Total annualised rental income £40.5m £37.4m £39.0m
Weighted average unexpired lease term 24.8 yrs 25.9 yrs 25.3 yrs
Dividend per share 2.73p 2.73p 5.46p
Financial highlights
· EPRA NTA per share up 2.1% to 111.31 pence at 30 June 2023
(31 December 2022: 109.06 pence), reflecting an increase in the value of the
Group's property portfolio and the accretive impact of the £5 million share
buyback programme over the period.
· Portfolio valued as at 30 June 2023 at £675.1 million on an
IFRS basis, up from £669.1 million as at 31 December 2022 and reflecting a
valuation uplift of 12.2% against total invested funds of £601.9 million(1).
The positive impact of strong rental growth on valuations was partially offset
by an outward movement in yields reflecting wider market conditions.
· The fair value gain on investment properties for the six
months ended 30 June 2023 amounted to £5.9 million (30 June 2022: £17.1
million). Net profit for the six months ended 30 June 2023 was £14.6 million
(30 June 2022: £24.9 million). The reduction relative to the comparable
period in 2022 was principally reflective of the impact of a lower fair value
gain on investment properties being recognised during the period. The Expected
Credit Loss adjustment made (relating to unpaid rent) also had a negative
impact on net profit.
· The portfolio's total annualised contracted rental income was
£40.5 million as at 30 June 2023 (31 December 2022: £39.0 million). IFRS
Gross Revenue for the period was £19.6 million (£18.2 million for the six
months ended 30 June 2022).
· 100% of contracted rental income was either CPI (92.4%) or
RPI (7.6%) linked. 4.9% of the Group's leases are capped (excluding the
temporary rent cap of 7% applied to the Group's rent increases for the year of
2023).
· Ongoing Charges Ratio of 1.63% as at 30 June 2023 (31
December 2022: 1.60%; 30 June 2022: 1.57%), with the marginal increase
primarily due the impact of inflation on the Group's cost base.
· All drawn debt is fixed (weighted average coupon of 2.74%)
and long-term (10.1 years), which continues to offer strong protection against
increasing interest rates.
· Maintained an Investment Grade Issuer Default Rating from
Fitch of 'A-' (Stable Outlook) with a senior secured rating of 'A'.
Successful portfolio sale demonstrating the value of the Group's assets and
dividend in line with target
· Portfolio of four properties sold for £7.6 million, in line
with book value of £7.9 million and representing an increase of £0.7 million
(9.6%) compared to the aggregate purchase price paid by the Group for the
properties.
· The dividend to be paid on 30 September 2023 brings the total
dividend per share paid or declared by the Company in respect of the six month
period to 30 June 2023 to 2.73 pence per share, in line with the Company's
stated target for the year to 31 December 2023 of 5.46 pence per share.(2)
· Dividend cover on an adjusted earnings basis at 30 June 2023
was 0.81x (31 December 2022: 0.92x). If an adjustment is made for the portion
of the Expected Credit Loss recognised in the six months ended 30 June 2023
that relates to unpaid rent due in 2022, dividend cover for the six months
ended 30 June 2023 was 0.90x.
Operational highlights
· 88.1% of rent due was collected during the period, and 25 out
of the Group's 27 lessees recorded no material rent arrears. Post the period
end, the Investment Manager has made progress in respect of both Approved
Providers which have material rent arrears.
o There is now a creditor agreement in place with Parasol in respect of
future rental payments.
o Similarly, a creditor agreement is being negotiated with My Space in
respect of future rental payments together with a payment plan for arrears.
Simultaneoulsy a transfer of properties to alternative Registered Providers is
being considered.
· EPRA blended NIY of 5.65% based on the value of the portfolio
on an IFRS basis as at 30 June 2023, against the portfolio's blended net
initial yield on purchase of 5.91%, equating to yield compression of 26bps.
· Diversified portfolio of 497 properties(3):
o 11 regions
o 153 local authorities
o 394 leases
o 27 Approved Providers
o 123 care providers
· As at 30 June 2023, the weighted average unexpired lease term
("WAULT") was 24.8 years.
· Agreed a new lease clause, with support from stakeholders,
which seeks to address general risks raised by the Regulator of Social Housing
in relation to long leases, to be implemented in the Group's existing
Registered Provider leases in the second half of 2023.
· Commenced the pilot phase of an energy efficiency improvement
initiative which entails upgrading all of the Group's properties to an Energy
Performance Certificate ("EPC") rating of C or above. Over 70% of the Group's
properties already meet this standard (compared to a social housing sector
average of c. 57%).
· Partnership with Golden Lane, a Registered Provider with a
regulatory compliance rating of G1 V2 and one of the leading providers in the
Specialised Supported Housing sector, on a pipeline of projects.
Notes:
1 Including acquisition costs
2 These are targets only and not a profit forecast and there can
be no assurance that they will be met
3 Four out of these 497 properties are classified as assets held
for sale at 30 June 2023
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
Diana Vaughton
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.
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 the
Company Secretary at Hanway Advisory on +44 (0) 20 3909 3519 or
cosec@hanwayadvisory.com.
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 15 September 2023.
CHAIR'S STATEMENT
Introduction
The macroeconomic backdrop during the first half of 2023 has remained
uncertain. High interest rates and gilt yields have impacted the wider
property sector. Despite these challenges, the Specialised Supported Housing
sector has continued to demonstrate strong rental growth and valuation
resilience.
Last year, we took the decision to cap the Group's 2023 rent increases at 7%,
in line with the government's cap on social housing rent increases, even
though Specialised Supported Housing was excluded from this cap. Given UK CPI
has remained elevated, rents have been increased in line with the cap. This
rental growth has offset general market wide yield compression and helped us
to deliver growth in the Group's portfolio value and EPRA NTA per share in the
first half of the year despite the very challenging economic environment,
differentiating us from other UK property sectors that have suffered material
reductions in value.
The relatively strong performance of the Specialised Supported Housing sector
is reassuring and in line with the sector's fundamentals. There remains a lack
of supply and all forecasts point to growing excess demand for more
independent community-based homes for people with care and support needs.
This, combined with government financial support for the individuals that live
in Specialised Supported Housing, means that the sector is well placed to
withstand periods of economic uncertainty.
Capital Allocation
We aim to supplement our existing portfolio of properties with forward funding
projects and acquisitions over the medium term, however all deployment is
considered in the context of delivering shareholder value and the broader
market conditions. During the six months ended 30 June 2023, the Board has
viewed share buybacks as a more attractive and appropriate use of the Group's
capital, buying back £5 million (9,322,512 shares) between 19 April 2023 and
12 June 2023 at an average discount to the prevailing published EPRA NTA of
52.8%, which has been accretive to dividend cover. The Group does intend to
invest into a competitively priced forward funding project in conjunction with
Golden Lane, a Registered Provider with a regulatory compliance rating of G1
V2 and one of the leading providers in the Specialised Supported Housing
sector. Further detail on this new partnership can be found in the Investment
Manager's Report.
As indicated in the Group's 2022 Annual Report, it has been a priority of the
Board to demonstrate the value of the Group's assets through a sale of a
portfolio of properties. Since the period end, we have successfully concluded
a portfolio disposal of four properties for an aggregate consideration of
£7.6 million which is principally in line with the book value of £7.9
million as at 30 June 2023 and reflects a £0.7 million gain (9.6%) against
the aggregate purchase price that the Group paid for the properties. The
portfolio of properties sold contained a mix of property types, lessees and
care providers. Following consultation with shareholders over the coming
weeks, and with consideration given to the Group's leverage position, the
Board will consider whether some of the proceeds from the sale should be used
for an additional share buyback programme. More details on the sale and
capital allocation are included in the Investment Manager's Report.
Portfolio Performance
Consolidating and optimising the performance of the Group's portfolio has been
a principal focus of the Board and the Investment Manager.
