TIDMSOHO
RNS Number : 4018U
Triple Point Social Housing REIT
29 March 2019
THIS ANNOUNCEMENT HAS BEEN DETERMINED TO CONTAIN INSIDE
INFORMATION FOR THE PURPOSES OF THE MARKET ABUSE REGULATION (EU)
NO. 596/2014.
29 March 2019
Triple Point Social Housing REIT plc
(the "Company" or, together with its subsidiaries, the
"Group")
RESULTS FOR THE YEARED 31 DECEMBER 2018
The Board of Triple Point Social Housing REIT plc (ticker: SOHO)
is pleased to announce its audited results for the year ended 31
December 2018.
31 December 2018 31 December 2017*
-------------------------------- ----------------- ------------------
IFRS NAV per share 103.65p 100.84p
Earnings per share (basic and
diluted) 8.37p 3.94p
- IFRS basis 2.27p 0.02p
- EPRA basis
Total annualised rental income GBP17.4m(1) GBP7.8m
Value of the portfolio
- IFRS basis GBP323.5m GBP137.5m
- Portfolio valuation basis GBP343.7m GBP146.9m
Weighted average unexpired 27.2 yrs 30.6 yrs
lease term
Dividend paid or declared per
Ordinary Share 5.00p 1.00p
Dividend paid per C Share 1.29p -
* For the initial period from incorporation to 31 December
2017
Financial highlights
-- IFRS net asset value per share of 103.65 pence at 31 December
2018) (2017: 100.84 pence), an increase of 2.79%.
-- Portfolio independently valued as at 31 December 2018 at
GBP323.5 million on an IFRS basis (2017: GBP137.5 million),
reflecting a valuation uplift of 6.89% against total invested funds
of GBP302.6 million(2) . The properties have been valued on an
individual basis.
-- The Group's assets were valued at GBP343.7 million on a
portfolio valuation basis (2017: GBP146.9 million), reflecting a
portfolio premium of 6.24% or a GBP20.2 million uplift against the
IFRS valuation. A portfolio valuation basis assumes the portfolio
of properties is held in a single company holding structure, is
sold to a third party on arms-length terms, and attracts lower
purchaser's costs of 2.30%.
-- The portfolio's total annualised rental income was GBP17.4
million(1) as at 31 December 2018 (2017: GBP7.8 million).
-- Operating profit for the year ended 31 December 2018 was
GBP21.5 million (2017: GBP5.6 million).
-- Ongoing Charges Ratio of 1.58% as at 31 December 2018 (2017: 1.34%).
-- Raised gross equity proceeds of GBP47.5 million through the
issue of C Shares at a price of 100p per share in March 2018 and a
further GBP108.2 million through an over-subscribed issue of
ordinary shares at a price of 103 pence per share in October
2018.
-- Raised gross debt proceeeds of GBP68.5 million via a private
placement of loan notes with MetLife in July 2018 and a further
GBP70 million via a revolving credit facility from Lloyds in
December 2018 (which was undrawn as at 31 December 2018).
-- Market capitalisation of GBP349.9 million as at 31 December 2018 (2017: 208.75 million).
Operational highlights
-- Acquired 156 properties (1,059 units) during the year with an
aggregate purchase price of GBP170.8 million (including costs)
bringing the total investment portfolio to 272 properties.
-- Committed approximately GBP26.3 million to forward fund the
development of 13 newly built or fully-renovated bespoke Supported
Housing schemes, of which six reached practical completion during
the year and seven were on-going at the year end.
-- IFRS blended net initial yield of 5.25% based on the value of
the portfolio on an IFRS basis as at 31 December 2018, against the
portfolio's blended net initial yield on purchase of 5.89%.
-- Further diversified the portfolio:
o 11 regions
o 109 local authorities
o 189 leases
o 16 Approved Providers
o 62 care providers
-- As at 31 December 2018, the weighted average unexpired lease
term ("WAULT") was 27.2 years.
-- 100% of the Group's portfolio was fully let or pre-let and
income producing during the year(1) .
-- 100% of contracted rental income was either CPI or RPI linked.
Post Balance Sheet Activity
-- The Company declared a dividend of 1.25 pence per ordinary
share in respect of the period from 1 October to 31 December 2018.
This dividend will be paid on or around 29 March 2018 to
shareholders on the register at 15 March 2019.
-- The dividend payable on 29 March 2019 brings the total
dividend per Ordinary Share paid by the Company to 5.0 pence per
share in respect of its first full financial year to 31 December
2018 in line with the Company's stated target at launch. The
Company is targetting an aggregate dividend of 5.095 pence per
share for the year ending 31 December 2019, an increase of 1.9%, in
line with inflation, reflecting the CPI-based rent reviews
typically contained in the leases of the assets within the
portfolio.(3)
-- Announced the acquisition of a further 17 Supported Housing
properties (144 units) for an aggregate purchase price of
approximately GBP21.0 million (including costs) and made further
commitments of GBP4.5 million.
Notes:
1 Excluding ongoing forward funded schemes that are under an agreement for lease
2 Including acquisition costs
3 These are targets only and not a profit forecast and there can
be no assurance that they will be met
Christopher Phillips, Chairman of Triple Point Social Housing
REIT plc, commented:
"We have had a busy and successful first full financial year.
During the year under review, we successfully completed two equity
raises and secured two debt facilities. Using these funds, we
continued our strategy of acquiring and managing a portfolio of
high-quality new-build or renovated Supported Housing properties
across the UK, working with proven counterparties in areas of known
demand.
"Given strong underlying demand and the Investment Manager's
long-standing relationships with the leading Supported Housing
developers, we expect 2019 to be another good year for us. The
market remains attractive due to the cost-savings Supported Housing
provides local authorities, the higher quality of accommodation
provided to residents of Supported Housing, and the lack of
alternative funding sources for the development of new
schemes."
FOR FURTHER INFORMATION ON THE COMPANY, PLEASE CONTACT:
Triple Point Investment Management Tel: 020 7201 8989
LLP
(Delegated Investment Manager)
James Cranmer
Ben Beaton
Max Shenkman
Justin Hubble
Akur Limited (Joint Financial Adviser) Tel: 020 7493 3631
Tom Frost
Anthony Richardson
Siobhan Sergeant
Canaccord Genuity Limited (Joint Tel: 020 7523 8000
Financial Adviser and Corporate
Broker)
Lucy Lewis
Denis Flanagan
Andrew Zychowski
The Company's LEI is 213800BERVBS2HFTBC58.
Further information on the Company can be found on its website
at www.triplepointreit.com.
NOTES:
The Company invests in social housing assets in the UK, with a
particular focus on supported housing. The assets within the
portfolio are subject to inflation-adjusted, long-term (typically
from 20 years to 30 years), Fully Repairing and Insuring ("FRI")
leases with Approved Providers (being Housing Associations, Local
Authorities or other regulated organisations in receipt of direct
payment from local government). The portfolio comprises investments
into properties which are already subject to an FRI lease with an
Approved Provider, as well as forward funding of pre-let
developments but does not include any direct development or
speculative development.
There is increasing political and financial pressure on Housing
Associations to increase their housing delivery and this is
creating opportunities for private sector investors to participate
in the market. The Group's ability to provide forward financing for
new developments not only enables the Company to secure fit for
purpose, modern assets for its portfolio but also addresses the
chronic undersupply of suitable supported housing properties in the
UK at sustainable rents and delivering returns to investors.
Triple Point Investment Management LLP (part of the Triple Point
Group) is responsible for management of the Group's portfolio (with
such functions having been delegated to it by Langham Hall Fund
Management LLP, the Company's alternative investment fund
manager).
The Company was admitted to trading on the Specialist Fund
Segment of the Main Market of the London Stock Exchange on 8 August
2017 and was admitted to the premium segment of the Official List
of the Financial Conduct Authority and migrated to trading on the
premium segment of the Main Market on 27 March 2018. The Company
operates as a UK Real Estate Investment Trust ("REIT") and is a
constituent of the FTSE EPRA/NAREIT index.
Meeting for investors and analysts and audio recording of
results available
A Company presentation for analysts and investors will take
place at 8.45 a.m. today at the offices of Canaccord Genuity, 88
Wood Street, London, EC2V 7QR. The presentation will also be
accessible on-demand via the Company website:
https://www.triplepointreit.com/investors/72/.
The Annual Report and Notice of AGM are also available to view
and download on the Company's website at www.triplepointreit.com
and hard copy will be posted to shareholders on or around 4 April
2019.
In accordance with Listing Rule 9.6.1 copies of the Annual
Report and Notice of AGM will be submitted to the UK Listing
Authority and will be available for inspection from the National
Storage Mechanism at www.morningstar.co.uk/uk/nsm.
CHAIRMAN'S STATEMENT
Introduction
Since I wrote to you in our maiden annual report 12 months ago,
we have had a busy and successful first full financial year. During
the year under review, we successfully completed two equity raises
and secured two debt facilities. Using these funds, we continued
our strategy of acquiring and managing a portfolio of high-quality
new-build or renovated Supported Housing properties across the UK,
working with proven counterparties in areas of known demand. Over
the year we invested GBP170.8 million of funds to acquire 156
properties, in some cases as single assets and in others as
portfolios. Dividends amounting to, in aggregate, 5 pence per
Ordinary Share have been declared for the year. The Group's
portfolio has enjoyed an IFRS NAV uplift of 2.79% since 31 December
2017. In short, we achieved the solid financial performance that we
always intended.
As well as this financial success, in 2018 we saw the positive
impact that our Group is having on society. As I discuss in more
detail below, and in Our Social Impact section below, we believe
that investing private capital in this sector is benefiting all
stakeholders. By funding the development of Supported Housing, we
are saving the government money compared to funding traditional
institutional care, we are giving our investors long-term
inflation-linked returns underpinned by government income and,
above all, we are providing some of the most vulnerable people in
society with the community-based homes that they desperately
need.
In 2018 we continued to acquire best-in-class properties from
around the UK. In February, for example, we acquired Carden Avenue
which is leased to Falcon Housing Association for 25 years and is
occupied by vulnerable residents cared for by Care Management
Group. In June, we bought Meadowhurst Gardens which is leased to
Inclusion Housing for 25 years and whose residents are cared for by
Lifeways. And in November, we bought Rosslyn Road which is leased
to Hilldale Housing Association for 25 years and whose residents
are cared for by Priory Care Group. These are only some of the
high-quality, long-life assets that we have bought, and which are
likely to be in high demand for many years to come for the benefit
of all stakeholders. We have every intention of continuing to buy
high-quality properties as we move ahead in 2019.
One way we continue to deliver the greatest social and financial
impact - as well as distinguish ourselves from our competition - is
through our forward funding offering. Forward funding allows the
Group to forge stronger developer relationships through joint
construction projects, enjoy valuation uplifts on new-build
properties, benefit from the high occupancy such custom-built
properties achieve, provide higher quality accommodation for
residents, as well as bring new housing stock to market to the
benefit of wider society.
This forward funding has translated into tangible financial
benefit. We deployed our first funds into a forward-funded asset in
January 2018, and over the year committed an aggregate of GBP26.3
million of funds to acquire 13 sites which already are, or soon
will be, newly-built or fully-renovated bespoke Supported Housing
schemes. Our first four completed forward funding schemes received
an average valuation uplift of 4.86% on the amount we paid as at 31
December 2018. We expect to achieve similar financial returns in
2019, building on our forward funding success in 2018. More detail
on our forward funding is set out below.
A key development in 2018 has been growing regulation. We
launched our fund focused on the Supported Housing market because
we saw an opportunity to generate ethical returns from providing
capital to a severely under-funded sector with a chronic
supply/demand imbalance. However, like many growing sectors,
regulation has had to catch up with an evolving market. Most of the
Registered Providers we lease to have fewer units than the
1,000-unit threshold above which they are more closely regulated.
In 2018, the Regulator of Social Housing began engaging more
actively with smaller, lease-based Registered Providers below this
threshold. Over the year the Regulator released Regulatory Notices
and Judgements on several growing Registered Providers that did not
meet the Regulator's standards for viability and governance
(details of which are set out in the Investment Manager's report
below). The Registered Providers are working with the Regulator to
address its concerns. We welcome greater oversight as a means of
applying the high standards that apply to larger Registered
Providers to smaller Registered Providers and hope that the
Regulator continues to engage constructively with the sector in
2019 and beyond as the sector grows and matures.
Deployment
In 2018 we acquired 156 assets, providing accommodation for
1,059 residents, for a total investment cost (i.e. including
transaction costs) of GBP170.8 million. As at 31 December 2018, we
had a further GBP21.0 million of outstanding commitments, both for
five exchanged properties and five forward funded properties which
had yet to complete construction. A map showing where all our
properties are can be found on page 54 of the Annual Report. These
properties are leased to 16 Approved Providers (2017: 11) operating
in 109 Local Authorities (2017: 51). A total of 62 care providers
(2017: 26) are providing care and support across our portfolio. The
weighted averaged unexpired lease term for all our leases is 27.2
years (assuming exercise of put options). Since the end of 2018, we
have acquired 17 more properties, housing 144 residents, for
GBP21.0 million, substantially deploying the proceeds of our
October 2018 equity fundraise. All this has increased geographic
and counterparty diversification for the benefit of our
shareholders, something that will continue to grow as further funds
are deployed through 2019.
Investment Performance
As our first full year, 2018 was a test of our ability to fulfil
our promise to our shareholders. By that measure, we believe we
succeeded. Using the Investment Manager's strong and growing
network, market knowledge and sector expertise, we acquired a
diverse spread of properties leased to a range of Approved
Providers whose rent is underpinned by numerous different local
authorities. As at 31 December 2018, the value of the portfolio was
GBP323.5 million on an IFRS basis, with a valuation uplift of
GBP20.8 million compared to the total investment cost (i.e.
including transaction costs), reflecting our success in acquiring
off-market, high-quality properties leased to credible
counterparties at attractive yields. In doing so, we have paid (or
declared) quarterly dividends of, in aggregate, 5 pence for the
year.
Such performance reflects and reinforces the disciplined due
diligence processes applied by the Investment Manager on each
acquisition. Building on its existing sector knowledge and
experience, throughout 2018 the Investment Manager continued to
ensure that each property we acquired was well built, with suitable
adaptations, in an area of strong commissioner support, and managed
by a capable Approved Provider working alongside a skilled and
experienced care provider. By applying its processes to the best of
its ability on each and every acquisition, the Investment Manager
has helped us acquire a large portfolio of stable income-generating
properties underpinned by both government income and the chronic
supply/demand imbalance that is unfortunately likely to remain
unresolved for decades to come.
Financial Results
As mentioned above, at the end of the year our portfolio was
independently valued at GBP323.5 million on an IFRS basis, which
reflects a valuation uplift of GBP20.8 million over the total
investment cost (i.e. including transaction costs) we paid for the
properties. The valuation represents a blended valuation NIY of
5.25%, a favourable comparison to the portfolio's average net
initial purchase yield of 5.89%.
At year end our assets were also valued at GBP343.7 million on a
portfolio valuation basis, which assumes a single sale of the SPVs
to a third-party on an arm's length basis with purchaser's costs of
2.30%. The portfolio valuation reflects a portfolio premium of
GBP20.2 million against the IFRS valuation.
EPRA earnings per share in 2018 was 2.27 pence. The audited IFRS
NAV per share and the EPRA NAV per share were both 103.65 pence, an
increase since IPO of 5.77%.
Dividends
On 6 March 2018, we declared our maiden interim dividend of 1
pence per share for the initial period from 12 June to 31 December
2017. On 7 March 2019, following the payment of three interim
dividends of 1.25 pence per share for the first three quarters of
2018, we declared an interim dividend of 1.25 pence per share for
the final period of 2018 (1 October to 31 December 2018), bringing
the total dividends paid or declared for the year ended 31 December
2018 to an aggregate 5 pence per share, in line with our stated
target for the year.
During the year the Board also declared dividends payable to
holders of C Shares comprising a fixed dividend of 3% per annum pro
rated for the period from admission to trading on 27 March to
conversion of C Shares on 30 August 2018. This equated to an
aggregate amount of 1.29 pence per C Share, comprising 0.789 pence
for the period from 27 March to 30 June 2018 and 0.501 pence for
the period from 1 July to 30 August 2018.
In 2019, we intend to pay an aggregate dividend of 5.095 pence
per share, being an increase of 1.9% (in line with inflation) on 5
pence per share in respect of 2018, reflecting the anticipated
growth in our income. We expect the quarterly dividend at the end
of 2019 to be substantially covered by EPRA earnings once equity
and debt funds are fully deployed.
Equity and Debt Raising
Our strategy continues to be raising appropriate levels of
capital, balanced between equity and debt, to take advantage of
opportunities in the market without exposing the Group to
unnecessary risk and ensuring investors receive suitable returns.
In 2018 we successfully completed two equity raises and secured two
debt facilities.
In terms of equity, in March 2018 we raised GBP47.5 million of
gross proceeds (net proceeds: GBP46.5 million) through a C share
issue, which converted into Ordinary Shares on 30 August 2018 at a
conversion ratio of 0.975836. In October 2018 we raised a further
GBP108.2 million of gross proceeds (net proceeds: GBP106.0 million)
via an over-subscribed issue of Ordinary Shares as part of a 12
month placing programme.
