REG - Triple Point Soc.Hsg - RESULTS FOR THE YEAR ENDED 31 DECEMBER 2023
08/03/2024 07:00
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RNS Number : 0775G Triple Point Social Housing REIT 08 March 2024
THIS ANNOUNCEMENT HAS BEEN DETERMINED TO CONTAIN INSIDE INFORMATION FOR THE
PURPOSES OF THE MARKET ABUSE REGULATION (EU) NO. 596/2014.
8 March 2024
Triple Point Social Housing REIT plc
(the "Company" or, together with its subsidiaries, the "Group")
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2023
The Board of Triple Point Social Housing REIT plc (ticker: SOHO) is
pleased to announce its audited results for the year ended 31 December
2023.
Christopher Phillips, Chair of Triple Point Social Housing REIT plc,
commented:
"We are pleased to report a resilient set of results for 2023, despite
challenging macro-economic conditions. The Group delivered strong rental
growth, which along with the continued growth in demand for Specialised
Supported Housing, helped to preserve the value of the Group's well
diversified property portfolio over the last 12 months.
Triple Point SOHO is well positioned to continue to play a leading role in
moving the sector forward through the rollout of our new risk-sharing clause
and Eco-Retrofit pilot programme. These strategic initiatives, along with our
granular approach to risk management, support our financial and operational
performance, as well as the long-term valuation resilience of our portfolio.
Looking ahead, we take comfort from the robust fundamentals of the sector
which, together with our inflation protection and fully fixed debt, positions
the Group to continue to deliver shareholder value through the fulfilment of
our long term strategy while providing good homes to people with care and
support needs throughout the UK."
31 December 2023 31 December 2022
Portfolio value £678.4m
- IFRS basis £669.1m
EPRA Net Tangible Assets ("NTA") per share 113.76p 109.06p
(equal to IFRS NAV per share)
EPRA Net Initial Yield (NIY) 5.57% 5.46%
Loan to Value 37.0% 37.4%
Earnings per share (basic and diluted)
- IFRS basis
- EPRA basis 8.81p 6.18p
- Adjusted earnings 4.92p 4.78p
4.61p 4.87p
£39.0m
Total annualised rental income £41.0m
Weighted average unexpired lease term 24.3 yrs 25.3 yrs
Dividend per share 5.46p 5.46p
Financial highlights
· Total annual return including dividends of 9.3%, reflecting strong
performance in a challenging year for the real estate sector
· Strong rental growth of 6.8% in 2023 (6.7% in 2022) underpinned by
government support for our residents. 100% of leases linked to inflation or
Government policy
· Portfolio valuation of £678.4 million on an IFRS basis as at 31
December 2023, representing an uplift of 14.0% against total invested funds of
£594.9 million
· Growth of 4.3% EPRA NTA per share in 2023 driven by EPRA earnings
growth and an uplift in the value of the property portfolio
· Dividends paid in line with 5.46 pence per share target, with
dividend cover of 0.85x on an adjusted earnings basis. Dividend cover
increased in the latter half of the year and the dividend is now covered on a
run-rate basis.
· Successful portfolio sale of four properties for £7.6 million,
principally in line with book value, demonstrating support for the Group's
property portfolio valuation
· Completed a share buyback programme, repurchasing 9,322,512 shares
for £5 million at 52.8% discount to EPRA NTA
· Maintained an Investment Grade Issuer Default Rating from Fitch
of 'A-' (Stable Outlook) with a senior secured rating of 'A'
· 100% of debt is fixed price (weighted average coupon of 2.74%) and
long-term (9.6 years), offering strong protection from increasing interest
rates
Operational highlights
· 90.2% of rent due was collected during the period, with material
rental arrears attributable to only two out of 27 Approved Providers
· Progress was made with the two Approved Providers in arrears:
o A creditor agreement is now in place with Parasol, and was extended
post-period for a further six months while a longer-term agreement that will
see Parasol increase its rent payments over time is finalised
o My Space has increased its rent payments and the Manager expects to reach
a creditor agreement in Q2 2024
· Initiated the rollout of a new risk sharing clause to help improve
the governance and risk management of our Registered Provider partners. The
clause has been agreed with the Boards of the Group's Registered Provider
lessees, shared with the Regulator of Social Housing and has been included in
28.3% of the Group's leases to date
· Commenced an Eco-retrofit pilot programme to upgrade the Group's
properties to an Energy Performance Certificate ("EPC") rating of C or above.
The initiative aims to protect the value of the Group's properties, reduce
carbon emissions, and support lessees and the individuals living in the
Group's properties. Four properties have been upgraded, with all works thus
far completed on time and within budget
· Established a Sustainability & Impact Committee to consider a
range of sustainability activities and outcomes, including the Eco-Retrofit
Programme and the Group's Net Zero plan
Outlook
· Strong rental growth of 2023 is expected to continue in 2024, with
64.6% of the Group's 2024 annual rent increases linked to the September 2023
Consumer Price Index figure of 6.7%
· Rent collection is expected to continue to improve as the Group
enters into long-term operational solutions with Parasol and My Space, which,
in turn, is supportive of increased dividend cover
· Continued rollout of strategic initiatives such as Eco-Retrofit
programme and new risk sharing lease clause to protect the long-term value of
the Group's portfolio
· Demand for Specialised Supported Housing continues to grow, and the
sector continues to enjoy cross-party support due to its ability to provide
independent homes to individuals with care needs whilst ensuring they can
remain within their local community receiving the care and support on which
they rely
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
Robin Wrench
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/) .
NOTES:
The Company invests in primarily newly developed social housing assets in the
UK, with a particular focus on supported housing. The majority of the assets
within the portfolio are subject to inflation-linked, long-term, 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 a 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.
CHAIR'S STATEMENT
Introduction
Whilst 2023 was a challenging year for UK real estate, the Specialised
Supported Housing sector continued to demonstrate its strong underlying
fundamentals and we were able to deliver resilient returns to our
shareholders.
We continued to see challenging macro-economic conditions during the year,
with concerns over US banking and commercial property together with the
expectation that interest rates would remain higher for longer putting
sustained pressure on property valuations. Nonetheless, the decline in
inflation in October and November provided some relief towards the end of the
year.
2023, like the two years before it, has proved that we should not take
anything for granted. Most notably, with the tragic events unfolding in the
Middle East and the ongoing war in Ukraine, there remains the risk that
increased geopolitical tensions cause inflation to remain elevated.
Against this backdrop, we take considerable comfort from the robust
fundamentals of the sector in which the Group invests. Demand for Specialised
Supported Housing continues to grow, and central and local Government continue
to provide financial support for individuals who need housing and care. These
two factors, combined with strong rental growth, have helped preserve the
value of the Group's property portfolio over the last 12 months. As we report
a resilient set of results, we remain focused on the Group's objective of
providing good homes to people with care and support needs throughout the UK.
Financial performance
The Group has continued to perform well operationally, delivering rental
growth in 2023 of 6.8%. The Group is in a strong position financially, 100% of
our debt is long-term and fixed priced with a weighted average term of 9.6
years and at a weighted average fixed rate of 2.74%. In August 2023, for the
second consecutive time, 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.
The Group's Net Asset Value has increased over the course of the year to
£447.6 million, or by 1.9%. This represents resilient performance by the
Group's portfolio, especially when compared to the wider commercial property
sector which has continued to face pressure on property valuations. The Group
met its full year 2023 dividend target of 5.46p, having held the target flat
relative to 2022.The dividend was 0.85x covered on an adjusted earnings basis.
Dividend cover increased in the latter half of the year and the dividend is
now covered on a run rate basis. The Group delivered a total return including
dividends of 9.3% during the financial year, which reflects strong performance
in what was a challenging year for the real estate sector given the
persistence of high inflation and interest rates.
Managing the Discount
The Group's share price has been a principal focus of the Board in 2023, and
in its 3 February 2023 Trading Update, the Board set out how the Group could
best deliver value to shareholders over the following months. This included,
amongst other things, selling a portfolio of properties to provide a data
point that was supportive of the Group's portfolio valuation, returning
capital to shareholders through a share buyback programme, and working with
two of the Group's Registered Provider lessees to increase rent collection. We
are glad to report that we have broadly delivered on each of these actions.
In August 2023, we completed the sale of a portfolio of properties at a
valuation principally in line with their book value. In July 2023, we
completed a £5 million share buyback programme. Between 19 April 2023 and 12
June 2023, the Group bought back 9,322,512 shares for £5 million at an
average price representing a discount to the prevailing published EPRA NTA of
52.8%. Finally, we have made good progress with the two lessees with material
arrears (My Space and Parasol), rent collection increased in the latter half
of the year due to a creditor agreement with Parasol and an increase in rent
payments from My Space. Further details regarding these actions and their
outcomes can be found in the Investment Manager's Report.
As at 6 March 2024 the Group's share price had increased by 37.0% from its
2023 low in March and the Board remains focused on seeking to improve the
share price and delivering shareholder value in 2024. As at 31 December 2023
the Group had a total cash balance of £29.5 million of which £10.7 million
is either restricted or allocated with a further £8 million held back for
working capital purposes, leaving net available cash of £10.8 million.
Therefore, were the Company to undertake a further return of capital with an
equal corresponding paydown of the Group's debt (to offset any resultant
increase in Group leverage), any such distribution to shareholders would be
limited to around £5 million.
Any larger return of capital to shareholders would be dependent on significant
additional liquidity being delivered through property sales. Given market
conditions remain challenging, and the Group's strong capital structure, the
Board is not actively considering selling more properties in the short term.
The Board remains committed to shareholder engagement and will continue to
consult with shareholders following the publication of these results.
New partnerships with leading Registered Providers creating impact
The higher interest rates and inflationary environment alongside the
requirement to invest into existing housing stock (to ensure compliance with
the latest safety and sustainability standards) continue to erode the
development budgets of Registered Providers. In turn, this promotes a growing
reliance on private funding to deliver new homes. Therefore, in this
environment, we are uniquely positioned to form partnerships with the leading
Registered Providers in the Specialised Supported Housing sector, as
demonstrated by our recent partnership with Golden Lane. We have allocated
£2.8 million to a 12 apartment project in Chorley which we have developed in
conjunction with Golden Lane, one of the best and largest Specialised
Supported Housing focused Registered Providers. This is a market-leading
project and will provide further evidence of the positive impact that private
capital can deliver to the Specialised Supported Housing sector.
Leading position in the sector
Whilst focusing on financial performance and delivering shareholder value, the
Board is also keen to ensure that the Group, as an institutional investor,
continues to take a leading position in moving the Specialised Supported
Housing sector forward.
We are the first institutional landlord to roll out a new risk sharing clause
in its existing portfolio of leases to help improve the governance and risk
management of our Registered Provider partners. The clause has been agreed
with the Boards of the Group's Registered Provider lessees and shared with the
Regulator of Social Housing and has been included in 28.3% of the Group's
leases to date. As previously disclosed, JLL, the Group's valuers, have
reviewed the clause and confirmed that they do not expect it to negatively
impact the value of any leases it is included in.
We are investing in the energy efficiency of the Group's existing portfolio
through the pilot phase of our Eco-Retrofit programme to preserve the
long-term value of the Group's portfolio whilst enabling the Group to roll out
a sector-leading initiative to reduce carbon emissions and provide residents
with more efficient homes and lower utility bills.
Following the Government's introduction of a 7% cap on social housing rent
increases in 2023, we voluntarily capped all of the Group's rent increases
with Registered Provider lessees at 7% not withstanding that the cap did not
apply to the Specialised Supported Housing Sector. This enabled our Registered
Provider partners to manage risk better in a high inflationary environment and
to limit rent increases during a cost-of-living crisis, whilst still allowing
investors to benefit from a healthy rental uplift. In line with government
policy, the cap has been discontinued in 2024 meaning that rents will revert
back to tracking inflation.
Further information on these three initiatives can be found in the Investment
Manager's Report.
Governance
Recognising the link between value creation and the quality of the homes we
deliver, the Board has established a Sustainability & Impact Committee
(announced on 24 May 2023) to ensure due consideration of a range of
sustainability activities and outcomes. To date, the Sustainability &
Impact Committee, led by Ian Reeves, has met three times since its
establishment and has reviewed a range of ESG matters including considering
and approving the roll-out of the pilot phase of the Group's Eco-Retrofit
programme and the Group's Net Zero plan (more detail on which can be found in
the Sustainability Report).
The performance evaluation of the Board and its Committees for 2023 was
conducted externally by Advanced Boardroom Excellence, an independent
consultancy. The review confirmed that the Board and its Committees continued
to operate effectively in 2023, with some areas identified for further
enhancement, which are set out in the Governance section of the Annual Report.
Social Impact
Social Impact continues to be of central importance to the Board when making
decisions and is integral to our business model. This set of results once
again demonstrates our conviction that financial performance and social impact
are mutually reinforcing. The independent Impact Report prepared by The Good
Economy identifies that our properties have delivered £3.08 of Total Social
Value for every £1.00 invested in the year to 31 December 2023. You can read
more on the social value and impact that our properties create in the Impact
Report prepared by the Good Economy, available separately on our website.
Outlook
We expect ongoing resilience in financial and operational performance. The
majority of the Group's lessees continue to operate in line with expectations
with only two (My Space and Parasol) out of 27 lessees in material arrears. We
anticipate making further progress with My Space and Parasol and for the wider
portfolio to continue to perform well.
With 64.6% of the Group's 2024 annual rent increases linked to the September
2023 Consumer Price Index figure of 6.7%, we expect the strong rental growth
of 2023 to continue in 2024.
The Group has a secure financial position and does not need to raise capital
to refinance debt, or to meet investor return targets. Our focus can therefore
remain on ensuring the continued performance of the property portfolio from
which stable, long-term financial performance should follow. These factors,
combined with the ongoing resilience of the portfolio valuation, ensure that
the Group remains well positioned to deliver sustainable shareholder returns
over the long-term.
Given current macro-economic conditions, and the limited amount of capital
that the Group has available, the Board has decided not to commit to any
further development projects other than the Chorley scheme, at this time. We
expect the progress made with My Space and Parasol in 2023 to deliver an
increase in rent collection during 2024 which should in turn help to ensure
that the dividend is covered. The dividend is now covered on a run rate basis
and we are focused on putting the Group in a position to resume its
progressive dividend policy whilst maintaining a high degree of sustainable
dividend cover over the medium to long-term. This is supported by the
long-term, fixed priced debt the Group benefits from, and the recent strong
rental growth delivered through the Group's inflation-linked leases.
The Board remains committed to addressing the performance of the Group's share
price, and to working to narrow the share price discount to EPRA NTA whilst
preserving the long-term performance and fundamentals of the Group. The Board
will continue to engage with shareholders in 2024 around actions for the
benefit of the Group overall.
The Board and the Investment Manager will continue to support the performance
of the Group's portfolio by working closely with the Group's Registered
Provider and Care Provider partners to roll out strategic initiatives such as
the Eco Retrofit programme and new risk-sharing lease clause, closely monitor
the granular performance of the Group's properties, and address any issues in
the portfolio quickly as and when they arise. This granular approach to risk
management supports the long-term value of the Group's portfolio and helps to
ensure long-term operational and financial resilience.
Conclusion
On behalf of the Board, I would like to thank the Investment Manager and
advisers for their continued hard work and dedication. 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
7 March 2024
STRATEGY AND BUSINESS MODEL
The Board is responsible for the Company's investment objective and investment
policy and has overall responsibility for ensuring the Group's activities are
in line with such overall strategy. As noted in the Chair's Statement and the
Investment Manager's report, in 2023, most of the Group's leases were subject
to a one-off rental increase cap of 7%. The Group has commenced the roll out
of a new risk sharing clause throughout the Group's portfolio of Registered
Provider leases. The inclusion of the clause in our existing leases will
enable the Boards of the Registered Providers that the Group has leases with
to demonstrate an improved risk management strategy to the Regulator of Social
Housing. As part of this clause, annual rent increase will be linked to the
lower of inflation or government social housing rent policy (in so much as it
applies to Specialised Supported Housing). In addition, when applicable,
annual rental uplifts in the Group's leases (that contain this new clause)
will be linked to September inflation figures to align with wider central
housing benefit policy.
Investment Objective
The Company's investment objective is to provide shareholders with stable,
long-term, inflation-linked income from a portfolio of social housing assets
in the United Kingdom with a focus on Supported Housing assets. The portfolio
comprises investments in operating assets and the forward funding of pre-let
development assets, the Group seeks to optimise the mix of these assets to
enable it to pay a covered dividend increasing in line with inflation and so
generate an attractive risk-adjusted total return.
Investment Policy
To achieve its investment objective, the Group invests in a diversified
portfolio of freehold or long leasehold social housing assets in the UK.
Supported Housing assets account for at least 80% of the Group's gross asset
value. The Group acquires portfolios of social housing assets and single
social housing assets, either directly or via SPVs. Each asset is subject to a
lease or occupancy agreement with an Approved Provider. The rent payable
thereunder is, or is expected to be, subject to adjustment in line with
inflation (generally CPI) or central housing benefit policy. Title to the
assets remains with the Group under the terms of the relevant lease. The Group
is not primarily responsible for any management or maintenance obligations
under the terms of the lease or occupancy agreement, which typically are
serviced by the Approved Provider lessee, save that the Group may take
responsibility for funding the cost of planned maintenance. The Group is not
responsible for the provision of care to residents of Supported Housing
assets.
The social housing assets are sourced in the market by the Investment Manager.
The Group intends to hold its portfolio over the long-term, benefitting from
generally long-term upward-only leases which are, or are expected to be,
linked to inflation or central housing benefit policy. The Group will not be
actively seeking to dispose any of its assets, although it may sell
investments should an opportunity arise, that would enhance the value of the
Group as a whole.
The Group may forward fund the development of new social housing assets when
the Investment Manager believes that to do so would enhance returns for
shareholders and/or secure an asset for the Group's portfolio at an attractive
yield. Forward funding will only be provided in circumstances in which:
(a) there is an agreement to lease the relevant property upon completion in
place with an Approved Provider;
(b) planning permission has been granted in respect of the site; and
(c) the Group receives a return on its investment (at least equivalent to
the projected income return for the completed asset) during the construction
phase and before the start of the lease.
For the avoidance of doubt, the Group will not acquire land for speculative
development of social housing assets.
In addition, the Group may engage third party contractors to renovate or
customise existing social housing assets as necessary.
Gearing
The Group uses gearing to enhance equity returns. The Directors will employ a
level of borrowing that they consider prudent for the asset class and will
seek to achieve a low cost of funds while maintaining flexibility in the
underlying security requirements and the structure of both the Company's
portfolio and the Group.
The Directors intend that the Group will target a level of aggregate
borrowings over the medium-term equal to approximately 40% of the Group's
gross asset value. The aggregate borrowings will always be subject to an
absolute maximum, calculated at the time of drawdown, of 50% of the Group's
gross asset value.
Debt will typically be secured at the asset level, whether over a particular
property or a holding entity for a particular property (or series of
properties), without recourse to the Group and having consideration for key
metrics including lender diversity, cost of debt, debt type and maturity
profiles.
Use of Derivatives
The Group may use derivatives for efficient portfolio management. In
particular, the Group may engage in full or partial interest rate hedging or
otherwise seek to mitigate the risk of interest rate increases on borrowings
incurred in accordance with the Investment Policy as part of the Group's
portfolio management. The Group will not enter into derivative transactions
for speculative purposes.
Investment Restrictions
The following investment restrictions apply:
· the Group will only invest in social housing assets located in the
United Kingdom;
· the Group will only invest in social housing assets where the
counterparty to the lease or occupancy agreement is an Approved Provider.
Notwithstanding that, the Group may acquire a portfolio consisting
predominantly of social housing assets where a small minority of such assets
are leased to third parties who are not Approved Providers. The acquisition of
such a portfolio will remain within the Investment Policy provided that at
least 90% (by value) of the assets are leased to Approved Providers and, in
aggregate, all such assets within the Group's total portfolio represent less
than 5% of the Group's gross asset value at the time of acquisition;
· at least 80% of the Group's gross asset value will be invested in
Supported Housing assets;
· the maximum exposure to any one asset (which, for the avoidance of
doubt, will include houses and/or apartment blocks located on a contiguous
basis) will not exceed 20% of the Group's gross asset value;
· the maximum exposure to any one Approved Provider will not exceed 30%
of the Group's gross asset value, other than in exceptional circumstances for
a period not to exceed three months;
· the Group may forward fund social housing units in circumstances
where there is an agreement to lease in place and where the Group receives a
coupon (or equivalent reduction in the purchase price) on its investment
(generally slightly above or equal to the projected income return for the
completed asset) during the construction phase and before entry into the
lease. Forward funding equity commitments will be restricted to an aggregate
value of not more than 20% of the Group's net asset value, calculated at the
time of entering into any new forward funding arrangement;
· the Group will not invest in other alternative investment funds or
closed-ended investment companies (which, for the avoidance of doubt, does not
prohibit the acquisition of SPVs which own individual, or portfolios of,
social housing assets);
· the Group will not set itself up as an Approved Provider; and
· the Group will not engage in short selling.
The investment limits detailed above apply at the time of the acquisition of
the relevant asset in the portfolio. The Group will not be required to dispose
of any investment or to rebalance its portfolio as a result of a change in the
respective valuations of its assets or a merger of Approved Providers.