Since early 2020, the operating environment has been difficult for all our
Approved Providers. As the numerous challenges posed by COVID-19 eased, they
were replaced with the financial headwinds of rising inflation and increased
regulatory costs. Despite challenging economic conditions, the majority of the
Group's Approved Providers are performing in line with expectations, and have
managed to navigate these issues successfully. Reassuringly we are seeing
signs of improvement, with a recent reduction in gas prices, a less
challenging labour market and an overall improvement in the operational
backdrop for our partners which allows us to look forward with renewed
confidence.
We believe the strength of our relationships with our partners sets us apart
in the Specialised Supported Housing sector. This ensures that we have both
the operational data and anecdotal feedback required for a granular
understanding of the performance of the Group's portfolio of properties. All
aspects of portfolio management, including compliance, care provider
performance and local authority nominations, are monitored and assessed on an
ongoing basis. This enables us to intervene quickly if issues arise and to
help our lessees move forward through initiatives such as the roll out of our
new lease clause as described in the Investment Manager's Report.
As previously reported, rent receipts were lower than expected for two of the
Group's lessees, My Space and Parasol. We are pleased to report that a
creditor agreement has been put in place with Parasol which reflects the
current level of rents being received and allows for rents to increase over
time. Similarly, we hope to agree a creditor agreement with My Space shortly,
and continue to engage with alternative Registered Providers so that the
Group's properties can be moved should we deem this to be in the best
interests of residents and the sustainability of the Group's income. The
Group's Board and the Investment Manager are focused on ensuring that My Space
and Parasol perform in line with expectations. A full update on the
performance of these lessees is included in the Investment Manager's Report.
Alongside maintaining the performance of our portfolio, we have evolved our
investment structure to provide appropriate support to our Registered Provider
lessee partners as they look to progress from a risk management and regulatory
perspective. We have led the sector on managing risk by rolling out a new risk
sharing clause across all our Registered Provider leases which can help boards
of Registered Providers demonstrate material progress on risk management to
the Regulator of Social Housing.
Recognising the link between value creation and the quality of the homes we
deliver, the Board is taking increased measures to oversee the broader
sustainability credentials of the Group. A separate Sustainability Committee
has been established to ensure due consideration of a range of sustainability
activities and outcomes, which will be detailed further in the 2023 Annual
Report.
Financial Results
The Group has continued to demonstrate strong financial resilience in
challenging conditions. The EPRA NTA per share as at 30 June 2023 was 111.31
pence per share, an increase of 2.25 pence compared to the NTA of 109.06 pence
per share as at 31 December 2022. This increase was driven by growth in the
value of the Group's property portfolio and the accretive impact of the share
buybacks undertaken by the Group in the period.
In August, Fitch Ratings Ltd reaffirmed the Company's existing Investment
Grade, long-term Issuer Default Rating (IDR) of 'A-' with a stable outlook and
a senior secured rating of 'A' for the Group's existing loan notes, for the
second 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 2023, dividend cover, based on adjusted earnings, was 0.81x.
Dividend cover was lower than in previous periods due to an additional
provision of £1.0 million recognised in the period, relating to the My Space
and Parasol rent arrears for the year ended 31 December 2022. Without this
additional provision, adjusted dividend cover for the six months ended 30 June
2023 was 0.90x(1). Through our focus on addressing the current level of rent
payments from My Space and Parasol (details on which are provided in the
Investment Manager's Report) we will look to improve dividend cover over the
course of this year and preserve it over the longer-term.
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, along with a more in-depth review in
the Investment Manager's Report.
Social Impact
Social Impact continues to be at the forefront of our decision-making
processes and is central to our business model. The independent Impact Report
prepared by The Good Economy for the six months ended 30 June 2023 provides an
independent assessment of our impact performance, based on an analysis of
quantitative data and evidence, as well as in-depth interviews with a range of
stakeholders. 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
Whilst capital markets remain challenging, our focus remains on the operating
performance of our portfolio which we expect to demonstrate continued
operational and valuation resilience. As a responsible investor, we are
proactive in managing the portfolio, working alongside housing providers to
identify and address risks in order to ensure the sustainability of our
investments over the long term.
We are well placed to continue to deliver on our return targets to investors.
We expect further strong rental growth, which helps to underpin the Group's
property valuations and increases income. This, combined with our long-term,
fixed-price debt means that we do not need to raise additional capital or
refinance to meet return expectations in the near term. By focusing on our
operational performance, we can ensure that over time, net assets and
distributions to investors increase whilst our gearing levels naturally
decline.
We are committed to addressing the performance of the Company's share price,
and to work to narrow the discount to prevailing Net Asset Value. The Group
continues to report strong operational and financial performance and we are
increasing our efforts to ensure our shareholders and the wider investment
community understand our compelling fundamentals. Further, we critically
consider capital allocation, recycling capital into what we evaluate to be
accretive investments.
On behalf of the Board, I would like to thank the Investment Manager and
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
6 September 2023
Notes:
1 See Notes 3 and 4 for further explanation.
INVESTMENT MANAGER'S REPORT
Specialised Supported Housing Market
Since the inception of the Company, there has never been a greater need for
private capital to help deliver Specialised Supported Housing. The government
estimates that demand for Supported Housing is expected to increase by 125,000
by 2030.(1) Demand continues to grow whilst Registered Providers face
challenges of high inflation and interest rates, at a time when there is
growing pressure to invest into their existing housing stock to meet the
latest energy efficiency and fire safety standards. There is growing
recognition by Registered Providers that private capital that takes a
long-term view of ownership and that can invest on flexible terms, has a vital
role to play in the delivery of Specialised Supported Housing. Registered
Providers working with experienced and pragmatic investors can form effective
partnerships and help deliver additional homes to individuals throughout the
UK.
We are seeing an unprecedented level of demand from Registered Providers
looking for funding partners to help them deliver development pipelines over
the coming months and years. This partnership approach is critical to
addressing the undersupply of Specialised Supported Housing, and is the
primary driver behind our partnership with Golden Lane with whom we are
working on a pipeline of projects, with the first one being in Chorley.
Leasing, Asset and Property Management
The six months ended 30 June 2023 have seen the Group deliver on a set of
initiatives that distinguish it from peers and demonstrate its commitment to
the sector. We were amongst the first within the sector to cap 2023 rent
increases in our leases at 7.0%, irrespective of the Specialised Supported
Housing rents' exclusion from the government's rent cap. This aims to ensure
that our Registered Provider tenants and the individuals living in our
properties are not put under undue financial pressure. In June, we commenced
the roll out of our new lease clause, which will help our Registered Provider
partners demonstrate to the Regulator of Social Housing that they have
accommodated concerns with regards to risk sharing in long leases. Finally, we
have recently commissioned the initial works in the roll-out of our
Eco-Retrofit programme, which will demonstrate a tenant-first approach in
ensuring that the Group's properties are compliant with energy efficiency
requirements, and that carbon emissions and utility bills of both our lessees,
and the individuals living in our properties, are minimised.
As well as benefiting the sector, our lessees and the residents, we believe
that taking a long-term approach to asset management decisions supports and
enhances shareholder value. Investing in energy efficiency will help to
preserve the value of the Group's portfolio. Rebalancing risk in existing
leases should promote the Regulatory compliance of the Group's lessees and
support the Group's portfolio performance and valuation. Capping rents helps
to ensure the long-term sustainability of the Group's rental income.
The benefit of this long-term approach is evidenced by a resilient set of
interim results. Against a backdrop of very challenging market conditions the
EPRA NTA has increased by 2.25 pence per share. Similarly, annualised
contracted rental income has increased from £39.0 million in the prior year
to £40.5 million in the current period.
Whilst the operating environment remains challenging, the majority of our
lessee partners continue to perform in line with expectations and we expect
the performance of the Group's lessees to demonstrate resilience in times of
economic uncertainty. Our lessees provide homes to individuals whom local
authorities have a statutory obligation to house and typically the relevant
local authority will meet the entirety of the cost of this housing. Combined
with the systemic undersupply of Specialised Supported Housing, this underpins
the income generated by our Registered Provider partners.