In terms of debt, in July 2018 we entered into a long dated,
fixed rate, interest only private placement of loan notes with
MetLife for GBP68.5 million. The loan notes are split into two
tranches with a weighted average term of 12 years and a weighted
average fixed rate coupon of 3.039% per annum. In December 2018, we
signed a GBP70 million revolving credit facility with Lloyds Bank.
The facility has an initial term of four years extendable by two
years. The interest rate on drawn funds is 1.85% per annum over
3-month LIBOR. For undrawn funds the Group pays a commitment fee of
40% of the margin. As at 31 December 2018 no funds had been drawn
on this facility. The MetLife and Lloyds facilities are secured
against separate ring-fenced portfolios of UK Support Housing
assets without recourse to the Company. The Group's MetLife 10-year
and 15-year tranches have a fixed rate coupon and the Board
regularly reviews potential hedging arrangements which can be put
in place at any time during the term of the Lloyds facility.
We are well placed to fund our strong pipeline of high-quality
assets with the flexibility provided by both the Lloyds revolving
credit facility and the 12 month equity placing programme put in
place as part of the October 2018 fundraise. This flexibility
enables us to raise capital only when such funds can be deployed so
as to minimise cash drag and help achieve full dividend cover. As
we continue to grow, our portfolio will diversify across a wider
geographical area and among more counterparties, ensuring we remain
an attractive investment proposition into 2019 and beyond.
Investment Manager
During 2018 the Board maintained a regular and open dialogue
with the Investment Manager, Triple Point Investment Management
LLP. Discussions about the structure of the Group, developments in
the market and updates from the Regulator of Social Housing were
considered. This collaborative and effective partnership will
continue into 2019 and the Board is grateful to the Investment
Manager for its hard work and success.
Social Impact
The Supported Housing shortage continues to receive considerable
media attention, remains high up the political agenda and shows no
sign of abating in the short-to-medium term. If current trends
continue, the annual shortfall in Supported Housing units for
people of working age of 29,053 in 2019/20 is forecast to rise to
46,771 by 2024/25(1) . We seek to address the lack of suitable
accommodation for vulnerable residents by funding the development
of new properties or the repurposing of existing private properties
to make them suitable for Supported Housing. We now own 529 units
that are in new built properties that provide homes to people with
mental health issues, autism, learning disabilities and physical
and sensory impairments. Without our funding many of these houses
and apartments would not have been developed, requiring the
residents to be housed in less suitable and more expensive
properties. Our homes give residents the opportunity for a better
quality of life while costing local authorities less than
alternatives such as residential care and in-patient care.
Supported Housing should provide adults who have a care need
with the opportunity to improve their well-being by helping them to
take steps towards greater independence and lessening their care
requirements. We are committed to the important social aim of
helping to provide more accommodation, and more appropriate
accommodation, to some of the most vulnerable in society so they
can aspire to live more autonomously in local communities and
ultimately lessen their reliance on support and the government.
This can only be achieved if our accommodation is of a high
standard. Our due diligence and strategic relationships with
developers allow us to focus on funding high-quality assets. This,
combined with significant investment in the sector, is helping to
drive quality in building contractors and developers in the
Supported Housing space which in turn is improving the standard of
accommodation available to our residents.
Outlook
Given strong underlying demand and the Investment Manager's
long-standing relationships with the leading Supported Housing
developers, we expect 2019 to be another good year for us. The
market remains attractive due to the cost-savings Supported Housing
provides local authorities, the higher quality of accommodation
provided to residents of Supported Housing, and the lack of
alternative funding sources for the development of new schemes.
In the context of ongoing uncertainty about the terms of the UK
leaving the European Union, the Regulator published a letter sent
to Registered Providers titled 'Preparation for a no deal Brexit'.
Many of the risks highlighted by the Regulator are less relevant to
Registered Providers that we have leases with due to the fact that
they do not typically develop properties and are therefore less
exposed to any possible rapid decline in house prices. We will
continue to monitor developments but hope that investors view
secure income REITs like ours as a good hedge in times of market
uncertainty. More detail on Brexit is set out in the Investment
Manager's report.
Through its existing developer relationships, the Investment
Manager has identified a healthy pipeline of properties that meet
our investment criteria. With each transaction, the Investment
Manager's well-established due diligence process improves. A
substantial portion of assets in the pipeline will probably be
rejected as a result of asset or lessee quality. Nonetheless, due
to the volume of properties in the pipeline and the fact that they
principally come from existing developers, we are confident that
there is sufficient quality deal flow for us to meet our deployment
targets.
I would like to take this opportunity to publicly welcome Tracey
Fletcher-Ray to the Board, to which she brings considerable care,
property and social housing experience among other things. I would
also like to thank my fellow Board members for their support and
commitment throughout 2018 and to all shareholders for your
continued support.
Chris Phillips
Chairman
28 March 2019
Notes:
1 National Housing Federation, Supported housing: Understanding need and supply (2015)
STRATEGY AND BUSINESS MODEL
The Board is responsible for the Group's Investment Objective
and Investment Policy and has overall responsibility for ensuring
the Group's activities are in line with such overall strategy. The
Group's Investment Policy and Investment Objective are published
below.
Investment Objective
The Group'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 mix of which the Company seeks to optimise 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 for terms primarily ranging
from 20 years to 30 years, with the rent payable thereunder subject
to adjustment in line with inflation (generally CPI). Title to the
assets remains with the Group under the terms of the relevant
lease. The Group is not responsible for any management or
maintenance obligations under the terms of the lease or occupancy
agreement, all of which are serviced by the Approved Provider
lessee. 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,
taking advantage of long-term upward-only inflation-linked leases.
The Group will not be actively seeking to dispose of 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 Company 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 unexpired term of any lease or occupancy agreement
entered into (or in the case of an acquisition of a portfolio of
assets, the average unexpired term of such leases or occupancy
agreements) shall not be less than 15 years, unless the Investment
Manager reasonably expects the term of such shorter lease or
occupancy agreement (or in the case of an acquisition of a
portfolio of assets, the average term of such leases or occupancy
agreements) to be extended to at least 15 years;
-- 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. On acquisition, the properties are subject to
inflation-adjusted, long-term (typically from 20 years to 30
years), fully repairing and insuring leases with specialist
Approved Providers in receipt of direct payment from local
government (usually Registered Providers regulated by the Regulator
of Social Housing). The portfolio comprises investments made into
properties already subject to a fully repairing and insuring lease
as well as forward funding of pre-let developments. The portfolio
will not include any direct development or speculative development
investments.
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)
through long-term, inflation-linked, fully repairing and insuring
leases. 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. We are focused on acquiring specially or recently
developed 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 below). 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 through the
Regulator of Social Housing (or in rare instances, where the Group
contracts with care providers, the Care Quality Commission). All
the Group's 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 Approved Provider is also responsible for tenanting the
properties. 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 paid directly from the local authority to the Approved
Provider. The rent received from the local authority by the
Approved Provider is then paid to the Group via the lease. Ultimate
funding for the rent and maintenance comes from the Department for
Work and Pensions in the form of housing benefit.
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). The Group receives 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 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. 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. More detail on the Group's forward funding can be found
below.
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 14-year track record 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 new Supported Housing assets 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 EXPLANATION
1. Dividend
--------------------------- --------------------------- ----------------------------- ---------------------------
Dividends paid to The dividend reflects the Total dividends of 5 pence The Company declared a
shareholders and declared Company's ability to per Ordinary Share were dividend of 1.25 pence per
in relation to the period deliver a low risk but declared in respect of the Ordinary share in respect
growing income stream year 1 January of the period
from the portfolio 2018 to 31 December 2018. 1 October 2018 to 31
December 2018, which will
be paid on 29 March 2019.
Total dividends paid for
the period are in line
with the Company's target.
--------------------------- ----------------------------- ---------------------------
2. IFRS NAV per share
--------------------------- --------------------------- ----------------------------- ---------------------------
The value of our assets The IFRS NAV reflects our 103.65 pence as at 31 The IFRS NAV per share at
(based on an independent ability to grow the December 2018. IPO was 98.0 pence.
valuation) less the book portfolio and to add value
value of our liabilities, to it throughout 100.84 pence per share at 31 103.65 pence was an
attributable to the life cycle of our December 2017. increase of 5.77% since
shareholders. assets IPO driven by growth in
the underlying asset value
of the investment
properties.
--------------------------- ----------------------------- ---------------------------
3. Loan to GAV
A proportion of our The Company uses gearing 15.5% Loan to GAV as at 31 As at 31 December 2018,
investment portfolio is to enhance equity returns. December 2018 GBP68.5 million private
funded by borrowings. Our placement of loan notes
medium to long-term with MetLife; and
target Loan to GAV is 40% a GBP70 million undrawn
with a hard cap of 50%. secured revolving credit
facility with Lloyds.
4. Earnings per Share
--------------------------- --------------------------- ----------------------------- ---------------------------
The post-tax earnings The EPS reflects our 8.37 pence per share for the The outlook remains
generated that are ability to generate year to 31 December 2018, positive and we continue
attributable to earnings from our based on earnings including to invest to generate an
shareholders. portfolio including the fair attractive total return
valuation increases. value gain on properties, for our shareholders.
calculated on the weighted
average number of shares in
issue during
the year.
3.94 pence per share for the
period to 31 December 2017.
--------------------------- ----------------------------- ---------------------------
5. Adjusted Earnings per Share
-------------------------------------------------------- ----------------------------- ---------------------------
The post-tax earnings The Adjusted EPS reflects 12.91 pence per share for The adjusted EPS shows the
adjusted for the market the application of using the year to 31 December value per share on a long
portfolio valuation the portfolio premium 2018, as shown on page 135 term basis under the
including portfolio value and reflects of the Financial special assumption
premium. the potential increase in Statements. of a hypothetical sale of
value the Group could the underlying property
realise if assets are sold 10.48 pence per share for investment portfolio in
on a portfolio the period to 31 December one single transaction
basis. 2017.
--------------------------- ----------------------------- ---------------------------
6. Weighted Average Unexpired Lease Term (WAULT)
-------------------------------------------------------- ----------------------------- ---------------------------
The average unexpired The WAULT is a key measure 27.2 years at 31 December As at 31 December 2018,
lease term of the of the quality of our 2018 (includes put options). the portfolio's WAULT
investment portfolio, portfolio. Long lease stood at 27.2 years and
weighted by annual passing terms underpin the remains ahead of the
rents. security of our income Group's minimum target of
Our target is a WAULT of stream. 15 years.
at least 15 years.
--------------------------- ----------------------------- ---------------------------
7. Portfolio NAV
---------------------------------------------------------- ---------------------------- ----------------------------
The IFRS NAV adjusted for The portfolio NAV measure The portfolio valuation of The portfolio NAV per share
the market portfolio highlights the fair value GBP343.7 million equates to shows a good market growth
valuation including of net assets on an a Portfolio NAV of 109.39 in the underlying asset
portfolio premium. ongoing, long-term pence per value of the
basis and reflects the Ordinary Share, as shown on investment properties.
potential increase in value page 135 of the Financial
the Group could realise Statements.
under the special
assumption of a
hypothetical sale of the
underlying property
investment portfolio in one
single
transaction.
---------------------------- ---------------------------- ----------------------------
8. Largest Approved Provider Exposure
----------------------------------------------------------------------------------------------------------------------
The percentage of the The exposure to the largest 15.8% The figure as at 31
Group's gross assets that Approved Provider must be December 2018 is lower than
are leased to the single monitored to ensure that we the target of 25% and the
largest Approved are not maximum exposure
Provider. overly exposed to one of 30%. We are
Approved Provider in the substantially below our
event of a default maximum exposure target
scenario. with our largest Approved
Provider,
Inclusion Housing.
---------------------------- ---------------------------- ----------------------------
9. Total Return
----------------------------------------------------------------------------------------------------------------------
IFRS NAV plus total The total return measure Total return was 7.5% for The IFRS NAV per share at
dividends paid during the highlights the gross return the year to 31 December 31 December 2017 was 100.84
year. to investors including 2018. pence.
dividends paid Adding back dividends paid
since the prior year. during the year of 4.75
pence per Ordinary Share to
the IFRS NAV
at 31 December 2018 results
in an increase of 7.5%.
---------------------------- ---------------------------- ----------------------------
EPRA PERFORMANCE MEASURES
The table below shows additional performance measures,
calculated in accordance with the Best Practices Recommendations of
the European Public Real Estate Association (EPRA). We provide
these measures to aid comparison with other European real estate
businesses.
Full reconciliations of EPRA Earning and NAV are included in
Notes 35 and 36 of the consolidated financial statements
respectively. A full reconciliation of the other EPRA performance
measures are included in the Unaudited Performance Measures section
of the Annual Report.
KPI AND DEFINITION PURPOSE PERFORMANCE
1. EPRA Earnings per Share
EPRA Earnings per share excludes A measure of a Group's underlying 2.27 pence per share for the year to
gains from fair value adjustment on operating results and an indication 31 December 2018.
investment property that of the extent to which
are included in the IFRS calculation current dividend payments are 0.02 pence per share for the period
for Earnings per share. supported by earnings. to 31 December 2017.
The Group is currently in ramp up
phase and undertaking forward funding
that results in a
lag in the Company's ability to fully
cover dividends. Our priority remains
to achieve a fully
covered dividend from operations by
the end 2019.
======================================
2. EPRA NAV per Share
-------------------------------------- -------------------------------------- --------------------------------------
EPRA NAV makes certain adjustments to Provides stakeholders with the most 103.65 pence per share as at 31
IFRS NAV to exclude items not relevant information on the fair December 2018.
expected to crystallise value of the assets and
in a long-term investment property liabilities within a true real estate 100.84 pence per share as at 31
business model. investment company with a long-term December 2017.
investment strategy.
-------------------------------------- -------------------------------------- --------------------------------------
3. EPRA NNNAV per Share
-------------------------------------- -------------------------------------- --------------------------------------
EPRA NAV adjusted to include the fair EPRA NAV is adjusted to provide 103.60 pence per share as at 31
values of: stakeholders with the most relevant December 2018.
1. financial instruments; information on the fair
2. debt; and value of the assets and liabilities 100.84 pence per share as at 31
3. deferred taxes. within a true real estate investment December 2017.
company.
-------------------------------------- -------------------------------------- --------------------------------------
4. EPRA Net Initial Yield (NIY)
Annualised rental income based on the A comparable measure for portfolio 5.13% at 31 December 2018.
cash rents passing at the balance valuations. This measure should make
sheet date, less non-recoverable it easier for investors 4.26% at 31 December 2017.
property operating expenses, divided to judge for themselves how the
by the market value of the property, valuation of a portfolio compares
increased with (estimated) with others.
purchaser's costs.
======================================
5. EPRA 'Topped-Up' NIY
This measure incorporates an The topped-up net initial yield is 5.21% as at 31 December 2018.
adjustment to the EPRA NIY in respect useful in that it allows investors to
of the expiry of rent-free see the yield based 5.32% as at 31 December 2017.
periods (or other unexpired lease on the full rent that is contracted
incentives such as discounted rent at 31 December 2018.
periods and step rents).
======================================
6. EPRA Vacancy Rate
Estimated Market Rental Value (ERV) A 'pure' percentage measure of 0.00% as at 31 December 2018.
of vacant space divided by ERV of the investment property space that is
whole portfolio. vacant, based on ERV. 0.00% as at 31 December 2017.
======================================
THE INVESTMENT MANAGER
James Cranmer
Co-Managing Partner
James joined the Investment Manager in 2006 to establish its
flagship leasing business, Triple Point Lease Partners, which has
grown to be one of the UK's most active providers of operating
lease finance into Local Authorities and NHS Trust Hospitals. James
has over 20 years' experience in structured, asset and vendor
finance, and has been responsible for in excess of GBP1 billion of
funding into UK Local Authorities, NHS Hospital Trusts, FTSE 100
and small and medium-sized companies. James is a graduate of St.
Andrews University. He became co-Managing Partner in 2016.
Ben Beaton
Co-Managing Partner
Ben joined the Investment Manager in 2007 to lead the sourcing
and execution of a broad spectrum of investments including
renewable energy, long leased infrastructure and property bridge
lending. He has spent his career building innovative products for
investors and offering attractive and flexible funding solutions to
a range of businesses, both in the public and private sector. Ben
has a BSc (Hons) in Biological Sciences from the University of
Edinburgh. He became co-Managing Partner in 2016.
Max Shenkman
Head of Investment
Max joined the Investment Manager in 2011 and has led
investments across the product range. He has arranged both debt and
equity funding for a number of property backed transactions in the
social housing, infrastructure and agricultural sectors. Max has
led over GBP150 million of investment into Supporting Housing
assets for the Group. Prior to joining the Investment Manager, Max
was an Associate in the Debt Capital Markets team at Lazard where
he advised private equity clients on both the buy and sell side.
Max graduated from the University of Edinburgh. He became a Partner
in 2018.
Isobel Gunn-Brown
Head of Fund Management Services
Isobel joined the Investment Manager in 2010 and acts as Chief
Financial Officer to the Group leading the financial reporting
responsibilities of the Group in conjunction with the AIFM. At the
Investment Manager Isobel is head of the Fund Management Services
department. Isobel is ACCA qualified with over 30 years' experience
in the financial services sector. Her experience is wide-ranging
and includes managing the financial reporting for eight listed
venture capital trusts, managing the Investment Manager's FCA
regulation and reporting requirements and monitoring investee
company compliance with HMRC regulation.