Investment Strategy
The Group specialises in investing in UK social housing, with a focus on
Supported Housing. The strategy is underpinned by strong local authority
demand for more social housing, which is reflected in the focus on acquiring
recently developed and refurbished properties across the United Kingdom. The
assets within the portfolio have typically been developed for pre-identified
residents and in response to demand specified by local authorities or NHS
commissioners. The existing portfolio comprises investments made into
properties already subject to a fully repairing and insuring lease with
specialist Approved Providers in receipt of direct payment from local
government (usually Registered Providers regulated by the Regulator), as well
as forward funding of pre-let developments. The portfolio will not include any
direct development or speculative development investments. Following the
amendments to the Company's investment policy in May 2022, the Group expects
to enter into more flexible lease structures in the future. These more
flexible lease structures may include entering into leases for shorter terms
and, in certain cases, the Group may selectively take on the cost of funding
planned maintenance on some properties.
In addition, as noted in the Chair's Statement and the Investment Manager's
report, we have commenced the roll out of a new risk sharing clause in the
Group's existing Registered Provider leases. The aim of this clause is to
protect Registered Providers if factors beyond their control, such as a change
in government policy in relation to Specialised Supported Housing rents,
reduce the amount of rent they are able to generate from a property or
properties that they lease from the Group. In some such circumstances the
clause allows for the Registered Provider to agree a new rent level which is
reflective of the revised circumstances. Should the new rent level not be
acceptable to the Group, the Group has the ability to re-assign or terminate
the lease.
Business Model
The Group owns and manages social housing properties that are leased to
experienced housing managers (typically Registered Providers, which are often
referred to as housing associations). The vast majority of the portfolio and
future deal pipeline is made up of Supported Housing homes which are
residential properties that have been adapted or built such that care and
support can easily be provided to vulnerable residents who may have mental
health issues, learning difficulties or physical disabilities. Whilst we have
acquired operational properties, we have tended to focus more on acquiring
recently developed or adapted properties in order to help local authorities
meet increasing demand for suitable accommodation for vulnerable residents
(the drivers of this demand are discussed in the Investment Manager's report).
Local authorities are responsible for housing these residents and for the
provision of all care and support services that are required.
The Supported Housing properties owned by the Group are leased to Approved
Providers which are usually not-for-profit organisations focused on
developing, tenanting and maintaining housing assets in the public (and
private) sectors. Approved Providers are approved and regulated by the
Government with the majority through the Regulator (or in some instances,
where the Group contracts with care providers and charitable entities, the
Care Quality Commission and the Charity Commission, respectively). The
majority of the Group's existing leases with Approved Providers are linked to
inflation, have a duration of 20 years or longer, and are fully repairing and
insuring - meaning that the obligations for management, repair and maintenance
of the property are passed to the Approved Provider. The Group may take
responsibility for funding the cost of planned maintenance and improvements to
the property in order to improve a property's energy efficiency rating under
the Eco-Retrofit programme. Typically, the Government funds both the rent of
the individuals housed in Supported Housing and the maintenance costs
associated with managing the property. In addition, because of the vulnerable
nature of the residents, the rent and maintenance costs are typically paid
directly from the local authority to the Approved Provider on behalf of the
individuals living in the property. The rent paid by the local authority to
the Approved Provider on behalf of the residents is then paid to the Group via
the lease. Ultimate funding for the rent of the individuals living in the
properties owned by the Group typically comes from the Department for Work and
Pensions in the form of housing benefits.
The majority of residents housed in Supported Housing properties require
support and/or care. This is typically provided by a separate care provider
regulated by the Care Quality Commission. The agreement for the provision of
care for the residents is between the local authority and the care provider.
The care provider is paid directly by the local authority. Usually, the Group
has no direct financial or legal relationship with the care provider and the
Group never has any responsibility for the provision of care to the residents
in properties the Group owns. The care provider will often be responsible for
nominating residents into the properties and, as a result, will normally
provide some voids cover to the Approved Provider should they not be able to
fill the asset (i.e. if occupancy is not 100%, it is often the care provider
rather than the Approved Provider that will cover the cost of the rent due on
void units). Under the terms of its lease, the Group is owed full rent
regardless of underlying occupancy, but monitors occupancy levels and the
payment of voids cover by care providers, to ensure that Approved Providers
are appropriately protected.
Many assets that the Investment Manager sources for the Group have been
recently developed and are either specifically designed new build properties
or renovated existing houses or apartment blocks that have been adapted for
Supported Housing. The benefit of buying recently developed or adapted stock
is that it has been planned in response to local authority demand and is
designed to meet the specific requirements of the intended residents. In
addition, it enables the Group to work with a select stable of high-quality
developers on pipelines of deals rather than being reliant on acquiring
portfolios of already-built assets on the open market. This has two
advantages: firstly, it enables the Group to source the majority of its deals
off-market through trusted developer partners and, secondly, it ensures the
Group has greater certainty over its pipeline with visibility over the
long-term deal flow of the developers it works with and knows it will not have
to compete with other funders.
As well as acquiring recently developed properties, the Group can provide
forward funding to developers of new Supported Housing properties. Being able
to provide forward funding gives the Group a competitive advantage over other
acquirers of Supported Housing assets as it enables the Group to offer
developers a single funding partner for both construction and the acquisition
of the completed property. This is often more appealing to developers than
having to work with two separate funders during the build of a new property as
it reduces practical and relationship complexity. As well as strengthening
developer relationships, forward funding enables the Group to have a greater
portion of new build properties in its portfolio which typically attract
higher valuations, are modern and have been custom-built to meet the needs of
the residents they house, helping to achieve higher occupancy levels. The
Group benefits from the Investment Manager's long track record of successfully
forward funding a range of property and infrastructure assets and is uniquely
positioned to partner on projects with the most respected organisations in the
sector. The Group will only provide forward funding when the property has been
pre-let to an Approved Provider and other protections, such as fixed-priced
build contracts and deferred developer profits, have been put in place to
mitigate construction risk.
Since the Company's IPO, the Group has set out to build a diversified
portfolio that contains assets leased to a variety of Approved Providers, in a
range of different counties, and serviced by a number of care providers. This
has been possible due to the Investment Manager's track record of over 15
years of asset-backed investments, its active investment in the Supported
Housing sector since 2014, and the strong relationships it has enjoyed with
local authorities for over a decade. These relationships have enabled the
Group, in a relatively short space of time, to work with numerous Approved
Providers, care providers and local authorities to help deliver Supported
Housing that provide homes to some of the most vulnerable members of society.
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 Total dividends of 5.46 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 year ended 31 December 2023. respect of the period 1 October 2023 to 31 December 2023, which will be paid
on or around 29 March 2024. Total dividends paid and declared for the year are
in line with the Company's target.
Further information is set out in Note 27
(31 December 2022: 5.46 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 113.76 pence as at 31 December The IFRS NAV (equivalent to EPRA NTA) per share at IPO was 98 pence.
other adjustments applicable to the Group under the REIT regime. crystallising certain levels of deferred tax liability. 2023.
The EPRA NTA of 113.76 pence represents an increase of 16.1% since IPO, driven
primarily by yield compression at acquisition and subsequent annual rental
uplifts.
Further information is set out in Note 3 of the Unaudited Performance (31 December 2022: 109.06 pence)
Measures.
3. Loan to Value (LTV)
A proportion of our portfolio is funded through borrowings. Our medium to The Group uses gearing to enhance equity returns. 37.0% LTV as at 31 December 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 20. The undrawn £160.0 million revolving credit facility with Lloyds and NatWest
was cancelled in the prior year.
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 4.92 pence per share for the year ended 31 December 2023, based on earnings EPRA EPS has slightly increased despite the expected credit loss (relating to
on investment property that are included in the IFRS calculation for Earnings extent to which current dividend payments are supported by earnings. excluding the fair value gain on properties, calculated on the weighted two Approved Providers not paying full rent) due to the increased rental
per share. average number of shares in issue during the year. income for the year which was driven by annual rent increases capped at 7%.
Further information is set out in Note 36. (31 December 2022: 4.78 pence)
5. Adjusted Earnings per Share
Adjusted earnings per share includes adjustments for non-cash items. The A key measure which reflects actual cash flows supporting dividend payments. 4.61 pence per share This demonstrates the Company's ability to meet dividend payments from net
calculation is shown in Note 36. for the year ended 31 December 2023, based on earnings after deducting the cash inflows. It represents a dividend cover for the year to 31 December 2023
fair value gain on properties, amortisation and write-off of loan arrangement of 0.85x.
fees, and the movement in lease incentive debtor; calculated on the weighted
average number of shares in issue during the year. In prior years the movement
in the lease incentive debtor has not been adjusted for in the adjusted
earnings as it was not material. The comparative has been restated for
consistency.
(31 December 2022: 4.87 pence restated)
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 24.3 years as at 31 December 2023 (includes put and call options). As at 31 December 2023, the portfolio's WAULT stood at 24.3 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 29.5% as at 31 December 2023. Our maximum exposure limit is 30%.
largest Approved Provider. we are not overly exposed to one Approved Provider in the event of a default
scenario.
(31 December 2022: 29.5%)
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 113.76 pence as at 31 December 2023. The EPRA NTA per share at 31 December 2023 was 113.76 pence. Adding back
dividends paid since the prior year.
dividends paid during the year of 5.46 pence per Ordinary Share to the EPRA
NTA at 31 December 2023 results in an increase of 9.3%.
(31 December 2022: 109.06)
Total dividends paid during the year ended 31 December 2023 were 5.46 pence The Total Return since IPO is 47.7% at 31 December 2023.
per share.
Total return was 9.32% for the year ended 31 December 2023.
(31 December 2022: 5.7%)
EPRA PERFORMANCE MEASURES
The table shows additional performance measures, calculated in accordance with
the Best Practices Recommendations of the European Public Real Estate
Association (EPRA). We provide these measures to aid comparison with other
European real estate businesses.
Full reconciliations of EPRA Earnings and NAV performance measures are
included in Note 36 of the consolidated financial statements and Notes 1 to 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 a Group's underlying 4.92 pence per share for the year to 31 December 2023.
investment properties that are included in the IFRS calculation for Earnings
operating results and an indication of the extent to which current dividend
per share. payments are supported by earnings.
(4.78 pence per share as at 31 December 2022)
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.
£489.6 million/124.43 pence per share as at 31 December 2023.
£480.7 million/119.31 pence per share as at 31 December 2022.
3. EPRA Net Tangible Assets (NTA) per share
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
other adjustments applicable to the Group under the REIT regime. certain levels of deferred tax liability.
£447.6 million/113.76 pence per share as at 31 December 2023.
£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
and certain other adjustments are calculated as to the full extent of their held until maturity.
liability. £503.7 million /128.02 pence per share as at 31 December 2023.
£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 balance sheet A comparable measure for portfolio valuations. This measure should make it 5.57% at 31 December 2023.
date, less non-recoverable property operating expenses, divided by the market easier for investors to judge for themselves how the valuation of a portfolio
value of the property, increased with (estimated) purchasers' costs. compares with others.
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 5.72% at 31 December 2023.
expiration of rent-free periods (or other unexpired lease incentives such as the yield based on the full rent that is contracted at 31 December 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
whole portfolio. on ERV.
0.33% at 31 December 2023.
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 a Group's 20.60% at 31 December 2023.
vacancy) divided by gross rental income. operating costs.
21.09% at 31 December 2022.
INVESTMENT MANAGER'S REPORT
Specialised Supported Housing Market
Whilst operating conditions have been volatile during this recent period of
high inflation, as they were throughout the COVID pandemic, one constant of
the sector is the structural excess demand for more Specialised Supported
Housing. We see this on a daily basis through a requirement for funding for
new developments brought to us by Local Authorities, and our Registered
Provider and Care Provider partners. Similarly, the Government estimates that
demand for more Specialised Supported Housing homes is set to increase by over
100,000 by 2030, or almost double relative to the number of Specialised
Supported Homes occupied today(1). A growing prevalence of disability,
combined with the requirement to move people out of institutional care
settings and provide independent community homes, is driving this increase in
demand.
Demand for more Specialised Supported Housing properties underpins the
performance of our Registered Provider and Care Provider partners and, in
turn, the performance of the Group. Demand drives high levels of occupancy at
the Registered Providers the Group works with and has helped ensure that the
occupancy of the Group's portfolio has continued to increase as it matures. In
addition, it supports our ability to address any issues within the Group's
portfolio, such as if a new care provider needs to be brought into a property
or an alternative Specialised Supported Housing use needs to be sought,
thereby adding resilience to the portfolio's performance.
This year, the Group's Registered Provider and Care Provider operating
partners have had to navigate the risks posed by persistent high interest
rates and inflation, which have impacted a wide range of costs including
maintenance and repairs and heating communal spaces. In addition, over the
last 12 months a small number of Local Authorities have issued Section 114
notices requiring expenditure limits, which have served as a test for how the
Specialised Supported Housing sector performs in times of market stress.(2)
As expected, the financial strains of Local Authorities, such as those in
Woking and Nottingham, have not impacted their ability to meet their statutory
requirement to fund the accommodation and care of the vulnerable people they
are responsible for. Indeed Section 114 notices specifically allow for the
continued funding of statutory services, and it has been reassuring to see
this delivered in practice with services maintained irrespective of the
financial position of the relevant Local Authority.
Similarly, our Registered Provider and Care Provider partners have generally
managed the persistent increase in operating costs well. Typically, this is a
case of ensuring they receive sufficient Housing Benefit to cover any increase
in their operating cost base. Most Registered Providers were in a better
position to understand and allow for their increased cost base in 2023 after
the rapid rise in gas prices and other operating costs experienced in 2022.
This performance, while reassuring as we progressed through challenging
operating conditions, was not unexpected for the operational side of our
Housing Team as they work closely with our Registered Provider partners.
Over the course of 2023, we have seen a growing desire amongst a wide range of
Registered Providers to work in partnership with long-term private capital to
deliver much needed, high-quality new homes and to help fund their development
pipelines, a trend we expect to continue. The catalyst is the growing need for
Registered Providers to find alternative sources of funding to deliver on
their social mission to provide additional homes. Inflationary pressures,
higher interest rates and a requirement to invest into their existing
portfolios have eroded their ability to fund their development pipelines from
their own reserves. Recent research(3) has indicated that Registered Provider
expected investment budgets have been cut by 9% for 2024, and by 15% over the
next 10 years. Similarly, the number of homes that English Registered
Providers expect to build over the next five years has dropped by 64,000 since
2022, with a total of 40,000 new homes completed by Registered Providers in
the 12 months ending 31 March 2023.
In the next section, we have provided a case study of the Chorley development
that we will fund alongside Golden Lane, one of the sector's leading
Specialised Supported Housing Registered Providers. The project demonstrates
the positive impact that long-term capital can have when working in close
partnership with Registered Providers.
Golden Lane Housing
We expect to shortly complete on a new forward funding project, our first with
Golden Lane Housing.
This development, located in Chorley, Lancashire, will support residents who
have learning disabilities, autism requirements, and/or mental health needs,
all of which will require a high level of support per week. Residents will
come from a range of previous care environments including care homes,
hospitals, and family homes. Staff will be on site 24 hours a day with bespoke
one-to-one care packages in place for all residents.
The project has received commissioner support from the Head of Service for
Learning Disabilities, Autism and Mental Health at Lancashire County Council.
It was noted that the location of the site, close to the centre of Chorley, is
ideal for enabling residents to integrate into the community.
The property will be managed by Golden Lane Housing. Golden Lane Housing was
established in 1998 in order to provide supported housing and housing for
elderly people. The organisation has over 2,500 tenants in over 1,200
properties located across England, Wales and Northern Ireland. Through the
direct provision of Specialised Supported Housing and enhanced housing
services, Golden Lane Housing offers solutions to people with a Learning
Disability or Autism, so that they can live independent lives. Golden Lane
received a G1 / V2 rating from the Regulator of Social Housing, which was
confirmed most recently in November 2023.
Care and support will be provided by Glenelg which was founded in 2002 and has
since grown to provide person-centred support for over 80 individuals in over
40 services across the Merseyside and Lancashire areas. Glenelg provides
high-quality support for individuals with a learning disability, physical
disability and/or mental health needs in the community. They work closely with
individuals and their families in the planning and development of support
tailored for each individual.
The property will provide high specification accommodation, and residents will
benefit from personalised care packages to meet their individual needs.
Integrated air source heat technology within each apartment will be utilised
with individual thermostats allowing each apartment to act as an independent
zone. Items such as electrical vehicle charging points for each parking
space are incorporated into the design as we endeavour to future proof the
project.
The property will provide 12 individual one-bedroom flats that have been
designed to be easy to navigate, avoiding all institutional cues, whilst
utilising interior design and colour to promote mindfulness.
Further adaptations to the property, which reflect resident care and support
needs, include windows fitted with restrictors and double or triple glazing
determined by acoustic performance requirements and the need for a low-sensory
environment, specialist bathrooms that allow for assisted bathing if required,
widened doors, and specialist warden, fire alarm and CCTV systems.
The project recognises the significance of integrating biodiversity
considerations into the development process and will be the Group's first
project to target a 10% biodiversity net gain. A Biodiversity Net Gain Report
has been commissioned to provide suggestions that will help to meet this
target. This will include an assessment of problematic species, onsite
enhancement outlines and a landscape masterplan.
Financial Review
The financial performance of the Group has been underpinned by the Group's
long-term fixed priced debt. Strong rental growth, and excess demand for
Specialised Supported Housing, have helped ensure that the Group's property
portfolio has increased in value over the course of the year.
With a 7.0% cap on annual rent increases voluntarily applied to the Group's
inflation-linked leases over the year, mirroring the Government's cap on the
social housing sector, the Group achieved weighted average rental growth of
6.9% in the period, reflecting the Group's provision of inflation-correlated,
long-term sustainable income. The Group paid dividends in line with its stated
5.46 pence per share target and delivered a total return of 9.3% to
shareholders. Rent collection increased over the course of the year and we
expect this trend to continue as the work undertaken during 2023 with Parasol
(including putting in place a creditor agreement) and My Space results in
increased collection from these two Registered Providers in 2024. This, in
turn, should ensure that the trend of increased dividend cover in the latter
half of 2023 continues into the new financial year.
Touching on some of the key highlights:
The annualised rental income of the Group was £41.0 million as at 31 December
2023 compared to £39.0 million as at 31 December 2022. The Group is a UK REIT
for tax purposes and is exempt from corporation tax on its property rental
business.
A fair value gain of £15.5 million was recognised during the year on the
revaluation of the Group's properties.
IFRS Earnings per share was 8.81 pence for the year, compared to 6.18 pence in
2022.
The EPRA EPS excludes the fair value gain on investment property and is
measured on the weighted average number of shares in issue during the period.
EPRA EPS was 4.92 pence for the year compared to 4.78 pence in 2022.
The EPRA NTA per share as at 31 December 2023 was 113.76 pence per share, the
same as the IFRS NAV per share.
At the year end, the portfolio was independently valued at £678.4 million on
an IFRS basis compared to £669.1 million in 2022, reflecting a valuation
increase of 14.0% against the portfolio's aggregate purchase price (including
acquisition costs). This reflects an EPRA net yield of 5.57%, against the
portfolio's blended net initial yield of 5.90% at the point of acquisition.
The EPRA ongoing charges ratio is calculated as a percentage of the average
net asset value throughout the year. The ongoing charges ratio for the year
was 1.63% compared to 1.60% in 2022.
The Group held cash and cash equivalents of £29.5 million at 31 December 2023
compared to £30.1 million at 31 December 2022. £10.8 million of cash was
available for further investment as at 31 December 2023. Cash generated from
operating activities was £25.9 million for the year, compared to £25.7
million for the year ended 31 December 2022.
Debt Financing
All of the Group's debt is fixed-price and long-term with the earliest debt
maturity occurring in mid-2028, providing strong protection from higher
interest rates.
As at 31 December 2023, the Group's debt structure comprised two facilities
with a combined value of £263.5 million. Both facilities are fixed-priced
(with a weighted average coupon of 2.74%), long-term (with a weighted average
maturity of 9.6 years) and fully drawn. The Group continues to maintain
significant covenant headroom across both facilities while also having
additional liquidity in the form of cash and £75.1 million of unencumbered
properties.
In August 2021, the Group secured £195.0 million of long-term, fixed-rate,
interest-only, sustainability- linked loan notes through a private placement
with Barings and MetLife Investment Management clients against a defined
portfolio of the Group's properties at a loan-to-value of 50% at the point at
which the debt was put in place. The loan notes are divided into two tranches
of £77.5 million and £117.5 million, with maturities in 2031 and 2036,
respectively. Across both tranches the weighted average coupon is 2.634%.
In addition, the Group has a long-term, fixed-rate facility with MetLife
Investment Management providing £68.5 million of debt secured against a
defined portfolio of the Group's properties at a loan-to-value of 40% at the
point at which the debt was put in place. The facility comprises two tranches
of £41.5 million and £27.0 million, with maturities in 2028 and 2033,
respectively. Across both tranches the weighted average coupon is 3.039%.