Our lessees' income is resilient, however, their costs have increased
significantly over the last two years. Whilst gas prices have calmed, our
lessees remain mindful of other cost pressures including repairs and
maintenance costs which continue to increase. It is important that the Group's
lessees manage this increase in their cost base whilst continuing to comply
with their maintenance obligations under the Group's leases.
New Lease Clause
As noted in our 2022 Annual Report, and having since received supportive
feedback from shareholders, our intention is to include a new clause in all
the Group's existing leases with Registered Providers. The aim of this clause
is to address some of the general risks raised by the Regulator in relation to
long leases and in so doing protect Registered Providers in the event policy
changes (i.e. factors beyond their control) reduce the amount of rent that
they are able to generate from a property or properties that they lease from
the Group.
The key terms of the clause are summarised below:
• Triggering of the clause is subject to a
materiality threshold measured against the aggregate value of the rental
income generated from the portfolio of leases that the Group has with the
relevant Registered Provider.
• Subject to the above trigger threshold being met,
the Registered Provider can approach the Group in relation to amending the
lease rent to allow for the occurrence of either of the circumstances below:
o A change in central government policy that negatively impacts the level of
rent that is applicable to Specialised Supported Housing or the exempt rent
status of Specialised Supported Housing; or
o A change in local government policy that impacts the commissioning of the
relevant property or properties.
In addition, the new clause provides for an increase in the annual rent
payable to the Group amounting to the lower of UK CPI (or RPI where
applicable), or the maximum rent increase allowed under prevailing policy to
the extent that it applies to Specialised Supported Housing rents. Using this
year's rent increases as an example of how this part of the clause would apply
in practice, under the terms of the lease, the Group would have been able to
increase its leases by CPI because the rent cap did not apply to Specialised
Supported Housing.
The clause has been approved by the Investment Manager's Investment Committee
and the Group's Board. It has been reviewed by the Group's valuers and the
valuers of the Group's lenders, both of whom have confirmed that they do not
expect the clause to have a detrimental impact on the valuation of the Group's
properties. The clause has also been shared with the Regulator of Social
Housing. The Group's lenders are also supportive of the inclusion of the
clause, understanding the benefit it should unlock for the Group's Registered
Providers.
We feel that the clause strikes the right balance between allowing Registered
Providers to mitigate risks over which they have limited or no control in a
way that should assist with their regulatory compliance, whilst not
fundamentally undermining the value of the Group's leases.
Eco-Retrofit
By 2030 all socially rented properties need to have an Energy Performance
Certificate ("EPC") rating of C or above. Currently 28.8% of the Group's
properties have an EPC rating of lower than C which compares favourably to the
social housing sector average of 43.1%. We are committed to protecting the
value of the Group's properties, reducing carbon emissions, and supporting our
lessees and the individuals living in the Group's properties.
We have started the pilot phase of an energy efficiency improvement initiative
which entails upgrading all of the Group's properties. Over the next 12 months
we will undertake works on 11 of the Group's properties that previously had
EPC ratings ranging from D to E and look to upgrade these to C or above. The
pilot project will enable us to learn how to conduct the works efficiently,
cost-effectively and in a way that causes minimum disruption to tenants. It
will enable us to form strong relationships with our key contractors and help
ensure the successful rollout of the wider project.
Housing creates a large carbon footprint when not managed and homes are at
increasing risk of impacts from climate change. Taking steps to manage these
challenges is a strategic commitment for the Group. We will continue to
publish our approach to managing climate risk and opportunity through the
framework of the Taskforce on Climate-related Financial Disclosure (TCFD), as
first provided in our 2022 Annual Report.
Portfolio Sale
As well as investing in the long-term value of the Group's portfolio, we have
also sought to evidence the portfolio's current valuation by selling a
portfolio of properties. Our objectives were to achieve a sale price that is
supportive of the Group's Net Asset Value, and demonstrate that there is
liquidity in the Specialised Supported Housing market. To achieve these aims,
we believed it was important not only to attain a good price, but that the
portfolio of properties sold was representative of the Group's wider
portfolio.
We are pleased to report that we have sold four properties post the period
end, for £7.6 million which is in line with the book value of the properties
of £7.9 million as at 30 June 2023. The sale price is reflective of a £0.7
million gain against the aggregate purchase price the Group paid for the
properties (excluding transaction costs). The portfolio properties were
located across four Local Authorities, leased to Inclusion Housing CIC and
Chrysalis Supported Association Ltd, and care was provided by four separate
care providers. The portfolio contained a mixture of adapted and new build
properties as well as individual and shared homes. Below, we have provided a
table comparing some of the key metrics of the portfolio of properties sold to
the Group's wider portfolio:
Sale Portfolio Group Portfolio
Properties 4 497
Residents 38 3,455
Average residents per property 9.5 7.0
Fair Market Value £7.9 million £675.1 million
Blended valuation yield 5.75% 5.69%
WAULT 19.3 years 24.8 years
We feel that the successful portfolio sale is supportive of the Group's Net
Asset Value, whilst also evidencing the continued investor demand for
Specialised Supported Housing properties. As noted in the Chair's Statement,
following consultation with shareholders over the coming weeks and with
consideration given to the Group's leverage position, the Board will determine
whether to return to shareholders a portion of these proceeds by way of
further share buybacks.
Registered Provider Update
There have been no material rent arrears in the period in the Group's
portfolio other than those that relate to My Space and Parasol as previously
reported. Progress has been made with both organisations since our last
update.
In August we agreed a creditor agreement with Parasol (9.2% of our Group
revenues) which sets a minimum level for monthly rent payments over the next
six months post the current interim period, with the stated intention that
payments will increase above this minimum level over time. At the end of the
six-month agreement, full rent becomes due again. If rent payments are not in
line with the terms of the creditor agreement, we have the ability to move
leases to a different Registered Provider and we have had constructive
discussions with potential alternative partners. We have informed the Group's
valuer, JLL, of the nature of this agreement and they have confirmed that it
will not have a material impact on the value of the Group's properties leased
to Parasol. We have a constructive relationship with the Chair and the CEO of
Parasol and will continue to engage with them and support them as they move
the organisation forward.
Similarly, we hope to agree a creditor agreement with My Space (7.7% of our
Group revenues) shortly. This agreement is required to enable My Space to
address its solvency position, and we expect it to cover both rent due going
forward and arrears. My Space has recently hired a new CEO and CFO and is in
the process of recruiting a COO. Simultaneously, new trustees are in the
process of being identified for the board, with a view to bolstering the level
of audit, financial and legal expertise. We are working with the new
management team as they look to put in place the creditor agreement and
consider options for the organisation including a possible business
combination or merger. Concurrently, we continue to engage with alternative
Registered Providers so that the Group's properties can be moved to an
alternative lessee should we be of the view that this is in the best interests
of residents and the sustainability of the Group's rental income. My Space
continues to engage with the Regulator of Social Housing in relation to the
Enforcement Notice issued earlier this year. My Space has undertaken a range
of actions as prescribed by the Regulator of Social Housing and provided an
initial response to all points raised in the notice.
The Regulator of Social Housing remains active in the sector. It continues to
monitor the Group's Registered Provider partners and in the first six months
of this year they issued Enforcement Notices in relation to My Space and
Auckland Home Solutions who account for 7.7% and 4.7% of the Group's rent
roll, respectively. Both notices were noted and commented on by the Group.
With regards to Auckland Home Solutions, the Regulator of Social Housing's
Enforcement Notice stated that three board members had been appointed to
Auckland's board and that Auckland must commission an independent review
focused on appraising governance, business planning, risk management and
compliance with the Rent Standard. Through our ongoing engagement with
Auckland Home Solutions we understand that the new board members have already
delivered improvements in governance and that the independent review has been
commissioned and is underway.
Financial Review
We are pleased to present resilient financial results for the six months ended
30 June 2023 as highlighted earlier. The Group's financial performance is
underpinned by increases in annualised rental income from its CPI and
RPI-linked leases.(2) We expect dividend cover to increase during the second
half of the year now that a creditor agreement is in place with Parasol, and
we similarly hope to agree a creditor agreement with My Space shortly.