Ralph Weichelt
Investment Director
Ralph joined the Investment Manager in 2017 as a member of the
Investment Team. Prior to joining the Investment Manager, Ralph was
a partner in Chalkhill Partners LLP, a debt advisory firm focusing
on commercial real estate debt origination via institutions and
debt capital markets. Prior to this, he held a number of positions
in pan-European real estate entities spanning fund management,
transactional work (sourcing/underwriting/execution) and advisory.
His experience of over 20 years spans across all investment
strategies, ranging from core, value added to opportunistic. Ralph
is also a qualified Chartered Surveyor.
Justin Hubble
Partner and General Counsel
Justin joined the Investment Manager in 2017 as General Counsel.
He began his legal career as a barrister in New Zealand before
moving to the UK where he worked as a private practice lawyer at
City firm Ashurst during the dot-com era. On leaving private
practice he pursued in-house roles as the General Counsel of
several high growth, disruptive tech businesses from start-up to
float. Justin is qualified as a barrister and solicitor in New
Zealand and as a solicitor in the UK. He is a graduate of Otago
University, New Zealand and holds a Master of Laws degree from
University College London. He became a Partner in 2018.
INVESTMENT MANAGER'S REPORT
Review of the Business
In 2018, the Group made strong progress in implementing its
strategy of investing in high-quality, durable Supported Housing
properties in areas of known demand. Over the course of the year,
the Group deployed GBP170.8 million into 156 assets, and had, as at
31 December 2018, another GBP21.0 million of outstanding
commitments, comprising GBP11.5 million on exchanged contracts for
five assets and GBP9.5 million committed to seven ongoing forward
funding transactions. All these acquisitions were funded by the
remaining proceeds of the Company's IPO in 2017, as well as two
further equity raises (in March and October 2018) and a debt raise
in July 2018. A GBP70 million revolving credit facility was signed
at the end of December 2018 to fund continued deployment. All of
this reflects the quality of the Group's portfolio and reputation
in the market. The Group has achieved strong financial performance,
reporting an IFRS NAV per share of 103.65 pence at 31 December
2018, a 2.79% increase since 31 December 2017.
Diversification of the Group's portfolio, in terms of geography,
local authority and Approved Provider, continued throughout 2018.
Although most of the Group's properties are in the Midlands and
North of England, the Group has increased geographical
diversification during the year with 15.2% of its portfolio now
across the South, South East and South West of England. Similarly,
while the Group leased to 11 Approved Providers as at 31 December
2017, the Group as at 31 December 2018 leased to 16 Approved
Providers. The pipeline remains strong and based on
increasingly-embedded relationships with existing developers and
Approved Providers, as well as new relationships born out of our
growing reputation in the market for high-quality developments.
Based on these successes, we are currently evaluating a pipeline in
excess of GBP400 million over the next 12 months.
When acquisition opportunities are presented, our deep sector
knowledge allows us to conduct a quick initial appraisal, at which
point schemes are often rejected. Those that pass initial screening
undergo our full and exacting due diligence processes. Our
surveyors visit each property to carry out a detailed building
survey, focusing on structural issues, the general condition,
health and safety, and adaptations for the needs of the residents.
Our valuers visit the property or development site too, ensuring
that the price we pay for the property is supported in the context
of the contractual suite and market conditions. Our lawyers review
the property title and negotiate the contractual suite, working off
our well-established legal contract templates. Meanwhile we review
and negotiate the commercial elements, ensuring we agree a yield
adjusted to the risk profile of the scheme. Likewise, we ensure
there is commissioner support and housing benefit support, and that
the Approved Provider and care provider are financially and
operationally appropriate and have conducted their own due
diligence on the opportunity. Finally, before any scheme is
acquired by the Group, our Investment Committee rigorously
appraises it and it is sent to the Board for feedback.
Our due diligence does not stop at the point of acquisition. We
conduct ongoing due diligence on all our properties, Approved
Providers and care providers. Each quarter, management accounts are
requested and analysed, with any issues discussed with the relevant
counterparties. Likewise, each quarter we ask Approved Providers to
complete a series of key performance indicators focused on
occupancy, rent levels, and health and safety. We speak to and meet
all Approved Providers on a regular basis and for any ad hoc
issues. Finally, we conduct site visits to the properties in our
portfolio, allowing us to assess how operations work in practice
and enhance ongoing communication. All this creates a positive
feedback loop, with the quality of our due diligence continuing to
improve based on the lessons of our asset management.
Market Review
The Group continues to benefit from an attractive investment
environment due to the unprecedented demand for new Supported
Housing assets. Following recent research and reports commissioned
by bodies such as the National Housing Federation,(1) MenCap,(2)
and the government's own social housing green paper,(3) the scale
and the depth of the Supported Housing crisis in the UK has
received considerable publicity and remains high on the political
agenda. During 2015/16 the annual shortfall of Supported Housing
units for people of working age was as high as 15,640(4) . By
2019/20 that annual shortfall is forecast to have nearly doubled to
29,053, rising still further to an annual shortfall of 46,771 by
2024/25 if current trends continue(5) .
The Supported Housing shortage is part of a wider housing
shortage. The government has acknowledged that solving the housing
crisis is the biggest domestic policy challenge of the current
generation. In June 2018 the house spending programme running from
2017 to 2022 was increased to GBP9 billion(6) . The government has
also abolished the cap on how much councils can borrow against the
value of their housing stock, thereby releasing more capital to
fund the development of new properties. While it is estimated that
this will result in more than 250,000 new homes by 2022(7) , this
still falls short of even current demand and so the UK's housing
problems are likely to get worse before they get better(8) .
Demand for Supported Housing has risen because of improvements
in healthcare increasing the number of people requiring long-term
accommodation adapted to provide care services, as well as a policy
shift to move people with a care need from institutional to
community-based living, something accelerated by the fall-out from
the Winterbourne care scandal in 2011 and enshrined in the Care Act
2014 and NHS England's Transforming Care programme (2015)(9) .
Local authorities play a pivotal role in determining where those in
greatest need will be housed and Supported Housing is usually both
more suitable and considerably more cost-effective than traditional
alternatives such as care homes and long-stay hospitals. Mencap has
estimated that the cost-saving of Specialised Supported Housing
compared to registered care is nearly two hundred pounds per week
per person, and when compared to in-patient care is nearly two
thousand pounds per week per person(10) .
As reported in the Group's 2018 Interim Report, in February 2018
the Regulator issued a Regulatory Notice stating that a Registered
Provider, First Priority Housing Association Limited ('FPHA'), had
approached the Regulator and that, following a review, did not
appear to have the financial capacity to meet its debts as they
fell due. The Regulator worked closely with FPHA to resolve the
issues faced by the organisation. By July 2018 a large portion of
FPHA's leases had been transferred away from FPHA to other
Registered Providers. On 17 July 2018, the remaining creditors
reached a resolution with FPHA by entering into a Company Voluntary
Arrangement. While this provides an example of the Regulator
assisting Approved Providers which have financial difficulties, the
Regulator is understandably keen to ensure that such a situation
does not arise again in the Supported Housing sector. Importantly,
the Group has never had any leases to FPHA.
Following the problems experienced by FPHA, the Regulator has
sought to engage with Registered Providers that specialise in the
Supported Housing sector and which have fewer than 1,000 tenanted
units under management. Due to their smaller size, these
organisations typically would be subject to a lower level of
regulation than those with over 1,000 units. Understandably the
Regulator appears keen to ensure that other Registered Providers in
the Supported Housing sector do not experience the breadth and
depth of problems endured by FPHA. The Regulator has therefore
asked these smaller Registered Providers to provide information on,
among other things, their financial performance and governance and
compliance policies. The process of the Regulator engaging with the
smaller Registered Providers in the sector has caused the Regulator
to publicly raise some concerns about these organisations through
the issue of Regulatory Notices and Judgements. Supported Housing
specialists Westmoreland Supported Housing Association and Trinity
Housing Association Limited both received non-compliant ratings for
both governance and viability (a V3, G3 rating) towards the end of
2018. On 15 February 2019 - after the year end - Inclusion Housing
Community Interest Company likewise received a V3, G3 rating.
The Group has no leases with Trinity Housing Association Limited
but does lease 16 properties to Westmoreland (representing 4.4 per
cent. of the Group's GAV as at 31 December 2018) and 60 properties
to Inclusion (representing 15.8 per cent. of the Group's GAV as at
31 December 2018). The Group's valuer has not impaired the value of
the Group's assets leased to Westmoreland since it was given the
non-compliant rating. Likewise, the Group's valuer has confirmed
that there should be no impact on the value of the Group's assets
leased to Inclusion as a result of the non-compliant rating. The
Group has received all its rent from both Registered Providers and
there has been no suggestion from either that the rents payable
under the leases with the Group will not continue to be
forthcoming. We continue to monitor and maintain a dialogue with,
and receive monthly management accounts from, Westmoreland as it
works with advisers and the Regulator to implement a financial and
governance action plan in order to address the Regulator's concerns
and obtain a compliant rating. We receive monthly management
accounts from Inclusion and are satisfied that it is a well-run
business with a strong and experienced management team.
We welcome the fact that the Regulator is subjecting smaller
Registered Providers to a higher degree of regulation at an earlier
stage of their development than they might otherwise have expected.
It is helping to bring growing transparency to the sector and
instil higher operational and governance standards. We have
observed the Registered Providers that operate in the Supported
Housing sector evolve and develop since 2014 when, as an investment
manager, we began to invest in the Supported Housing space. We
expect this progress to continue as the Registered Providers grow
under the oversight of the Regulator. Every year for the last six
years the Regulator has published a sector risk profile which aims
to help Registered Providers understand the environment in which
they operate and how best they can manage risk. In their last
report, the Regulator provided guidance to Registered Providers
that pursue the lease model and highlighted the key considerations
that should be borne in mind before entering into long leases. We
continue to adapt our leases to reflect the evolving Supported
Housing market. The leases that we enter into with Approved
Providers have become more nuanced and sophisticated over time and,
where possible, we have accommodated concerns from both the
Regulator and Approved Providers around specific risks (such as a
fundamental change in government housing benefit policy). Our aim
is always to find a pragmatic solution which protects shareholder
value while preserving the wellbeing of residents.
Our due diligence continues to focus on ensuring that Registered
Providers have adequately considered and mitigated the risks
attached to long leases. For example, we seek to make sure that
rental levels have been checked with local authority housing
benefits officers such that we and the Registered Provider can be
confident that they are sustainable in the long run. We also verify
that the service charge received by the Registered Provider is
sufficient to cover the costs of managing the property. All
properties are demand-driven and we look to confirm commissioner
support to mitigate voids risk. Finally, we often allow rent-free
periods in leases to accommodate the time it takes to fill
properties and we check Registered Providers receive sufficient
upfront capital contributions from developers to cover sinking
funds and general management costs associated with growth.
Due to the lack of supply in the Supported Housing market, there
is a considerable opportunity for long-term funders to deliver
returns to investors while also having a positive social impact. By
developing sustainable, cost-effective adapted accommodation that
is leased to Approved Providers, the Group is simultaneously giving
value-for-money to local authorities, providing vulnerable
residents with independent homes, and benefiting from rental income
ultimately derived from housing benefit. Fundamental to the
sustainability of our investment model is the long-term partnership
approach we apply to our relationships with Approved Providers. We
continually monitor the performance of our Approved Providers and,
when entering new leases, we evaluate the risks to their business
as well as our investment to be confident that it is a mutually
beneficial transaction.
In the context of ongoing uncertainty about the terms of the UK
leaving the European Union, the Regulator published a letter sent
to Registered Providers titled 'Preparation for a no deal Brexit'.
The purpose of this letter was to reiterate the importance of
stress-testing business plans and identifying specific, deliverable
and timely mitigations to ensure that viability is maintained, and
residents and Supported Housing assets are protected.
Many of the risks highlighted by the Regulator are less relevant
to Registered Providers that the Group has leases with due to the
fact that they do not typically develop properties. They are
therefore much less exposed to the housing market than some of the
larger Registered Providers with large development businesses.
Similarly, they are less reliant on European labour and are less
exposed to the cost of building materials.
The Group offers investors a relatively risk-averse long-term
secure income stream. In the event of a disorderly exit from the
European Union, investors may seek to continue allocating capital
to REITs in the secure income sector to mitigate the risk of market
uncertainty.
Financial Review
As at 31 December 2018, the annualised rental income of the
Group was GBP17.4 million (excluding forward funding transactions).
The Group is a UK REIT for tax purposes and is exempt from
corporation tax on its property rental business.
The fair value gain of GBP14.5 million was recognised during the
period on the revaluation of the Group's properties.
Earnings per share was 8.37 pence for the period, compared to
3.94 pence for the period ending 31 December 2017 calculated on the
weighted average number of shares in issue during the period.
Adjusted earnings per share were 12.91 pence for the period, where
post-tax earnings were adjusted for a valuation on a portfolio
basis (as opposed to individual asset IFRS basis).
EPRA earnings per share was 2.27 pence for the period, compared
to 0.02 pence for the period ending 31 December 2017 calculated on
the weighted average number of shares in issue during the
period.
The audited IFRS NAV per share was 103.65 pence, representing an
increase since IPO of 5.77%. The Group's EPRA NAV per share is the
same as the IFRS NAV at 103.65 pence. The IFRS NAV adjusted for the
portfolio valuation (including portfolio premium) was GBP384.3
million which equates to a Portfolio NAV of 109.39 pence per
share.
The ongoing charges ratio is calculated as a percentage of the
average net asset value for the period under review. The ongoing
charges ratio for the period was 1.58%.
At the period end, the portfolio was independently valued at
GBP323.5 million on an IFRS basis reflecting a valuation uplift of
6.89% against the aggregate purchase price of the portfolio
(including transaction costs). The valuation reflects a blended
valuation NIY of 5.25%, against the portfolio's average net initial
purchase yield of 5.89% at the point of acquisition. This equates
to a yield arbitrage of 64 bps, reflecting the quality of the
Group's asset selection and acquisition process.
The Group's properties were valued at GBP343.7 million on a
portfolio valuation basis, reflecting a portfolio premium of 6.2%
or a GBP20.2 million uplift against the IFRS valuation. The
portfolio valuation assumes a single sale of the SPVs to a
third-party on an arm's length basis with purchaser's costs of
2.30%.
Debt Financing
During the period, the Group entered into two debt facilities
which were secured against defined portfolios of the Company's UK
Supported Housing assets without recourse to the Company.
In July 2018, the Group entered into a long dated, fixed rate,
interest only private placement of loan notes with MetLife for
GBP68.5 million. The Loan Notes are split into two tranches:
Tranche-A, in an amount of GBP41.5 million, has a term of 10 years
from utilisation and is priced at an all-in coupon of 2.924%; and
Tranche-B, in an amount of GBP27.0 million, has a term of 15 years
from utilisation and is priced at an all-in coupon of 3.215%. On a
blended basis, the weighted average term is 12 years carrying a
weighted average fixed rate coupon of 3.039%.
In December 2018, the Group secured a GBP70 million revolving
credit facility with Lloyds Bank. The floating rate revolving
credit facility has an initial term of four years expiring on 20
December 2022 which may be extended by a further two years to 20
December 2024. The interest rate for drawn amounts under the
facility is 1.85% pa over 3-month LIBOR. For undrawn funds, the
Group pays a commitment fee of 40% of the margin. As at 31 December
2018 no funds had been drawn on this facility. The Board regularly
reviews potential hedging arrangements which can be put in place at
any time during the duration of the Lloyds facility.
Both facilities, when fully drawn, represent a loan-to-value
('LTV') of 40% of the value of the secured assets in the defined
portfolios, which is in line with the Company's investment policy
of a long-term level of aggregate borrowings equal to 40% of the
Group's gross asset value, subject to a limit of 50%.
The MetLife facility requires us to maintain an asset cover
ratio of x2.25 and an interest cover ratio of x1.75. At year end,
the Group was fully compliant with both ratios, with an asset cover
ratio of x2.57 and an interest cover ratio of x3.95. The Lloyds
facility, once drawn, requires us to maintain an LTV of lower than
50% and an interest cover ratio in excess of x2.75.
Continued Strategic Alignment and Asset Selection
During the year, the Group has continued to execute its
investment strategy, delivering inflation-protected income
underpinned by a careful selection of secure, long-let and
index-linked properties. In 2018, the Group purchased 156 assets,
including 13 forward funding transactions, for a total investment
cost (i.e. including transaction costs) of GBP170.8 million.
2018 2017 CHANGE IN
2018
# of Leases 189 70 +119
----------- ----------- -----------
# of Assets 272 116 +156
----------- ----------- -----------
# of Units 1,893 834 +1,059
----------- ----------- -----------
# of APs 16 11 +5
----------- ----------- -----------
# of CPs 62 26 +36
----------- ----------- -----------
# of LAs 109 51 +58
----------- ----------- -----------
# of FFAs 13 0 +13
----------- ----------- -----------
WAULT 27.2 years 30.6 years -3.4 years
----------- ----------- -----------
Beyond this deployment, the Group had, as at 31 December 2018,
outstanding commitments totalling GBP21.0 million, comprising
GBP11.5 million for contracts exchanged over five assets and GBP9.5
million for outstanding forward funding commitments.
COMMITTED CAPITAL TOTAL FUNDS
AS AT 31 DECEMBER 2018 GBP'million
Total Invested since IPO(11) 302.6
Outstanding exchanges 11.5
Outstanding forward funding
commitments 9.5
Total Invested and Committed
Capital 323.6
------------
Property Portfolio
As at 31 December 2018, the property portfolio comprised 272
properties with 1,893 units and demonstrating broad geographic
diversification across the UK. The 3 largest concentrated areas
were the North West (24.5%), the East Midlands (16.0%) and the West
Midlands (14.6%). The fair value of the property portfolio is
GBP323.5 million (an average of GBP1.2 million per property).