In August 2023, the Group completed its annual review with Fitch Ratings, and
we were pleased that the Group's existing rating of 'A-' with a Stable Outlook
and senior secured ratings of 'A' were re-affirmed by Fitch Ratings in respect
of both debt facilities. This reflects not only the Group's continued
financial resilience, but also the resilience of the wider sector in spite of
the broader economic and market conditions.
Further information on the Group's debt facilities is set out in Note 20 of
the Group financial statements.
Update on Strategic Initiatives
The Group's financial performance is supported by the progressive and
sector-leading approach we take to investing in the Specialised Supported
Housing market. As well as focusing on delivering best in class new projects
with leading Registered Providers, as demonstrated by the Chorley project,
this also means ensuring that the Group's existing portfolio continues to
progress as the sector evolves.
New Lease Clause Update
We are in the process of rolling out a new risk sharing clause throughout the
Group's portfolio of Registered Provider leases. This will address some of the
historical concerns raised by the Regulator of Social Housing around the
balance of risk between landlords and tenants.
The inclusion of the lease clause in our existing leases will enable the
Boards of the Registered Providers we work with to demonstrate an improved
risk management strategy, by clearly mitigating some of the historical risk
associated with long leases. Our proactive introduction of the lease clause
demonstrates our commitment to actively partnering with Registered Providers
around managing their risk.
As a reminder, the key terms of the new lease clause are detailed 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.
The new clause is already included in 28.3% of the Group's existing Registered
Provider leases and we hope to have it included in all of the Group's leases
in the near future. Details of the Group's Registered Providers and the
percentage of leases in which the new clause has now been included are shown
in the table in the Registered Provider Update in the Investment Manager's
report.
The clause has been shared with the Regulator of Social Housing. It has also
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.
In addition to the new lease clause, it is worth noting that this year, in
response to the Government's cap of 7% on social housing rent increases, we
rolled out a corresponding temporary one-year cap into all of the Group's
existing uncapped Registered Provider leases. This successfully ensured that
none of our Registered Provider partners were in a position whereby they were
having to try to achieve rent increases of higher than 7% and which would have
been out of line with sector averages and therefore potentially hard to
achieve and challenging to justify. As the government cap has now been removed
and its policy has reverted back to following CPI, there will be no temporary
cap on rent increases applied in 2024.
Eco-Retrofit Pilot Project
As previously noted, by 2030 all socially rented properties need to have an
Energy Performance Certificate ("EPC") rating of C or above. Currently, 71.0%
of the Group's properties already meet the target with only 29.0% of the
Group's properties having an EPC rating 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.
In the Group's latest Interim Report, we reported that we had just started
work on the pilot phase of an energy efficiency improvement initiative which
involved undertaking works on eleven of the Group's properties with EPC
ratings ranging from D to E in order to upgrade these to C or above. We are
pleased to report that the pilot project is now well underway and that all
works have so far been completed on time and within budget. Most importantly,
the pilot project has enabled us to see the positive impact that these works
are having on the lives of the residents in the properties. It has also
enabled us to learn about which technologies work best, how to conduct the
works efficiently and in a way that minimises disruption to residents, and
form strong relationships with our contracting partners.
At the time of writing, four properties have been upgraded from an EPC of D to
either a B or a C. New technologies such as solar PV, mechanical ventilation,
heating controls alongside improved insulation and draught proofing have
improved energy efficiency whilst reducing utility bills and increasing
thermal comfort for residents.
The principal objective of the pilot project is to enable us to learn from
these first eleven properties and thereby inform and finalise our plans for
the roll-out of the wider Eco-Retrofit project, which will see all of the
Group's properties compliant with the required EPC standards. With the pilot
project due to be completed before the end of 2024, we expect to be in a
position to provide an update on the cost and timings of the wider project
when we report our 2024 interim results.
Portfolio Sale
Alongside these strategic initiatives focused on preserving the long-term
value of the Group's portfolio, in August 2023 we completed the sale of a
portfolio of the Group's properties. The rationale behind the sale was to
provide a data point that was supportive of the properties' book value and
therefore the Group's Net Asset Value, whilst also demonstrating ongoing
liquidity in the Specialised Supported Housing market.
In the Group's latest Interim Report, we noted that we had sold a portfolio of
four properties post the interim period end, for £7.6 million, which was in
line with the book value of the properties of £7.9 million as at 30 June
2023. The sale price was reflective of a £0.7 million gain against the
aggregate purchase price the Group paid for the properties (excluding
transaction costs). The properties were located across four Local Authorities,
and leased to Inclusion Housing CIC and Chrysalis Supported Association Ltd,
with care provided by four separate providers. The portfolio contained a
mixture of adapted and new build properties as well as individual and shared
homes. Included below is a table which compares some of the key metrics of the
portfolio of properties sold to those of 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
The successful portfolio sale was helpful in supporting the Group's Net Asset
Value and evidencing the continued investor demand for Specialised Supported
Housing properties.
Asset Management
Effective monitoring of the granular performance of the Group's portfolio is
at the core of what we do and our asset management team aims to visit 200 of
the Group's properties each year. Since the publication of our Interim Report
in September 2023, we have made three new hires into the asset management side
of the Housing Team. These hires have focused on adding additional experience
and resources to our data management, property inspection and operational
support functions. All three have previously worked for Registered Providers
and/or Local Authorities. This is in line with our philosophy of having a
diversified Housing Team where people with direct experience of delivering
social housing work alongside and complement the experience of individuals
from fund management, legal and finance backgrounds. This allows us to deliver
good homes to our residents and optimise operational performance of the
Group's portfolio to ensure sustainable long-term returns for the Group's
shareholders.
Registered Provider Update
As described in the market section of this report, most of the Group's
Registered Providers have weathered well the challenges posed by the high
interest rates and inflation. As such, 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, and we are working to increase
rental income from the properties currently let to both My Space and Parasol.
Please see below a table that provides commentary on the performance of the
Group's top 10 lessees.
Top 10 Lessees % of SOHO total rent # of SOHO properties Date of start of SOHO relationship New lease clause status Lessee Type Year Founded # of total units under management Regulatory Status* Comments
Inclusion Housing 28.90% 124 August 2017 Implemented Q4 2023 Registered Provider 2007 4,341 G3 / V3 (February 2019) Leading RP in the Specialised Supported Housing sector. Led development of
risk sharing clause. Financial position has materially strengthened since
Regulatory Judgement in 2019.
Parasol Homes 9.70% 38 December 2018 New risk clause has been shared. Registered Provider 2006 975 Non-compliant Notice (December 2021) New Chair and senior management team. One of two RPs with material arrears.
The Group is working towards agreeing an equitable long-term agreement, if not
achieved leases will be moved away to an alternative RP.
Falcon 8.50% 62 September 2017 Substantially agreed, expected to be signed in Q1 2024 Registered Provider 2008 960 Non-compliant Notice (November 2021) Continual progress made following non-compliant regulatory notice in 2021.
Board has been strengthened. Recent improvements in operational performance
following maintenance being taken in-house.
Hilldale 8.50% 30 November 2017 Substantially agreed, expected to be signed in Q1 2024 Registered Provider 2009 1,086 Non-compliant Notice (March 2021) Continual progress made following non-compliant regulatory notice in 2021
including strengthened Board and senior management team. Led development of
risk sharing clause.
My Space 8.10% 34 October 2017 Risk clause will be shared as part of creditors agreement. Registered Provider 2012 1,812 G4 / V4 (December 2022) Following January 2023 enforcement notice, new senior management team in place
Enforcement Notice (January 2023) who have already delivered material operational improvements. One of two RPs
with material arrears. Rent payments have increased and creditors agreement is
expected to be agreed in the first half of 2024.
Chrysalis 5.40% 27 November 2017 Substantially agreed, expected to be signed in Q1 2024 Registered Provider 2004 335 No judgement or notice received Relatively small RP. Highly responsive management team and Board. Consistent
operational performance.
BeST 5.20% 41 October 2017 Substantially agreed, expected to be signed in Q1 2024 Registered Provider 2010 1,720 Non-compliant Notice (May 2019) New CEO in position since the start of 2024. Decision taken to pursue a merger
with Westmoreland which, if successful, will complete in early 2025 and will
create a stronger combined entity.
Auckland 4.70% 30 October 2017 Discussions ongoing, expected to be signed in Q1 2024 Registered Provider 2010 951 Non-compliant Notice (August 2021) New management team and additional Board members in place following April 2023
Enforcement Notice (April 2023) enforcement notice. Improved performance and engagement has followed.
Blue Square 3.90% 12 May 2020 Discussions ongoing, expected to be signed in Q1 2024 Registered Provider 2012 540 No judgement or notice received Relatively small RP. Consistent management team and Board, consistent
operational performance.
Care Housing Association 3.60% 11 April 2018 Substantially agreed, expected to be signed in Q1 2024 Registered Provider 2003 437 No judgement or notice received Relatively small RP with tight regional focus. Consistent management team and
Board, consistent operational performance.
*The Specialised Supported Housing sector is regulated by the Regulator who
carries out assessments on registered providers either through a scheduled
In-depth assessment ("IDA") or reactive engagement. When a registered provider
passes the 1,000-unit threshold, it automatically becomes subject to a
detailed IDA by the Regulator. The IDA assesses compliance with the
requirements of the Governance and Financial Viability Standard. The outcome
of an IDA results in the Regulator publishing a formal grading (V 1-4 for
Viability and G 1-4 for Governance, where V1-2 and G1-2 are considered
"compliant" ratings, and V3-4 and G3-4 are considered "non-compliant"
ratings), known as a regulatory judgement.
As noted in the Group's update published on the 13 November 2023, we are
working towards finalising a creditor's agreement with My Space which we
expect to be put in place during the first half of 2024. Simultaneously we are
working with My Space to move a small number of properties to alternative
Registered Providers.
Our decision to keep leases with My Space reflects a significant strengthening
of the Registered Provider's senior management team and Board. In particular,
the new CEO, who joined My Space in September 2023, has driven material
operational change, improved dialogue and engagement with the Regulator of
Social Housing and increased rent payments to Landlords. We are supportive of
his plans for the organisation and are of the view that the Group's rental
income generated from the properties leased to My Space can best be improved
and sustained over the long-term if the majority of the Group's leases remain
with My Space. We are nonetheless considering moving a small number of the
Group's properties currently leased to My Space to alternative Registered
Providers. Principally, this relates to the selected alternative Registered
Provider's superior geographical coverage in the area relevant to the
properties and their ability to deliver better housing management services, as
well as to constructively engage with the relevant Local Authority
commissioners.
As noted in the interim report, in August 2023 we put in place a creditors
agreement with Parasol which was effective from 1 July 2023 and was reflective
of the level of rent being received by Parasol at the time. Parasol have
consistently met the terms of the agreement and we have extended it for a
further six months whilst we finalise a longer-term agreement with Parasol
that should see rent paid to the Group by Parasol increase over time. In the
event that we are not able to reach an equitable long-term agreement with
Parasol we have identified and agreed terms with an alternative Registered
Provider who we would look to move the Group's Parasol leased properties to.
Any transfer of properties would be undertaken with the interests of the
residents at the forefront of the transfer process.
The Regulator of Social Housing remains active in this sector and continues to
engage closely with a number of the Group's Registered Provider partners. We
view this positively as it promotes greater accountability and transparency,
and higher financial and governance standards. In the Group's latest Interim
Report, we noted that in the first six months of the year ended 31 December
2023, the Regulator of Social Housing issued Enforcement Notices in relation
to My Space and Auckland Home Solutions, accounting for 7.7% and 4.7% of the
Group's rent roll, respectively. We are pleased to note that since then no
further notices or judgements have been issued by the Regulator of Social
Housing in relation to any of the Group's lessees. For the Group's Registered
Providers about whom the Regulator of Social Housing had previously issued
judgements or notices, this is testament to their willingness to engage
constructively with the Regulator of Social Housing to address their
historical observations, and the progress made in this regard.
Property Portfolio
As at 31 December 2023, the portfolio comprised 493 properties with 3,417
units and represented a broad geographic diversification across the UK. The
four largest concentrated areas by market value were the North West (19.1%),
West Midlands (17.1%), Yorkshire (15.1%) and East Midlands (11.1%). The IFRS
value of the portfolio at 31 December 2023 was £678.4 million compared to
£669.1 million at 31 December 2022, growth of 1.4% during the period.
Rental Income
In total, the Group had 390 leases which generated total annualised contracted
rental income of £41.0 million as at 31 December 2023. During the year IFRS
Revenue was £39.8 million compared to £37.3 million in 2022.
At the year end, the Group's three largest Approved Providers by annualised
contracted rental income and units were Inclusion Housing (£11.8 million and
911 units), Parasol Homes (£4.0 million and 246 units) and Hilldale (£3.5
million and 317 units).
As at 31 December 2023, the portfolio had a WAULT of 24.3 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.
100% of the Group's contracted income is generated under leases which are
indexed against either CPI (92.5%) or RPI (7.5%). For 2023 all Registered
Provider leases temporarily had rent increases capped at 7.0%. The new lease
clause that is being introduced into all existing Registered Provider leases
provides for an increase in the annual rent payable to the Group amounting to
the lower of 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. A full update on the roll out of the new lease clause
is included in the New Lease Clause Update section above.
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 7.5% 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 24.3 years.
Rent collection during the year was 90.2% (31 December 2022: 91.8%) and a full
update on rent arrears is included in the Registered Provider Update section
above.
Outlook
Looking forward to a year in which there will likely be a General Election, we
are reassured that our business model is unlikely to be impacted by the
result. Specialised Supported Housing continues to enjoy cross-party support
due to its ability to provide independent homes to individuals with care needs
whilst ensuring they can remain within their local community receiving the
care and support on which they rely. Whatever form the next Government takes,
we expect them to preserve the level of benefits available to some of the most
vulnerable members of society. Similarly, due to a cross-party focus on fiscal
responsibility, we expect any new Government to continue to rely on private
funding to help build the new homes required to make meaningful inroads into
the UK's housing crisis. All of this reaffirms the strong fundamentals on
which the Group's strategy is predicated.
This favourable outlook, combined with the Group's strong protection from
higher interest rates (due to its attractively priced long-term debt) and
inflation (through its inflation-linked leases) allows us as the Investment
Manager to focus on the things we can control, namely preserving the long-term
performance of the Group's portfolio through active asset management.
We remain focused on delivering key strategic initiatives such as the
Eco-Retrofit programme and the roll-out of the risk sharing clause, whilst
simultaneously continuing to monitor and react to the granular performance of
the Group's property portfolio. A major focus will be on ensuring that the
time spent in 2023 working on long-term plans in relation to the Group's
properties leased to My Space and Parasol deliver a material increase in rent
collection during 2024.
The dividend is now covered on a run rate basis and we expect this approach to
be supportive of increased dividend cover over the next 12 months as rent
receipts increase. Over the longer-term, the Group's compelling capital
structure, combined with the strong rental growth of the last 24 months, which
is expected to continue this year, is supportive of a progressive dividend
policy and a covered dividend. As Investment Manager, we are focused on
ensuring that we move to a period of long-term dividend cover over the next 12
months.
Finally, we aim to continue to deliver good homes to people with care and
support needs throughout the UK. Our ability to deploy capital into additional
homes is currently limited but we remain focused on ensuring that our existing
portfolio best meets the needs of the individuals we provide homes to. In this
regard, there is no substitute for the active approach we take to asset and
property management, and the relationship-driven partnership approach we
employ with the Registered Providers and Care Providers responsible for
servicing the needs of our residents.
From the provision of good homes comes resilient long-term investor returns,
so we expect that by maintaining our focus on these areas we can ensure the
continued resilience of the Group's portfolio and deliver value to the Group's
shareholders.
Max Shenkman
Head of Investment
7 March 2024
Notes:
1https://www.gov.uk/government/publications/people-at-the-heart-of-care-adult-social-care-reform-white-paper/people-at-the-heart-of-care-adult-social-care-reform
(https://www.gov.uk/government/publications/people-at-the-heart-of-care-adult-social-care-reform-white-paper/people-at-the-heart-of-care-adult-social-care-reform)
2 A Section 114 notice indicates that the relevant council's forecast income
is insufficient to meet its forecast expenditure for the next year. No new
expenditure is permitted, with the exception of the funding of statutory
services, including safeguarding vulnerable people. Existing commitments and
contracts will continue to be honoured.
3 Spending on affordable housing in England to be slashed in 2024; FT.com;
https://www.ft.com/content/11e09c45-dec4-485e-9576-221859509e30
(https://www.ft.com/content/11e09c45-dec4-485e-9576-221859509e30)
PORTFOLIO SUMMARY
Region Properties % of funds invested*
North West 97 19.1
West Midlands 82 16.3
Yorkshire 66 15.2
East Midlands 55 11.1
North East 51 9.9
South East 61 9.3
London 27 8.6
South West 29 4.8
East 21 4.2
Scotland 2 1
Wales 2 0.5
Total 493 100
*calculated excluding acquisition costs
SUSTAINABILITY REPORT
We aim to be one of the leading investors in UK Specialised Supported Housing
and this is reflected in our constantly evolving and committed approach to
embedding social outcomes through the homes we create, alongside an
understanding of the need to ensure wider environmental, social and governance
(ESG) factors in decisions taken by the Group and our counterparties.
Our business model seeks to ensure that our properties are suitable to meet
residents' needs and assist local authorities in responding to local demand
for the benefit of the wider community. Social impact is therefore at the
heart of what we do, and we focus on investing where there is clear long-term
social need. How we do this is summarised below and set out in further detail
in the independent Impact Report available separately on the website(1). We
maintain a robust corporate governance framework, and this is described in
further detail within our Governance Report in the Annual Report. We also
recognise the importance of a wide range of other social factors alongside
environmental considerations and in particular environmental efficiency, which
is becoming increasingly integral to our investment strategy.
The Group's sustainability
The Group continues to provide homes to individuals who need housing and
support. These are some of the most vulnerable members of society, with a
range of learning disabilities, physical disabilities, and mental health
diagnoses. Conversations with housing providers, care providers and local
authority commissioners confirm that there is a high level of underlying
demand for Specialised Supported Housing. We also have a responsibility to
consider the wider risk, opportunities and impacts of sustainability issues if
the Group is to succeed in providing high quality social housing for
vulnerable people over the long term.
We understand the importance of transparent reporting as a requisite to
accountability for strong sustainability performance. We have identified key
environmental, social and governance data points that play a role in
influencing the strategy's sustainable future. These data points incorporate
areas where the Group has the ability to drive positive change across its
portfolio and the wider sector.
To demonstrate our commitment to sustainability progress, the Group has opted
to track and report on the ESG data points noted in table 1 below. In addition
to reporting data for FY 2023, where relevant, we have included data from 2022
to demonstrate year-on-year change. For the first time, targets have now been
set on the carbon emissions of properties. Prior to this, data was being
tracked with explicit action only relating to the EPC profile of the
portfolio.
Sustainability Table 1. Portfolio sustainability performance for the reporting
year ended 31 December 2023
Metric FY23 FY22 (if applicable)
Portfolio EPC ratings A-C: 71.04%(2) A-C: 70.87%(2)
A: 0.41% A: 0.40%
B: 30.80% B: 31.15%
C: 39.83% C 39.31%
D: 21.99% D: 22.02%
E: 6.81% E: 6.95%
F: 0.12% F: 0.12%
Scope 3 property emissions (Tonnes)(3) 4,763 tonnes (Location-based emissions) 3,610 tonnes (estimated)
3,464 tonnes (Market-based emissions)
Property emissions intensity(4) 30.9 tCO2e /m(2) (location-based) 1.4 tonnes per property (estimated)
22.4 tCO2e /m(2) (market-based)
Metric FY23 FY22 (if applicable)
Number of properties and location(5) East 21 128 East 20 125
East Midlands 55 412 East Midlands 58 442
London 27 191 London 27 192
North East 51 400 North East 50 377
North West 97 705 North West 99 732
Scotland 2 29 Scotland 2 29
South East 61 272 South East 62 276
South West 29 167 South West 29 167
Wales 2 20 Wales 2 20
West Midlands 82 545 West Midlands 84 554
Yorkshire 66 548 Yorkshire 64 542
493 3417 497 3456
Percentage of residents satisfied with the quality of their home(6) 91% 91%
Metric FY23 FY22 (if applicable)
Quality rating of care providers (Care Quality Commission) % at outstanding / 83% 85%
good
Investment Trust Governance Average age: 67
Gender split ratio: Please see the Governance report in the Annual Report for
gender disclosure.
Ethnicity split: list of %'s: Please see the Governance report in the Annual
Report for ethnicity disclosure.
Non-executives vs. directors ratio: 100% Non-executive Directors
Experience: Please seethe Governance report in the Annual Report for board
members' biographies.
Board engagement with ESG The Board receives specific sustainability training from the Investment
Manager's Head of Sustainability at a minimum of every 2 years. The Board last
undertook training in 2022, with a further session due to take place in 2024.
In addition, the Board has established a Sustainability & Impact Committee
ESG Training during the period, which is kept informed by the Investment Manager's
Sustainability team of regulatory changes which do or are likely to impact the
Company's ESG strategy.
Environment The Sustainability & Impact Committee considered, and recommended to the
Board for approval, the commencement of an Eco-Retrofit Pilot Project.