Key highlights:
• The annualised contracted rental income of the
Group was £40.5 million as at 30 June 2023, compared to £39.0 million on 31
December 2022. IFRS Gross Revenue for the period was £19.6 million compared
to £18.2 million for the six months ended 30 June 2022.
• A fair value gain of £5.9 million was recognised
during the period on the revaluation of the Group's properties compared to
£17.1 million for the same period in 2022.
• The EPRA NIY has increased from 5.46% at 31
December 2022 to 5.65% at 30 June 2023 following the rental uplifts in the
period.
• IFRS Earnings per Share was 3.65 pence for the
period, compared to 6.19 pence for the same period in 2022. The reduction was
largely driven by a lower gain from fair value adjustment on investment
properties being recognised than in the prior year. The ECL adjustment in the
six months ended 30 June 2023 also had a negative impact on net profit.
• The EPRA Earnings per Share ("EPRA EPS") excludes
the fair value gain on investment properties and is measured on the weighted
average number of shares in issue during the period. EPRA EPS was 2.18 pence
for the period compared to 2.43 pence for the same period in 2022.
• 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 2.21 pence per
share for the six months to 30 June 2023, compared to 2.57 pence for the same
period in 2022.
• The EPRA NTA per share at 30 June 2023 was 111.31
pence per share, the same as the IFRS NAV per share, compared to 109.06 pence
as at 31 December 2022.
• At the period end, the portfolio was valued at
£675.1 million on an IFRS basis compared to £669.1 million at 31 December
2022, reflecting a valuation uplift of 12.2% against the portfolio's aggregate
purchase price (including acquisition costs). This reflects an EPRA net
initial yield of 5.65%, against the portfolio's blended net initial yield of
5.91% at the point of acquisition. This equates to a yield compression of 26
basis points, reflecting the quality of the Group's asset selection and
off-market acquisition process.
• The EPRA ongoing charges ratio is calculated as a
percentage of the average net asset value for the period under review. The
ongoing charges ratio for the period was 1.63% compared to 1.60% for the year
ended 31 December 2022. The increase is primarily due to the impact of
inflation on the Group's cost base.
• The Group held cash and cash equivalents of £23.8
million as at 30 June 2023, of which £0.4 million was restricted or
ring-fenced, compared to £30.1 million as at 31 December 2022, of which £0.4
million was restricted or ring fenced, leaving available cash of £23.4
million as at 30 June 2023.
Property Portfolio
As at 30 June 2023, the portfolio comprised 497 properties with 3,455 units
and represented a broad geographic diversification across the UK. The four
largest concentrated areas by market value were the North West (19.8%), West
Midlands (16.9%), Yorkshire (14.6%) and East Midlands (12.0%). The IFRS value
of the portfolio at 30 June 2023 was £675.1 million compared to £669.1
million at 31 December 2022, growth of 0.9% during the period.
Rental Income
In total, the Group had 394 leases which at the period end, generated total
annualised contracted rental income of £40.5 million. During the period IFRS
Revenue was £19.6 million compared to £18.2 million for the same period in
2022.
At the period end, the Group's three largest Approved Providers by rental
income and units were Inclusion (£12.2 million and 944 units), Parasol Homes
(£3.7 million and 246 units) and Falcon (£3.5 million and 304 units).
As at 30 June 2023, the portfolio had a WAULT of 24.8 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. Notwithstanding the Group's recent change to its investment policy to
remove the minimum lease 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 (92.4%) or RPI (7.6%). These inflation linkages
provide the Group and its investors with the comfort that the rental income
will generally increase in line with inflation.
Some leases 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. These account for 7.9% of the Group's leases. A small
portion of the Group's leases (4.9% 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. Despite the high levels of inflation
that are currently being experienced and are projected in the short term in
the UK, JLL's inflation assumptions remain unchanged from previous periods
given the Group's long-term outlook, with a WAULT and contracted income
streams of 24.8 years.
Rent collection during the period was 88.1% and a full update on rent arrears
is included in the Registered Provider Update section above.
Outlook
We expect to commence our first forward funding project since the completion
of our last development in March 2021. This should see the Group fund the
development of 12 adapted flats for people with learning disabilities in
Chorley. The property will be leased on flexible lease terms to Golden Lane, a
Registered Provider with a regulatory compliance rating of G1 V2 and one of
the leading providers in the Specialised Supported Housing sector. We are
pleased to have been chosen by Golden Lane as their partner on this project
which is testament to the approach we take to investment in the Specialised
Supported Housing sector.
We expect the majority of our lessees to continue to operate in line with
historical performance. Our Housing Team takes a granular and proactive
approach to asset management, focused on the underlying operational
performance of the Group's 493 properties. In addition, at an organisational
level, our team will support our Approved Provider management teams as they
continue to tackle the challenges posed by inflation. We will actively monitor
performance at My Space and Parasol to support progress on rent collection and
planned organisational improvements.
Whilst dividend cover was lower than historical levels in the first six months
of the year, we expect cover to improve in the latter half of the year given
the plan that is now in place with Parasol and the plan we hope to shortly
agree with My Space, and as annual rent increases partially offset previously
reported reductions in rent collection. Over the medium to long-term we expect
there to be a high level of dividend cover due to the inflation-linked nature
of the Group's income streams and advantageous capital structure which
includes £263.5 million of long-term, fixed-price debt with a blended cost of
2.74%.
By the end of the year, we plan to have included our new lease clause in all
the Group's existing Registered Provider leases, thereby enabling the Boards
of our lessees to demonstrate to the Regulator of Social Housing that they
have made tangible progress in terms of addressing some of the Regulator's
stated concerns around the balance of risk sharing in long-term leases.
Similarly, we expect to have made good progress on our Eco-Retrofit pilot
programme, with a view to gaining invaluable learnings in relation to the
wider project whilst beginning to improve the energy efficiency of the Group's
portfolio.
Through these initiatives the Group is well positioned for resilient
operational and financial performance, whilst demonstrating how, as a
landlord, the Group can help to move the sector forward by addressing historic
regulatory concerns, getting ahead of future requirements around energy
efficiency and delivering new, much needed homes to people with care and
support needs in partnership with leading Registered Providers.
Max Shenkman
Head of Investment
6 September 2023
Notes:
1 Department of Health and Social Care policy paper, People at the Heart of
Care: adult social care reform, March 2022.
2 4.9% of our leases are capped (excluding the temporary rent cap at 7%
applied to the Group's rent increases for the year of 2023).
PORTFOLIO SUMMARY
By Location
Region Properties* % of Funds Invested**
North West 99 19.8
West Midlands 84 16.3
Yorkshire 64 14.8
East Midlands 58 11.9
South East 62 9.4
North East 50 9.0
London 27 8.5
South West 29 4.7
East 20 4.1
Scotland 2 1.0
Wales 2 0.5
Total 497 100.0
*including assets held for sale
**calculated excluding acquisition costs
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 period 1 January 2023 to 30 June 2023. respect of the period 1 April 2023 to 30 June 2023, which will be payable on
or around 29 September 2023. Total dividends paid and declared for the period
are in line with the Company's target.
Further information is set out in Note 16.
(30 June 2022: 2.73 pence)
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 111.31 pence per share as at 30 June 2023. 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 2022: 109.06 pence per share) This represents an increase of 13.6% since IPO driven primarily by yield
Further information is set out in Note 3 of the Unaudited Performance compression at acquisition and subsequent annual rental uplifts.
Measures.
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. 37.5% LTV as at 30 June 2023. 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 2022: 37.4% LTV)
Further information is set out in Note 14.
4. EPRA Earnings per Share
EPRA Earnings per share (EPRA EPS) excludes gains from fair value adjustment A measure of a Group's underlying operating results and an indication of the 2.18 pence per share for the six months ended 30 June 2023, based on earnings EPRA EPS reduced slightly reflecting the increase in ECL in the current
on investment properties that are included in the calculation of the IFRS extent to which current dividend payments are supported by earnings. excluding the fair value gain on investment properties and the write off of period.