In 2018, the Group entered into 13 forward funding transactions,
of which six had reached practical completion and seven were still
under construction as at 31 December 2018. The aggregate maximum
capital commitments for all forward funding transactions in the
year was GBP26.3 million, with GBP9.5 million of this outstanding
as at 31 December 2018. Forward funding continues to form an
integral part of the Group's investment strategy.
Rental Income
As at 31 December 2018, the Group's property portfolio was fully
let with all assets either let or pre-let on financial close,
comprising 189 fully repairing and insuring leases which includes
the forward funding transactions. The total annualised rental
income of GBP17.4 million is the aggregate rental income of the
standing investments. The coupon interest received by the Group
during the construction period from the developer under forward
funding agreements is not included as rental income.
During the year, the Group further diversified its tenant base
by adding five Approved Providers to the portfolio: Care Housing
Association, Encircle Housing, 28A Supported Living, Sunny Vale
Supported Accommodation and Partners Foundation. With the Group
having entered into leases with 16 Approved Providers, the Group's
tenant base is well diversified across the sector with some of the
most capable Registered Providers in the Supported Housing sector.
The Group's three largest Approved Providers by rental income were
Inclusion Housing (20.3%), Falcon Housing Association (15.6%) and
My Space Housing Solutions (13.5%).
The three largest Approved Providers by units under management
(in the Group's portfolio) were Inclusion Housing with 337 units,
followed by Falcon Housing Association and My Space Housing
Solutions, each with 302 units.
As at 31 December 2018, the property portfolio had a WAULT of
27.2 years, with 88.7% of the property portfolio's income showing
an unexpired lease term to first break of between 21-30 years.
Compared with Q2 2018, the WAULT has shortened slightly (by 1.8
years) as the majority of the leases added to the portfolio in the
reporting period have a fixed lease term of 25 years. The WAULT
comprises the initial lease term at lease commencement as well as
any reversionary lease or put options available to the Group at the
expiry of the initial lease term.
The rental income received under the FRI leases is indexed
annually against CPI (91.8%) or RPI (8.2%), which provides
investors with security that the rental income is in line with
inflation. Some leases have an indexation 'premium' under which the
standard rental increase is based upon CPI or RPI plus a further 1
percentage point, reflecting top-ups by local authorities. For the
purpose of the IFRS valuation, Jones Lang LaSalle assumed CPI to
increase at 2.0% per annum and RPI to increase at 2.5% per annum
over the term of the relevant leases.
As at 31 December 2018, the total rent passing was GBP17.4
million (excluding forward funding transactions). In this reporting
period, 65 leases benefited from a rental uplift, equating to a
total rental increase increment of GBP0.2 million over and above
the original contracted rent.
Pipeline and Outlook
We have been active in the Supported Housing market since 2014
and this has enabled us to build up longstanding relationships with
Approved Providers, care providers and developers. Using our
thorough but clear due diligence processes, we have established a
reputation as a disciplined but pragmatic manager which understands
and accounts for the risks of all of the parties involved in a
Supported Housing transaction. We have sought to associate
ourselves with high-quality deals and keep our commitments to
Approved Providers, local authorities, care providers and
developers. As a result, we can attract best-in-class Supported
Housing development opportunities.
The pipeline for the coming year remains healthy, with current
visibility on an aggregate value in excess of GBP400 million. Based
on this pipeline, we anticipate investing the Group's available
equity proceeds by the end of April 2019. The Group's available
funding options, including the equity placing programme (available
until October 2019) and revolving credit facility, provide us with
the flexibility to accelerate deployment as necessary.
The developers we work with continue to engage with Approved
Providers, care providers and local authorities to identify where
the need for Supported Housing is most acute. It can take time to
identify a suitable site for development or a property for
renovation. Once a site or a property has been selected, planning
permission may be required and further engagement with the local
authority will be needed to set the rental level and verify demand
for the specific asset. There can therefore be a significant
time-lag between a property or site being identified and it being
sufficiently de-risked for the Group to proceed with its purchase.
For example, a new build asset can take over a year to get to the
point where it is institutionally fundable. Consequently, the deals
contained in the pipeline are at various stages of development and
we have good visibility of future deal flow for up to 12 months
before financial close.
We are increasingly focused on forward funding new-build
projects that are inherently more complex and time-consuming than
existing properties that only need to be renovated. However, the
extra work required to forward fund is warranted as these are
superior assets that have been built with the care requirements of
the residents considered at all stages of development. They also
tend to be larger projects and the residents are typically longer
term. As with nearly all of the Group's acquisitions, these
properties are purchased off-market from developers who value
certainty of process and long-standing relationships over achieving
the best price possible through marketing each asset to a wide
range of funders. Consequently, we expect yields to remain broadly
in-line with what we have achieved to date although we are seeing
some compression especially with the most attractive assets.
Understandably following the issues experienced by FPHA,
Registered Providers in the Supported Housing sector are
increasingly focused on managing risk and this can lead to
protracted due diligence processes. Although this can slow down
deployment, this is undoubtedly a good thing as it means that the
general quality of transactions being done in the sector is high
and always improving.
Over the next 12 months, as well as focusing on funding more
new-build properties, we will also look to further diversify the
care providers and Approved Providers that we work with. We expect
that the geographic footprint of the portfolio will expand, and we
will continue to both strengthen existing developer relationships
and forge new ones so that we can grow the Group's asset base in
2019 and beyond.
Max Shenkman
Head of Investment
28 March 2019
Notes:
1 National Housing Federation, Supported housing: Understanding need and supply (2015)
2 Mencap, Funding supported housing for all (2018)
3 Ministry of Housing, Communities and Local Government, A new deal for social housing (2018)
4 National Housing Federation, Supported housing: Understanding need and supply (2015)
5 National Housing Federation, Supported housing: Understanding need and supply (2015)
6 Secretary of State Ministry of Housing, Communities and Local
Government (2018) Affordable Housing: Witten statement -
HCWS797
7 Secretary of State Ministry of Housing, Communities and Local
Government (2018) Affordable Housing: Witten statement -
HCWS797
8 House of Commons Library, Tackling the under-supply of housing in England (2018)
9 Local Government Association, Adass, NHS (2015) Building the right support
10 Mencap, Funding supported housing for all (2018)
11 Including transaction costs
PORTFOLIO SUMMARY
Region Properties % of funds invested
--------------- ----------- --------------------
North West 76 25.1
East Midlands 39 16.1
West Midlands 35 14.1
North East 38 13.4
London 16 8.8
South East 23 7.5
Yorkshire 16 5.8
South 15 5.0
South West 10 2.9
East 3 1.0
South Wales 1 0.3
Total 272 100.0
--------------- ----------- --------------------
FORWARD FUNDING REVIEW
Introduction
During 2018 the Group entered into 13 forward funding agreements
of which six projects had their works certified as completed and
seven had ongoing works as at 31 December 2018. The aggregate
maximum commitment for the 13 forward funding agreements was
GBP26.3 million, which accounted for 8.1% of total committed
capital and 6.0% of GAV or 7.2% of NAV. Of the GBP26.3 million of
maximum commitments made during the year, GBP9.5 million was
outstanding at year end following construction progress. The chart
on page 47 of the Annual Report sets out the 13 forward funding
projects the Group had entered into as at 31 December 2018, showing
their time-frames and maximum commitments.
Forward funding, which the Group has offered from launch,
provides benefits to all stakeholders.
For residents, forward funding creates bespoke properties of the
highest quality, often designed in collaboration with
commissioners, local authorities, care providers and Approved
Providers to ensure they are tailored to the needs of residents.
Likewise, residents struggling to find suitable accommodation
benefit from the new stock that is brought to market by the
construction of these new-build properties in areas of high
demand.
For developers, forward funding provides construction funding at
competitive rates (usually 50-100 bps above the net yield of the
completed asset) with funding typically provided quicker than from
alternative sources like banks. Similarly, forward funding offers
developers the practical efficiency of having the construction
funding provided by the same entity that will buy the completed
asset, as well as giving developers a guaranteed buyer once
construction of the project completes.
For the Group, forward funding creates strong relationships with
developers, local authorities and commissioners (who benefit from
the new accommodation that the schemes provide locally). In
addition, forward funding gives the Group off-market access to
schemes as well as the ability to shape and contribute to the
successful creation of a scheme. Once construction completes, the
Group owns high-quality properties that often benefit from
valuation uplifts. The Group's first four completed forward funding
schemes received an average valuation uplift of 4.9% on the amount
the Group paid (as at 31 December 2018). Likewise, the Group's
completed schemes enjoy strong levels of occupancy as a result of
their high quality, which benefits the Group and its tenants, the
Approved Providers.
The Group's ability to offer forward funding therefore provides
a number of important financial and social benefits, as well as
giving the Group a competitive advantage over market peers unable
to provide the same offering.
CORPORATE SOCIAL RESPONSIBILITY
Sustainable Business
Acting in a sustainable and responsible manner is fundamental
for the achievement of our long-term financial objectives. Our
business model seeks to ensure that not only are our properties
suitable for individuals with complex living needs but our
portfolio continues to meet occupiers' evolving needs in the
future. With ethical objectives in mind, we strive to provide value
for investors and the wider community at the same time.
Environment
We always seek to ensure that our properties improve the lives
of occupiers, have a minimal detrimental impact on the local and
wider environment and maximise shareholder value.
Offering occupiers resource-efficient and adapted living areas
is critical to ensure our investments are fit for purpose and
sustain their value over the long-term. As a landlord, we have the
opportunity to help reduce running costs for our lessees and
occupiers, increase occupier well-being and contribute to the
prosperity of a location through supporting new building design and
development.
Ignoring these issues when considering asset management and
investments would risk the erosion of income and value as well as
missing opportunities to enhance investment returns. Through
construction, long-term use and eventual demolition, the built-up
environment accounts for over a third of global energy consumption.
In supporting the construction of new build properties, we hope to
encourage best practice, in turn helping to reduce the industry's
impact on emissions and the consumption of depleting resources.
This is especially the case now, when issues such as climate change
are in the public eye, meaning the property sector remains a prime
target for policy action.
Policy presents new challenges and opportunities for the real
estate industry and the social housing market, with potentially
profound implications for both owners and occupiers. A good
investment strategy must incorporate environmental and social
issues alongside traditional economic considerations.
When acquiring assets, we look closely at their environmental
impact, and encourage a sustainable approach for new development as
well as the maintenance and upgrading of existing properties.
Through our rigorous due diligence process, the high standards we
expect from developers and significant investment in the Supported
Housing sector, we have been able to provide capital and expertise
that has enabled parties in the industry to professionalise. This
increased professionalisation in the industry will lead to further
high-quality housing being made available, alleviate the issue of
low supply and enable us and the Approved Providers to support
vulnerable residents further.
The Board has considered the requirements to disclose the annual
quantity of emissions in tonnes of carbon dioxide equivalent for
activities for which the Group is responsible and believes that the
Group has no reportable emissions for the period ended 31 December
2018, and therefore has not included the information or
methodologies for the calculation of emissions, for the following
reasons:
-- emissions from the Group's properties were the lessees'
responsibility rather than the Group's;
-- emissions produced from either the registered office of the
Company or from the offices of other service providers are deemed
to fall under the responsibility of other parties; and
-- the Group has not leased or owned any vehicles which fall
inside the scope of the GHG Protocol Corporate Standard.
Community and Employees
Our assets provide multiple benefits to their local communities.
They provide occupiers with safe and secure accommodation, tailored
to meet their individual care needs, and Approved Provider lessees
with a sustainable finance option, allowing them to expand the
number of individual lives they can support and improve. In a
circumstance where carers are needed - which is the case for the
majority of our occupiers - this can stimulate local economies by
moving jobs to the area. In development and refurbishment, we help
create employment. At the same time, our assets contribute a
solution to the critical housing shortage in the UK.
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.
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 on page 86 of the Annual Report.
Human Rights
The Group is not within the scope of the Modern Slavery Act 2015
because it has not exceeded the turnover threshold and is therefore
not obliged to make a slavery and human trafficking statement.
The Board are satisfied that, to the best of their knowledge,
the Company's principal advisers, which are listed in the
Shareholder Information section on page 138 of the Annual Report,
comply with the provisions of the UK Modern Slavery Act 2015.
Our business is solely in the UK and therefore we consider there
is a low risk of human rights abuses.
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.
We operate in a low-risk environment, focusing on a single
sub-sector of the UK real estate market to deliver an attractive,
growing and secure income for shareholders. We have a specific
Investment Policy, as outlined above, which we adhere to and for
which the Board has overall responsibility. As our risk appetite is
low, we do not undertake speculative development. Furthermore, we
have experienced lessees in our properties and we possess a
portfolio of high-quality assets with a robust WAULT to them.
As an externally managed investment company, we outsource key
services to the Investment Manager and other service providers and
rely 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 our risk
management and internal control systems. A description of the key
internal controls of the Group can be found in the Annual Report.
The AIFM, in conjunction with 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 recorded risks against the
likelihood of occurrence and graded suitably. The principal risks
that have been subject to this methodology are noted in the Risk
Heat Matrix set out in the Annual Report. The Board regularly
reviews the risk register to ensure gradings and mitigating actions
remain appropriate.
Our risk management process is designed to identify, evaluate
and mitigate (rather than eliminate) the significant risks we face
and continues to evolve to reflect changes in the 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.
The Board has not identified or been advised of any failings or
weaknesses in our risk management and internal control systems
which it has determined to be material.
Principal risks and uncertainties
The table below sets out what we 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 Risk Impact Risk Mitigation Impact Likelihood Change in
Description year
Financial Expensive or Without sufficient When raising Moderate Low Stable
lack of debt debt funding at debt finance
finance may sustainable rates, the Investment
limit our we will be unable to Manager adopts
ability to grow pursue suitable a flexible
and achieve a investments in line approach
fully covered with our Investment involving
dividend Policy. This would speaking
significantly impair to multiple
our ability funders
to pay dividends to offering
shareholders at the various rates,
targeted rate. structures and
tenors. Doing
this allows the
Investment
Manager to
maintain
maximum
competitive
tension between
funders. After
proceeding with
a funder
the Investment
Manager agrees
heads of terms
early in the
process to
ensure a
streamlined,
transparent
fund-raising
process. The
Board also
keeps liquidity
under constant
review and
we will always
aim to have
headroom in our
debt facilities
ensuring that
we have a level
of
protection in
the event of
adverse
fund-raising
conditions.
---------------- --------------------- ---------------- ------------- ------------- -------------
Financial Floating rate Interest on our debt The Group Moderate Moderate New
debt exposes facilities is considers cash
the business to payable based on a flow forecasts
underlying margin over Libor and ensures
interest rate and Gilt rates. Any sufficient cash
movements adverse movements in balances are
these rates could held within
significantly impair the Group to
our profitability meet future
and ability needs. Prudent
to pay dividends 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. The
Group's 10-year
and 15-year
MetLife
tranches
have a fixed
rate coupon and
the Board
regularly
reviews
potential
hedging
arrangements
which
can be put in
place at any
time during the
duration of the
Lloyds
facility.
---------------- --------------------- ---------------- ------------- ------------- -------------
Financial Unable to The borrowings the The Investment High Low New
operate within Group currently has Manager
debt covenants and which the Group monitors loan
uses in the future to value and
may contain interest
loan to value and covenants
interest covenants ratios on an
ratios. If property ongoing
valuations and basis. In the
rental income unlikely event
decrease, that an event
such covenants could of default
be breached, and the occurs under
impact of such an these covenants
event could include: the Group
an increase has a
in borrowing costs; sufficient
a requirement for remedy period
additional cash to cure the
collateral; payment covenant breach
of a fee to the by either
lender; a sale of an injecting cash
asset or assets or a collateral
forfeit of any asset or equity
to a lender. funded assets
This may result in in order to
the Group selling restore
assets to repay covenant
drawn loan amounts compliance.
resulting in a
decrease
on Group's Net Asset
Value.
---------------- --------------------- ---------------- ------------- ------------- -------------
Property Default of one The default of one Under the terms Low to Low Stable
or more or more of our of our Moderate
Approved lessees could impact Investment
Provider the revenue gained Policy and
lessees from relevant restrictions,
assets. no more than
If the lessee cannot 30% (although
remedy the default the
or no support is Group has a
offered to the target of 25%)
lessee by the of the Group's
Regulator gross asset
of Social Housing, value may be
we may have to exposed to one
terminate or lessee,
negotiate the lease, meaning the
meaning a sustained risk of
reduction significant
in revenues while a rent loss is
replacement is low. The
found. lessees are
predominantly
regulated
by the
Regulator of
Social Housing,
meaning that,
if a lessee was
to suffer
financial
difficulty,
it is likely
that the
Regulator of
Social Housing
would assist in
making
alternative
arrangements
to ensure
continuity for
residents who
are vulnerable
members of the
community.