Specifically, this is a sector-first programme to fund the upgrade of 11
properties within the Group's portfolio to a minimum EPC of "C".
In addition, the Sustainability & Impact Committee considered, and
recommended to the Board for approval, the proposal to commit the Company to
reduce portfolio emissions by 75% per m2 by 2035 from a baseline year of 2021.
The Board subsequently approved both recommendations. Further information
can be found in the Sustainability & Impact Committee report in the Annual
Report.
Social In order to address Regulator concerns regarding risks that long leases can
pose to Registered Providers (such as risk of changes to Government policy
impacting the amount of housing benefit available to individuals living in
Specialised Supported Housing and therefore Registered Providers' ability to
pay lease rent), the Board considered and approved the roll out of a new risk
sharing clause throughout the Group's portfolio of Registered Provider leases.
This clause will enable the Boards of Registered Providers to demonstrate an
improved risk management strategy, by mitigating some of the historical risk
associated with long leases. Further information can be found in the
Investment Manager's report.
Governance During the period, the Board decided to change the membership and structure of
the Board's Committees, as announced on 24 May 2023. The key changes included
implementing smaller Committees, to ensure better management of the Board's
duties, as well as the establishment of a Sustainability & Impact
Committee, to ensure there is appropriate oversight and focus on the Group's
ESG strategy.
East 20 125
East Midlands 58 442
London 27 192
North East 50 377
North West 99 732
Scotland 2 29
South East 62 276
South West 29 167
Wales 2 20
West Midlands 84 554
Yorkshire 64 542
497 3456
Percentage of residents satisfied with the quality of their home(6)
91%
91%
Metric
FY23
FY22 (if applicable)
Quality rating of care providers (Care Quality Commission) % at outstanding /
good
83%
85%
Investment Trust Governance
Average age: 67
Gender split ratio: Please see the Governance report in the Annual Report for
gender disclosure.
Ethnicity split: list of %'s: Please see the Governance report in the Annual
Report for ethnicity disclosure.
Non-executives vs. directors ratio: 100% Non-executive Directors
Experience: Please seethe Governance report in the Annual Report for board
members' biographies.
Board engagement with ESG
ESG Training
The Board receives specific sustainability training from the Investment
Manager's Head of Sustainability at a minimum of every 2 years. The Board last
undertook training in 2022, with a further session due to take place in 2024.
In addition, the Board has established a Sustainability & Impact Committee
during the period, which is kept informed by the Investment Manager's
Sustainability team of regulatory changes which do or are likely to impact the
Company's ESG strategy.
Environment
The Sustainability & Impact Committee considered, and recommended to the
Board for approval, the commencement of an Eco-Retrofit Pilot Project.
Specifically, this is a sector-first programme to fund the upgrade of 11
properties within the Group's portfolio to a minimum EPC of "C".
In addition, the Sustainability & Impact Committee considered, and
recommended to the Board for approval, the proposal to commit the Company to
reduce portfolio emissions by 75% per m2 by 2035 from a baseline year of 2021.
The Board subsequently approved both recommendations. Further information
can be found in the Sustainability & Impact Committee report in the Annual
Report.
Social
In order to address Regulator concerns regarding risks that long leases can
pose to Registered Providers (such as risk of changes to Government policy
impacting the amount of housing benefit available to individuals living in
Specialised Supported Housing and therefore Registered Providers' ability to
pay lease rent), the Board considered and approved the roll out of a new risk
sharing clause throughout the Group's portfolio of Registered Provider leases.
This clause will enable the Boards of Registered Providers to demonstrate an
improved risk management strategy, by mitigating some of the historical risk
associated with long leases. Further information can be found in the
Investment Manager's report.
Governance
During the period, the Board decided to change the membership and structure of
the Board's Committees, as announced on 24 May 2023. The key changes included
implementing smaller Committees, to ensure better management of the Board's
duties, as well as the establishment of a Sustainability & Impact
Committee, to ensure there is appropriate oversight and focus on the Group's
ESG strategy.
Sustainability approaches: Impact and ESG integration
The Group's approach to sustainability is to create social impact by
delivering homes for vulnerable individuals supported through the additional
management of wider risks and opportunities which may impact the quality of
those homes or the long-term value of the assets through the integration of
ESG factors in the investment decision making process.
Impact creation: The Government estimates that demand for Specialised
Supported Housing is set to increase by 125,000 by 2030(7). A growing
prevalence of disability, combined with the requirement to move people out of
institutional care settings and provide independent community homes, is
driving this increase in demand. Through the Group's investments and
partnerships with Registered Providers, our social impact goal is to increase
the provision of Specialised Supported Housing that delivers positive outcomes
for people with care and support needs. Under this overall impact goal, the
Group has established the following set of impact objectives and identified
the target outcomes to which the Fund aims to contribute:
Impact objectives Target outcomes(8)
The areas under the Group's direct control or influence: The outcomes for people and planet; these depend on many factors, one of which
may be the Group's activities
Contribute towards
Social Need; Improve wellbeing
Fund sustainable developments; Value for money
Increase supply;
Quality services and partnerships
The Good Economy conduct an independent assessment of the impact objectives
and target outcomes. Full details regarding the impact results can be found at
The Good Economy's website(9).
ESG integration: In conjunction with the Board's endorsement, and in line with
the Principles of Responsible Investment (PRI), the Investment Manager has an
ESG integration policy in place, directly relating to the Group's investments
with the aim of ensuring value for investors, coupled with respecting society
and the environment. Within this integration policy, the Investment Manager
has set out principles which it incorporates throughout its business, for
example, to consider the impact of operations on local communities and to
uphold high standards of business integrity and honesty.
An overview of how ESG is integrated throughout the investment process is
outlined in table 2, whilst further details of this process, including
examples, can be found within the ESG integration policy (available on the
Group's website(10)).
Sustainability Table 2. The Group integrates ESG throughout all stages of the
investment process.
Investment stage Sustainability activities
Origination and initial due diligence Key ESG and impact factors are summarised within the team's internal pipeline
tracker. An opportunity will only progress to incurring costs once the senior
investment team members believe that ESG conditions are being met or managed
and the opportunity does not present a material ESG risk.
Cost incurring due diligence Key ESG considerations are assessed on a deal-by-deal basis within the ESG due
diligence questionnaire. A new due diligence tracker is completed for new
transactions and the tracker also assesses transactions against six impact
objectives.
The ESG due diligence questionnaire is designed to capture all the ESG metrics
collated throughout the origination and due diligence phase and ensures
compliance with minimum standards set for properties entering the portfolio.
Property Investment Committee ESG factors are presented and considered by members of the investment
committee within a paper which is accompanied by the due diligence tracker for
all supporting ESG data.
The meeting minutes will record any ESG issues raised, with confirmation that
ESG factors have been considered, and the committee believes that once any ESG
conditions are met, the deal does not present a material ESG risk. The final
due diligence tracker will record any investment committee comments or actions
on ESG.
Ownership and asset management On-going conversations with partners to discuss and gather insight and share
good practice as well as identifying any early future challenges. Property
performance is monitored to ensure that social needs continue to be met.
The governance of existing counterparties is monitored through regular
meetings and inspections.
We consider how to optimise ESG performance across the portfolio - for
example, upgrading the EPC ratings of existing properties through retrofit
activities.
We engage in sector-wide discussions about ESG performance and best practices.
Exit If properties are sold, we will disclose ESG improvements during the period of
ownership and share information regarding our responsible investment approach.
When considering ESG within the investment process, a materiality approach is
taken to ensure focus is given to those issues most likely to negatively
impact or positively strengthen the homes we are investing in. These factors
are under continual review as we recognise the non-static nature of ESG. Our
approach is to track and improve behaviours across this range of factors using
our ESG due diligence questionnaire and ESG metrics.
In 2023, we developed an updated ESG due diligence questionnaire which
includes certain minimum standards for a project to be accepted. This refined
due diligence process represents our commitment to improve the standards of
all developments entering the portfolio. Further details on our new build
sustainability expectations can be found below. The new due diligence
requirements supplement existing minimum standards in place for retrofit
projects.
The details below summarise the specific areas of ESG interrogation.
Environment
When acquiring assets, we look closely at their environmental impact, and
encourage a sustainable approach for new development. We also look to ensure
the environmental impact is considered in relation to the maintenance and
upgrading of existing properties; the retrofit project is designed to enhance
the properties in the existing portfolio.
We require every property we acquire to have a minimum energy performance
rating of at least a 'C' on an EPC for renovated properties and at least a 'B'
on an EPC for new-build properties, notwithstanding the legal requirement for
any privately rented properties to have a minimum energy performance rating of
E on an EPC. Furthermore, due to ongoing uncertainty surrounding The
Environment Act's Biodiversity Net Gain rules for infrastructure projects, the
Group has proactively embraced the requirement ahead of its legislative
implementation. The Group encourages all newly constructed developments to
achieve a minimum Biodiversity Net Gain of 10%, emphasising a preference for
on-site gains. This evaluation takes place during the due diligence stage, and
assistance is offered, as needed, to ensure the target for biodiversity net
gain is met.
Through our rigorous and evolving due diligence process, the high standards we
expect from developers and significant investment in the Specialised Supported
Housing sector, we have been able to provide capital and expertise that has
enabled our counterparties to progress alongside us. We focus on offering
residents resource-efficient and adapted living areas which help ensure our
investments are fit-for-purpose and sustain their value over the long-term. As
a landlord, we consider the opportunities we have to help reduce running costs
for our lessees and occupiers and increase resident well-being.
The Group's Commitment to Net Zero
The Group is committed to reducing carbon emissions across its property
portfolio. Our climate change strategy is informed by scientific perspective,
long-term protection of assets and regulatory requirements. We seek to
contribute towards the transition to a low-carbon economy. In January 2024,
the Board adopted the following near-term science aligned(11) net zero pathway
for the Company:
The Group commits to reduce its social housing portfolio emissions by 75% per
m2 by 2035 from a baseline year of 2021.
The establishment of this target represents a significant milestone for the
fund, demonstrating commitment to upholding our fiduciary duty through the
long-term protection of assets and value creation. Our strategy places
paramount importance on collaboration with all stakeholders, actively
fostering engagement with Registered Providers, Care Providers, and Tenants.
This collaborative approach is integral to ensuring concerted action and
favourable outcomes for all involved parties.
Each year we will report emissions across the portfolio, in addition to
reporting progress with regards to the carbon intensity of the portfolio per
m2 and progress against this target.
This near-term target has been recently set, and the Board will hold the
Investment Manager accountable for its implementation. Progress updates will
be communicated through the Sustainability Committee. An external data
provider is being utilised to enhance the quality of the energy and carbon
data. The Investment Manager engages external carbon specialists to support
their annual carbon footprint process and The Group's footprint will be
incorporated within this. The goal itself was set as a result of a year-long
project with The Carbon Trust to ensure it is science aligned. Further audit
plans have not yet been opined on.
Further details on climate action are provided in the Company's TCFD
disclosure. While not in scope of this requirement yet, the Company continues
to produce a TCFD report ahead of FCA expectations to demonstrate its support
for the disclosures.
The Fund seeks to demonstrate best practice in transparency and has included
its second disclosure within this report. Further details are found in the
Climate Risk analysis section, and the full report is set out in the Annual
Report.
Retrofit pilot project
The Property Asset Management team of the Investment Manager has devised an
extensive retrofit pilot programme aimed at enhancing the energy efficiency of
properties. The primary objectives include aligning with EPC regulation
changes, reducing tenant costs, and minimising portfolio-wide emissions.
Commencing in 2023, the retrofit pilot has successfully implemented upgrades
in four out of the eleven designated properties. The current retrofit actions
have focused on improving insulation (a fabric first approach) in addition to
the installation of solar PV systems.
The pilot phase is strategically designed to gain a deeper understanding of
the practicalities associated with retrofitting Specialised Supported Housing.
The execution of these works requires careful and considerate planning,
especially with regard to the impact on residents whilst works are carried
out, and the ease of functionality for all technology that is used, including
heating controls and ventilation systems.
The pilot phase targets completion by end of FY24.
Enhanced Sustainability Due Diligence for New Builds
In 2023, the Group introduced an extensive sustainability due diligence
process for all newly constructed properties, leveraging internationally
recognised frameworks to underpin its development initiatives(12). The
implementation of these expectations demonstrates our commitment to upholding
elevated environmental and social standards for all new properties entering
the portfolio.
The new framework places particular emphasis on key areas of development,
including location and transport, construction practices, environment,
workforce well-being, supply chain integrity, and governance. With the rollout
of the enhanced due diligence process, we have actively collaborated with
prospective developers, providing support to refine their plans and surpass
the established standards.
For further details, refer to the Chorley case study in the Investment
Manager's report.
Social and Social Impact
Our properties aim to provide multiple benefits to local communities. We want
to provide residents with safe and secure accommodation, which meet their
individual care needs. We work with Approved Provider lessees to enable them
to grow the portfolio of properties they are responsible for managing,
allowing them to expand the number of individuals they support whilst
providing employment for local carers, housing managers and builders. While
development and refurbishment can cause some minor short-term disruption to an
area, these activities help create employment and, at the same time, help
alleviate the UK's housing crisis.
The Company is committed to elevating resident satisfaction and well-being
across our properties where feasible and practical. On behalf of the Company,
the Investment Manager seeks out initiatives aimed at enhancing outcomes for
residents, as exemplified in the Hazelbank Garden case study provided in the
Sustainability Report within the Annual Report. Although replicating the
investment seen at Hazelbank will be uncommon and is not achievable for every
property, there was a favourable opportunity to enhance the garden space and
enrich the overall resident experience which was identified and executed. We
continue to seek such opportunities and investment will be reviewed on a
case-by-case basis.
Recognising the pivotal link between the built environment and resident
well-being, any further such investment will prioritise the creation of living
spaces that positively impact physical and mental health.
Governance
The Group looks to encourage best practice governance among all counterparties
in order to minimise operational risks and encourage them to continually
assess how they can contribute more to employees, residents, wider society,
and the environment, through compliance with legislation and regulations, and
the adoption and implementation of issue-specific policies. Details on the
Group's corporate governance practices are set out in the Annual Report.
Climate risk analysis
Climate-related risks and appropriate mitigation is a growing area of focus
for the Group. The team is seeking to roll out comprehensive climate analysis
initiatives to support risk mitigation and forward planning. This will
encompass both existing portfolio properties as well as becoming incorporated
into the selection process for new properties.
The Group considers the climate change strategy of its portfolio including a
review of its climate risks and opportunities. The fund reports disclosures in
line with the recommendations of the Taskforce on Climate-related Financial
Disclosures (TCFD). These are designed to provide a framework to take account
of climate-related risks and opportunities and ensure that corporate reporting
is consistent and comparable.
The Group is pleased to report its progress to date in line with the eleven
disclosures set out in the TCFD recommendations.
Please refer to the Annual Report for the Group's full TCFD disclosure.
Wider Governance and sustainable business behaviours of the Group and
Investment Manager
B Corporation(13)
As a B Corporation, the Investment Manager is committed to meeting high
standards of verified performance, accountability, and transparency on factors
from employee benefits and charitable giving to supply chain practices and
input materials. The Investment Manager published their first sustainability
report in 2023(14), fulfilling the B Corp reporting requirements.
Business Relationships
The Group has a set of corporate providers that ensure the smooth running of
the Group's activities. The Group's key service providers are listed in the
Annual Report, and the Management Engagement Committee annually reviews the
effectiveness and performance of these service providers, taking into account
any feedback received. The Group also benefits from the commitment and
flexibility of its corporate lenders for its debt facilities. Each of these
relationships is important to the long-term success of the business. The Group
and the Investment Manager maintain high standards of business conduct by
acting in a collaborative and responsible manner with all its business
partners that protects the reputation of the Group as a whole.
Employees
The Group has no employees and accordingly no requirement to separately report
on this area.
The Investment Manager is an equal opportunities employer who respects and
seeks to empower each individual and the diverse cultures, perspectives,
skills and experiences within its workforce. The Investment Manager places
great importance on company culture and the wellbeing of its employees and
considers various initiatives and events to ensure a positive working
environment.
Health and Safety
The Group is committed to fostering the highest standards in health and
safety. Day-to-day responsibility for health and safety in our properties is
shared by the Approved Providers and care providers who manage the housing and
provide care. Our Investment Manager requests confirmation from Approved
Providers that all properties remain compliant and visits properties,
following an agreed visiting schedule, to verify this. Every quarter the Board
is provided with updates on the health and safety of our residents.
Diversity
We are an externally managed business and do not have any employees or office
space. As such the Group does not operate a diversity policy with regards to
any administrative, management and supervisory functions. A description of the
Board's policy on diversity can be found in the Annual Report.
Human Rights
The Group is within the scope of the Modern Slavery Act 2015 and is therefore
obliged to make a slavery and human trafficking statement. The Modern Slavery
Act statement can be found on the Group's website(15).
The Board are satisfied that, to the best of their knowledge, the Company's
principal advisers, which are listed in the Shareholder Information section in
the Annual Report comply with the provisions of the UK Modern Slavery Act
2015.
The Investment Manager takes the risk of Modern Slavery extremely seriously.
The Investment Manager's responsibilities as both an employer and investor are
laid out in the public Modern Slavery Act Statement.
Notes:
1https://www.triplepointreit.com//sustainability-and-impact/150/
(https://www.triplepointreit.com/sustainability-and-impact/150/)
2 During FY23, 42 individual units with EPC ratings left the portfolio (due to
the sale of four properties), the majority of which were rated either EPC B or
C, while 5 were rated D and E. In the same period, nine properties received
improved EPC ratings, moving from either E to C, D to B, D or C, while other
EPCs were re-affirmed. Overall, there has been a very minor increase in the
portfolio wide EPC A-C rating (70.87% to 71.04%).
3 The emission data is calculated using property gas and electricity
consumption only, and therefore is not a complete Scope 3 figure. Property
carbon emissions for 2023 use actual electricity and gas consumption for the
portfolio. The 2023 annual report is the first reporting period using actual
consumption data, compared to previous years estimates from the ECP register.
It is the change in methodology that has led to the increase in reported
emissions, and we commit to use a comparable methodology for emissions
reporting moving forward. The 2023 emissions data incorporates over 90% of the
Group's electricity and gas meters, with work ongoing to match the remaining
portfolio meters. Consumption is calculated using the latest meter reads
collected by smart meters or provided by tenants, to create annual consumption
values for electricity, and annual quantities for gas. This is the same data
used for billing. The aggregate consumption values used in the calculation are
the sum of all the annual values per meter. These values are submitted by the
suppliers to Electralink and the Data Transfer Network for market settlement
purposes. The location-based emissions use the standard 2023 DEFRA GHG
emission factor for Co2e per KhW for all properties, while the market-based
emission figure is calculated by multiplying the fuel mix disclosed by the
individual supplier (for electricity only) with the consumption value, to
calculate the overall footprint. The Group commits to continue to report
actual property emission data using both methods and to improve the quality of
data.
4 The Group have opted to report GHG emission intensity per square metre in
2023, rather than per property as used in the 2022 report. The Group's net
zero target is set on an emission per square metre basis and the Group has
committed to reporting this data on an annual basis to demonstrate progress
towards the near-term target. Additional details of the near-term net zero
target can be found within the Sustainability Report in the Annual Report. Our
near-term net zero target was set using estimations, and therefore, following
SBTi guidance, we have included the location-based emissions. We will continue
to track market-based emissions and the individual suppliers and tariffs.
5 The variations between FY22-FY23 are caused by the disposal of 4 properties
in addition to, as part of planned data reviews, a few amendments made to
properties for consistency across the portfolio.
6 Based on Resident Outcomes Surveys conducted for each year's Impact Report.
For Dec 2022 this is based on a sample of 60 residents and for Dec 2023 this
is based on a sample of 117 residents. Full methodology can be found in The
Good Economy independent impact report.
7https://www.gov.uk/government/publications/people-at-the-heart-of-care-adult-social-care-reform-white-paper/people-at-the-heart-of-care-adult-social-care-reform
(https://www.gov.uk/government/publications/people-at-the-heart-of-care-adult-social-care-reform-white-paper/people-at-the-heart-of-care-adult-social-care-reform)
8 Full details of our impact goals and outcomes can be found in The Good
Economy independent impact report on the Group's website.
9 https://thegoodeconomy.co.uk/client-reports
(https://thegoodeconomy.co.uk/client-reports)
10 https://www.triplepointreit.com/sustainability-and-impact/150/
(https://www.triplepointreit.com/sustainability-and-impact/150/)
11 Science-aligned pathways
(https://www.carbontrust.com/our-work-and-impact/guides-reports-and-tools/briefing-science-based-targets#:~:text=Science%2Dbased%20targets%20set%20the,a%201.5%C2%B0C%20pathway.)
are globally aligned goals, rooted in climate science, to reduce carbon
emissions and limit the world's temperature in line with the Paris Agreement.
The recommended target for SOHO follows a specific pathway for Real Estate
assets
(https://sciencebasedtargets.org/resources/files/DRAFT_SBTI_Buildings_Guidance.pdf)
using the required Sectoral Decarbonisation Approach (SDA)
(https://sciencebasedtargets.org/resources/files/Sectoral-Decarbonization-Approach-Report.pdf)
. The SDA approach specifies how much and how quickly a company needs to
reduce its GHG emissions in order to limit global warming to 1.5°C, as per
the Paris Agreement.