Earnings per share. arrangement fees relating to the cancelled RCF, calculated on the weighted
average number of shares in issue during the period.
Further information is set out in Note 21.
(30 June 2022: 2.43 pence)
5. Adjusted Earnings per Share
Adjusted earnings per share includes adjustment for non-cash items. The A key measure which reflects actual cash flows supporting dividend payments. 2.21 pence per share for the six months ended 30 June 2023, based on earnings This demonstrates the Company's ability to meet dividend payments from net
calculation is shown in Note 21. after deducting the fair value gain on properties, and amortisation and cash inflows. It represents a dividend cover for the six months ended 30 June
write-off of loan arrangement fees; calculated on the weighted average number 2023 of 0.81x.
of shares in issue during the year.
(30 June 2022: 2.57 pence)
6. Weighted Average Unexpired Lease Term (WAULT)
The average unexpired lease term of the investment portfolio, weighted by The WAULT is a key measure of the quality of our portfolio. Long lease terms 24.8 years as at 30 June 2023 (includes put and call options). As at 30 June 2023, the portfolio's WAULT stood at 24.8 years.
annual passing rents. underpin the security of our income stream.
(31 December 2022: 25.3 years)
Further information is set out in the Investment Manager's Report.
7. Exposure to Largest Approved Provider
The percentage of the Group's gross assets that are leased to the single The exposure to the largest Approved Provider must be monitored to ensure that 30.1% of Gross Asset Value as at 30 June 2023. Our maximum exposure limit is 30% of GAV.
largest Approved Provider. we are not overly exposed to one Approved Provider in the event of a default
scenario.
(31 December 2022: 29.5%) 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 completion of the portfolio sale.
8. Total Return
Change in EPRA NTA plus total dividends paid during the period. The Total Return measure highlights the gross return to investors including EPRA NTA per share was 111.31 pence as at 30 June 2023. The EPRA NTA per share at 30 June 2023 was 111.31 pence. Adding back dividends
dividends paid since the prior year.
paid during the period of 2.73 pence per Ordinary Share to the EPRA NTA at 30
June 2023 results in an increase of 4.57%.
Total dividends paid during the period ended 30 June 2023 were 2.73 pence per
share.
The Total Return since the IPO is 42.47% at 30 June 2023.
Total return was 4.57% for the six months ended 30 June 2023.
(30 June 2022: 5.71%)
EPRA PERFORMANCE MEASURES
The table below 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 Note 21 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 are included in the
Unaudited Performance Measures section.
KPI AND DEFINITION PURPOSE PERFORMANCE
1. EPRA Earnings per share
EPRA Earnings per share excludes gains from fair value adjustment on A measure of the Group's underlying operating results and an indication of the 2.18 pence per share for the six months ended 30 June 2023.
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 2022: 2.43 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. £479.6 million / 121.90 pence per share as at 30 June 2023.
£480.6 million / 119.31 pence per share as at 31 December 2022.
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 £438.0 million / 111.31 pence per share as at 30 June 2023.
other adjustments applicable to the Group under the REIT regime. certain levels of deferred tax liability.
£439.3 million / 109.06 pence per share as at 31 December 2022.
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 £514.6 million / 130.79 pence per share as at 30 June 2023.
and certain other adjustments are calculated as to the full extent of their held until maturity.
liability.
£510.1 million / 126.63 pence per share as at 31 December 2022.
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 5.65% at 30 June 2023.
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.
5.46% at 31 December 2022.
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 5.68% at 30 June 2023.
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 2023.
discounted rent periods and step rents).
5.51% at 31 December 2022.
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 0.34% at 30 June 2023.
whole portfolio. on ERV.
0.00% at 31 December 2022.
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 20.13% at 30 June 2023.
vacancy) divided by gross rental income. operating costs.
21.09% at 31 December 2022.
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 67 to 71 of our 2022 Annual Report were unchanged during
the period and will remain unchanged for the remaining six months of the
financial year.
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.
DIRECTORS' RESPONSIBILITY STATEMENT
The Directors confirm that to the best of their knowledge this condensed set
of financial statements has been prepared in accordance with UK-adopted
International Accounting Standard (IAS) 34 and that the operating and
financial review 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 first six months of the financial year 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 first six
months of the financial year as disclosed in Note 18 and any material changes
in the related party transactions disclosed in the 2022 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
6 September 2023
GROUP FINANCIAL STATEMENTS
CONDENSED GROUP STATEMENT OF COMPREHENSIVE INCOME
For the six months ended 30 June 2023
For the six months ended 30 June 2023 For the six months ended 30 June 2022 For the year ended 31 December 2022
(unaudited) (unaudited) (audited)
Note £'000 £'000 £'000
Income
Rental income 4 19,576 18,208 37,300
Expected credit loss 4 (3,157) (474) (2,073)
Other income - 110 110
Total income 16,419 17,844 35,337
Expenses
Directors' remuneration (156) (151) (308)
General and administrative expenses (1,446) (1,361) (2,854)
Management fees 5 (2,339) (2,362) (4,704)
Total expenses (3,941) (3,874) (7,866)
Gain from fair value adjustment on investment properties 8 5,886 17,120 8,264
Operating profit 18,364 31,090 35,735
Finance income 29 16 56
Finance costs 6 (3,777) (6,178) (10,889)
Profit before tax 14,616 24,928 24,902
Taxation 7 - - -
Profit and total comprehensive income 14,616 24,928 24,902
IFRS Earnings per share - basic and diluted 21 3.65p 6.19p 6.18p
CONDENSED GROUP STATEMENT OF FINANCIAL POSITION
As at 30 June 2023
30 June 2023 30 June 2022 31 December 2022
Note (unaudited) (unaudited) (audited)
£'000 £'000 £'000
Assets
Non-current assets
Investment properties 8 665,422 668,348 667,713
Trade and other receivables 9 3,042 2,607 2,889
Total non-current assets 668,464 670,955 670,602
Current assets
Assets held for sale 7,871 640 -
Trade and other receivables 10 3,063 3,589 4,272
Cash, cash equivalents and restricted cash 11 23,843 41,636 30,139
Total current assets 34,777 45,865 34,411
Total assets 703,241 716,820 705,013
Liabilities
Current liabilities
Trade and other payables 12 2,556 3,944 3,120
Total current liabilities 2,556 3,944 3,120
Non-current liabilities
Other payables 13 1,522 1,518 1,520
Bank and other borrowings 14 261,178 261,051 261,088
Total non-current liabilities 262,700 262,569 262,608
Total liabilities 265,256 266,513 265,728
Total net assets 437,985 450,307 439,285
Equity
Share capital 15 3,940 4,033 4,033
Share premium reserve 203,753 203,753 203,753
Treasury shares reserve (378) (378) (378)
Capital redemption reserve 15 93 - -
Capital reduction reserve 15 155,359 160,394 160,394
Retained earnings 75,218 82,505 71,483
Total Equity 437,985 450,307 439,285
IFRS Net asset value per share - basic and diluted 22 111.31p 111.80p 109.06p
The Condensed Group Financial Statements were approved and authorised for
issue by the Board on 6 September 2023 and signed on its behalf by:
Chris Phillips
Chair
6 September 2023
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY
For the six months ended 30 June 2023
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 16 - - - - - (10,881) (10,881)
Shares repurchased 15 (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 six months ended 30 June 2022 (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 2022 4,033 203,753 (378) - 160,394 68,311 436,113
Profit and total comprehensive income for the period - - - - - 24,928 24,928
Transactions with owners
Dividends paid 16 - - - - - (10,734)
(10,734)
Balance at 30 June 2022 (unaudited) 4,033 203,753 (378) - 160,394 82,505 450,307
For the year ended 31 December 2022 (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 2022 4,033 203,753 (378) - 160,394 68,311 436,113
Profit and total comprehensive income for the period - - - - 24,902 24,902
-
Transactions with owners
Dividends paid 16 - - - - - (21,730) (21,730)
Balance at 31 December 2022 (audited) 4,033 203,753 (378) - 160,394 71,483 439,285
CONDENSED GROUP STATEMENT OF CASH FLOWS
For the six months ended 30 June 2023
For the six months ended 30 June 2023 For the six months ended 30 June 2022 For the year ended 31 December 2022
(unaudited) (unaudited) (audited)
Note £'000 £'000 £'000
Cash flows from operating activities
Profit before income tax 14,616 24,928 24,902
Adjustments for:
Expected Credit Loss 3,157 474 2,073
Gain from fair value adjustment on investment properties 8 (5,886) (17,120) (8,264)
Finance income (29) (16) (56)
Finance costs 6 3,777 6,178 10,889
Operating results before working capital changes 15,635 14,444 29,544
Increase in trade and other receivables (2,101) (710) (4,127)
(Decrease)/increase in trade and other payables (402) (294) 280
Net cash generated from operating activities 13,132 13,440 25,697
Cash flows from investing activities
Purchase of investment properties 147 (10,962) (20,611)
Disposal proceeds from sale of assets - 1,480 2,120
Restricted cash - released - - 133
Restricted cash - paid - - (5)
Interest received 7 - 18
Net cash generated from/(used in) investing activities 154 (9,482) (18,345)
Cash flows from financing activities
Ordinary Shares repurchased (5,035) - -
Loan arrangement fees paid (52) (444) (599)
Dividends paid 16 (10,881) (10,734) (21,730)
Interest paid (3,614) (3,614) (7,226)
Net cash used in financing activities (19,582) (14,792) (29,555)
Net decrease in cash and cash equivalents (6,296) (10,834) (22,203)
Cash and cash equivalents at the beginning of the period 29,696 51,899 51,899
Cash and cash equivalents at the end of the period 11 23,400 41,065 29,696
NOTES TO THE CONDENSED GROUP INTERIM FINANCIAL STATEMENTS (UNAUDITED)
For the six months ended 30 June 2023
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 1 King William Street, London, United
Kingdom, EC4N 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 2023 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 2022
Annual Report.