---------------- --------------------- ---------------- ------------- ------------- -------------
Property Forward-funding Our forward funded Before entering Low to Low to Stable
properties developments are into any Moderate moderate
involves a likely to involve a forward funding
higher degree higher degree of arrangements,
of risk than risk than is the Investment
that associated associated Manager
with completed with standing undertakes
investments investments. This substantial
could include due diligence
general construction on developers
risks, delays in the and their main
development subcontractors,
or the development ensuring they
not being completed, have a strong
cost overruns or track
developer/contractor record. We
default. If enter into
any of the risks contracts on a
associated with our fixed price
forward funded basis and then,
developments during the
materialised, this development
could work,
reduce the value of we defer
these assets and our development
portfolio. profit until
work has been
completed and
audited by a
chartered
surveyor.
Further, less
than 10% of our
portfolio is
forward-funded
at present and
we are limited
by
our Investment
Policy which
restricts us to
forward funding
a maximum of
20% of the
Group's
net asset value
at any one
time.
Ultimately,
with these
mitigating
factors in
place, the
flexibility
to forward fund
allows us to
acquire assets
and
opportunities
which will
provide prime
revenues
in future
years.
---------------- --------------------- ---------------- ------------- ------------- -------------
Regulatory Risk of an Should an Approved As part of the Low Moderate to Increased
Approved Provider with which Group's High
Provider the Group has one or acquisition
receiving a more leases in place process, the
non-compliant receive a Investment
financial non-compliant rating Manager
viability or by the Regulator, in conducts a
governance particular in thorough due
rating relation to diligence
by the viability, depending process on all
Regulator on Registered
the further actions Providers with
of the Regulator, it which the
is possible that Company enters
there may be a into lease
negative impact on agreements
the market value of that takes
the relevant account of
properties which are their financial
the subject of such strength and
lease(s). Depending governance
on the exposure of procedures.
the Group to such
Approved Provider, The Investment
this in turn may Manager has
have a material established
adverse relationships
effect on Group's with the
Net Asset Value Approved
until such time as Providers with
the matter is whom
resolved through an it works. The
improvement Approved
in the relevant Providers keep
Approved Provider's the Investment
rating or a change Manager
in Approved informed of
Provider. developments
surrounding
the regulatory
notices.
During the year
two Approved
Providers with
which the Group
has leases in
place received
non-compliant
ratings.
These assets
did not suffer
from an
impairment in
value as part
of the Q4
valuation by
the
Group's
independent
valuer, Jones
Lang LaSalle
Limited.
More detail on
this risk can
be found in the
Investment
Manager's
report above.
---------------- --------------------- ---------------- ------------- ------------- -------------
Regulatory Risk of changes Future Governments As demand for High Low to Stable
to the Social may take a different social housing Moderate
Housing approach to the remains high
regulatory social housing relative to
regime regulatory regime, supply, the
resulting in changes Board and the
to the law and other Investment
regulation or Manager is
practices of the confident there
Government with will continue
regard to be a viable
to social housing. market within
which to
operate,
notwithstanding
any future
change of
government.
Even if
government
funding was to
reduce, the
nature of the
rental
agreements the
Group has in
place means
that the Group
will enjoy
continued
lessee
rent commitment
for the term of
the agreed
leases.
---------------- --------------------- ---------------- ------------- ------------- -------------
Regulatory Risk of not If the Group fails The Group High Low Stable
being qualified to remain in intends to
as REIT compliance with the continue to
REIT conditions, the operate as a
members of the Group REIT and work
will be subject to within its
UK corporation tax investment
on some or all of objective
their property and policy. The
rental income and Group will
chargeable retain legal
gains on the sale of and regulatory
properties which advisers and
would reduce the consult with
funds available to them on a
distribute to regular basis
investors. to ensure it
understands and
complies with
the
requirements.
In addition,
the
Board oversees
adherence to
the REIT
regime,
maintaining
close dialogue
with the
Investment
Manager to
ensure we
remain
compliant with
legislation.
---------------- --------------------- ---------------- ------------- ------------- -------------
Corporate Reliance on the We continue to rely Unless there is High Low Stable
Investment on the Investment a default,
Manager Manager's services either party
and its reputation may terminate
in the social the Investment
housing market. As a Management
result, our Agreement
performance will, to by giving not
a large extent, less than 12
depend on the months' written
Investment notice, which
Manager's abilities may not expire
in the property before August
market. Termination 2020.
of the Investment The Board
Management Agreement regularly
would severely reviews and
affect our ability monitors the
to effectively Investment
manage our Manager's
operations and may performance. In
have a negative addition,
impact on the share the Board meets
price of the regularly with
Company. the Manager to
ensure that we
maintain a
positive
working
relationship.
---------------- --------------------- ---------------- ------------- ------------- -------------
Financial Property Property valuations All of the Moderate Moderate Stable
valuations may are inherently Group's
be subject to subjective and property assets
change over uncertain. Market are
time conditions, which independently
may valued
impact the quarterly by
creditworthiness of Jones Lang
lessees, may LaSalle,
adversely affect a specialist
valuations. The property
portfolio is valuation firm,
valued on a Market who are
Value basis, which provided with
takes into account regular updates
the expected rental on portfolio
income to be activity
received under the by the
leases in future. Investment
This valuation Manager. The
methodology provides Investment
a significantly Manager meets
higher with the
valuation than the external
Vacant Possession valuers to
value of a property. discuss
In the event of an the basis of
unremedied default their
of an Approved valuations and
Provider lessee, the their quality
value of the assets control
in the portfolio may processes.
be negatively Default risk of
affected. lessees
is mitigated in
Any changes could accordance with
affect the Group's the lessee
net asset value and default
the share price of principal risk
the Group. explanation
provided above.
In order to
protect against
loss in value,
the Investment
Manager's
property
management team
seeks to visit
each property
in the
portfolio once
a year, and
works closely
with lease
counterparties
to ensure, to
the extent
reasonably
possible, their
financial
strength and
governance
procedures
remain robust
through the
duration of the
relevant lease.
---------------- --------------------- ---------------- ------------- ------------- -------------
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 period. The Company 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 has invested GBP302.6 million up to 31 December 2018,
and GBP21.0 million since the year end. The cash balance of the
Group at period end was GBP114.6 million, of which GBP97.3 million
was readily available for use. As stated in the Strategic Report,
the Investment Manager has identified a visible pipeline of over
GBP400 million of attractive investment opportunities for
acquisition over the next 12 months. The Board has evaluated the
financial position of the Group and plans to raise both debt and
equity capital, as necessary, in order to fund the Group's
investments for the next 12 months. Income generated from the
Group's portfolio of assets is expected to facilitate the payment
of dividends to shareholders at the targeted rate. Based on this,
the Board believes that the Group is in a position to manage its
financial risks for the foreseeable future.
The Board believes that there are currently no material
uncertainties in relation to the Group's and Company's ability to
continue for a period of at least 12 months from the date of the
Group and parent Company's financial statements and, therefore, has
adopted the going concern basis in the preparation of the financial
statements.
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 2023, 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 the care providers is typically five years
-- 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 27.2 years to
expiry, representing a secure income stream for the period under
consideration
-- The Group's floating rate Revolving Credit Facility has an
initial term of four years which may be extended by a further two
years.
In assessing the Company's viability, the Board has carried out
a robust assessment of the 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 summarised above and how they
could impact the prospects of the Group and Company both
individually and in aggregate.
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 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:
1. Approved Providers defaulting under a lease having a negative
impact on rental income and valuations:
-- the viability model has been stressed by a 10% reduction in
rental income. The 10% reduction in rent was chosen to represent
either a mid-sized Approved Provider becoming insolvent or a major
sectoral change that may affect the ability of an Approved Provider
to pay full rents. It is assumed that the loss in income has an
impact on the valuation of the portfolio, 90% remains at full
valuation and 10% at vacant possession value assumed to be
approximately 47% of the full market value. Under the 12 month
going concern model rents are reduced by 25% to represent a
scenario whereby an Approved Provider, to which the Group had it
reached its maximum target exposure, became insolvent.
2. Deterioration in economic outlook which could impact the
fundamentals of the social housing sector, including a negative
impact on valuations and rental uplifts:
-- the business model has been stressed to exclude all rental
uplifts which has an impact on the valuation of the portfolio and
the ability to pay covered dividends.
-- the business model has been stressed with an adverse impact
on the yield which has an impact on covenant testing.
3. Lack of availability of debt financing or other capital:
-- in the normal course of business, financing is arranged in
advance of expected requirements and the business model assumes
that the Directors have reasonable confidence that additional or
replacement debt facilities will be put in place during 2019 to
bring leverage up to the target of 40%. No further financing is
assumed in the business model after 2019.
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 was approved by the Board and signed on its
behalf by:
Chris Phillips
Chairman
28 March 2019
GROUP FINANCIAL STATEMENTS
GROUP STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2018
Period from
Year ended 12 June 2017
31 December to 31 December
2018 2017
Note GBP'000 GBP'000
-------------------------------------- ----- ------------- ----------------
Income
Rental income 5 11,490 1,027
Total income 11,490 1,027
Expenses
Directors' remuneration 6 (265) (147)
General and administrative expenses 9 (1,909) (446)
Management fees 8 (2,309) (472)
Total expenses (4,483) (1,065)
Gain from fair value adjustment
on investment property 14 14,497 5,639
Operating profit 21,504 5,601
Finance income 11 183 79
Finance costs 12 (1,790) (8)
Profit for the period before tax 19,897 5,672
------------- ----------------
Taxation 13 - -
Profit being total comprehensive
income attributable to shareholders
for the period 19,897 5,672
============= ================
IFRS Earnings per share - basic
and diluted 35 8.37p 3.94p
EPRA Earnings per share - basic
and diluted 35 2.27p 0.02p
All amounts reported in the Group Statement of Comprehensive
Income for the year ended 31 December 2018 relate to continuing
operations.
GROUP STATEMENT OF FINANCIAL POSITION
As at 31 December 2018
31 December 31 December
2018 2017
Note GBP'000 GBP'000
---------------------------------- ----- ------------ ------------
Assets
Non-current assets
Investment properties 14 324,069 138,512
Total non-current assets 324,069 138,512
Current assets
Trade and other receivables 15 3,392 12,002
Cash and cash equivalents 16 114,624 58,185
------------ ------------
Total current assets 118,016 70,187
Total assets 442,085 208,699
============ ============
Liabilities
Current liabilities
Trade and other payables 17 8,998 5,876
------------ ------------
Total current liabilities 8,998 5,876
Non-current liabilities
Other payables 18 1,565 1,151
Bank and Other Borrowings 19 67,361 -
------------ ------------
Total non-current liabilities 68,926 1,151
Total liabilities 77,924 7,027
============ ============
Total net assets 364,161 201,672
============ ============
Equity
Share capital 22 3,514 2,000
Share premium reserve 23 151,157 -
Capital reduction reserve 24 183,921 194,000
Retained earnings 25 25,569 5,672
------------ ------------
Total Equity 364,161 201,672
============ ============
IFRS Net asset value per share -
basic and diluted 36 103.65p 100.84p
EPRA Net asset value per share -
basic and diluted 36 103.65p 100.84p
The Group financial statements were approved and authorised for
issue by the Board of Directors on 28 March 2019 and signed on its
behalf by:
Chris Phillips
Chairman
28 March 2019
GROUP STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2018
Capital
Share Share premium reduction Retained
Note capital reserve reserve earnings Total equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------ ------ --------- -------------- ----------- ---------- -------------
Balance at 1 January
2018 2,000 - 194,000 5,672 201,672
Total comprehensive
income for the period - - - 19,897 19,897
Transactions with
owners
Ordinary Shares
issued in the year
at a premium 22,23 1,514 153,320 - - 154,834
Share issue costs
capitalised 23 - (2,163) - - (2,163)
Dividends paid 26 - - (10,079) - (10,079)
Balance at 31 December
2018 3,514 151,157 183,921 25,569 364,161
========= ============== =========== ========== =============
Capital
Share Share premium reduction Retained
Note capital reserve reserve earnings Total equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------ ------ --------- -------------- ----------- ---------- -------------
Balance at 12 June
2017 - - - - -
Total comprehensive
income for the period - - - 5,672 5,672
Transactions with
owners
Ordinary Shares
issued in the period
at a premium 22,23 2,000 198,000 - - 200,000
Share issue costs
capitalised 23 - (4,000) - - (4,000)
Cancellation of
share premium 23,24 - (194,000) 194,000 - -
Balance at 31 December
2017 2,000 - 194,000 5,672 201,672
========= ============== =========== ========== =============
GROUP STATEMENT OF CASH FLOWS
For the year ended 31 December 2018
Period from
Year ended 12 June 2017
31 December to 31 December
2018 2017
Note GBP'000 GBP'000
------------------------------------------- ----- ------------- ----------------
Cash flows from operating activities
Profit before income tax 19,897 5,672
Adjustments for:
Gain from fair value adjustment
on investment property (14,497) (5,639)
Finance income (183) (79)
Finance costs 1,790 8
Operating results before working
capital changes 7,007 (38)
Increase in trade and other receivables (2,074) (722)
Increase in trade and other payables 473 1,555
------------- ----------------
Net cash flow generated from
operating activities 5,406 795
------------- ----------------
Cash flows from investing activities
Purchase of investment properties (163,995) (127,401)
Prepaid acquisition costs refunded/(paid) 6,655 (11,280)
Restricted cash paid (12,809) (3,427)
Restricted cash released 9,419 -
Interest received 150 73
-------------
Net cash flow used in investing
activities (160,580) (142,035)
------------- ----------------
Cash flows from financing activities
Proceeds from issue of Ordinary
Shares at a premium 108,150 200,000
Ordinary Share issue costs capitalised (2,150) (4,000)
Proceeds from issue of C Shares
at a premium 20 47,500 -
C Share issue costs capitalised 20 (950) -
Interest paid (1,563) (2)
Bank borrowings drawn 19 68,500 -
Restricted bank borrowings 19 (10,460) -
Loan arrangement fees paid 19 (1,186) -
Dividends paid 26 (10,079) -
------------- ----------------
Net cash flow generated from
financing activities 197,762 195,998
------------- ----------------
Net increase in cash and cash
equivalents 42,588 54,758
Cash and cash equivalents at
the beginning of the period 54,758 -
Cash and cash equivalents at
the end of the period 16 97,346 54,758
============= ================
NOTES TO THE GROUP FINANCIAL STATEMENTS
For the ended 31 December 2018
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 financial statements for the period ended 31 December 2017
except for the adoption of IFRS 9 and IFRS 15 during the year ended
31 December 2018 which have not had a material impact on the
results. Whilst the financial information included in this
announcement has been computed in accordance with the recognition
and measurement requirements of IFRS, as adopted by the European
Union, this announcement does not itself contain sufficient
disclosures to comply with IFRS. The financial information does not
constitute the Group's financial statements for the years ended 31
December 2018 or for the period ended 31 December 2017, but is
derived from those financial statements. Financial statements for
the period ended 31 December 2017 have been delivered to the
Registrar of Companies and those for the year ended 31 December
2018 will be delivered following the Company's Annual General
Meeting. The auditors' reports on both the 31 December 2018 and 31
December 2017 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 Group's Financial Statements have been prepared in
accordance with the requirements of International Financial
Reporting Standards as adopted by the European Union ("IFRS"),
IFRIC interpretations, and with those parts of the Companies Act
2006 as applicable to companies reporting under IFRS. 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.
New standards impacting the Group that have been adopted in the
Financial Statements for the year ended 31 December 2018 are:
-- IFRS 9 Financial Instruments; and
-- IFRS 15 Revenue from Contracts with Customers
IFRS 9 Financial Instruments
IFRS 9 replaces IAS 39 Financial Instrument: Recognition and
Measurement and introduces a single model that has initially only
two classification categories rather than the multiple
classification and measurement models in the previous standard. The
new models are amortised cost and fair value.
Due to the nature of the Group's financial instruments, the
adoption of IFRS 9 does not have a material impact on the Group's
results or financial position and does not require there be a
restatement of comparative figures.
Having considered the requirements of IFRS 9, under section
5.5.15(b), the directors have chosen to apply the simplified
approach when considering the Expected Credit Loss (ECL) model when
determining the expectations of impairment. Under the simplified
approach the Company is always required to measure lifetime
expected losses. The directors incorporate forward funding
information when estimating the appropriate amount of
provisions.
Given the nature of the Group's receivables, the directors do
not consider any to be impaired. They believe that all are fully
recoverable. This view is because all rent receivables are from
fully repairing and insuring leases and each tenant receives their
cash inflows from local and central government. These factors
combine to ensure the probability of credit loss is immaterial.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 has replaced IAS 11 Construction Contracts and IAS 18
Revenue. The standard introduces a new revenue recognition model
that recognises revenue either at a point in time or over time.
The directors are satisfied the standard has no material impact
on the financial statements as rental income is outside the scope
of the standard and the Group's only revenue is currently generated
from rental income from leases that do not contain any service
components.
The following are new standards, interpretations and amendments,
which are not yet effective and have not been early adopted in this
financial information, that will or may have an effect on the
Group's future financial statements:
-- IFRS 16 Leases (effective for annual periods beginning on or after 1 January 2019).
The Directors have given due consideration to the impact on the
financial statements of IFRS 16 and at present they do not
anticipate that the adoption of the standard and interpretation
will have a material impact on the financial statements in the
period of initial application, other than on presentation and
disclosure. This is because where the Group is a lessee i.e.
leasehold properties, the Group already recognises these as finance
leases on the statement of financial position. Further, no changes
have been identified in respect of these leases where the Group
also acts as a lessor.
2.