12Frameworks used to guide development include: Principles for Responsible
Investment, BREAM, GREESB, OECD 3, CDP, S&P CSA, Future Homes standard,
Building for Life standard, Code of Considerate Constructors, TCFD and TNFD.
13 Certified B Corporations, or B Corps, are companies verified by B Lab to
meet high standards of social and environmental performance, transparency, and
accountability. Further information can be found:
https://bcorporation.uk/b-corp-certification/what-is-a-b-corp/
(https://bcorporation.uk/b-corp-certification/what-is-a-b-corp/)
14 https://www.triplepoint.co.uk/approach-to-sustainability/116/
(https://www.triplepoint.co.uk/approach-to-sustainability/116/)
15 https://www.triplepointreit.com/sustainability-and-impact/150/
(https://www.triplepointreit.com/sustainability-and-impact/150/)
STAKEHOLDER ENGAGEMENT
This section describes how the Board engages with its key stakeholders, how it
considers their interests and the outcome of the engagement when making its
decisions, the likely consequences of any decision in the long-term, and
further ensures that it maintains a reputation for high standards of business
conduct. The Group is committed to continual stakeholder engagement and
implements a cycle of constant engagement at all stages of the Group's
investment lifecycle.
Section 172(1) Statement
Stakeholder Why is it important to engage? How have the Investment Manager/Directors engaged? What were the key topics of engagement? What was the feedback obtained and the outcome of the engagement?
Shareholders Investment from our shareholders plays an important role by providing capital The way in which we engage with our shareholders is set out in our Governance Financial and operational performance. The Board and the Investment Manager considered and undertook a share buyback
to ensure we can deliver additional housing into the Specialised Supported Report.
programme and a portfolio sale to address investor feedback regarding the
Housing sector. Company's share price. An extension of the share buyback programme was also
considered, as well as the impact that further share buybacks would have on
Through the investment of private capital into an under-funded sector, we can Share price discount to NAV and potential rectification action. the Company's liquidity.
achieve a positive social impact whilst ensuring our shareholders receive a
long-term inflation-linked return.
The share price, share buybacks and the sale of a portfolio. The Board and Investment Manager consider shareholder concerns when speaking
to the Regulator and agreed to keep shareholders updated of any developments.
We understand the importance of, and are committed to, working with Registered
Providers to address the concerns of the Regulator. Refer to the Market review
The regulatory environment of the Supported Housing sector. in the Investment Manager's Report.
Environmental, social and governance considerations. The Investment Manager has enhanced environmental, social and governance
considerations within its investment process, and within its own business.
Refer to Investment Manager's Report, and the Sustainability Report in the
Annual Report.
The Company's key service provider appointments, including the AIFM and broker
arrangements.
The Board and Manager consulted with a number of the Company's shareholders in
accordance with Provision 5.2.4 AIC Code of Corporate Governance, following
Understanding the underlying concerns of shareholders that resulted in 17.48% which it was acknowledged that active consideration is required regarding
and 22.62% votes against resolutions 3 and 13 respectively, at the Company's alleviation of the persistent discount to EPRA NTA.
2023 Annual General Meeting.
Residents Our strategy is centred on providing Specialised Supported Housing for our The Investment Manager monitors resident welfare through engagement with We provide oversight of resident welfare by undertaking due diligence on Resident issues raised as a result of engagement through care providers were
residents. We remain focused on providing homes to our residents which offer Approved Providers. The Investment Manager receives quarterly reports from properties before residents move in. We then monitor compliance with health addressed.
them greater independence than institutional accommodation, as well as meeting Approved Providers to ensure compliance with health and safety standards. We and safety standards to best ensure that residents are looked after by the
their specialist care needs. do not generally engage with residents directly. Instead, day-to-day Group's counterparties; we request updates on any health and safety issues
engagement is done by care providers and, to a lesser extent, Approved every quarter.
Providers. Any compliance issues are remedied with any associated works undertaken.
The Group's investment decisions are informed by the long-term needs of our
residents.
Investment Manager The Investment Manager is responsible for executing the Investment Objective The Board maintains regular and open dialogue with the Investment Manager at In addition to all matters related to the execution of the Company's As a result of the engagement between the Board and the Investment Manager the
within the Investment Policy of the Company. Board meetings and has regular contact on operational and investment matters Investment Objective, the Board engaged with the Investment Manager on Group has been able to execute its investment strategy and has considered what
outside of meetings. developments in the market and updates from the Regulator. adjustments can be made to the Group's model that will uphold financial and
governance standards while attracting further private investment.
Additionally, the Investment Manager produces reports to the Board every
quarter on various governance and operational matters at the Board's request.
Capital allocation is also considered with regard to the views of the Board.
Approved Providers Our relationship with Approved Providers is integral to ensuring rent is paid The Investment Manager looks to maintain good relationships with Approved The Investment Manager discussed a number of topics with Approved Providers Refer to the Investment Manager's Report.
to the Group and that properties are managed appropriately. Providers, having formal meetings with senior management at least every six including that properties are managed in accordance with their leases;
months as well as engaging more frequently on an ad hoc basis on a variety of financial reporting and governance; and specific property-related issues such
The Group's leases with Approved Providers are fully repairing and insuring - matters. Quarterly operational surveys and biannual compliance surveys are as occupancy, health and safety issues, rent levels, management accounts and
meaning that Approved Providers are responsible for management, repair and provided to the Investment Manager. governance.
maintenance, in addition to tenanting the properties.
Care Providers Our residents receive care from care providers. It is important to ensure that The Investment Manager engages with care providers as part of its due The Investment Manager engages with care providers on: the specific care and The Investment Manager rejected deals where care providers did not meet the
our vulnerable residents receive the best possible care. In addition, the care diligence process and regularly meets and engages with our provider support requirements of residents including health and safety compliance care or governance standards expected or where care providers were unable to
providers share the cost of voids with Approved Providers so we engage with representatives when inspecting the Group's portfolio, when reviewing (refer to Investment Manager's Report) property management by Approved demonstrate the financial strength to meet their obligations under a service
care providers to ensure our Approved Providers are able to pay our rent in quarterly data and on an ad hoc basis. Providers; financial and operational capacity for new schemes; occupancy level agreement.
the event of empty units. levels; and financial performance.
Following engagement, the scope of works was agreed with care providers to
Therefore, care providers play an essential role in the occupancy levels of produce properties that meet the specific care needs of residents.
our properties and strong engagement with the Group ensures the best possible
care for our residents. Whilst done at the relevant local authorities' discretion, care providers have
been changed where expectations around the standard of care were not met or
where engagement identified care providers in financial difficulties.
Local authorities Local authorities are responsible for identifying appropriate housing and care When looking at a new acquisition, the Investment Manager engages with, or The aim of the engagement is, as much as possible, to ensure that the The Investment Manager will listen to feedback from local authorities and,
for the individuals who live in the Group's properties. receives feedback from, various departments within local authorities including properties acquired by the Group are consistent with the requirements of the where possible, will work with Approved Providers to improve and upgrade
Commissioners and Housing Benefit officers. The Investment Manager will look relevant local authority. properties to ensure that they meet ongoing commissioning requirements.
New acquisitions are assessed to ensure that they meet the expectations of the to engage with a local authority in relation to an existing scheme if required
relevant Local Authority in order to ensure that referrals are made as (for example, if a new care provider is needed).
efficiently and safely as possible.
Where necessary, local authorities will be engaged directly post acquisition An initial pilot programme to implement energy efficiency upgrades across 11
of a property to access ongoing demand levels and any changes in commissioning initial properties is ongoing. Refer to the Investment Manager's Report for
strategy. more detail.
The Regulator The Regulator regulates Registered Providers of social housing to ensure The Investment Manager is in contact with the Regulator in order to understand Discussions with the Regulator are focused on ensuring the market evolves in The Investment Manager continues to work with the Boards of its Registered
providers are financially viable and properly governed. It is important to the key concerns and priorities of the Regulator in the Specialised Supported line with its observations, and Registered Providers can best focus on Provider lessees to understand how best we can help them meet the standards of
ensure that, as much as possible, the Group reflects observations made by the Housing Sector. addressing the Regulator's observations. the Regulator. Refer to the Investment Manager's Report for more detail.
Regulator in its investment structures and its engagement with its Registered
Provider lessees.
Lenders The Group's investments in social housing assets are partly funded by debt. The Investment Manager engages with its lenders mainly via the reporting of The Group engaged on the following topics: financial and information covenant The Group is fully compliant with its debt covenants.
Prudent debt financing is required to achieve the Group's return targets. financial and information covenants under the existing loan agreements on a reporting and; active asset management activities undertaken by the Group e.g.
quarterly basis. any other asset management activity that requires lenders' consent. The Investment Manager's pro-active engagement with the Group's lenders is
All of our debt is long-term and so it is important for the Group and the
welcomed by its lenders and to date no concerns in relation to the performance
Investment Manager to form a good relationship with our debt provider partners In addition, there are regular ad-hoc engagements in relation to general of its loans have been raised by the lenders.
and provide them with all information and commentary required. topics relating to the social housing sector as well as specific topics
arising from the financial and operational performance of the Group's The Board continues to monitor compliance with debt covenants and keeps
activities and future opportunities, and any other general matters affecting liquidity under constant review to make certain the Group has sufficient
the relationship between the Group and the lenders. headroom in its debt facilities.
In August 2023, Fitch Ratings reaffirmed the Group'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.
Principal Decisions
Principal decisions have been defined as those that have a material impact on
the Group and its key stakeholders. In taking these decisions, the Directors
considered their duties under section 172 of the Act.
Commencement of a share buyback programme of £5 million
During the year, the Board made the decision to undertake a share buyback
programme of £5 million, managed by Stifel. The Company bought back 9,322,512
ordinary shares between 19 April 2023 and 12 June 2023, at an average purchase
price of 52.61 pence per share. Further detail can be found in the Directors'
Report in the Annual Report. The Board believed that the share buyback
programme was accretive to NAV and would benefit dividend cover, and was
deemed to be made in the best interests of the Company's shareholders.
Portfolio Sale
The Board decided to market and sell a portfolio of properties, subject to
market conditions and pricing. The decision resulted in the sale of four
Specialised Supported Housing properties for an aggregate consideration of
£7,586,600 to a private UK real estate investment firm, reflecting a gain of
9.6% against the aggregate purchase price (excluding transaction costs).
The Board believed that the decision was in the best interests of the
shareholders, Approved Providers, Care Providers and the Specialised Supported
Housing sector, as the sale demonstrated continued liquidity and the
resilience of valuations in the sector. The sale comprised of properties
located across four Local Authorities and a range of property types, lessees
and Care Providers.
Dividend target to remain flat
During the year, the Board decided to keep the target dividend flat.
The Board believed that the decision was in the best interests of the
Company's shareholders, in order to preserve dividend cover for the current
financial year, whilst the Investment Manager focused on addressing the
significant rental arrears of two of its Approved Providers. Further detail
can be found in the Investment Manager's Report.
Change of Directors
During the year, the Company undertook a formal recruitment process led by the
Nomination Committee, with the support of an independent search consultancy,
for the appointment of a new Board member. This process actively encouraged a
diverse pool of candidates who could contribute specific skills and experience
identified by the Board and would support the Board's commitment to diversity,
in line with the FCA's targets under the Listing Rules. The Board were pleased
to announce the appointment of Cecily Davis as an Independent Non-Executive
Director with effect from 23 May 2023.
During the financial year, Paul Oliver stepped down from his role as an
Independent Non-Executive Director with effect from 30 June 2023.
Committee Changes
The Board decided to change the membership and structure of the Board's
Committees, as announced on 24 May 2023. The key changes included implementing
smaller Committees to ensure better management of the Board's duties, as well
as the establishment of a Sustainability & Impact Committee to ensure
there is appropriate oversight and focus on the Group's ESG strategy. Further
information of the Sustainability & Impact Committee in the Annual Report.
RISK MANAGEMENT
The Board recognises that effective risk management is key to the Group's
success and that a proactive approach is critical to ensuring the sustainable
growth and resilience of the Group.
In the Group's 2023 Interim Report, we noted that principal risks and
uncertainties remained unchanged during the period.
By way of background, the Group focuses on a single sub-sector of the UK real
estate market with the aim of delivering an attractive, growing and secure
income for shareholders. The Company has a specific investment policy, as
outlined in the Investment Policy section, which is adhered to and for which
the Board has overall responsibility. The Group does not undertake speculative
development. Furthermore, the Group looks to work with experienced lessees and
has assembled a granular portfolio with a relatively high WAULT.
As an externally managed investment company, the Company outsources key
services to the Investment Manager and other service providers and relies on
their systems and controls. The Board undertakes a formal risk review, with
the assistance of the audit committee, twice a year to assess and challenge
the effectiveness of the Company's risk management and internal control
systems. The Board regularly reviews the control reports of the key service
providers and the external auditors note any deficiencies in internal controls
and processes that have been identified during the course of the audit. A
description of the key internal controls of the Group can be found in the
Annual Report.
The Investment Manager has responsibility for identifying potential risks at
an early stage, escalating risks or changes to risk, and relevant
considerations and implementing appropriate mitigations which are recorded in
the Group's risk register. Where relevant the financial model is stress tested
to assess the potential impact of certain risks against the likelihood of
occurrence. The Board regularly reviews the risk register to ensure gradings
and mitigating actions remain appropriate.
The Group's risk management process is designed to identify, evaluate and
mitigate (rather than eliminate) the significant and emerging risks the Group
faces and continues to evolve to reflect changes in the Group's business and
operating environment. The process can therefore only provide reasonable, and
not absolute, assurance. It does however ensure a defined approach to decision
making that decreases uncertainty surrounding anticipated outcomes, balanced
against the objective of creating value for shareholders.
During the year, the Board has not identified or been advised of any failings
or weaknesses in the Group's risk management and internal control systems.
Going forward, the Board has reviewed and approved some enhancements to the
current risk management framework, which will become effective from April
2024. These enhancements will underpin the approach to the identification and
categorisation of risks, together with changes to the assessment approach -
being more reflective of the individual nature of the risks being considered.
These enhancements will enable the Board to view the risks through the lens of
Strategic risks, Financial risks (Investment, Capital & Liquidity) and
Non-Financial risks (Operational, Legal & Regulatory). In turn, the
Board will be setting appropriate risk appetites for its most material
risks.
Principal Risks and Uncertainties
The table below sets out what we, the Board, believe to be the principal risks
and uncertainties facing the Group. The table does not cover all of the risks
that the Group may face. Additional risks and uncertainties not presently
known to management or deemed to be less material at the date of this report
may also have an adverse effect on the Group.
Risk Category Risk Description Risk Impact Risk Mitigation Potential Impact Likelihood Change in Year
Property Default of one or more Approved Provider lessees The default of one or more of the Group's lessees could impact the rental Under the terms of the Company's investment policy and restrictions, no more Moderate Moderate to High Stable
income received from the relevant assets. If the lessee cannot remedy the than 30% of the Group's Gross Asset Value may be exposed to one lessee. This
default, the Group may have to terminate, re-assign or re-negotiate the restriction is in place to mitigate against the risk of significant rent loss
relevant lease. This could lead to a sustained reduction in rental income. in the event of an Approved Provider default.
Additionally, where a care provider does not renew the service level agreement When a lessee defaults or when the Group believes it likely that a lessee
with a lessee, this may result in a lessee having to cover rental payment on would default, the Group could look to move the affected properties to another
void units without receiving the corresponding housing benefit payment from Approved Provider with whom the Group has a good relationship. The intention
the care provider. would be to ensure both the ongoing provision of housing to the residents,
and, as much as possible, the preservation of the income stream associated
with the relevant properties.
Regulatory Risk of an Approved Provider being deemed non-compliant with the Governance Should an Approved Provider with which the Group has one or more leases in The Investment Manager has established relationships with the Approved Moderate Moderate to High Stable
and Viability Standard by the Regulator place be deemed non-compliant by the Regulator, in particular in relation to Providers with whom it works. The Approved Providers keep the Investment
viability, depending on the further actions of the Regulator, it is possible Manager informed of developments surrounding regulatory notices.
that there may be a negative impact on the market value of the relevant
properties which are the subject of such lease(s). Depending on the exposure
of the Group to such Approved Provider, this in turn may have a material
adverse effect on the Group's Net Asset Value unless the matter is resolved As at 31 December 2023, the Group has assembled a diversified portfolio with
through an improvement in the relevant Approved Provider's rating or the leases to 27 Approved Providers. The Group has leases in place with 10
transfer of leases to an alternative Approved Provider. Registered Providers that have been deemed non-compliant by the Regulator.
Where Registered Providers have been deemed non-compliant the Group has looked
to work with them in order to help address the issues identified by the
Regulator. The Group's commitment to this approach can be seen through the
Group's proposed new lease clause described in both the Chair's Statement and
the Investment Manager's Report.
Regulatory Risk of changes to the social housing regulatory regime and changes to Future governments may take a different approach to the social housing It is important that the Group works with the Group's Approved Provider Moderate Low to Moderate Decreased
government policy in relation to social housing and housing benefit. regulatory regime, resulting in significant changes to the law and other lessees to help ensure that they respond proactively to any changes in
regulation or practices of the Government with regard to social housing. regulation or policy and the Group understands what, if any, impact it will
have on their organisation and the properties that the Group leases to them.
As demand for social housing remains high relative to supply, the Board and
the Investment Manager are confident there will continue to be a viable market
within which to operate and a need for private investment to deliver more
homes.
In addition, the social housing regulatory regime in which most of the Group's
lessees operate provides a high degree of accountability and transparency.
Financial Risk Non-payment of voids cover by care providers If a care provider gets into financial difficulty and is unable to pay The Investment Manager closely monitors the performance of the care providers Moderate Moderate Stable
contracted voids cover to an Approved Provider, this could have a negative to ensure, so far as reasonably possible, that they are financially viable and
impact on the financial performance of the Approved Provider which ultimately performing well. Should a care provider get into financial difficulty, the
could impact its ability to pay the Group its rent. This risk is compounded if Group works with a wide range of alternative care providers who could step in
there is low occupancy in a property. to provide care services and therefore cover the voids payment.
Occupancy is also closely monitored and the Investment Manager works with
Approved Providers and care providers to optimise occupancy.
Financial Property valuations may be subject to change over time Property valuations are inherently subjective and uncertain. Market All of the Group's property assets are independently valued quarterly by Jones Moderate Moderate Stable
conditions, which may impact the creditworthiness of lessees, may adversely Lang LaSalle, a specialist property valuation firm, who are provided with
affect valuations. This is particularly relevant at the moment given rising regular updates on portfolio activity by the Investment Manager. The
interest rates and the resultant negative impact on property valuations. Investment Manager and Audit Committee meet with the external valuers to
discuss the basis of their valuations and their quality control processes.
Default risk of lessees is mitigated in accordance with the lessee default
principal risk explanation provided above. In order to protect against loss in
The portfolio is valued on a Market Value basis, which takes into account the value, the Investment Manager's property management team seeks routinely to
expected rental income to be received under the leases in the future. This visit each property in the portfolio, and works closely with the Group's
valuation methodology provides a significantly higher valuation than the lessees to ensure, to the extent reasonably possible, their ongoing financial
Vacant Possession value of a property. In the event of an unremedied default strength viability, and that governance procedures remain robust through the
of an Approved Provider lessee, the value of those assets in the portfolio may duration of the relevant lease.
be negatively affected.
Any changes could affect the Group's net asset value and the share price of
the Group.
Property Risk of poor or inadequate housing management (including compliance) or poor Approved Providers and care providers face a number of operational challenges The Investment Manager undertakes strategic property inspections in order to Moderate Moderate Stable
provision of care services by the Group's Approved Providers lessees and care (e.g. rising costs and labour shortages) which have heightened the risk of review the physical condition of the Group's properties as well as the quality
providers respectively. poor or inadequate housing management or poor care being provided in relation of services being provided to the Group's residents. In addition, there is
to the Group's properties. frequent engagement with the Group's Approved Providers and care providers as
well as quarterly operational and compliance surveys which provide data on the
performance of the Group's properties.
Poor services being provided to the individuals in the Group's properties
could undermine the benefits of Specialised Supported Housing and cause
reputational damage to the Group which could negatively impact the Group's
performance and/or the price of the Company's shares.
Financial Risk Higher than projected levels of inflation may impact Approved Providers' Most of the Group's leases contain upward only rent reviews, generally linked Moderate Moderate Stable
ability to pay rent due under the Group's leases. to inflation (typically CPI), with the majority being uncapped.
Having temporarily capped annual rent increases at 7% in 2023, the Group is
currently in the process of rolling out a new risk sharing clause that will
link rent increase in its leases with Registered Providers to the lower of CPI
Annual rental uplifts have been, and will continue to be, higher than or prevailing government policy in relation to Specialised Supported Housing
projected as a result of increased inflation. rent increases. This should mitigate the risk of the Group's lessees having to
accommodate rent increases that they are not able to fully recoup through
housing benefit.