The comparative figures for the financial year ended 31 December 2022
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 2023 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 2022 annual
financial statements and are expected to be consistently applied during the
year ending 31 December 2023. 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 show the expected
annualised rental income exceeds the expected operating costs of the Group.
88.1% of rental income due and payable for the six months ended 30 June 2023
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 stable 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. TP REIT Propco 5 Limited's
Revolving Credit Facility (RCF) with Lloyds and Natwest was cancelled in
December 2022. Prior to cancellation the facility was undrawn.
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 2023 x2.77 x2.04
Blended Net initial yield 5.60% 5.85%
Headroom (yield movement) 201bps 120bps
Interest Cover Ratio (ICR)
Interest Cover Ratio Covenant 1.75x 1.75x
Interest Cover Ratio at 30 June 2023 4.42x 4.07x
Headroom (rental income movement) 60% 51%
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 10.1 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 2023. The comparative periods are the six months
ended 30 June 2022 and the year ended 31 December 2022.
2.3 Currency
The Group's financial information is presented in Sterling which is also the
Group's functional currency.
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 2022, 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 £3.2 million in the
current period (30 June 2022 - £0.5 million, 31 Dec 2022 - £2.1 million)
resulting in a total ECL provision of £5.2 million as at 30 June 2023 (30
June 2022 - £0.5 million, 31 Dec 2022 - £2.1 million) which relates to
rental arrears for two of the Group's Approved Providers. A default
probability for each of the two Approved Providers, representing the estimated
percentage likelihood of them paying outstanding rent due at 30 June 2023, was
determined based on their latest known financial position and any repayment
plans that had been agreed or discussed. For each provider the estimated
percentage probability of receiving unpaid rent has been multiplied by the
rental arrears as at the statement of financial position date. These two
figures have been aggregated to arrive at the ECL provision.
4. RENTAL INCOME
For the six months ended 30 June 2023 For the six months ended 30 June 2022 For the year ended 31 December 2022
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Rental income - freehold assets 18,415 17,131 35,087
Rental income - leasehold assets 1,161 1,077 2,213
19,576 18,208 37,300
Expected credit loss (3,157) (474) (2,073)
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 expected loss rates are based on the Group's credit losses which started
to occur during the year ended 31 December 2022 for the first time since IPO.
The expected loss rates are then adjusted for current and forward-looking
information affecting the Group's tenants. The ECL provision during the period
of £3.2 million includes £1.0 million relating to unpaid rent for the year
ended 31 December 2022 reflecting the increase in the expected credit loss
from the continued partial non-payment of rent due by two of the Group's
tenants.
5. MANAGEMENT FEES
For the six months ended 30 June 2023 For the six months ended 30 June 2022 For the year ended 31 December 2022
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Management fees 2,339 2,362 4,704
2,339 2,362 4,704
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 £2,339,000 were chargeable by TPIM during the six months
ended 30 June 2023 (six months ended 30 June 2022 - £2,362,000, year ended 31
December 2022 - £4,704,000). At the period end, £1,156,000 was due to TPIM
(30 June 2022 - £1,187,000, 31 December 2022 - £1,159,000).
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 2023 For the six months ended 30 June 2022 For the year ended 31 December 2022
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Interest payable on bank borrowings 3,609 3,609 7,218
Amortisation of loan arrangement fees 141 562 1,006
Written off loan arrangement fees - 1,986 2,619
Head lease interest expense 22 15 37
Total finance cost for financial liabilities not held at fair value through 3,772 6,172 10,880
profit or loss
Bank charges 5 6 9
Total finance costs 3,777 6,178 10,889
Written off loan arrangement fees relate to the Lloyds and NatWest loan
facility that was reduced and subsequently cancelled during the year ended 31
December 2022, all remaining unamortised loan arrangement fees were written
off.
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 2023, 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 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*** (7,871)
As at 30 June 2023 (unaudited) 665,422
As at 1 January 2022 641,293
Acquisitions and additions* 11,543
Fair value adjustment** 24,085
Movement in head lease ground rent liability (4)
Disposals - (7,075)
Reclassified to assets held for sale (1,494)
As at 30 June 2022 (unaudited) 668,348
As at 1 January 2022 641,293
Acquisitions and additions* 19,752
Fair value adjustment** 15,239
Movement in head lease ground rent liability (2)
Disposals (8,569)
As at 31 December 2022 (audited) 667,713
*Additions in the table above differs to the total investment cost of new
properties in the period in the front end due to retentions no longer payable
which were credited to Investment Property additions.
**Gain from fair value adjustment on investment properties in the condensed
Group statement of comprehensive income is net of the loss from fair value
adjustment on assets held for sale of £nil (six months ended 30 June 2022-
£0.87 million, year ended 31 December 2022 - £0.88 million) and loss on
disposal of assets of £nil (six months ended 30 June 2022- loss of £6.1
million, year ended 31 December 2022 - loss of £6.1 million).
***4 Assets with fair value of £7.87 million have been reclassified as assets
held for sale during the period. See note 19 for further details.
Reconciliation to independent valuation:
30 June 2023 30 June 2022 31 December 2022
£'000 £'000 £'000
Investment property valuation 667,237 669,574 669,077
Fair value adjustment - head lease ground rent 1,462 1,458 1,460
Fair value adjustment - lease incentive debtor (3,277) (2,684) (2,824)
665,422 668,348 667,713
The carrying value of leasehold properties at 30 June 2023 was £40.8 million
(30 June 2022 - £36.0 million, 31 December 2022 - £40.1 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
The metrics below are in relation to the total investment property portfolio
held by the Group, including assets held for sale.