2.1. Going concern
The Group benefits from a secure income stream from long leases
which are not overly reliant on any one tenant and present a
well-diversified risk. The directors have reviewed the Group's
forecast which show the expected annualised rental income exceeds
the expected operating costs of the Group. This is explained
further within the Going Concern and Viability section included in
the Strategic Report on pages 64 to 66 of the Annual Report.
As a result, the directors believe that the Group is well placed
to manage its financing and other business risks and that the Group
will remain viable, continuing to operate and meets its liabilities
as they fall due.
The directors believe that there are currently no material
uncertainties in relation to the Group's ability to continue in
operation for the period of at least 12 months from the date of
approval of the Group's Financial Statements. The Board is,
therefore, of the opinion that the going concern basis adopted in
the preparation of the financial statements is appropriate.
2.2. Reporting period
The financial statements have been prepared for the year ended
31 December 2018. The comparative period was for the period from 12
June 2017 to 31 December 2017.
2.3 Currency
The Group and Company financial information is presented in
Sterling which is also the Company'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 assets
and liabilities within the next financial year are outlined
below:
Estimates:
3.1. Investment properties (note 14)
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 make reference 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, July 2017,
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 generally and specialist supported housing
("SSH") 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. Specifically:
Level 1 - Unadjusted, quoted prices for identical assets and
liabilities in active (typically quoted) markets;
Level 2 - Quoted prices for similar assets and liabilities in
active markets;
Level 3 - External inputs are "unobservable". Value is the
Directors' 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
Given the bespoke nature of each of the Group's investments, all
of the Group's investment properties are included in Level 3.
Judgements:
3.2. Asset acquisitions
The Group acquires subsidiaries that own investment properties.
At the time of acquisition, the Group considers whether each
acquisition represents the acquisition of a business or the
acquisition of an asset. The directors consider the substance of
the assets and activities of the acquired entity in determining
whether the acquisition represents the acquisition of a business.
The Group accounts for an acquisition as a business combination
where an integrated set of activities is acquired in addition to
the property.
Where such acquisitions are not judged to be the acquisition of
a business, they are not treated as business combinations. Rather,
the cost to acquire the corporate entity is allocated between the
identifiable assets and liabilities of the entity based upon their
relative fair values at the acquisition date. Accordingly, no
goodwill or deferred tax arises.
All corporate acquisitions during the period have been treated
as asset purchases rather than business combinations because no
integrated set of activities were acquired.
3.3. The Group as lessor (note 27)
The Group has acquired investment properties that are subject to
commercial property leases with Registered Providers. The Group has
determined, based on an evaluation of the terms and conditions of
the arrangements, including the duration of the lease terms
compared to the economic life of the asset, the minimum lease
payments discounted using an average cost of borrowing rate
compared to the fair value of the asset at acquisition, that it
retains all the significant risks and rewards of ownership of these
properties and so accounts for the leases as operating leases.
3.4. The Group as lessee (note 27)
Leases where substantially all of the risks and rewards
incidental to ownership of a leased asset have been transferred to
the Group are accounted for as finance leases. The key judgements
in making this assessment include the fact that the lease term is
for the major part of the economic life of the asset. The asset is
treated as if it had been purchased outright and held within the
Group's investment properties. The amount initially recognised as
an asset is the lower of the fair value of the leased property and
the present value of the minimum lease payments of ground rents
payable over the term of the lease. The corresponding lease
commitment is shown as a head lease liability. Ground rent payments
are analysed between capital and interest. The interest element is
charged to the Statement of Comprehensive Income over the period of
the lease. The capital element reduces the balance owed to the
lessor.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of
the financial statements are set out below.
4.1. Basis of consolidation
The financial statements comprise the financial information of
the Group as at the year end date.
Subsidiaries are all entities over which the Group has control.
The Group controls an entity when the Group is exposed to, or has
rights to, variable returns from its involvement with the entity
and has the ability to affect those returns through its power to
direct the activities of the entity. All intra-Group transactions,
balances, income and expenses are eliminated on consolidation. The
financial information of the subsidiaries are included in the
financial statements from the date that control commences until the
date that control ceases.
If an equity interest in a subsidiary is transferred but a
controlling interest continues to be held after the transfer then
the change in ownership interest is accounted for as an equity
transaction.
Accounting policies of the subsidiaries are consistent with the
policies adopted by the Company.
4.2. 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.
Investment properties under construction are financed by the
Group where the Group enters into contracts for the development of
a pre-let property under a forward funding agreement. The Group
does not expose itself to any speculative development risk as the
proposed property is pre-let to a tenant under an agreement for
lease and the Group enters into a fixed price development agreement
with the Developer. Investment properties under construction are
initially recognised in line with stage payments made to the
developer. The properties are revalued at fair value at each
reporting date in the form of a work-in-progress value. The
work-in-progress value of investment properties under construction
is estimated as fair value of the completed asset less any costs
still payable in order to complete, which includes the Developer's
margin.
During the period between initial investment and the lease
commencement date (practical completion of the works) a coupon
interest due on the funds paid in the range of 6.5-6.75% per annum
is payable by the Developer. The accrued coupon interest is
considered as a discount on the fixed contract price. It does not
result in any cash flows during the development, but reduces the
outstanding balance payable to the developer on practical
completion. When practical completion is reached, the completed
investment property is transferred to operational assets at the
fair value on the date of completion.
Significant accounting judgements, estimates and assumptions
made for the valuation of investment properties are discussed in
note 3.
4.3. 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 as
discussed in note 3.
Properties leased out under operating leases are included in
investment property 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.
4.4. Trade and other receivables
Trade 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.
Trade 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 trade
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 trade 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 trade receivables. For trade
receivables, which are reported net, such provisions are recorded
in a separate provision account with the loss being recognised in
the consolidated statement of comprehensive income. On confirmation
that the trade receivable will not be collectable, the gross
carrying value of the asset is written off against the associated
provision.
4.5. Cash and cash equivalents
Cash and cash equivalents include cash in hand, cash held by
lawyers and liquidity funds with a term of no more than three
months that are readily convertible to a known amount of cash, and
which are subject to an insignificant risk of changes in value.
Cash held by lawyers is money held in escrow for expenses
expected to be incurred in relation to investment properties
pending completion. These funds are available immediately on
demand.
Restricted Cash represents cash held in relation to retentions
for repairs, maintenance and improvement works by the vendors that
is committed on the acquisition of the properties; and restricted
bank borrowings.
4.6. Provisions
Provisions are recognised when the Group has a present
obligation (legal or constructive) as a result of a past event, it
is probable that the Group will be required to settle that
obligation and a reliable estimate can be made of the amount of the
obligation.
The amount recognised as a provision is the best estimate of the
consideration required to settle the present obligation at the
Statement of Financial Position date, taking into account the risks
and uncertainties surrounding the obligation.
4.7. Trade and other payables
Trade and other payables are classified as current liabilities
if payment is due within one year or less from the end of the
current accounting period. If not, they are presented as
non-current liabilities. Trade and other payables are recognised
initially at their fair value and subsequently measured at
amortised cost using the effective interest method until
settled.
4.8. 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.
4.9. C shares financial liability
C shares were convertible non-voting preference shares issued
during the year and met the definition of a financial liability. C
shares were recognised on issue at fair value less directly
attributable transaction costs. After initial recognition, C shares
are subsequently measured at amortised cost using the effective
interest rate method. Amortisation is credited to or charged to
finance income or finance costs in the Consolidated Statement of
Comprehensive Income. Transaction costs are deducted from proceeds
at the time of issue. C shares converted into Ordinary shares on
the conversion date on the basis of their respective NAV per share
at the calculation date.
4.10. 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.
4.11. Dividend payable to shareholders
Dividends to the Company's shareholders are recognised as a
liability in the Group's Financial Statements in the period in
which the dividends are approved. In the UK, interim dividends are
recognised when paid.
4.12. 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.
Rental income is invoiced in advance and any rental income that
relates to a future period is deferred and appears within current
liabilities on the Statement of Financial Position.
Tenant lease incentives are recognised as a reduction of rental
revenue on a straight-line basis over the term of the lease. 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.
4.13. 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.
4.14. Expenses
All expenses are recognised in the Statement of Comprehensive
Income on an accruals basis.
4.15. Investment management fees
Investment advisory fees are recognised in the Statement of
Comprehensive Income on an accruals basis.
4.16. Share issue costs
The costs of issuing or reacquiring equity instruments (other
than in a business combination) are accounted for as a deduction
from equity.
5. RENTAL INCOME
Period from
12 June 2017
Year ended31 to 31 December
December 2018 2017
GBP'000 GBP'000
Rental income - freehold assets 10,016 876
Rental income - leasehold assets 1,474 151
11,490 1,027
============================================= ================
The lease agreements between the Group and the Registered
Providers are fully repairing and insuring leases. The Registered
Providers are responsible for the settlement of all present and
future rates, taxes, costs and other impositions payable in respect
of the property. As a result, no direct property expenses were
incurred.
All rental income arose within United Kingdom.
6. DIRECTORS' REMUNERATION
Period from
Year ended 12 June 2017
31 December to 31 December
2018 2017
GBP'000 GBP'000
Directors' fees 234 132
Employer's National Insurance
Contributions 31 15
265 147
=========================================== ================
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 GBP75,000 per annum, and the other
directors of the Board receive a fee of GBP50,000 per annum. The
Directors are also entitled to an additional fee of GBP7,500 in
connection with the production of every prospectus by the Company
(including the initial Issue).
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 had no employees during the period other than the
directors (2017: none).
8. MANAGEMENT FEES
Period from
Year ended 12 June 2017
31 December to 31 December
2018 2017
GBP'000 GBP'000
Management fees 2,309 472
2,309 472
=========================================== ================
On 20 July 2017 Triple Point Investment Management LLP 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.
The management fee is an annual management fee which is
calculated quarterly in arrears based upon a percentage of the last
published Net Asset Value of the Group (not taking into account
uncommitted cash balances after deducting borrowings) as at 31
March, 30 June, 30 September and 31 December in each year on the
following basis with effect from Admission:
(a) on that part of the Net Asset Value up to and including
GBP250 million, an amount equal to 1% of such part of the Net Asset
Value;
(b) on that part of the Net Asset Value over GBP250 million and
up to and including GBP500 million, an amount equal to 0.9% of such
part of the Net Asset Value;
(c) on that part of the Net Asset Value over GBP500 million and
up to and including GBP1 billion, an amount equal to 0.8% of such
part of the Net Asset Value;
(d) on that part of the Net Asset Value over GBP1 billion, an
amount equal to 0.7% of such part of the Net Asset Value.
Management fees of GBP2,309,000 (2017: GBP472,000) were
chargeable by TPIM during the year. At the year-end GBP811,000
(2017: GBP446,000) was due to TPIM.
9. GENERAL AND ADMINISTRATIVE EXPENSES
Period from
Year ended 12 June 2017
31 December to 31 December
2018 2017
GBP'000 GBP'000
Legal and professional fees 839 201
Audit fees 226 114
Administration fees 335 88
Other administrative expenses 509 43
1,909 446
=========================================== ================
On 1 October 2018 Hanway Advisory Ltd, 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. During the year Company
Secretarial Services of GBP31,200 were chargeable by Hanway
Advisory Ltd.
10. AUDIT FEES
Year ended Period from
31 December 12 June 2017
2018 to 31 December
2017
GBP'000 GBP'000
Group audit fees 174 95
Subsidiary audit fees 14 -
188 95
=========================================== ================
BDO LLP also received GBP113,000 (2017: GBP53,000) for its role
as reporting accountant of the Company in relation to new share
issues, and GBP73,000 in relation to eNAV and interim reviews. The
fees relating to the share issuance have been treated as share
issue costs and offset against share premium arising on the issue
of these shares.
BDO LLP received GBPnil (2017: GBP25,000) for corporate finance
services which are treated as capitalised in the cost of the
investment property.
The audit fee for the following subsidiaries has been borne by
the Company:
-- Norland Estates Limited
-- TP REIT Prop Co 2 Limited
-- TP REIT Super Hold Co Limited
-- TP REIT Hold Co 1 Limited
-- TP REIT Hold Co 2 Limited
-- FPI Co 22 Limited*
-- FPI Co 173 Limited*
* Accounts audited for the period ended 31 December 2017
only.
11. FINANCE INCOME
Period from
Year ended 12 June 2017
31 December to 31 December
2018 2017
GBP'000 GBP'000
Head lease interest income 33 6
Interest on liquidity funds 150 73
183 79
=========================================== ================
12. FINANCE COSTS
Period from
Year ended 12 June 2017
31 December to 31 December
2018 2017
GBP'000 GBP'000
Interest payable on bank borrowings 949 -
Amortisation loan arrangement
fees 47 -
C share amortisation expense 134 -
C share interest expense 613 -
Head lease interest expense 33 6
Bank charges 14 2
1,790 8
------------------------------------------- ----------------
Total finance cost for financial
liabilities held at amortised
cost 1,762 6
=========================================== ================
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 current period, 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.
Period from
Year ended 12 June 2017
31 December to 31 December
2018 2017
GBP'000 GBP'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 19% (2017:19%). The differences are
explained below.
Period from
Year ended 12 June 2017
31 December to 31 December
2018 2017
GBP'000 GBP'000
Profit before tax 19,897 5,672
------------------------------------------- ----------------
Tax at UK corporation tax standard
rate of 19% 3,780 1,078
Change in value of investment
properties (2,754) (1,071)
Exempt REIT income (1,340) (50)
Amounts not deductible for tax
purposes 145 4
Unutilised residual current period
tax losses 169 39
- -
=========================================== ================
The Government has announced that the corporation tax standard
rate is to be reduced from 19% to 17% with effective date from 1
April 2020.
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
31 December
31 December 2018 2017
Operational Properties Operational
assets under development Total assets
GBP'000 GBP'000 GBP'000 GBP'000
Investment property
valuation brought forward 137,432 - 137,432 -
Acquisitions and additions 154,127 16,708 170,835 131,793
Fair value adjustment 14,569 (72) 14,497 5,639
Head lease ground rent 1,305 - 1,305 1,080
Transfer of completed
properties 8,684 (8,684) - -
Total investment property 316,117 7,952 324,069 138,512
Reconciliation to independent
valuation:
Investment property
valuation 315,517 7,952 323,469 137,546
Fair value adjustment
- head lease ground
rent 1,305 - 1,305 1,080
Fair value adjustment
-lease incentive debtor (705) - (705) (114)
Total investment property 316,117 7,952 324,069 138,512
============ =================== ======== ============
Properties under development represent contracts for the
development of a pre-let property under a forward funding
agreement.
The carrying value of leasehold properties at 31 December 2018
was GBP26.5 million (2017: GBP24.1million).
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 six 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 7 years.
% Key Statistics
The metrics below are in relation to the total investment
property portfolio held as at 31 December 2018.
31 December 31 December
Portfolio metrics 2018 2017
Capital Deployed (GBP'000) * 293,857 128,525
Number of Properties 272 116
Number of Tenancies*** 189 65
Number of Registered Providers*** 16 11
Number of Local Authorities*** 109 51
Number of Care Providers*** 62 25
Valuation NIY** 5.25% 5.32%
*calculated excluding acquisition costs
**calculated using IAS 40 valuations (excluding forward funding
acquisitions)
*** calculated excluding forward funding acquisitions
Regional exposure
31 December 2018 31 December 2017
% of funds % of funds
Region *Cost GBP'000 invested *Cost GBP'000 invested
--------------------- -------------- ----------- -------------- -----------
North West 73,757 25.1 49,664 38.6
East Midlands 47,412 16.1 11,374 8.8
West Midlands 41,327 14.1 18,912 14.7
North East 39,432 13.4 24,037 18.7
London 25,921 8.9 3,421 2.7
South East 22,053 7.5 4,732 3.7
Yorkshire 16,869 5.7 10,140 7.9
South 14,665 5.0 6,245 4.9
South West 8,650 2.9 - 0.0
East 2,889 1.0 - 0.0
South Wales 883 0.3 - 0.0
--------------------- -------------- ----------- -------------- -----------
Total 293,858 100.0 128,525 100.0
--------------------- -------------- ----------- -------------- -----------
*excluding acquisition costs
Fair value hierarchy
Quoted
prices Significant
in active observable Significant
markets inputs unobservable
(Level (Level inputs
Date of valuation Total 1) 2) (Level 3)
GBP'000 GBP'000 GBP'000 GBP'000
------------------------ ------------------- -------- ----------- ------------ --------------
Assets measured
at fair value: 31 December
Investment properties 2018 324,069 - - 324,069
------------------------ ------------------- -------- ----------- ------------ --------------
31 December
Investment properties 2017 138,512 - - 138,512
------------------------ ------------------- -------- ----------- ------------ --------------
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
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
("SSH") property owned by the Group; ii) the particular structure
of the Group's transactions where vendors, at their own expense,
meet the majority of the refurbishment costs of each property and
certain purchase costs; iii) detailed financial analysis with
discount rates supporting the carrying value of each property; iv)
underlying rents for each property being subject to independent
benchmarking and adjustment where the Group considers them too high
(resulting in a price reduction for the purchase or withdrawal from
the transaction); and v) a full repairing and insuring lease with
annual indexation based on CPI or CPI+1% and effectively 25 years
outstanding, in most cases with a Housing Association itself
regulated by the Homes and Communities Agency.