Climate Risk The potential impact of climate change on the valuation of the Group's Changing weather patterns under projected climate change scenarios could The Investment Manager's sustainability team has been working with the housing Moderate Low to Moderate Stable
properties physically damage the Group's properties and reduce their value. New minimum team to assess the risk that climate change poses to the Group's properties.
efficiency standards could require retrofitting of efficiency measures, or The key transition risks to the portfolio have been identified and
result in a reduction in valuations. The impact of the most prominent qualitatively assessed. Physical risks to the portfolio have been assessed
climate-related risks to the portfolio is assessed in detail in the Group's using a new piece of analytical software and the outputs of this analysis are
TCFD reporting in the Annual Report. demonstrated in the Group's TCFD reporting in the Annual Report. The
Investment Manager will work to ensure protections are put in place for any
properties that are deemed to be at high risk to the negative impact of
climate change. The Group believes that the Group's reporting on climate
change is ahead of regulatory requirements.
Financial Unable to operate within debt covenants The borrowings the Group currently has and which the Group uses in the future The Investment Manager monitors loan to value and interest covenants ratios on High Low Stable
may contain loan to value and interest covenants ratios. If property an ongoing basis. In the unlikely event that an event of default occurs under
valuations and rental income significantly decrease, such covenants could be these covenants the Group has a remedy period during which it can potentially
breached. The impact of such an event could include (among other things): an cure the covenant breach by either injecting cash collateral or unencumbered
increase in borrowing costs; a requirement for additional cash or property property assets in order to restore covenant compliance.
collateral; payment of a fee to the lender; a sale of an asset or assets, or a
forfeit of an asset or any assets to a lender.
During the year ended 31 December 2023, no debt covenants have been breached.
Any of the above could result in a material decrease to the Group's Net Asset
Value.
Corporate Reliance on the Investment Manager The Company continues to rely on the Investment Manager's services and its Unless there is a default, either party may terminate the Investment High Low Stable
reputation in the social housing market. As a result, the Group's performance Management Agreement by giving not less than 12 months' written notice. The
will, to a large extent, depend on the Investment Manager's asset management Board regularly reviews and monitors the Investment Manager's performance. In
abilities in the property market. Termination of the Investment Management addition, the Board meets regularly with the Investment Manager to ensure that
Agreement would severely affect the Investment Manager's ability to the Company and the Investment Manager maintain a positive working
effectively manage the Group's operations and may have a negative impact on relationship.
the Group's performance and/or the price of the Company's shares.
GOING CONCERN AND VIABILITY
Going Concern
The Strategic Report and financial statements have set out the current
financial position of the Group and Parent Company. The Board has regularly
reviewed the position of the Company and its ability to continue as a going
concern in Board meetings throughout the year. The Group has targeted
high-quality properties in line with yield expectations and will continue to
analyse investment opportunities to ensure that they are the right fit for the
Group.
The Group benefits from a secure income stream from long leases which are not
overly reliant on any one tenant and present a well-diversified risk. The
Directors have reviewed the Group's forecast which shows the expected
annualised rental income exceeds the expected operating costs of the Group.
90% of rental income due and payable for the period ended 31 December 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
year, Fitch Ratings Limited assigned the Company an investment Long-Term
Issuer Default Rating of 'A-' with a stable outlook.
The Directors have performed an assessment of the ability of the Group to
continue as a going concern, for a period of at least 12 months from the date
of signing these financial statements. The Directors have considered the
expected obligations of the Group for the next 12 months and are confident
that all will be met.
The Directors have also considered the financing provided to the Group.
Norland Estates Limited and TP REIT Propco 2 Limited have bank facilities with
MetLife and MetLife and Barings respectively.
The loans secured by Norland Estates Limited and TP REIT Propco 2 Limited are
subject to asset cover ratio covenants and interest cover ratio covenants
which can be found in the table below. The Directors have also considered
reverse stress testing and the circumstances that would lead to a covenant
breach. Given the level of headroom, the Directors are of the view that the
risk of scenarios materialising that would lead to a breach of the covenants
is remote.
Norland Estates Limited TP REIT Propco 2 Limited
Asset Cover (ACR)
Asset Cover Ratio Covenant x2.00 x1.67
Asset Cover Ratio 31 December 2023 x2.81 x2.01
Blended Net initial yield 5.75% 5.86%
Headroom (yield movement) 214bps 112bps
Interest Cover (ICR)
Interest Cover Ratio Covenant 1.75x 1.75x
Interest Cover Ratio 31 December 2023 4.63x 4.26x
Headroom (rental income movement) 62% 53%
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
this causes Approved Providers to default under some of the Group 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 of signing these financial
statements. As a result of the above, the Directors are of the opinion that
the going concern basis adopted in the preparation of the financial statements
is appropriate.
The Group has no short or medium term refinancing risk given the 9.6 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 parent company, the
Directors consider that the Group will be able to settle its liabilities for a
period of at least 12 months from the date of signing these financial
statements and therefore has prepared these financial statements on the going
concern basis.
Viability Statement
In accordance with Principle 21 of the AIC Code, the Board has assessed the
prospects of the Group over a period longer than 12 months required by the
relevant 'Going Concern' provisions. The Board has considered the nature of
the Group's assets and liabilities, and associated cash flows, and has
determined that five years, up to 31 December 2028, is the maximum timescale
over which the performance of the Group can be forecast with a material degree
of accuracy and therefore is the appropriate period over which to consider the
viability.
In determining this timescale, the Board has considered the following:
· That the business model of the Group assumes the future
growth in its investment portfolio through the acquisition of Supported
Housing assets which are intended to be held for the duration of the viability
period.
· The length of the service level agreements between Approved Providers
and care providers.
· The future growth of its investment portfolio of properties is
achieved through long-term, inflation linked, fully repairing and insuring
leases.
· The Group's property portfolio has a WAULT of 24.3 years to expiry,
representing a secure income stream for the period under consideration.
· The Group's Loan Notes have a weighted average term of 9.6 years.
In assessing the Company's viability, the Board has carried out a robust
assessment of the emerging risks and principal risks facing the Group,
including those that would threaten its business model, future performance,
solvency, liquidity and dividend cover for a five-year period.
The Directors' assessment has been made with reference to the principal risks
and uncertainties and emerging risks summarised above and how they could
impact the prospects of the Group and Company both individually and in
aggregate. The following risks in particular have been addressed in the
assessment:
1. Default of one or more Approved Provider lessees
(taking into account that two of the Group's lessees have built up arrears
during 2022 and 2023)
2. Risk of changes to the social housing regulatory
regime
3. Non-payment of voids cover by care providers.
The business model was subject to a sensitivity analysis, which involved
flexing a number of key assumptions underlying the forecasts. The
sensitivities performed were designed to provide the Directors with an
understanding of the Group's performance in the event of a severe but
plausible downturn scenario, taking full account of mitigating actions that
could be taken to avoid or reduce the impact or occurrence of the underlying
risks outlined below:
· Rental income: It is assumed that some care providers do not meet
their void payment obligations, and this causes Approved Providers to default
under some of the Group's leases; and rental receipts from one Approved
Provider that has built up arrears are lower than expected.
· Property valuations: It is assumed that where there are void units
Approved Providers will default on their leases, and those units will be
valued significantly below their vacant possession value. We believe this
represents a severe reduction in value.
· Inflation: No inflation uplift on rental income but costs increase in
line with inflation.
The outcome in the downturn scenario on the Group's covenant testing is that
there are no breaches, and the Group can maintain a covenant headroom on
existing facilities.
In the downturn scenario mitigating actions to reduce variable costs would be
required to enable the Group to meet its future liabilities.
The remaining principal risks and uncertainties, whilst having an impact on
the Group's business, are not considered by the Directors to have a reasonable
likelihood of impacting the Group's viability over the five-year period.
Based on the results of this analysis, the Directors have a reasonable
expectation that the Group and Company will be able to continue in operation
and meet its liabilities as they fall due for the next five years.
BOARD APPROVAL OF THE STRATEGIC REPORT
The Strategic Report has been approved by the Board of Directors and signed on
its behalf by:
Chris Phillips
Chair
7 March 2024
GROUP FINANCIAL STATEMENTS
GROUP STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2023
Year ended 31 December 2023 Year ended
31 December
2022
Note £'000 £'000
Income
Rental income 5 39,839 37,300
Expected credit loss 5 (4,593) (2,073)
Other income - 110
Total income 35,246 35,337
Expenses
Directors' remuneration 6 (312) (308)
General and administrative expenses 9 (3,245) (2,854)
Management fees 8 (4,651) (4,704)
Total expenses (8,208) (7,866)
Gain from fair value adjustment on investment properties 14 15,477 8,264
Operating profit 42,515 35,735
Finance income 11 52 56
Finance costs 12 (7,578) (10,889)
Profit for the year before tax 34,989 24,902
Taxation 13 - -
Profit and total comprehensive income 34,989 24,902
for the year
IFRS earnings per share - basic and diluted 36 8.81p 6.18p
The accompanying notes form an integral part of these Group Financial
Statements.
GROUP STATEMENT OF FINANCIAL POSITION
For the year ended 31 December 2023
31 December 2023 31 December 2022
Note £'000 £'000
Assets
Non-current assets
Investment properties 14 675,497 667,713
Trade and other receivables 15 4,233 2,889
Total non-current assets 679,730 670,602
Current assets
Trade and other receivables 16 3,864 4,272
Cash, cash equivalents and restricted cash 17 29,452 30,139
Total current assets 33,316 34,411
Total assets 713,046 705,013
Liabilities
Current liabilities
Trade and other payables 18 2,722 3,120
Total current liabilities 2,722 3,120
Non-current liabilities
Other payables 19 1,524 1,520
Bank and other borrowings 20 261,183 261,088
Total non-current liabilities 262,707 262,608
Total liabilities 265,429 265,728
Total net assets 447,617 439,285
Equity
Share capital 22 3,940 4,033
Share premium reserve 23 203,753 203,753
Treasury shares reserve 24 (378) (378)
Capital redemption reserve 25 93 -
Capital reduction reserve 25 155,359 160,394
Retained earnings 26 84,850 71,483
Total equity 447,617 439,285
IFRS net asset value per share - basic and diluted 37 113.76p 109.06p
The Group Financial Statements were approved and authorised for issue by the
Board on 7 March 2024 and signed on its behalf by:
Chris Phillips
Chair
7 March 2024
The accompanying notes form an integral part of these Group Financial
Statements.
GROUP STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2023
Share capital Share premium reserve Treasury shares reserve Capital redemption reserve Capital reduction reserve Retained earnings Total equity
Year ended Note £'000 £'000 £'000 £'000 £'000 £'000 £'000
31 December 2023
Balance at 1 January 2023 4,033 203,753 (378) - 160,394 71,483 439,285
Profit and total comprehensive income for the year - - - - 34,989 34,989
-
Transactions with owners
Dividends paid 27 - - - - - (21,622) (21,622)
Shares repurchased 25 (93) - - 93 (5,035) - (5,035)
Balance at 31 December 2023 3,940 203,753 (378) 93 155,359 84,850 447,617
Share capital Share premium reserve Treasury shares reserve Capital redemption reserve Capital reduction reserve Retained earnings Total equity
Year ended Note £'000 £'000 £'000 £'000 £'000 £'000 £'000
31 December 2022
Balance at 1 January 2022 4,033 203,753 (378) - 160,394 68,311 436,113
Profit and total comprehensive income for the year - - - - 24,902 24,902
-
Transactions with owners
Dividends paid 27 - - - - - (21,730) (21,730)
Balance at 31 December 2022 4,033 203,753 (378) - 160,394 71,483 439,285
The accompanying notes form an integral part of these Group Financial
Statements.
GROUP STATEMENT OF CASH FLOWS
For the year ended 31 December 2023
Year ended Year ended
31 December 2023 31 December 2022
Note £'000 £'000
Cash flows from operating activities
Profit before income tax 34,989 24,902
Adjustments for:
Expected credit loss 4,593 2,073
Gain from fair value adjustment on investment properties (15,477) (8,264)
Finance income (52) (56)
Finance costs 7,578 10,889
Operating results before working capital changes 31,631 29,544
Increase in trade and other receivables (5,528) (4,127)
(Decrease)/ increase in trade and other payables (240) 280
Net cash generated from operating activities 25,863 25,697
Cash flows from investing activities
Purchase of/capital expenditures on investment properties 67 (20,611)
Disposal proceeds from sale of assets (net of transaction costs) 7,472 2,120
Restricted cash - paid - (5)
Restricted cash - released 5 133
Interest received 8 18
Net cash generated from/(used in) investing activities 7,552 (18,345)
Cash flows from financing activities
Interest paid (7,228) (7,226)
Shares repurchased (including transaction costs) 25 (5,035) -
Loan arrangement fees paid 21 (212) (599)
Dividends paid 27 (21,622) (21,730)
Net cash used in financing activities (34,097) (29,555)
Net decrease in cash and cash equivalents (682) (22,203)
Cash and cash equivalents at the beginning of the year 29,696 51,899
Cash and cash equivalents at the end of the year 17 29,014 29,696
The accompanying notes form an integral part of these Group Financial
Statements.
NOTES TO THE GROUP FINANCIAL STATEMENTS
For the ended 31 December 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, 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
The financial information contained in this results announcement has been
prepared on the basis of the accounting policies set out in the statutory
financial statements for the year ended 31 December 2023 which are consistent
with policies those adopted in the year ended 31 December 2022. Whilst the
financial information included in this announcement has been computed in
accordance with UK adopted international accounting standards, this
announcement does not itself contain sufficient disclosures to comply with
IFRS. The financial information does not constitute the Group's statutory
financial statements for the years ended 31 December 2023 or 31 December 2022,
but is derived from those financial statements. Financial statements for the
year ended 31 December 2022 have been delivered to the Registrar of Companies
and those for the year ended 31 December 2023 will be delivered following the
Company's Annual General Meeting. The auditors' reports on both the 31
December 2023 and 31 December 2022 financial statements were unqualified; did
not draw attention to any matters by way of emphasis; and did not contain
statements under section 498 (2) or (3) of the Companies Act 2006.
The financial statements of the Group have been prepared in accordance with
UK-adopted International Accounting Standards and with the requirements of the
Companies Act 2006 as applicable to companies reporting under those standards.
All accounting policies have been applied consistently.
The Group's 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 preparation of financial statements in compliance with UK-adopted
International Accounting Standards requires the use of certain critical
accounting estimates. It also requires management to exercise judgement in
applying the Group's accounting policies. The areas where significant
judgments and estimates have been made in preparing these financial statements
and their effect are disclosed in note 3.
2.1. Going concern
The Group benefits from a secure income stream from long leases which are not
overly reliant on any one tenant and present a well-diversified risk. The
Directors have reviewed the Group's forecast which shows the expected
annualised rental income exceeds the expected operating costs of the Group.
90.2% of rental income due and payable for the year ended 31 December 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
year, Fitch Ratings Limited assigned the Company an investment 'C 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 a going concern, for a period of at least 12 months from the date
of signing these financial statements. 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 Barings respectively.
The loans secured by Norland Estates Limited and TP REIT Propco 2 Limited are
subject to asset cover ratio covenants and interest cover ratio covenants
which can be found in the table below. The Directors have also considered
reverse stress testing and the circumstances that would lead to a covenant
breach. Given the level of headroom, the Directors are of the view that the
risk of scenarios materialising that would lead to a breach of the covenants
is remote.
Norland Estates Limited TP REIT Propco 2 Limited
Asset Cover (ACR)
Asset Cover Ratio Covenant x2.00 x1.67
Asset Cover Ratio 31 December 2023 x2.81 x2.01
Blended Net initial yield 5.75% 5.86%
Headroom (yield movement) 214bps 112bps
Interest Cover (ICR)
Interest Cover Ratio Covenant 1.75x 1.75x
Interest Cover Ratio 31 December 2023 4.63x 4.26x
Headroom (rental income movement) 62% 53%
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
this causes Approved Providers to default under some of the Group leases; and
the assumptions for the amount of rent paid by one Approved Provider that has
built up arrears have been sensitised. Under the downside model the Group will
be able to settle its liabilities for a period of at least 12 months from the
date of signing these financial statements. As a result of the above, the
Directors are of the opinion that the going concern basis adopted in the
preparation of the financial statements is appropriate.
The Group has no short or medium term refinancing risk given the 9.6 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 Parent Company, the
Directors consider that the Group will be able to settle its liabilities for a
period of at least 12 months from the date of signing these financial
statements and therefore has prepared these financial statements on the going
concern basis.
2.2. Currency
The Group 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, which are described in
note 4, 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. The estimates and associated assumptions
that have a significant risk of causing a material adjustment to the carrying
amounts of related assets and liabilities within the next financial year are
outlined below:
Estimates:
3.1. Investment properties
The Group uses the valuation carried out by its independent valuers as the
fair value of its property portfolio. The valuation is based upon assumptions
including future rental income and the appropriate discount rate. The valuers
also refer to market evidence of transaction prices for similar properties.
Further information is provided in note 14.
The Group's properties have been independently valued by Jones Lang LaSalle
Limited ("JLL" or the "Valuer") in accordance with the definitions published
by the Royal Institute of Chartered Surveyors' ("RICS") Valuation -
Professional Standards, Global and UK Editions (commonly known as the "Red
Book"). JLL is one of the most recognised professional firms within social
housing valuation and has sufficient current local and national knowledge of
both social housing in general and Specialist Supported Housing and has the
skills and understanding to undertake the valuations competently.
With respect to the Group's Financial Statements, investment properties are
valued at their fair value at each Statement of Financial Position date in
accordance with IFRS 13 which recognises a variety of fair value inputs
depending upon the nature of the investment. Given the bespoke nature of
each of the Group's investments, all of the Group's investment properties are
included in Level 3 with the inputs included in note 14.
Level 1 - Unadjusted, quoted prices for identical assets and liabilities in
active (typically quoted) markets;
Level 2 - Quoted prices for similar assets and liabilities in active markets;
and
Level 3 - External inputs are "unobservable". Value is the Director's best
estimate, based on advice from relevant knowledgeable experts, use of
recognised valuation techniques and a determination of which assumptions
should be applied in valuing such assets and with particular focus on the
specific attributes of the investments themselves.
3.2. Expected Credit Losses (ECL)
The Group recognised an additional ECL provision of £4.6 million in the
current year (31 December 2022 - £2.1 million) resulting in a total ECL
provision of £6.7 million as at 31 December 2023 (31 December 2022 - £2.1
million) which entirely 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 31 December 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.
Judgements:
3.3. Leases incentive debtor
The lease incentive debtor recognised from rent smoothing adjustments are not
considered to be financial assets as the amounts are not yet contractually
due. As such, the requirements of IFRS 9 (including the expected credit loss
method) are not applied to those balances. The credit risk associated with
the tenant is considered in the determination of the fair value of the related
property. In the current year, the income recognised in respect of such rent
smoothing amounted to £1,500,000 (2022: £636,000).
4. SUMMARY OF MATERIAL ACCOUNTING POLICIES
4.1. Investment property
Investment property, which is property held to earn rentals and/or for capital
appreciation, is initially measured at cost, being the fair value of the
consideration given, including expenditure that is directly attributable to
the acquisition of the investment property. The Group recognises asset
acquisitions on completion. After initial recognition, investment property is
stated at its fair value at the Statement of Financial Position date. Gains
and losses arising from changes in the fair value of investment property are
included in profit or loss for the period in which they arise in the Statement
of Comprehensive Income. Subsequent expenditure is capitalised only when it is
probable that future economic benefits are associated with the expenditure.
An investment property is derecognised upon disposal or when the investment
property is permanently withdrawn from use and no future economic benefits are
expected to be obtained from the disposal. Any gain or loss arising on
de-recognition of the property (calculated as the difference between the net
disposal proceeds and the carrying amount of the asset) is recorded in profit
or loss in the period in which the property is derecognised.
Significant accounting judgements, estimates and assumptions made for the
valuation of investment properties are discussed in note 3.
4.2. Leases
Lessor
Leases are classified as finance leases whenever the terms of the lease
transfer substantially all the risks and rewards of ownership to the lessee.
All other leases are classified as operating leases.
The Group has determined that it retains all the significant risks and rewards
of ownership of the properties it has acquired to date and accounts for the
contracts as operating leases.
Properties leased out under operating leases are included in investment
properties in the Statement of Financial Position. Rental income from
operating leases is recognised on a straight-line basis over the term of the
relevant leases. Tenant lease incentives are not subject to expected credit
loss provision under IFRS 9 as the Group does not have unconditional right to
collect cash flows relating to these assets but do impact the carrying amounts
of the related investment properties as at the statement of financial position
date. Therefore a lease incentive debtor is recognised based on the smoothing
of rent free periods granted such that the rental income from operating leases
is recognised on a straight-line basis over the lease term. The lease
incentive debtor recognised from such rent smoothing adjustments are not
considered to be financial assets as the amounts are not yet contractually
due. As such, the requirements of IFRS 9 (including the expected credit loss
method) are not applied to those balances, although the credit risk is
considered in the determination of the fair value of the related property.
Lessee
As a lessee the Group recognises a right-of-use asset within investment
properties and a lease liability for all leases, which is included within
trade and other payables (notes 18 and 19). The lease liabilities are measured
at the present value of the remaining lease payments, discounted using an
appropriate discount rate at inception of the lease or on initial recognition.