Portfolio Metrics 30 June 2023 30 June 2022 31 December 2022
Capital Deployed (£'000)* 581,735 573,517 581,647
Number of Properties*** 497 493 497
Number of Tenancies 394 391 395
Number of Approved Providers 27 26 27
Number of Local Authorities 153 151 153
Number of Care Providers 123 121 123
Average NIY** 5.69% 5.28% 5.49%
*calculated excluding acquisition costs
**calculated using IAS 40 valuations (excluding forward funding acquisitions)
***4 out of these 497 properties are classified as assets held for sale at 30
June 2023
Regional exposure
30 June 2023 30 June 2022 31 December 2022
Region *Cost £'000 % of funds invested *Cost £'000 % of funds invested *Cost £'000 % of funds invested
North West 115,063 19.8 115,042 20.1 115,042 19.8
West Midlands 94,760 16.3 92,794 16.2 94,790 16.3
Yorkshire 86,293 14.8 85,021 14.8 86,293 14.8
East Midlands 69,429 11.9 64,589 11.3 69,429 11.9
South East 54,848 9.4 54,799 9.6 54,799 9.4
North East 51,986 9.0 51,988 9.1 51,986 9.0
London 49,626 8.5 49,555 8.6 49,579 8.5
South West 27,466 4.7 27,466 4.8 27,466 4.7
East 23,704 4.1 23,703 4.1 23,703 4.1
Scotland 5,900 1.0 5,900 1.0 5,900 1.0
Wales 2,660 0.5 2,660 0.4 2,660 0.5
Total 581,735 100.0 573,517 100.0 581,647 100.0
*excluding acquisition costs
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 2023 665,422 - - 665,422
Investment properties
Investment properties 30 June 2022 668,348 - - 668,348
Investment properties 31 December 2022 667,713 - - 667,713
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.
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
7.20% (30 June 2022 - 6.63%, 31 December 2022 - 6.82%).
The range of discount rates used in the Group's property portfolio valuation
is from 6.5% to 9.8%. (30 June 2022 - 6.2% to 8.1%, 31 December 2022 - 6.2% to
8.6%).
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 30 June 2022 42,290 (38,417) 21,597 (20,635)
Changes in the IFRS fair value of investment properties as at 31 December 2022 40,552 (36,941) 21,037 (20,207)
The valuations have not been influenced by climate related factors due to
there being little measurable impact on inputs at present.
9. TRADE AND OTHER RECEIVABLES (non-current)
30 June 2023 (unaudited) 30 June 2022 (unaudited) 31 December 2022 (audited)
£'000 £'000 £'000
Lease incentive debtor 2,876 2,430 2,717
Other receivables 166 177 172
3,042 2,607 2,889
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.
10. TRADE AND OTHER RECEIVABLES (current)
30 June 2023 (unaudited) 30 June 2022 (unaudited) 31 December 2022 (audited)
£'000 £'000 £'000
Rent receivable 2,184 2,334 3,209
Lease incentive debtor 401 254 107
Prepayments 117 831 174
Other receivables 361 170 782
3,063 3,589 4,272
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.
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 £3.157 million (30 June 2022 - £0.474
million, 31 December 2022 - £2.073 million) were charged to the Statement of
Comprehensive Income in the period.
11. CASH, CASH EQUIVALENTS AND RESTRICTED CASH
30 June 2023 30 June 2022 31 December 2022
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Cash at bank 23,370 39,927 29,152
Restricted cash 443 571 443
Cash held by lawyers 30 43 544
Ring-fenced cash - 1,095 -
23,843 41,636 30,139
Cash held by lawyers is money held in escrow for retention releases and SDLT
reclaimed from HMRC. These funds are available immediately on demand.
Restricted cash represents retention money (held by lawyers only) in relation
to repair, maintenance and improvement works by the vendors to bring the
properties up to satisfactory standards for the Group and the tenants. The
cash is committed on the acquisition of the properties. It also includes funds
held in an escrow account in relation to the lease transferred in 2020.
30 June 2023 30 June 2022 31 December 2022
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Total cash, cash equivalents and restricted cash 23,843 41,636 30,139
Restricted cash (443) (571) (443)
Cash reported on Statement of Cash Flows 23,400 41,065 29,696
12. TRADE AND OTHER PAYABLES
30 June 2023 (unaudited) 30 June 2022 (unaudited) 31 December 2022 (audited)
£'000 £'000 £'000
Trade payables 36 25 37
Accruals 1,982 1,930 2,014
Head lease ground rent 40 40 40
Other creditors 498 1,949 1,029
2,556 3,944 3,120
The Other Creditors balance consists of retentions due on completion of
outstanding works and on the rebate of SDLT refunds. 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.
13. OTHER PAYABLES
30 June 2023 (unaudited) 30 June 2022 (unaudited) 31 December 2022 (audited)
£'000 £'000 £'000
Head lease ground rent 1,422 1,418 1,420
Rent deposit 100 100 100
1,522 1,518 1,520
14. BANK AND OTHER BORROWINGS
30 June 2023 (unaudited) 30 June 2022 (unaudited) 31 December 2022 (audited)
£'000 £'000 £'000
Bank and other borrowings drawn at period end 263,500 263,500 263,500
Unamortised costs at beginning of period (2,411) (4,798) (4,798)
Less: loan issue costs incurred (52) (30) (131)
Add: loan issue costs written off - 2,085 2,085
Add: loan issue costs amortised 141 294 433
Unamortised costs at period end (2,322) (2,449) (2,412)
Balance at period end 261,178 261,051 261,088
The amortisation of loan arrangement fees in note 6 differs to the amounts in
the table above as the latter excludes amounts in relation to the undrawn
cancelled RCF which amount to £nil (six months ended 30 June 2022 - £268k,
year ended 31 December 2022 - £573k).
At 30 June 2023 there were undrawn bank borrowings of £nil (30 June 2022 -
£50 million, 31 December 2022 - £nil).
As at 30 June 2023, 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 million long dated, fixed rate, interest only
sustainability-linked loan notes through a private placement with MetLife
Investment Management clients and Barings.
The Group also had access to £50 million Revolving Credit Facility (RCF) with
Lloyds and NatWest during the prior year which was cancelled in December 2022.
Prior to being cancelled, the facility was undrawn.
Loan Notes
The Loan Notes of £68.5 million are secured against a portfolio of specialist
supported housing assets throughout the UK, worth approximately £187.8
million (30 June 2022 - £193 million, 31 December 2022 - £189 million). The
Loan Notes represent 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 2.94% 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 2023, the Loan Notes have been independently valued at
£54.1 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 4.723% 2028 Gilt (Tranche A) and Treasury 4.314% 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 million which
enabled the Group to refinance the full £130 million previously drawn under
its £160 million RCF with Lloyds and Natwest. The Loan Notes are secured
against a portfolio of specialist supported housing assets throughout the UK,
worth approximately £397.5 million. The Loan Notes represent 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 2023, the Loan
Notes have been independently valued at £130.5 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 4.383% 2031
Gilt (Tranche A) and Treasury 4.425% 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.
Undrawn committed bank facilities - maturity profile
Total < 1 year 1 to 2 3 to 5 > 5
years years years
£'000 £'000 £'000 £'000 £'000
At 30 June 2023 - - - - -
At 30 June 2022 50,000 - 50,000 - -
At 31 December 2022 - - - - -
15. CAPITAL REDUCTION RESERVE
30 June 2023 (unaudited) 30 June 2022 (unaudited) 31 December 2022 (audited)
£'000 £'000 £'000
Balance at beginning of period 160,394 160,394 160,394
Share buybacks (5,035) - -
Balance at end of period 155,359 160,394 160,394
The capital reduction reserve is a distributable reserve that was created on
the cancellation of share premium.
Between 19 April 2023 and 12 June 2023 the Company repurchased 9,322,512
shares at an average price of 52.6 pence per share.
CAPITAL REDEMPTION RESERVE
30 June 2023 (unaudited) 30 June 2022 (unaudited) 31 December 2022 (audited)
£'000 £'000 £'000
Original share repurchased & cancelled 93 - -
Balance at end of period 93 - -
The Capital Redemption Reserve is the nominal value of the shares cancelled
from the share buybacks.