The valuer treats the fair value for forward funded assets as
work-in-progress value whereby the Group forward funds a
development by committing a total sum, the Gross Development Value
("GDV") over the development period in order to receive the
completed development at practical completion. The work-in-progress
value of the asset increases during the construction period
accordingly as payments are made by the Group which leads, in turn,
to a pro-rata increase in the valuation in each quarter valuation
assuming there are no material events affecting the GDV adversely.
Interest accrued during construction as well as an estimation of
future interest accrual prior to lease commencement will be
deducted from the balancing payment which is the final payment to
be drawn by the developer prior to the Group receiving the
completed building.
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.
2. The discount rate applied to the rental flows.
Key factors in determining the discount rates applied include
the performance of the regulated social housing sector and demand
for each specialist supported housing property owned by the Group,
costs of acquisition and refurbishment of each property, the
anticipated future underlying cash flows for each property,
benchmarking of each underlying rent for each property (passing
rent), and the fact that all of the Group's properties have the
benefit of full repairing and insuring leases entered into by a
Housing Association.
All of the properties within the Group's portfolio benefit from
leases with annual indexation based upon CPI or RPI. The fair value
measurement is based on the above items highest and best use, which
does not differ from their actual use.
Sensitivities of measurement of significant unobservable
inputs
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 6.66% (2017: 6.9%).
The range of discount rates used in the Group's property
portfolio valuation is from 6.4% to 7.2% (2017: 6.4% to 7.5%).
-0.5% change +0.5% change +0.25% change -0.25% change
in in in in
Discount Discount
Rate Rate CPI CPI
GBP'000 GBP'000 GBP'000 GBP'000
Changes in the IFRS
fair value of investment
properties as at
31 December 2018 20,362 (18,307) 10,447 (9,973)
Changes as at 31
December 2017 9,360 (8,415) 4,796 (4,561)
15. TRADE AND OTHER RECEIVABLES
31 December 31 December
2018 2017
GBP'000 GBP'000
Prepayments 1,755 11,347
Other receivables 766 183
Rent receivable 871 472
3,392 12,002
============ ============
Included in Prepayments are prepaid acquisition costs which
include the cost of acquiring assets not completed at the year end.
At 31 December 2018 assets not completed but funds transferred
represented GBPNil (2017: GBP4,030,000) and a deposit for PUMA
pipeline of GBP475,373 (2017: GBP7,213,552).
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 IFRS 9 simplified approach to measuring
expected credit losses using a lifetime expected credit loss
provision for rent receivables. To measure expected credit losses
on a collective basis, rent receivables are grouped based on
similar credit risk and ageing.
The expected loss rates are based on the Group's historical
credit losses experienced since incorporation in 2017. The
historical loss rates are then adjusted for the current and
forward-looking information on macroeconomic factors affecting the
Group's tenants. Both the expected credit loss provision and the
incurred loss provision in the current and prior period are
immaterial.
16. CASH AND CASH EQUIVALENTS
31 December 31 December
2018 2017
GBP'000 GBP'000
Cash held by lawyers 14,352 38,496
Liquidity funds 75,000 15,872
Restricted cash 17,278 3,427
Cash at bank 7,994 390
------------ ------------
114,624 58,185
============ ============
Liquidity funds refer to money placed in money market funds.
These are highly liquid funds with accessibility within 24 hours
and subject to insignificant risk of changes in value. Interest at
market rate between 0.59% and 0.65% per annum is earned on these
deposits.
Cash held by lawyers is money held in escrow for expenses
expected to be incurred in relation to investment properties
pending completion. These funds are available immediately on
demand.
Restricted cash represents retention money in relation to
repair, maintenance and improvement works by the vendors to bring
the properties up to satisfactory standards for the Group and the
tenants. The cash is committed on the acquisition of the
properties.
31 December 31 December
2018 2017
GBP'000 GBP'000
Total cash and cash equivalents 114,624 58,185
Restricted cash (17,278) (3,427)
------------ ------------
Cash reported on Statement of Cash
Flows 97,346 54,758
============ ============
17. TRADE AND OTHER PAYABLES
31 December 31 December
Current liabilities 2018 2017
GBP'000 GBP'000
Other creditors 6,818 3,427
Accruals 1,471 2,031
Trade payables 589 380
Deferred consideration 84 -
Head lease ground rent (note 27) 36 29
Deferred income - 9
8,998 5,876
============ ============
The Other Creditors balance consists of retentions due on
completion of outstanding works. 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.
18. OTHER PAYABLES
31 December 31 December
Non-current liabilities 2018 2017
GBP'000 GBP'000
Head lease ground rent (note 27) 1,270 1,051
Deferred consideration 195 -
Rent deposit 100 100
1,565 1,151
============ ============
19. BANK AND OTHER BORROWINGS
31 December 31 December
2018 2017
GBP'000 GBP'000
Bank and other borrowings drawn at
year end 68,500 -
------------ ------------
Less: loan issue costs incurred (1,186) -
Add: loan issue costs amortised 47 -
------------ ------------
Unamortised costs at end of the year (1,139) -
------------ ------------
Balance at year end 67,361 -
============ ============
At 31 December 2018 there were undrawn bank borrowings of GBP70
million.
On 20 July 2018, the Group entered into a long dated, fixed
rate, interest only financing arrangement in the form of a private
placement of loan notes in an amount of GBP68.5 million with
MetLife and affiliated funds. The Loan Notes are secured against a
portfolio of specialist supported living assets throughout the UK,
worth approximately GBP172 million. As at 31 December 2018 GBP58
million was utilised; the remaining amount of GBP10.5 million was
in a charged account until it was released on 12 February 2019. 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 GBP41.5 million, has a term of 10 years from
utilisation and is priced at an all-in coupon of 2.924% pa; and
Tranche-B, is an amount of GBP27 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.
On 21 December 2018 the Group signed a secured GBP70 million
Revolving Credit Facility with Lloyds Bank. The floating rate
Revolving Credit Facility has an initial term of four years
expiring on 20 December 2022. This may be extended by a further two
years to 20 December 2024 if requested but is at the sole
discretion of Lloyds Bank. The interest rate for amounts drawn is
1.85% per annum over 3 months LIBOR. For undrawn loan amounts the
Company pays a commitment fee in the amount of 40% of the margin.
As at 31 December 2018 no loan amounts have been drawn under the
revolving credit facility and, when fully drawn, the revolving
credit facility will represent a loan-to-value of 40% secured
against a defined portfolio of the Group's specialist supported
housing assets.
Both financing arrangements, the Loan Notes under the MetLife
private placement as well as the loan amounts under the Revolving
Credit Facility with Lloyds Bank, are segregated and on a
non-recourse basis to the Group.
The Group has met all compliance with its financial covenants on
the above loans throughout the year.
3 to
1 to 2 5 > 5
31 December 2018 Total < 1 year years years years
--------------------- -------- --------- -------- -------- --------
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 31 December 2018 70,000 - - 70,000 -
-------- --------- -------- -------- --------
At 31 December 2017 - - - - -
-------- --------- -------- -------- --------
Undrawn committed bank facilities - maturity profile
20. C SHARES
31 December 31 December
2018 2017
GBP'000 GBP'000
At beginning of period - -
Proceeds from issue of shares 47,500 -
C share issue costs (950) -
Amortisation of C share liability 134 -
Conversion into Ordinary shares (46,684)
------------ ------------
At end of period - -
============ ============
On 23 March 2018 the Company announced the issue of 47,500,000 C
shares, issued at 100 pence per share. The C shares were
convertible preference shares. The shares were listed on the London
Stock Exchange and dealing commenced on 27 March 2018.
Holders of C shares were not entitled to receive notice of,
attend, speak or vote at general meetings of the Company.
C shares were treated as a liability. The C shares had the right
to participate in a fixed rate dividend of 3% per C share per annum
pro-rated up to the conversion date paid in cash (based on a C
share price of 100 pence). The pro-rated dividend was paid on 28
September 2018.
The funds were raised in order to finance a number of property
acquisitions and C shares were issued rather than Ordinary shares
so that the issue costs associated with the fund raise and the
costs associated with the property acquisitions did not dilute the
Ordinary share NAV.
In order to calculate the net assets attributable to each share
class, the results, assets and liabilities attributable to the C
shares were identified in a separate pool to the results, assets
and liabilities of the Ordinary shares. A share of fund level
expenses for the period were allocated to the C shares based on the
net assets of each share class pool at 31 March 2018. In arriving
at the finance charge for the C Share liability the Group amortised
issue costs of GBP134,000 and paid interest on C shares of
GBP613,000.
On 29 June 2018 90% of the C share funds had been invested or
committed and the C shares converted into Ordinary Shares on 30
August 2018 (conversion date). The conversion was on the basis of
their respective NAV per share as at 29 June 2018 (calculation
date), adjusted for dividends payable to both share classes and the
fair value gain on assets acquired on which the Company had
exchanged contracts but not completed until 13 July 2018. On 30
August 2018 46,352,210 Ordinary shares were issued on conversion of
the C shares.
21. NOTES SUPPORTING STATEMENT OF CASH FLOWS
Reconciliation of liabilities to cash flows from financing
activities:
Bank borrowings C Shares Head lease Total
GBP'000 GBP'000 GBP'000 GBP'000
(note 19) (note 20) (note 17,18)
At 1 January 2018 - - 1,080 1,080
Cashflows 67,314 46,550 (35) 113,829
Non-cash flows:
-Amortisation of
loan arrangement
fees 47 - - 47
-Amortisation of
C Share liability - 134 - 134
-Conversion into
ordinary shares - (46,684) - (46,684)
-Head lease additions - - 225 225
-Amortisation of
head lease liability - - 36 36
---------------- ---------- ------------- ---------
At 31 December
2018 67,361 - 1,306 68,667
---------------- ---------- ------------- ---------
Bank borrowings C Shares Head lease Total
GBP'000 GBP'000 GBP'000 GBP'000
(note 19) (note 20) (note 17,18)
At 12 June 2017 - - - -
Cashflows - - (16) (16)
Non-cash flows:
-Head lease additions - - 1,081 1,081
-Amortisation of
head lease liability - - 15 15
------------------ ---------- ------------- --------
At 31 December
2017 - - 1,080 1,080
================== ========== ============= ========
22. SHARE CAPITAL
Issued and Issued and
fully paid fully paid
Number GBP'000
At 1 January 2018 200,000,000 2,000
Issued on conversion of C shares
on 30 August 2018 46,352,210 464
Issued on public offer on 22 October
2018 105,000,000 1,050
------------ ------------
At 31 December 2018 351,352,210 3,514
============ ============
Issued and Issued and
fully paid fully paid
Number GBP'000
At 12 June 2017 - -
Issued on IPO on 8 August 2017 200,000,000 2,000
------------ ------------
At 31 December 2017 200,000,000 2,000
============ ============
The Company achieved admission to the specialist fund segment of
the main market of the London Stock Exchange on 8 August 2017,
raising GBP200 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.
On 30 August 2018 the Company converted 47,500,000 C shares in
accordance with the terms for the C shares as set out in the
Company's Articles of Association. For every one C share held,
0.975836 new Ordinary share was issued. This resulted in a further
46,352,210 Ordinary shares being issued and fully paid.
Following a third public offer, on 22 October 2018 a further
105,000,000 Ordinary shares of one pence each were issued and fully
paid.
23. SHARE PREMIUM RESERVE
The share premium relates to amounts subscribed for share
capital in excess of nominal value.
31 December 31 December
2018 2017
GBP'000 GBP'000
Balance at beginning of period - -
Share premium arising on the conversion 46,220 -
of C Shares into Ordinary Shares
Share premium arising on Ordinary
Shares issue 107,100 198,000
Share issue costs capitalised (2,163) (4,000)
Transfer to capital reduction reserve - (194,000)
------------ ------------
Balance at end of period 151,157 -
============ ============
During the Board meeting on 3 August 2017 a resolution was
passed authorising the cancellation of the share premium account.
The amount standing to the credit of the share premium account of
the Company following completion of the Issue (less any issue
expenses set off against the share premium reserve) was, as a
result, credited as a distributable reserve to be established in
the Company's books of account which shall be capable of being
applied in any manner in which the Company's profits available for
distribution (as determined in accordance with the CA 2006) are
able to be applied.
In order to cancel the share premium reserve the Company needed
to obtain a court order, which was received on 15 November 2017. An
SH19 form was filed at Companies House with a copy of the court
order and the certificate of cancellation was issued by Companies
House on 15 November 2017.
24. CAPITAL REDUCTION RESERVE
31 December 31 December
2018 2017
GBP'000 GBP'000
Balance at beginning of period 194,000 -
Transfer from share premium reserve - 194,000
Dividends paid (10,079) -
Balance at end of period 183,921 194,000
============ ============
The capital reduction reserve relates to the distributable
reserve established on cancellation of the share premium
reserve.
25. RETAINED EARNINGS
31 December 31 December
2018 2017
GBP'000 GBP'000
Balance at beginning of period 5,672 -
Total comprehensive income for the
period 19,897 5,672
------------ ------------
Balance at end of period 25,569 5,672
============ ============
26. DIVIDS
Period from
Year ended 12 June 2017
31 December to 31 December
2018 2017
GBP'000 GBP'000
Dividend of 1p for the period 12 2,000 -
June to 31 December 2017
Dividend of 1.25p for the 3 months 2,500 -
to 31 March 2018
Dividend of 1.25p for the 3 months 2,500 -
to 30 June 2018
Dividend of 1.25p for the 3 months 3,079 -
to 30 September 2018
10,079 -
============== ================
On 6 March 2018, the Company declared its maiden interim
dividends of 1 pence per Ordinary share for the initial period from
12 June to 31 December 2017. The total dividend of GBP2,000,000 was
paid on 26 March 2018 to Ordinary shareholders on the register on
16 March 2018.
On 14 May 2018, the Company declared an interim dividend of 1.25
pence per Ordinary share for the period 1 January 2018 to 31 March
2018. The total dividend of GBP2,500,000 was paid on 29 June 2018
to Ordinary shareholders on the register on 25 May 2018.
On 16 August 2018, the Company declared an interim dividend of
1.25 pence per Ordinary share for the period 1 April 2018 to 30
June 2018. The total dividend of GBP2,500,000 was paid on 28
September 2018 to Ordinary shareholders on the register on 24
August 2018.
On 19 September 2018, the Company declared an interim dividend
of 1.25 pence per Ordinary share for the period 1 July 2018 to 30
September 2018. The total dividend of GBP3,079,403 was paid on 31
October 2018 to Ordinary shareholders on the register on 28
September 2018.
On 7 March 2019, the Company declared an interim dividend of
1.25 pence per Ordinary share for the period 1 October 2018 to 31
December 2018. The total dividend of GBP4,391,903 will be paid on
29 March 2019 to Ordinary shareholders on the register on 15 March
2019.
The Company paid dividends of 5 pence per Ordinary share for the
financial year ended 31 December 2018. The Company intends to pay
dividends to shareholders on a quarterly basis and in accordance
with the REIT regime.
On 16 August 2018, the Company declared a dividend of an
aggregate of 1.29 pence per C share comprising of 0.789 pence per C
share for the period from admission to trading on 27 March 2018 to
30 June 2018; and 0.501 pence per C share for the period from 1
July 2018 to the date of conversion into Ordinary shares on 30
August 2018. The total dividend of GBP612,946 was paid on 28
September 2018 to holders of C shares on the register on 24 August
2018. The C Shares were classified as a liability and as such the
dividend paid was treated as a finance expense in the Statement of
Comprehensive Income (Note 12).
27. LEASES
A. Leases as lessee
The Group leases a number of properties under finance
leases.
The future minimum lease payments under non-cancellable finance
leases were payable by the Group as follows:
< 1 year 2-5 years > 5 years Total
GBP'000 GBP'000 GBP'000 GBP'000
Minimum lease payments 36 142 6,801 6,979
Interest (1) (10) (5,663) (5,674)
--------- ---------- ---------- --------
Present value at 31
December 2018 35 132 1,138 1,305
========= ========== ========== ========
< 1 year 2-5 years > 5 years Total
GBP'000 GBP'000 GBP'000 GBP'000
Minimum lease payments 33 114 6,023 6,170
Interest (4) (16) (5,070) (5,090)
--------- ---------- ---------- --------
Present value at 31
December 2017 29 98 953 1,080
========= ========== ========== ========
31 December 31 December
2018 2017
GBP'000 GBP'000
Current liabilities (Note 17) 35 29
Non-current liabilities (Note 18) 1,270 1,051
Balance at end of period 1,305 1,080
============ ============
The above is in respect of properties held by the Group under
leasehold. There are 19 (2017: 18) properties held under leasehold
with lease ranges from 125 years to 999 years
B. Leases as lessor
The Group leases out its investments properties (see Note
14)
The future minimum lease payments under non-cancellable
operating leases receivable by the Group are as follows:
< 1 year 2-5 years > 5 years Total
GBP'000 GBP'000 GBP'000 GBP'000
31 December 2018 18,290 74,449 415,211 507,950
========= ========== ========== ========
< 1 year 2-5 years > 5 years Total
GBP'000 GBP'000 GBP'000 GBP'000
31 December 2017 7,315 29,484 113,463 150,262
========= ========== ========== ========
Leases are direct-let agreements with Registered Providers for a
term of at least 15 years and usually between 20 to 25 years with
rent 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 lease payments were calculated using Weighted Average
Unexpired Lease Term ("WAULT"). WAULT is the average unexpired
lease term across the property investment portfolio, weighted by
the contracted rental income. The WAULT includes all parts of the
lease term, including additional leases which are triggered by
landlords' put options, but not those triggered by Tenants' call
options unless the options were mutual.