The discount rate applied by the Group is the incremental borrowing rate at
which a similar borrowing could be obtained from an independent creditor under
comparable terms and conditions. Subsequent to initial measurement lease
liabilities increase as a result of interest charged at a constant rate on the
balance outstanding and are reduced for lease payments made.
As leasehold properties meet the definition of investment property, the
right-of-use assets are presented within investment properties (note 14), and
after initial recognition are subsequently measured at fair value.
Sub-leases
Leases are classified as finance leases whenever the terms of the lease
transfer substantially all the risks and rewards of ownership of the
underlying property asset to the lessee. Sub-leases of leasehold properties
are classified with reference to the right-of-use asset arising from the head
lease. All other leases are classified as operating leases.
4.3 Rent and other receivables
Rent and other receivables are amounts due in the ordinary course of business.
If collection is expected in one year or less, they are classified as current
assets.
Rent receivables are initially recognised at fair value plus transaction costs
and are subsequently carried at amortised cost, less provision for impairment.
Impairment provisions for current and non-current rent receivables are
recognised based on the simplified approach within IFRS 9 using a provision
matrix in the determination of the lifetime expected credit losses. During
this process the probability of the non-payment of the rent receivables is
assessed. This probability is then multiplied by the amount of the expected
loss arising from default to determine the lifetime expected credit loss for
the rent receivables. Rent receivables are reported net of the ECL provision
and the movement in the provision is recognised in the Group statement of
comprehensive income. On confirmation that the rent receivable will not be
collectable, the gross carrying value of the asset is written off against the
associated provision.
Impairment provisions for all other receivables are recognised based on a
forward-looking expected credit loss model using the general approach. The
methodology used to determine the amount of the provision is based on whether
there has been a significant increase in credit risk since initial recognition
of the financial asset. For those where the credit risk has not increased
significantly since initial recognition of the financial asset, twelve month
expected credit losses along with gross interest income are recognised. For
those for which credit risk has increased significantly, lifetime expected
credit losses along with the gross interest income are recognised. For those
that are determined to be credit impaired, lifetime expected credit losses
along with interest income on a net basis are recognised.
4.4. Bank and other borrowings
Bank borrowings and the Group's loan notes are initially recognised at fair
value net of any transaction costs directly attributable to the issue of the
instrument. Such interest-bearing liabilities are subsequently measured at
amortised cost using the effective interest rate method, which ensure that any
interest expense over the period to repayment is at a constant rate on the
balance of the liability carried in the Group Statement of Financial Position.
For the purposes of each financial liability, interest expense includes
initial transaction costs and any premium payable on redemption, as well as
any interest or coupon payment while the liability is outstanding.
4.5 Taxation
Taxation on the element of the profit or loss for the period that is not
exempt under UK REIT regulations would be comprised of current and deferred
tax. Tax is recognised in the Statement of Comprehensive Income except to the
extent that it relates to items recognised as direct movement in equity, in
which case it is recognised as a direct movement in equity. Current tax is the
expected tax payable on any non-REIT taxable income for the period, using tax
rates enacted or substantively enacted at the Statement of Financial Position
date, and any adjustment to tax payable in respect of previous periods.
4.6 Dividends payable to shareholders
Dividends are recognised when they become legally payable. Interim dividends
are recognised when paid. In the case of final dividends, this is when
approved by the shareholders at the Annual General Meeting.
4.7 Rental income
Rental income from investment property is recognised on a straight-line basis
over the term of ongoing leases and is shown gross of any UK income tax. A
rental adjustment is recognised from the rent review date in relation to
unsettled rent reviews, where the Directors are reasonably certain that the
rental uplift will be agreed.
Tenant lease incentives are recognised as a reduction of rental revenue on a
straight-line basis over the term of the lease and are not subjected to an
expected credit loss provision under IFRS 9. These are recognised within trade
and other receivables on the Statement of Financial Position.
When the Group enters into a forward funded transaction, the future tenant
signs an agreement for lease. No rental income is recognised under the
agreement for lease, but once the practical completion has taken place the
formal lease is signed at which point rental income commences to be recognised
in the Statement of Comprehensive Income.
4.8 Finance income and finance costs
Finance income is recognised as interest accrues on cash balances held by the
Group. Finance costs consist of interest and other costs that the Group incurs
in connection with bank and other borrowings. These costs are expensed in the
period in which they occur. Borrowing costs are capitalised, net of interest
received on cash drawn down yet to be expended when they are directly
attributable to the acquisition, contribution or production of an asset that
necessarily takes a substantial period of time to get ready for its intended
use.
4.9 Investment management fees
Investment management fees are recognised in the Statement of Comprehensive
Income on an accruals basis.
4.10 Treasury shares
Consideration paid or received for the purchase or sale of treasury shares is
recognised directly in equity. The cost of treasury shares held is presented
as a separate reserve (the "treasury share reserve"). Any excess of the
consideration received on the sale of treasury shares over the weighted
average cost of the shares sold is credited to retained earnings.
5. RENTAL INCOME
Year ended Year ended
31 December 2023 31 December 2022
£'000 £'000
Rental income - freehold assets 37,473 35,087
Rental income - leasehold assets 2,366 2,213
39,839 37,300
Expected credit loss 4,593 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.
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 year
of £4.6 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.
6. DIRECTORS' REMUNERATION
Year ended Year ended
31 December 2023 31 December 2022
£'000 £'000
Directors' fees 280 275
Employer's National Insurance Contributions 32 33
312 308
The 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 (2022: £75,000), and the other Directors of the Board
receive a fee of £50,000 per annum (2022: £50,000). The Directors are also
entitled to an additional fee of £7,500 in connection with the production of
every prospectus by the Company. Each Director was paid this additional fee in
2020 following the publication of the prospectus, but no additional fees were
paid during 2023 or 2022. A summary of the Directors' emoluments, including
the disclosures required by the Companies Act 2006, is set out in the
Directors' Remuneration Report within the Corporate Governance Report. None of
the Directors received any advances or credits from any group entity during
the year.
7. PARTICULARS OF EMPLOYEES
The Group and Company had no employees during the year other than the
Directors (2022: none).
8. MANAGEMENT FEES
Year ended Year ended
31 December 2023 31 December 2022
£'000 £'000
Management fees 4,651 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
described above) as at 31 March, 30 June, 30 September and 31 December in each
year on the following basis with effect from Admission:
· 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;
· 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;
· 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
· 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 £4,651,000 (2022: £4,704,000) were chargeable by TPIM
during the year. At the year end £1,180,000 (2022: £1,159,000) was due to
TPIM.
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.
9. GENERAL AND ADMINISTRATIVE EXPENSES
Year ended Year ended
31 December 2023 31 December 2022
£'000 £'000
Legal and professional fees 972 829
Property costs 579 404
Marketing costs 466 341
Audit fees 400 371
Administration and Secretarial Fees 318 324
AIFM fees 216 192
Lease transfer costs 11 151
Other administrative expenses 283 242
3,245 2,854
On 1 October 2019 Hanway Advisory Limited, who are associated with Triple
Point Investment Management LLP the delegated investment manager, were
appointed to provide Administration and Company Secretarial Services to the
Group. Within Administration Fees is an amount of £318,000 (2022: £324,000)
for Administration and Company Secretarial Services chargeable by Hanway
Advisory Limited.
The audit fees in the table above are inclusive of VAT, and therefore differ
to the fees in note 10 which are reported net of VAT.
On 30 June 2020 Triple Point Investment Management LLP was appointed as the
fund's Alternative Investment Fund Manager (AIFM) to perform certain functions
for the Group. During the year AIFM services of £216,000 (2022: £192,000)
were chargeable by TPIM. At the year end £53,000 (2022: £48,000) was due to
TPIM.
Lease transfer costs represent repairs costs incurred in relation to the
transfer of 12 leases from Westmoreland and amortisation costs in relation to
the original transfer costs.
10. AUDIT FEES
Year ended Year ended
31 December 2023 31 December 2022
£'000 £'000
Group audit fees - current year 259 242
Subsidiary audit fees 33 31
292 273
Non audit fees paid to BDO LLP included £40,000 (2022: £36,000) in relation
to the half year interim review.
The audit fee for the following subsidiaries has been borne by the Company:
· TP REIT Super Holdco Limited · Norland Estates Limited
· ·
· TP REIT Holdco 1 Limited · TP REIT Propco 2 Limited
· ·
· TP REIT Holdco 2 Limited · TP REIT Propco 3 Limited
· ·
· TP REIT Holdco 3 Limited · TP REIT Propco 4 Limited
· TP REIT Holdco 4 Limited · TP REIT Propco 5 Limited
· TP REIT Holdco 5 Limited
11. FINANCE INCOME
Year ended Year ended
31 December 2023 31 December 2022
£'000 £'000
Other interest income 52 56
12. FINANCE COSTS
Year ended Year ended
31 December 2023 31 December 2022
£'000 £'000
Interest payable on bank borrowings 7,217 7,217
Amortisation of loan arrangement fees 307 1,006
Written off loan arrangement fees - 2,619
Head lease interest expense 44 37
Bank charges 10 9
7,578 10,889
Total finance cost for financial liabilities not measured at fair value 7,568 10,880
through profit or loss
Written off loan arrangement fees in the year ended 31 December 2022 relate to
the Lloyds and NatWest loan facility that was reduced and subsequently
cancelled during that year. All remaining unamortised loan arrangement fees in
respect of this facility were written off.
13. 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 year ended 31
December 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.
Year ended Year ended
31 December 2023 31 December 2022
£'000 £'000
Current tax
Corporation tax charge for the year - -
Total current income tax charge in the profit or loss - -
The tax charge for the period is less than the standard rate of corporation
tax in the UK of 25% (2022: 19%). The differences are explained below.
Year ended Year ended
31 December 2023 31 December 2022
£'000 £'000
Profit for the year before tax 34,989 24,902
Tax at UK corporation tax standard rate of 25/19% 8,747 4,731
Change in fair value of investment properties (3,969) (2,727)
Disposal of investment property 100 1,157
Exempt REIT income (5,707) (3,768)
Amounts not deductible for tax purposes 49 27
Unutilised residual current period tax losses 780 580
- -
UK REIT exempt income includes property rental income that is exempt from UK
Corporation Tax in accordance with Part 12 of CTA 2010.
14. INVESTMENT PROPERTY
Operational assets
£'000
As at 1 January 2023 667,713
Acquisitions and additions* (224)
Fair value adjustment** 15,875
Movement in head lease ground rent liability 4
Transferred to Assets Held for Sale before disposal*** (7,871)
As at 31 December 2023 675,497
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)
Transferred to Assets Held for Sale before disposal*** (1,494)
Disposals (7,075)
As at 31 December 2022 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 Group
Statement of Comprehensive Income is net of the loss from fair value
adjustments on assets held for sale of £0.28 million (31 December 2022 -
£0.88 million) and loss on disposal of four properties of £0.11 million (31
December 2022 - £6.1 million).
*** Assets transferred to assets held for sale before disposal were presented
as assets held for sale during the interim period ended 30 June 2023 (30 June
2022) and were eventually disposed on 31 August 2023 (28 July 2022 & 29
July 2022).
Reconciliation to independent valuation: 31 December 2023 31 December 2022
£'000 £'000
Investment property valuation 678,358 669,077
Fair value adjustment - headlease ground rent 1,463 1,460
Fair value adjustment - lease incentive debtor (4,324) (2,824)
675,497 667,713
The carrying value of leasehold properties at 31 December 2023 was £41.1
million (2022: £40.1 million).
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. The independent valuers provide their fair value
of the Group's investment property portfolio every three months.
JLL were appointed as external valuers by the Board on 11 December 2017. JLL
has provided valuations services to the Group. 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 Statistic
The metrics below are in relation to the total investment property portfolio
held as at 31 December 2023.
Portfolio metrics 31 December 2023 31 December 2022
Capital Deployed (£'000) * 574,827 581,647
Number of Properties 493 497
Number of Tenancies*** 390 395
Number of Registered Providers*** 27 27
Number of Local Authorities*** 153 153
Number of Care Providers*** 116 123
Valuation Net Initial Yield (NIY)** 5.71% 5.49%
*calculated excluding acquisition costs.
**calculated using IAS 40 valuations (excluding forward funding acquisitions).
*** calculated excluding forward funding acquisitions.
31 December 2023 31 December 2022
Region *Cost £'000 % of funds invested *Cost £'000 % of funds invested
North West 109,880 19.1 115,042 19.8
West Midlands 93,635 16.3 94,790 16.3
Yorkshire 87,148 15.2 86,293 14.8
East Midlands 63,979 11.1 69,429 11.9
North East 56,653 9.9 51,986 8.9
South East 53,674 9.3 54,799 9.4
London 49,626 8.6 49,579 8.5
South West 27,466 4.8 27,466 4.7
East 24,206 4.2 23,703 4.1
Scotland 5,900 1.0 5,900 1.0
Wales 2,660 0.5 2,660 0.6
Total 574,827 100 581,647 100
*excluding acquisition costs
Fair value hierarchy
Date of valuation Total Quoted prices in active markets (Level 1) Significant observable inputs Significant unobservable inputs
(Level 2) (Level 3)
£'000 £'000 £'000 £'000
Assets measured at fair value: 31 December 2023 675,497 - - 675,497
Investment properties
Investment properties 31 December 2022 667,713 - - 667,713
There have been no transfers between Level 1 and Level 2 during the year, nor
have there been any transfers between Level 2 and Level 3 during the year.
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 an investment
property 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 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 Registered Provider
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 property, 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 property:
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 Specialised 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 the properties within the Group's portfolio benefit from leases with
annual indexation based upon CPI or RPI. The fair value measurement is based
on the above items highest and best use, which does not differ from their
actual use. The valuer also considers the resulting net initial yield for each
property for appropriateness.
Sensitivities of measurement of significant unobservable inputs
As set out within the significant accounting estimates and judgements in note
3, the Group's property portfolio valuation is open to judgements and is
inherently subjective by nature.
As a result, the following sensitivity analysis has been prepared:
Average discount rate and range:
The average discount rate used in the Group's property portfolio valuation is
7.3% (2022: 6.82%).
The range of discount rates used in the Group's property portfolio valuation
is from 6.5% to 10.0% (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 31 December 2023 38,653 (35,403) 19,143 (18,377)
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.
15. TRADE AND OTHER RECEIVABLES (non-current)
31 December 2023 31 December 2022
£'000 £'000
Lease incentive debtor 4,072 2,717
Other receivables 161 172
4,233 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.
16. TRADE AND OTHER RECEIVABLES (current)
31 December 2023 31 December 2022
£'000 £'000
Rent receivable 2,436 3,209
Lease incentive debtor 252 107
Prepayments 189 174
Other receivables 987 782
3,864 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 to providing for expected credit losses
under IFRS 9 for rent and 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. The Expected credit losses included in rent receivables is £6,666,000
(2022: £2,073,000) of which £4,593,000 (2022: £2,073,000) were charged to
the Statement of Comprehensive Income in the year.
17. CASH, CASH EQUIVALENTS AND RESTRICTED CASH
31 December 2023 31 December 2022
£'000 £'000
Cash at bank 29,014 29,152
Restricted cash 438 443
Cash held by lawyers - 544
29,452 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 monies held in escrow in relation to the transfer
of leases during 2020.
31 December 2023 31 December 2022
£'000 £'000
Total Cash, cash equivalents and restricted cash 29,452 30,139
Restricted cash (438) (443)
Cash reported on Group Statement of Cash Flows 29,014 29,696
18. TRADE AND OTHER PAYABLES
Current liabilities
31 December 2023 31 December 2022
£'000 £'000
Trade payables - 37
Accruals 2,270 2,014
Head lease ground rent (note 28) 40 40
Other creditors 412 1,029
2,722 3,120
The Other Creditors balance consists of retentions due on completion of
outstanding works and on the rebate of stamp duty 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.
19. OTHER PAYABLES
Non-current liabilities
31 December 2023 31 December 2022
£'000 £'000
Head lease ground rent (note 28) 1,424 1,420
Rent deposit 100 100
1,524 1,520
20. BANK AND OTHER BORROWINGS
Non-current liabilities
31 December 2023 31 December 2022
£'000 £'000
Bank and other borrowings drawn at year end 263,500 263,500
Unamortised costs at beginning of the year (2,412) (4,798)
Less: loan issue costs incurred (212) (131)
Add: loan issue costs amortised 307 433
Add: loan issue costs written off - 2,085
Unamortised costs at end of the year (2,317) (2,412)
Balance at year end 261,183 261,088
The amount of loan arrangement fees written off and amortised in 2022 as per
note 12, and loan arrangement fees paid in the Group statement of cash flows
for the year ended 31 December 2022 differ to the amounts in the table above
as the amounts in the table above exclude amounts related to the undrawn
Revolving Credit Facility ("RCF") which was cancelled in the prior year.
At 31 December 2023 there were undrawn bank borrowings of £NIL (2022: £NIL).
As at 31 December 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 £160 million RCF with Lloyds and NatWest 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
Specialised Supported Housing assets throughout the UK, worth approximately
£192 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 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 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 3.039% pa. At 31 December 2023, the Loan Notes have been
independently valued at £59.3 million which has been used to calculate the
Group's EPRA Net Disposal Value in note 2 of the Unaudited Performance
Measures. The fair value is determined by comparing the discounted future cash
flows using the contracted yields with the reference gilts plus the margin
implied. The reference gilts used were the Treasury 3.357% 2028 Gilt (Tranche
A) and Treasury 3.439% 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 Specialised Supported Housing assets throughout the UK,
worth approximately £392 million. The Loan Notes represent a loan-to-value of
40% of the value of the secured pool of assets 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 31 December 2023, the Loan Notes have been
independently valued at £145.7 million which has been used to calculate the
Group's EPRA Net Disposal Value in note 2 of the Unaudited Performance
Measures. The fair value is determined by comparing the discounted future cash
flows using the contracted yields with the reference gilts plus the margin
implied. The reference gilts used were the Treasury 3.398% 2031 Gilt (Tranche
A) and Treasury 3.716% 2036 Gilt (Tranche B), with an implied margin that is
unchanged since the date of fixing.
The Groups loan to value at the year end was 37.0 % (2022: 37.4%)
The loans are considered a Level 2 fair value measurement.
The Group has met all compliance with its financial covenants on the above
loans throughout the year.
21. NOTES SUPPORTING STATEMENT OF CASH FLOWS
Reconciliation of liabilities to cash flows from financing activities:
Bank borrowings Head lease Total
£'000 £'000 £'000
(note 20) (note 18,19)
At 1 January 2023 261,088 1,460 262,548
Cashflows:
Loan arrangement fees paid (212) - (212)
Non-cash flows:
- Amortisation of principal on head lease liabilities - (40) (40)
-Amortisation of loan arrangement fees 307 - 307
-Accrued interest on head lease liabilities - 44 44
At 31 December 2023 261,183 1,464 262,647
Bank borrowings Head lease Total
£'000 £'000 £'000
(note 20) (note 18,19)
At 1 January 2022 258,702 1,463 260,165
Cashflows:
Loan arrangement fees paid (131) - (131)
Non-cash flows:
-Amortisation of principal on head lease liabilities - (40) (40)
-Amortisation of loan arrangement fees 433 - 433
-Loan arrangement fees written off 2,084 - 2,084
-Accrued interest on head lease liabilities - 37 37
At 31 December 2022 261,088 1,460 262,548
22. SHARE CAPITAL
Issued and fully paid Issued and fully paid
Number £'000
At 1 January 2023 403,239,002 4,033
Shares cancelled in the year (9,322,512) (93)
At 31 December 2023 393,916,490 3,940
Issued and fully paid Issued and fully paid
Number £'000
At 1 January 2022 403,239,002 4,033
At 31 December 2022 403,239,002 4,033
The Company achieved admission to the specialist fund segment of the main
market of the London Stock Exchange on 8 August 2017, raising £200 million.
As a result of the IPO, at 8 August 2017, 200,000,000 shares at one pence each
were issued and fully paid. The Company 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.
Since then there were three public offers up to 21 October 2020 with a further
193,916,490 Ordinary Shares of one pence each were issued and fully paid.
Rights, preferences and restrictions on shares: All Ordinary Shares carry
equal rights, and no privileges are attached to any shares in the Company. All
the shares are freely transferable, except as otherwise provided by law. The
holders of Ordinary Shares are entitled to receive dividends as declared from
time to time and are entitled to one vote per share at meetings of the
Company. All shares rank equally with regard to the Company's residual assets.
The table above includes 450,000 treasury shares (note 24). Treasury shares do
not hold any voting rights.
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, the shares were
subsequently cancelled.
23. SHARE PREMIUM RESERVE
The share premium reserve relates to amounts subscribed for share capital in
excess of nominal value.
31 December 2023 31 December 2022
£'000 £'000
Balance at beginning of year 203,753 203,753
Balance at end of year 203,753 203,753
24. TREASURY SHARES RESERVE
31 December 2023 31 December 2022
£'000 £'000
Balance at beginning of year (378) (378)
Balance at end of year (378) (378)
The treasury shares reserve relates to the value of shares purchased by the
Company in excess of nominal value. No treasury shares were purchased during
the current or prior year. During the year ended 31 December 2019, the Company
purchased 450,000 of its own 1p Ordinary Shares at a total gross cost of
£377,706 (£374,668 cost of shares and £3,038 associated costs). As at 31
December 2023 and 31 December 2022, 450,000 1p Ordinary Shares were held by
the Company.