16. DIVIDENDS
For the six months ended 30 June 2023 For the six months ended 30 June 2022 For the year ended 31 December 2022
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
1.3p for the 3 months to 31 December 2021 paid on 25 March 2022 - 5,236 5,236
1.365p for the 3 months to 31 March 2022 paid on 24 June 2022 - 5,498 5,498
1.365p for the 3 months to 30 June 2022 paid on 30 September 2022 - - 5,498
1.365p for the 3 months to 30 September 2022 paid on 16 December 2022 - - 5,498
1.365p for the 3 months to 31 December 2022 paid on 29 March 2023 5,498 - -
1.365p for the 3 months to 31 March 2023 paid on 30 June 2023 5,383 - -
10,881 10,734 21,730
On 6 September 2023 the Company declared an interim dividend of 1.365 pence
per Ordinary Share for the period 1 April 2023 to 30 June 2023. The total
dividend of £5,370,000 will be paid on 29 September 2023 to Ordinary
shareholders on the register on 15 September 2023.
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.
17. 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 2022 Annual Report.
18. RELATED PARTY DISCLOSURE
Directors
Cecily Davis was appointed as a new director on 23 May 2023 and Paul Oliver
resigned as a director on 30 June 2023. 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 2022 -
£75,000, 31 December 2022 - £75,000), and the other Directors of the Board
receive a fee of £50,000 (30 June 2022 - £50,000, 31 December 2022 -
£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 2022 nor in the
current period.
Dividends of the following amounts were paid to the Directors during the
period:
Chris Phillips: £1,498 (30 June 2022 - £1,462, 31 December 2022 - £2,960)
Peter Coward: £2,186 (30 June 2022 - £2,103, 31 December 2022 - £4,266)
Paul Oliver: £2,129 (30 June 2022 - £2,078, 31 December 2022 - £4,206)
Tracey Fletcher-Ray: £1,030 (30 June 2022 - £1,006, 31 December 2022 - £2,036)
No shares were held by Cecily Davis & Ian Reeves as at 30 June 2023 (31
December 2022 and 30 June 2022: nil).
19. POST BALANCE SHEET EVENTS
Sale of assets held for sale
On 31 August 2023, the Company sold the assets held for sale for consideration
of £7,586,600, resulting in a loss of £284,000 on valuation as at the
financial position date.
Creditor Agreement
In August we agreed a creditor agreement with Parasol (9.2% of our Group
revenues) which sets a minimum level for monthly rent payments over the next
six months post the current interim period. At the end of the six-month
agreement, full rent becomes due again.
Dividends
On 6 September 2023, the Company declared an interim dividend of 1.365 pence
per Ordinary Share for the period 1 April 2023 to 30 June 2023. The total
dividend of £5,370,000 will be paid on 29 September 2023 to Ordinary
shareholders on the register on 15 September 2023.
20. CAPITAL COMMITMENTS
The Group does not have capital commitments in both the prior year and the
current period.
21. 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 2023 For the six months ended 30 June 2022 For the year ended 31 December 2022
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Calculation of Basic Earnings per share
Net profit attributable to ordinary shareholders (£'000) 14,616 24,928 24,902
Weighted average number of ordinary shares (including treasury shares) 400,608,159 402,789,002 402,789,002
IFRS Earnings per share - basic and diluted 3.65p 6.19p 6.18p
Calculation of EPRA Earnings per share
For the six months ended 30 June 2023 For the six months ended 30 June 2022 For the year ended 31 December 2022
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Net profit attributable to ordinary shareholders (£'000) 14,616 24,928 24,902
Changes in value of fair value of investment properties (£'000) (5,886) (17,120) (8,264)
One-off write-off of loan arrangement fees on cancelled RCF (£'000) - 1,986 2,619
EPRA earnings (£'000) 8,730 9,794 19,257
Non cash adjustments to include:
Amortisation of loan arrangement fees (£'000) 141 562 1,006
Adjusted earnings (£'000) 8,871 10,356 20,263
Weighted average number of ordinary shares (including treasury shares) 400,608,159 402,789,002 402,789,002
EPRA Earnings per share - basic and diluted 2.18p 2.43p 4.78p
Adjusted earnings per share - basic and diluted 2.21p 2.57p 5.03p
Adjusted earnings is a performance measure used by the Board to assess the
Group's dividend payments. The metric adjusts EPRA earnings for the
amortisation of loan arrangement fees. The Board sees this adjustment 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.
22. 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 2023 30 June 2022 31 December 2022
(unaudited) (unaudited) (audited)
Net assets at end of period (£'000) 437,985 450,307 439,285
Shares in issue at end of period (excluding shares held in treasury) 393,466,490 402,789,002 402,789,002
IFRS NAV per share - basic and dilutive 111.31p 111.80p 109.06p
23. UNAUDITED PERFORMANCE MEASURES
1. EPRA Net Reinstatement Value
30 June 2023 30 June 2022 31 December 2022
IFRS NAV/EPRA NAV (£'000) 437,985 450,307 439,285
Include:
Real Estate Transfer Tax* (£'000) 41,638 41,361 41,283
EPRA Net Reinstatement Value (£'000) 479,623 491,668 480,568
Fully diluted number of shares 393,466,490 402,789,002 402,789,002
EPRA Net Reinstatement value per share 121.90p 122.07p 119.31p
* Purchaser's costs
2. EPRA Net Disposal Value
30 June 2023 30 June 2022 31 December 2022
IFRS NAV/EPRA NAV (£'000) 437,985 450,307 439,285
Include:
Fair value of debt* (£'000) 76,635 39,192 70,774
EPRA Net Disposal Value (£'000) 514,620 489,499 510,059
Fully diluted number of shares 393,466,490 402,789,002 402,789,002
EPRA Net Disposal Value per share** 130.79p 121.53p 126.63p
* 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 2023 30 June 2022 31 December 2022
IFRS NAV/EPRA NAV (£'000) 437,985 450,307 439,285
EPRA NTA (£'000) 437,985 450,307 439,285
Fully diluted number of shares 393,466,490 402,789,002 402,789,002
EPRA NTA per share * 111.31p 111.80p 109.06p
*Equal to IFRS NAV and previous EPRA NAV metric as none of the EPRA Net
Tangible Asset adjustments are applicable as at 30 June 2022, 31 December 2022
or 30 June 2023.
4. EPRA net initial yield (NIY) and EPRA "topped up" NIY
30 June 2023 30 June 2022 31 December 2022
£'000 £'000 £'000
Investment Properties - wholly owned (excluding head lease ground rents) 663,960 666,890 666,253
Assets held for sale 7,871 - -
Less: development properties - - -
Completed property portfolio 671,831 666,890 666,253
Allowance for estimated purchasers' costs 41,638 41,361 41,283
Gross up completed property portfolio valuation 713,469 708,251 707,536
Annualised passing rental income 40,299 37,416 38,626
Property outgoings - - -
Annualised net rents 40,299 37,416 38,626
Contractual increases for lease incentives 244 79 349
Topped up annualised net rents 40,543 37,495 38,975
EPRA NIY 5.65% 5.28% 5.46%
EPRA Topped Up NIY 5.68% 5.29% 5.51%
5. Ongoing Charges Ratio
30 June 2023 30 June 2022 31 December 2022
£'000 £'000 £'000
Annualised ongoing charges 7,151 6,960 7,018
Average undiluted net assets 438,635 443,210 437,699
Ongoing charges 1.63% 1.57% 1.60%
6. EPRA Vacancy Rate
30 June 2023 30 June 2022 31 December 2022
£'000 £'000 £'000
Estimated Market Rental Value (ERV) of vacant spaces 138 93 -
Estimated Market Rental Value (ERV) of whole portfolio 40,680 37,416 38,975
EPRA Vacancy Rate 0.34% 0.25% -
7. EPRA Cost Ratio
30 June 2023 30 June 2022 31 December 2022
£'000 £'000 £'000
Total administrative and operating costs 3,941 3,874 7,866
Gross rental income 19,576 18,208 37,300
EPRA cost ratio 20.13% 21.27% 21.09%
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