The following table gives details of the percentage of annual
rental income per Registered Provider with more than a 10%
share:
31 December 31 December
2018 2017
% of total % of total
Registered Provider annual rent annual rent
Inclusion Housing CIC 20 29
Falcon Housing Association CIC 16 10
My Space 14 22
28A Supported Living 11 -
Hilldale 10 12
Auckland Home Solutions 9 10
28. CONTROLLING PARTIES
As at 31 December 2018 there is no ultimate controlling party of
the Company.
29. SEGMENTAL INFORMATION
IFRS 8 Operating Segments requires operating segments to be
identified on the basis of internal financial reports about
components of the Group that are regularly reviewed by the Chief
Operating Decision Maker (which in the Group's case is delegated to
the Delegated Investment Advisor 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 272 (2017: 116) Social
Housing properties as at 31 December 2018 in England and Wales. 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 of the Group's properties are engaged in a single segment
business with all revenue, assets and liabilities arose in the UK,
therefore, no geographical segmental analysis is required by IFRS
8.
30. 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 GBP75,000 per annum (2017: GBP75,000), and the
other directors of the Board receive a fee of GBP50,000 per annum
(2017: GBP50,000). The directors are also entitled to an additional
fee of GBP7,500 in connection with the production of every
prospectus by the Company (including the Issue).
Dividends of the following amounts were paid to the directors
during the year:
Chris Philips: GBP2,375 (2017: nil)
Peter Coward: GBP3,563 (2017: nil)
Paul Oliver: GBP2,924 (2017: nil)
Following shareholder approval, the Group completed the purchase
of the entire issued share capital of TP Social Housing Investments
Limited, a special purpose company holding a portfolio of social
housing assets wholly owned by Pantechnicon Capital for a total
commitment of GBP22.3 million on 13 July 2018. Ben Beaton, James
Cranmer and Claire Ainsworth are all directors of Pantechnicon
Capital Limited and they are also all partners of TPIM, the
delegated investment advisor. Triple Point Investment Management
LLP receives a management fee which is disclosed in note 8.
The Board reviewed the transaction and concluded it was
conducted on an arm's length basis.
31. 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 and Guernsey. 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 the financial statements.
The principal activity of all the subsidiaries relates to property
investment.
Country Ownership
Name of Entity Registered Office of Incorporation %
TP REIT Super HoldCo 1 King William Street,
Ltd* London, EC4N 7AF UK 100%
TP REIT Hold Co 1 1 King William Street,
Ltd* London, EC4N 7AF UK 100%
TP REIT Hold Co 2 1 King William Street,
Ltd* London, EC4N 7AF UK 100%
TP REIT Hold Co 3 1 King William Street,
Ltd London, EC4N 7AF UK 100%
TP REIT Prop Co 2 1 King William Street,
Ltd* London, EC4N 7AF UK 100%
TP REIT Prop Co 3 1 King William Street,
Ltd London, EC4N 7AF UK 100%
TP Social Housing 1 King William Street,
Investments Limited* London, EC4N 7AF UK 100%
1 King William Street,
Norland Estates Ltd* London, EC4N 7AF UK 100%
1 King William Street,
FPI Co 173 Ltd London, EC4N 7AF UK 100%
1 King William Street,
FPI Co 22 Ltd London, EC4N 7AF UK 100%
Burleigh Manor, Peel Road,
Douglas, Isle of Man IM1 Isle of
SIPP Holding Ltd* 5EP Man 100%
1 King William Street,
FPI Co 243 Ltd London, EC4N 7AF UK 100%
1 King William Street,
MSL (55) Ltd London, EC4N 7AF UK 100%
1 King William Street,
MSL (38) Ltd London, EC4N 7AF UK 100%
1 King William Street,
FPI Co 267 Ltd London, EC4N 7AF UK 100%
1 King William Street,
MSL(43) Ltd London, EC4N 7AF UK 100%
1 King William Street,
MSL (51) Ltd London, EC4N 7AF UK 100%
1 King William Street,
MSL (45) Ltd London, EC4N 7AF UK 100%
PSCI Holdings III 1 King William Street,
Ltd London, EC4N 7AF UK 100%
1 King William Street,
FPI Co 152 Ltd* London, EC4N 7AF UK 100%
1 King William Street,
FPI Co 188 Ltd* London, EC4N 7AF UK 100%
1 Le Truchot St Peter
PSCI Holdings Ltd* Port, GY1 1WD Guernsey 100%
1 Le Truchot St Peter
SL Heywood Ltd Port, GY1 1WD Guernsey 100%
1 Le Truchot St Peter
SL Bury Ltd Port, GY1 1WD Guernsey 100%
1 King William Street,
FPI Co 244 Ltd London, EC4N 7AF UK 100%
1 King William Street,
Diamond 72 Ltd London, EC4N 7AF UK 100%
1 King William Street,
MSL (76) Ltd London, EC4N 7AF UK 100%
1 King William Street,
MSL (61) Ltd London, EC4N 7AF UK 100%
1 King William Street,
TP REIT Eshwin Ltd London, EC4N 7AF UK 100%
1 King William Street,
Allerton SPV 7 Ltd London, EC4N 7AF UK 100%
1 King William Street,
MSL (48) Ltd London, EC4N 7AF UK 100%
1 King William Street,
MSL (53) Ltd London, EC4N 7AF UK 100%
1 King William Street,
Allerton SPV 10 Ltd London, EC4N 7AF UK 100%
1 King William Street,
FPI Co 211 Ltd London, EC4N 7AF UK 100%
1 King William Street,
MSL (50) Ltd London, EC4N 7AF UK 100%
1 King William Street,
FPI Co 169 Ltd London, EC4N 7AF UK 100%
1 King William Street,
FPI Co 7 Ltd London, EC4N 7AF UK 100%
1 King William Street,
MSL (32) Ltd London, EC4N 7AF UK 100%
TP REIT Orchard End 1 King William Street,
Ltd London, EC4N 7AF UK 100%
* indicates entity is a direct subsidiary of Triple Point Social
Housing REIT PLC
The subsidiaries listed below have been struck off since the
year end:
Country Ownership
Name of Entity Registered Office of Incorporation %
Bloxwich Developments 1 King William Street,
Ltd London, EC4N 7AF UK 100%
Court Developments 1 King William Street,
Ltd London, EC4N 7AF UK 100%
Rushden Developments 1 King William Street,
Ltd London, EC4N 7AF UK 100%
Supported Developments 1 King William Street,
Ltd London, EC4N 7AF UK 100%
Stoke Central Developments 1 King William Street,
Ltd London, EC4N 7AF UK 100%
1 King William Street,
Soho SPV 3 Ltd London, EC4N 7AF UK 100%
1 King William Street,
Soho SPV 4 Ltd London, EC4N 7AF UK 100%
1 King William Street,
Soho SPV 5 Ltd London, EC4N 7AF UK 100%
1 King William Street,
Soho SPV 6 Ltd London, EC4N 7AF UK 100%
1 King William Street,
FPI Co 153 Ltd London, EC4N 7AF UK 100%
1 King William Street,
MSL (21) Ltd London, EC4N 7AF UK 100%
1 King William Street,
MSL (28) Ltd London, EC4N 7AF UK 100%
1 King William Street,
MSL (30) Ltd London, EC4N 7AF UK 100%
1 King William Street,
MSL (42) Ltd London, EC4N 7AF UK 100%
1 King William Street,
MSL (25) Ltd London, EC4N 7AF UK 100%
1 King William Street,
MSL (37) Ltd London, EC4N 7AF UK 100%
1 King William Street,
MSL (40) Ltd London, EC4N 7AF UK 100%
1 King William Street,
MSL (44) Ltd London, EC4N 7AF UK 100%
1 King William Street,
MSL (26) Ltd London, EC4N 7AF UK 100%
1 King William Street,
MSL (39) Ltd London, EC4N 7AF UK 100%
1 King William Street,
FPI Co 150 Ltd London, EC4N 7AF UK 100%
1 King William Street,
FPI Co 159 Ltd London, EC4N 7AF UK 100%
1 King William Street,
FPI Co 160 Ltd London, EC4N 7AF UK 100%
1 King William Street,
FPI Co 170 Ltd London, EC4N 7AF UK 100%
1 King William Street,
FPI Co 110 Ltd London, EC4N 7AF UK 100%
1 King William Street,
FPI Co 175 Ltd London, EC4N 7AF UK 100%
1 King William Street,
FPI Co 174 Ltd London, EC4N 7AF UK 100%
1 King William Street,
TP REIT Maple Ltd London, EC4N 7AF UK 100%
1 King William Street,
Soho SPV 1 Ltd London, EC4N 7AF UK 100%
1 King William Street,
Soho SPV 8 Ltd London, EC4N 7AF UK 100%
1 King William Street,
Allerton SPV 1 Ltd London, EC4N 7AF UK 100%
1 King William Street,
Allerton SPV 2 Ltd London, EC4N 7AF UK 100%
1 King William Street,
Sorogold Street Ltd London, EC4N 7AF UK 100%
Sorogold Property 1 King William Street,
Ltd London, EC4N 7AF UK 100%
Puma Properties UK 1 King William Street,
(Elm Place) Ltd London, EC4N 7AF UK 100%
Puma Properties UK 1 King William Street,
(Barnsley) Ltd London, EC4N 7AF UK 100%
Puma Properties UK 1 Le Truchot St Peter
(Eskdale) Ltd Port, GY1 1WD Guernsey 100%
Puma Properties UK 1 Le Truchot St Peter
(Workington) Ltd Port, GY1 1WD Guernsey 100%
Puma Properties UK 1 Le Truchot St Peter
(CTP 1) Ltd Port, GY1 1WD Guernsey 100%
Puma Properties UK 1 Le Truchot St Peter
(CTP 2) Ltd Port, GY1 1WD Guernsey 100%
Puma Properties UK
(Prescott Court) 1 King William Street,
Ltd London, EC4N 7AF UK 100%
Puma Properties (Springside) 1 Le Truchot St Peter
Ltd Port, GY1 1WD Guernsey 100%
Puma Properties (Baskerville 1 King William Street,
Hall) Ltd London, EC4N 7AF UK 100%
Puma Social (Care 1 Le Truchot St Peter
Holdings) Ltd Port, GY1 1WD Guernsey 100%
Puma Property Investments 1 Le Truchot St Peter
Ltd Port, GY1 1WD Guernsey 100%
HB Villages St Helens 1 King William Street,
Ltd London, EC4N 7AF UK 100%
1 King William Street,
SL Boathouse Ltd London, EC4N 7AF UK 100%
PSCI Holdings II 1 King William Street,
Ltd London, EC4N 7AF UK 100%
32. 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.
28.
29.
30.
31.
32.
32.1. 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.
32.2. Interest rate risk
Interest rate risk is the risk that the fair value or future
cash flows of a financial instrument will fluctuate because of
changes in market interest rates.
The GBP70 million Revolving Credit Facility with Lloyds Bank has
been secured on a floating rate basis whereby the Group pays a
margin of 1.85% per annum above 3 months LIBOR for drawn loan
amounts throughout the loan term. The directors' decision was not
to put hedging arrangements in place from the date of signing as
under the terms of the Revolving Credit Facility the Group has full
flexibility, and at its sole discretion, to put hedging
arrangements in place at any time during the loan term. Throughout
the loan term the Group will closely monitor changes in interest
rates and, if necessary, implement hedging at a later stage. The
liquidity table in 32.4 below outlines the bank borrowings and
interest payable on bank borrowings with a floating interest rate.
At 31 December 2018 the facility had not been drawn and therefore
the effect of a change in interest rate on the results for the year
was GBPnil.
The fixed rate loan notes with MetLife do not have exposure to
interest rate risk.
Exposure to interest rate risk on the liquidity funds is
immaterial to the Group.
32.3. 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 risks
from both its leasing activities and financing activities,
including deposits with banks and other institutions as detailed in
Notes 16 and 19.
Credit risk related to financial instruments and cash
deposits
One of the principal credit risks facing the Group arises with
the funds it holds with banks and other institutions. 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.
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 maximum exposure to credit risk at the
reporting date is the carrying value of each class of financial
asset.
The Group has 75 leases with 2 Registered Providers that have
received a non-compliant rating for governance and viability from
the Regulator. We continue to conduct on going due diligence on all
Registered Providers and all rents payable under these leases have
been paid. The Group's valuer has confirmed that there is no impact
on the value of the Group's assets as a result of the non-compliant
rating. We continue to monitor and maintain a dialogue with the
Registered Providers as they work with advisers and the Regulator
to implement a financial and governance improvement action plan in
order to address the Regulator's concerns and obtain a compliant
rating. The Board believes that the credit risk associated with the
non compliant rating is limited and all rents are received by the
Registered Provider from local and central government.
32.4. 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.
The following table details the Group's liquidity analysis:
3-12 1-5 > 5
31 December 2018 < 3 months months Years years
---------------------------- -------- ----------- -------- -------- --------
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Headleases (note
27) 6,979 9 27 142 6,801
Trade and other payables 8,878 7,808 1,040 30 -
Bank and other borrowings
(note 19):
* Fixed interest rate 68,500 - - - 68,500
Interest payable
on bank and other
borrowings:
* Fixed interest rate 24,114 520 1,561 8,326 13,707
108,471 8,337 2,628 8,498 89,008
======== =========== ======== ======== ========
3-12 1-5 > 5
31 December 2017 < 3 months months years years
-------------------------- -------- ----------- -------- -------- --------
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Headleases (note
27) 6,170 8 25 114 6,023
Trade and other payables 5,848 2,433 3,405 100 -
-------- ----------- -------- -------- --------
12,018 2,441 3,430 214 6,023
======== =========== ======== ======== ========
32.5. 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 held at bank.
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 31 December 31 December 31 December
2018 2018 2017 2017
GBP'000 GBP'000 GBP'000 GBP'000
Financial assets:
Trade and other
receivables 1,637 1,637 655 655
Cash held at bank 114,624 114,624 58,185 58,185
------------- ------------- ------------- -------------
Financial liabilities:
Trade and other
payables 8,878 8,878 5,848 5,848
Borrowings 68,500 67,508 - -
------------- ------------- ------------- -------------
33. POST BALANCE SHEET EVENTS
Property acquisitions
Since 31 December 2018, the Group has acquired portfolios of 17
supported Social Housing properties deploying GBP21.0 million
(including acquisition costs).
Forward Funding Arrangements
Since 31 December 2018 the Group has entered into two forward
funding agreements at a total project cost of GBP6.5 million. The
land has been acquired by the Group and a developer has been
contracted to carry out the construction. Jones Lang LaSalle
Limited have been appointed as the fund monitor for both sites and
will be overseeing the projects on behalf of the Group.
34. CAPITAL COMMITMENTS
The Group had capital commitments of GBP21 million (2017:
GBPnil) in relation to the cost to complete its forward funded
pre-let development assets and on properties exchanged but not
completed at 31 December 2018.
35. EARNINGS PER SHARE
Earnings per share ("EPS") amounts are calculated by dividing
the profit for the period attributable to ordinary equity holders
of the Company by the weighted average number of Ordinary Shares in
issue during the period. As there are no dilutive instruments
outstanding, basic and diluted earnings per share are the same.
The calculation of basic and diluted earnings per share is based
on the following:
Period from
12 June 2017
Year ended 31 to 31 December
December 2018 2017
Calculation of Basic Earnings per
share
Net profit attributable to Ordinary
Shareholders (GBP'000) 19,897 5,672
Weighted average number of Ordinary
Shares 237,610,066 143,842,365
IFRS Earnings per share - basic and
diluted 8.37p 3.94p
--------------- --------------------------------
Calculation of EPRA Earnings per
share
Net profit attributable to Ordinary
Shareholders (GBP'000) 19,897 5,672
Changes in value of fair value of
investment property (GBP'000) (14,497) (5,639)
--------------- ----------------------------------
Total (GBP'000) 5,400 33
Weighted average number of Ordinary
Shares 237,610,066 143,842,365
EPRA Earnings per share - basic and
diluted 2.27p 0.02p
--------------- ----------------------------------
36. NET ASSET VALUE PER SHARE
Basic Net Asset Value ("NAV") per share is calculated by
dividing the net assets in the Group Statement of Financial
Position attributable to Ordinary shareholders of the parent 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 31 December
2018 2017
GBP'000 GBP'000
Net assets at the end of the period 364,161 201,672
Shares in issue at end of the
period 351,352,210 200,000,000
Dilutive shares in issue - -
IFRS NAV per share - basic and
dilutive 103.65p 100.84p
------------ ------------
EPRA NAV per share 103.65p 100.84p
============ ============
37. 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 fixed rate facility with Metlife requires an asset cover
ratio of 1:2.25 and an interest cover ratio of 1:1.75. At 31
December 2018, the Group was fully compliant with both covenants
with an asset cover ratio of 1:2.57 and an interest cover ratio of
1:3.95. The Lloyds facility, once drawn, requires the Group to
maintain an LTV loan to value of less than 50%, and an interest
cover ratio in excess of 1:2.75.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR SESESAFUSESD
(END) Dow Jones Newswires
March 29, 2019 03:01 ET (07:01 GMT)
Triple Point Social Hous... (LSE:SOHO)
Historical Stock Chart
From Jun 2024 to Jul 2024
Triple Point Social Hous... (LSE:SOHO)
Historical Stock Chart
From Jul 2023 to Jul 2024