25. CAPITAL REDUCTION RESERVE
31 December 2023 31 December 2022
£'000 £'000
Balance at beginning of year 160,394 160,394
Share buybacks and cancellation (5,035) -
Balance at end of year 155,359 160,394
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. The shares were
subsequently cancelled.
CAPITAL REDEMPTION RESERVE
31 December 2023 31 December 2022
£'000 £'000
Balance at beginning of year - -
Original shares repurchased & cancelled 93 -
Balance at end of year 93 -
The Capital Redemption Reserve is the nominal value of the shares cancelled
from the share buybacks.
26. RETAINED EARNINGS
31 December 2023 31 December 2022
£'000 £'000
Balance at beginning of year 71,483 68,311
Total comprehensive income for the year 34,989 24,902
Dividends paid (21,622) (21,730)
Balance at end of year 84,850 71,483
27. DIVIDENDS
Year ended Year ended
31 December 2023
31 December 2022
£'000 £'000
1.3p for the 3 months to 31 December 2021 paid on 25 March 2022 - 5,236
1.365p for the 3 months to 31 March 2022 paid on 24 June 2022 - 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 28 June 2023 5,382 -
1.365p for the 3 months to 30 June 2023 paid on 29 September 2023 5,371 -
1.365p for the 3 months to 30 September 2023 paid on 15 December 2023 5,371 -
21,622 21,730
On 7 March 2024, the Company declared an interim dividend of 1.365 pence per
Ordinary Share for the period 1 October 2023 to 31 December 2023, The total
dividend of £5,370,818 will be paid on or around 29 March 2024 to Ordinary
shareholders on the register on 15 March 2024.
The Company intends to pay dividends to shareholders on a quarterly basis and
in accordance with the REIT regime.
Dividends are not payable in respect of the Treasury shares held by the
Company.
28. LEASES
A. Leases as lessee
The following table sets out a maturity analysis of lease payments, showing
the undiscounted lease payments to be paid after the reporting date:
< 1 year 1-2 years 2-3 years 3-4 years 4-5 years > 5 years Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Lease payables
31 December 2023 40 40 40 40 40 7,197 7,397
31 December 2022 40 40 40 40 40 7,242 7,442
31 December 2023 31 December 2022
£'000 £'000
Current liabilities (note 18) 40 40
Non-current liabilities (note 19) 1,424 1,420
Balance at end of year 1,464 1,460
The above is in respect of properties held by the Group under leasehold. There
are 23 properties (2022: 23) held under leasehold with lease terms which range
from 125 years to 985 years. The Group's leasing arrangements with lessors are
headlease arrangements on land and buildings that have been sub-let under the
Group's normal leasing arrangements (see above) to tenants. The Group carries
its interest in these headlease arrangements as long leasehold investment
property (note 14).
B. Leases as lessor
The Group leases out its investment properties (see note 14).
The undiscounted future minimum lease payments receivable by the Group under
non-cancellable operating leases are as follows:
< 1 year 1-2 years 2-3 years 3-4 years 4-5 years > 5 years Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Lease receivables
31 December 2023 40,971 40,971 40,971 40,971 40,971 451,354 656,209
31 December 2022 38,975 38,975 38,975 38,975 38,975 462,374 657,249
Leases are direct-let agreements with Registered Providers for a term of at
least 15 years and usually between 20 to 25 years with rental uplifts linked
to CPI or RPI. All leases are full repairing and insuring (FRI) leases, the
tenants are therefore obliged to repair, maintain and renew the properties
back to the original conditions.
The following table gives details of the percentage of annual rental income
per Registered Provider with 10% or more than 10% share in any year presented:
31 December 2023 31 December 2022
Registered Provider % of total annual rent % of total annual rent
Inclusion Housing CIC 29 29
Parasol Homes (previously 28A Supported Living) 10 10
Other disclosures about leases are provided in notes 5, 14, 16, 19 and 33.
29. CONTROLLING PARTIES
As at 31 December 2023 there is no ultimate controlling party of the Company.
30. SEGMENTAL INFORMATION
IFRS 8 Operating Segments requires operating segments to be identified based
on internal financial reports about components of the Group that are regularly
reviewed by the Chief Operating Decision Maker (which in the Group's case is
delegated to the Delegated Investment Adviser TPIM).
The internal financial reports received by TPIM contain financial information
at a Group level as a whole and there are no reconciling items between the
results contained in these reports and the amounts reported in the financial
statements.
The Group's property portfolio comprised 493 (2022: 497) Social Housing
properties as at 31 December 2023 in England, Wales and Scotland. The
Directors consider that these properties represent a coherent and diversified
portfolio with similar economic characteristics and, as a result, these
individual properties have been aggregated into a single operating segment.
In the view of the Directors there is accordingly one reportable segment under
the provisions of IFRS 8. All the Group's properties are engaged in a single
segment business with all revenue, assets and liabilities arising in the UK,
therefore, no geographical segmental analysis is required by IFRS 8.
31. RELATED PARTY DISCLOSURE
Directors
Directors are remunerated for their services at such rate as the Directors
shall from time to time determine. The Chairman receives a Director's fee of
£75,000 per annum (2022: £75,000), and the other directors of the Board
receive a fee of £50,000 per annum (2022: £50,000). The Directors are also
entitled to an additional fee of £7,500 in connection with the production of
every prospectus by the Company (including the Issue). This was received by
the Directors in 2020 but not in the current year as no prospectus was
produced.
Dividends of the following amounts were paid to the Directors during the year:
Chris Phillips: £2,995 (2022: £2,960)
Peter Coward: £4,372 (2022: £4,266)
Tracey Fletcher-Ray: £2,060 (2022 £2,036)
Paul Oliver: dividends received in the year until resignation £2,128 (2022:
£4,206)
No shares were held by Ian Reeves & Cecily Davis as at 31 December 2023
(31 December 2022: nil).
Investment Manager
The Company considers Triple Point Investment Management LLP (the 'Investment
Manager') as a key management personnel and therefore a related party. Further
details of the investment management contract and transactions with the
Investment Manager are disclosed in Note 8 and 9.
32. CONSOLIDATED ENTITIES
The Group consists of a parent Company, Triple Point Social Housing REIT plc,
incorporated in the UK and a number of subsidiaries held directly by the
Company, which operate and are incorporated in the UK. The principal place of
business of each subsidiary is the same as their place of incorporation.
The Group owns 100% of the equity shares of all subsidiaries listed below and
has the power to appoint and remove the majority of the Board of those
subsidiaries. The relevant activities of the below subsidiaries are determined
by the Board based on simple majority votes. Therefore, the Directors of the
Company concluded that the Company has control over all these entities and all
these entities have been consolidated within these financial statements. The
principal activity of all the subsidiaries relates to property investment.
The subsidiaries listed below were held as at 31 December 2023:
Name of Entity Registered Office Country of Incorporation Ownership %
TP REIT Super Holdco Limited* 1 King William Street, London, EC4N 7AF UK 100%
TP REIT Holdco 1 Limited 1 King William Street, London, EC4N 7AF UK 100%
TP REIT Holdco 2 Limited 1 King William Street, London, EC4N 7AF UK 100%
TP REIT Holdco 3 Limited 1 King William Street, London, EC4N 7AF UK 100%
TP REIT Holdco 4 Limited 1 King William Street, London, EC4N 7AF UK 100%
TP REIT Holdco 5 Limited 1 King William Street, London, EC4N 7AF UK 100%
TP REIT Propco 2 Limited 1 King William Street, London, EC4N 7AF UK 100%
TP REIT Propco 3 Limited 1 King William Street, London, EC4N 7AF UK 100%
TP REIT Propco 4 Limited 1 King William Street, London, EC4N 7AF UK 100%
TP REIT Propco 5 Limited 1 King William Street, London, EC4N 7AF UK 100%
Norland Estates Limited 1 King William Street, London, EC4N 7AF UK 100%
* indicates entity is a direct subsidiary of Triple Point Social Housing REIT
plc.
33. FINANCIAL RISK MANAGEMENT
The Group is exposed to market risk, interest rate risk, credit risk and
liquidity risk in the current and future periods. The Board oversees the
management of these risks. The Board's policies for managing each of these
risks are summarised below.
33.1. Market risk
The Group's activities will expose it primarily to the market risks associated
with changes in property values.
Risk relating to investment in property
Investment in property is subject to varying degrees of risk. Some factors
that affect the value of the investment in property include:
· changes in the general economic climate;
· competition for available properties;
· obsolescence; and
· Government regulations, including planning, environmental and tax
laws.
Variations in the above factors can affect the valuation of assets held by the
Group and as a result can influence the financial performance of the Group.
The factors mentioned above have not had a material impact on the valuations
of the investment properties as at 31 December 2023, and are not expected to
in the immediate future, but will continue to be monitored closely.
Please refer to the Corporate Social Responsibility Report in the Annual
Report for further information on Environmental Policy which may affect the
investment property valuations going forward. There was no impact on the
valuations in the year ended 31 December 2023 from climate change factors,
given that there is little measurable impact on inputs at present.
33.2. Interest rate risk
The Group's debt at 31 December 2023 does not have any exposure to interest
rate risk.
33.3. Credit risk
Credit risk is the risk that a counterparty will not meet its obligations
under a financial instrument or customer contract, leading to a financial
loss. The Group is exposed to credit risk from both its leasing activities and
financing activities, including deposits with banks and other institutions as
detailed in notes 17 and 20.
Credit risk related to financial instruments and cash deposits
One of the principal credit risks the Group faces arises with the funds it
holds with banks and other institutions. At 31 December 2023 the Group has
£29.5 million in current accounts held at banks, see note 17. The Board
believes that the credit risk on short-term deposits and current account cash
balances is limited because the counterparties are banks and institutions with
high credit ratings.
In August 2023, Fitch has assigned the Company an Investment Grade Long-Term
Issuer Default Rating of 'A-' with a stable outlook, and a senior secured
rating of 'A' for the Group's new Loan Notes, see note 20.
All financial assets are regularly monitored. The maximum exposure to credit
risk at the reporting date is the carrying value of financial assets disclosed
in notes 15 and 16.
Credit risk related to leasing activities
In respect of property investments, in the event of a default by a tenant, the
Group will suffer a rental shortfall and additional costs concerning
re-letting the property to another Social Housing Registered Provider. Credit
risk is primarily managed by testing the strength of covenant of a tenant
prior to acquisition and on an ongoing basis. The Investment Manager also
monitors the rent collection in order to anticipate and minimise the impact of
defaults by occupational tenants. Outstanding rent receivables are regularly
monitored, the balance of outstanding rent at 31 December 2023 was £2.4
million after a provision for the expected credit loss.
The Group has leases in place with ten Registered Providers that have been
deemed non-compliant by the Regulator of Social Housing (RSH) as at 31
December 2023 (2022: 10). We continue to conduct ongoing due diligence on all
Registered Providers and all rents payable under these leases have been paid.
We continue to monitor and maintain a dialogue with the Registered Providers
as they work with advisers and the RSH to implement a financial and governance
improvement action plan in order to address the RHS's concerns. The Board
believes that the credit risk associated with the non-compliant rating is
limited.
Rent receivable is the Group's only financial asset that is subjected to the
expected credit loss model. While the Group has other financial assets that
are also subject to the impairment requirements of IFRS 9, the identified
impairment loss was immaterial.
33.4. Liquidity risk
The Group manages its liquidity and funding risks by considering cash flow
forecasts and ensuring sufficient cash balances are held within the Group to
meet future needs. Prudent liquidity risk management implies maintaining
sufficient cash and marketable securities, the availability of financing
through appropriate and adequate credit lines, and the ability of customers to
settle obligations within normal terms of credit. The Group ensures, through
forecasting of capital requirements, that adequate cash is available to fund
the Group's operating activities on a weekly basis. Upcoming cash requirements
are compared to existing cash reserves available, followed by discussions
around optimal cash management opportunities in order to best manage liquidity
risk.
The following table details the Group's liquidity analysis:
31 December 2023 < 3 months 3-12 1-5 > 5 Total
Months years years
£'000 £'000 £'000 £'000 £'000
Headleases (note 28) 10 30 160 7,197 7,397
Trade and other payables 2,487 195 - - 2,682
Bank and other borrowings (note 20):
- Fixed interest rate - - 41,500 222,000
263,500
- Variable interest rate - - - - -
Interest payable on bank and other borrowings:
- Fixed interest rate 1,804 5,413 28,263 33,913 69,393
- Variable interest rate - - - - -
4,301 5,638 69,923 263,110 342,972
31 December 2022 < 3 months 3-12 1-5 > 5 Total
Months years years
£'000 £'000 £'000 £'000 £'000
Headleases (note 28) 10 30 160 7,242 7,442
Trade and other payables 2,880 105 95 - 3,080
Bank and other borrowings (note 20:
- Fixed interest rate - - - 263,500
263,500
- Variable interest rate - - - - -
Interest payable on bank and other borrowings:
- Fixed interest rate 1,804 5,413 28,869 40,523 76,609
- Variable interest rate - - - - -
4,694 5,548 29,124 311,265 350,631
33.5. Financial instruments
The Group's principal financial assets and liabilities, which are all held at
amortised cost, are those that arise directly from its operation: trade and
other receivables, trade and other payables, headleases, borrowings and cash,
cash equivalents and restricted cash.
Set out below is a comparison by class of the carrying amounts and fair value
of the Group's financial instruments that are included in the financial
statements:
Book value Fair value Book value Fair value
31 December 2023 31 December 2023 31 December 2022 31 December 2022
£'000 £'000 £'000 £'000
Financial liabilities:
Borrowings 261,183 205,078 261,088 190,314
34. POST BALANCE SHEET EVENTS
In February 2024, the Company agreed to extend a creditor agreement with
Parasol (9.7% of our Company revenues) on similar terms for a further six
months whilst we finalise a longer-term agreement with Parasol that should see
rent paid to the Group by Parasol increase over time. The original agreement
was effective from the 1 July 2023 and was reflective of the level of rent
being received by Parasol at the time. Parasol have consistently met the terms
of the agreement.
On 7 March 2024, the Company declared an interim dividend of 1.365 pence per
Ordinary share for the period 1 October 2023 to 31 December 2023. The total
dividend of £5,370,818 will be paid on or around 29 March 2024 to Ordinary
shareholders on the register on 15 March 2024.
35. CAPITAL COMMITMENTS
The Group does not have capital commitments in both the prior year and the
current year.
36. EARNINGS PER SHARE
Earnings per share ("EPS") amounts are calculated by dividing profit for the
year attributable to ordinary shareholders 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:
Year ended Year ended
31 December 2023 31 December 2022
Calculation of Basic Earnings per share
Net profit attributable to Ordinary Shareholders (£'000) 34,989 24,902
Weighted average number of Ordinary Shares (excluding treasury shares) 397,007,975 402,789,002
IFRS Earnings per share - basic and diluted 8.81p 6.18p
Calculation of EPRA Earnings per share
Net profit attributable to Ordinary Shareholders (£'000) 34,989 24,902
Gain from fair value adjustment on investment properties (£'000) (15,477) (8,264)
One-off write-off of arrangement fees on the cancelled RCF - 2,619
EPRA earnings (£'000) 19,512 19,257
Non cash adjustments to include:
Amortisation of loan arrangement fees (£'000) 307 1,006
Movement in Lease Incentive Debtor (1,500) (636)
Adjusted earnings (£'000) 18,319 19,627
Weighted average number of Ordinary Shares (excluding treasury shares) 397,007,975 402,789,002
EPRA earnings per share - basic and diluted 4.92p 4.78p
Adjusted earnings per share - basic and diluted 4.61p 4.87p
Adjusted earnings is a performance measure used by the Board to assess the
Group's dividend payments. The metric adjusts EPRA earnings for non cash
items, including amortisation of ongoing loan arrangement fees and the
movement in the lease incentive debtor. In prior years the movement in lease
incentive debtor has not been reflected in the calculation of adjusted
earnings as it was not material. The comparative has been restated for
consistency. The Board sees these adjustments as a reflection of actual
cashflows which are supportive of dividend payments. The Board compares the
Adjusted earnings to the available distributable reserves when considering the
level of dividend to pay.
37. NET ASSET VALUE PER SHARE
Basic Net Asset Value ("NAV") per share is calculated by dividing net assets
in the Group Statement of Financial Position attributable to Ordinary
Shareholders 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:
31 December 2023 31 December 2022
Net assets at the end of the year (£'000) 447,617 439,285
Shares in issue at end of the year (excluding treasury shares) 393,466,490 402,789,002
Dilutive shares in issue - -
IFRS NAV per share - basic and dilutive 113.76p 109.06p
38. CAPITAL MANAGEMENT
The Group's objectives when managing capital are to safeguard the Group's
ability to continue as a going concern in order to provide returns for
shareholders and to maintain an optimal capital structure to minimise the cost
of capital.
The Group considers proceeds from share issuance, bank and other borrowings
and retained earnings as capital.
Until the Group is fully invested and pending re-investment or distribution of
cash receipts, the Group will invest in cash equivalents, near cash
instruments and money market instruments.
The level of borrowing will be on a prudent basis for the asset class and will
seek to achieve a low cost of funds, whilst maintaining the flexibility in the
underlying security requirements and the structure of both the investment
property portfolio and the Group.
The Directors currently intend that the Group should target a level of
aggregate borrowings over the medium term equal to approximately 40% of the
Group's Gross Asset Value. The aggregate borrowings will always be subject to
an absolute maximum, calculated at the time of drawdown, of 50% of the Gross
Asset Value.
The initial fixed rate facility with MetLife requires an asset cover ratio of
x2.00 (amended from previous covenant of x2.25 in August 2021 to bring more in
line with the ACR covenant in the new Note Purchase Agreement with MetLife and
Barings) and an interest cover ratio of x1.75. At 31 December 2023, the Group
was fully compliant with both covenants with an asset cover ratio of x2.81
(2022: x2.77) and an interest cover ratio of x4.63 (2022: x5.02).
The subsequent facility with MetLife and Barings requires an asset cover ratio
of x1.67 and an interest cover ratio of x1.75. At 31 December 2023, the Group
was fully compliant with both covenants with an asset cover ratio of x2.01
(2022: x2.10) and an interest cover ratio of x4.26 (2022: x4.41).
UNAUDITED PERFORMANCE MEASURES
1. EPRA Net Reinstatement Value
31 December 2023 31 December 2022
IFRS NAV/EPRA NAV (£'000) 447,617 439,285
Include:
Real Estate Transfer Tax* (£'000) 41,962 41,283
EPRA Net Reinstatement Value (£'000) 489,579 480,568
Fully diluted number of shares 393,446,490 402,789,002
EPRA Net Reinstatement value per share 124.43p 119.31p
* Purchasers' costs
2. EPRA Net Disposal Value
31 December 2023 31 December 2022
IFRS NAV/EPRA NAV (£'000) 447,617 439,285
Include:
Fair value of debt* (£'000) 56,106 70,774
EPRA Net Disposal Value (£'000) 503,723 510,059
393,446,490 402,789,002
Fully diluted number of shares
EPRA Net Disposal Value** 128.02p 126.63p
* Difference between interest-bearing loans and borrowings included in 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 Net Tangible Assets
31 December 2023 31 December 2022
IFRS NAV/EPRA NAV (£'000) 447,617 439,285
EPRA Net Tangible Assets (£'000) 447,617 439,285
Fully diluted number of shares 393,446,490 402,789,002
EPRA Net Tangible Assets * 113.76p 109.06p
*Equal to IFRS NAV and previous EPRA NAV metric as none of the EPRA Net
Tangible Asset adjustments are applicable as at 31 December 2023 or 31
December 2022.
4. EPRA net initial yield (NIY) and EPRA "topped up" NIY
31 December 2023 31 December 2022
£'000 £'000
Investment properties - wholly-owned (excluding head lease ground rents) 674,033 666,253
Less: development properties - -
Completed property portfolio 674,033 666,253
Allowance for estimated purchasers' costs 41,962 41,283
Gross up completed property portfolio valuation 715,995 707,536
Annualised passing rental income 39,912 38,626
Property outgoings - -
Annualised net rents 39,912 38,626
Contractual increases for lease incentives 1,059 349
Topped up annualised net rents 40,971 38,975
EPRA NIY 5.57% 5.46%
EPRA Topped Up NIY 5.72% 5.51%
5. ONGOING CHARGES RATIO
31 December 2023 31 December 2022
£'000 £'000
Annualised ongoing charges 7,242 7,018
Average undiluted net assets 443,451 437,699
Ongoing charges 1.63% 1.60%
6. EPRA VACANCY RATE
31 December 2023 31 December 2022
£'000 £'000
Estimated Market Rental Value (ERV) of vacant spaces 138 -
Estimated Market Rental Value (ERV) of whole portfolio 40,971 38,975
EPRA Vacancy Rate 0.33% -
7. EPRA COST RATIO
31 December 2023 31 December 2022
£'000 £'000
Total administrative and operating costs 8,208 7,866
Gross rental income 39,839 37,300
EPRA cost ratio 20.60% 21.09%
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