TIDMSOHO
RNS Number : 4311L
Triple Point Social Housing REIT
06 September 2019
THIS ANNOUNCEMENT HAS BEEN DETERMINED TO CONTAIN INSIDE
INFORMATION FOR THE PURPOSES OF THE MARKET ABUSE REGULATION (EU)
NO. 596/2014.
6 September 2019
Triple Point Social Housing REIT plc
(the "Company" or, together with its subsidiaries, the
"Group")
RESULTS FOR THE SIX MONTHSED 30 JUNE 2019
The Board of Triple Point Social Housing REIT plc (ticker: SOHO)
is pleased to announce its unaudited results for the six months
ended 30 June 2019.
1 January 1 January Year ended
2019 to 30 2018 to 30 31 December
June 2019 June 2018 2018
---------------------------------- ------------ ------------ -------------
IFRS NAV per share 103.96p 101.61p 103.65p
Earnings per share (basic and
diluted)
* IFRS basis 2.82p(1) 3.02p 8.37p
1.53p 1.39p 2.27p
* EPRA basis
Total annualised rental income GBP21.1m GBP10.4m GBP17.4m(2)
Value of the portfolio
* IFRS basis GBP385.9m GBP190.0m GBP323.5m
GBP423.2m GBP203.4m GBP343.7m
* Portfolio valuation basis
Weighted average unexpired 26.2 yrs 29.0 yrs 27.2 yrs
lease term
Dividend paid or declared per
Ordinary Share 2.54p 2.50p 5.00p
Dividend paid per C Share - - 1.29p
Financial highlights
-- IFRS net asset value per share of 103.96 pence at 30 June
2019 (31 December 2018: 103.65 pence).
-- Portfolio independently valued as at 30 June 2019 at GBP385.9
million on an IFRS basis (31 December 2018: GBP323.5 million),
reflecting a valuation uplift of 6.87% against total invested funds
of GBP370.4 million(3) . The properties have been valued on an
individual basis.
-- The Group's assets were valued at GBP423.2 million on a
portfolio valuation basis (31 December 2018: GBP343.7 million),
reflecting a portfolio premium of 6.89% or a GBP27.3 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 GBP21.1
million(2) as at 30 June 2019 (31 December 2018: GBP17.4
million).
-- Operating profit for the period ended 30 June 2019 was
GBP11.0 million (30 June 2018: GBP6.1 million).
-- Ongoing Charges Ratio of 1.58% as at 30 June 2019 (31
December 2018: 1.58%; 30 June 2018: 1.85%).
-- During the period, the Group drew down GBP31.3 million of the
GBP70 million revolving credit facility agreement.
-- Market capitalisation of GBP290.0 million as at 30 June 2019
(31 December 2018: GBP349.9 million).
Operational highlights
-- Acquired 46 properties (including forward funding
arrangements) during the period for an aggregate purchase price of
GBP67.8 million (including acquisition costs and total project
costs of the forward funding schemes) bringing the total investment
portfolio to 318 properties.
-- During the six months to 30 June 2019, the Group committed
approximately GBP25.7 million to forward fund the development of
eight newly built or fully-renovated bespoke Supported Housing
schemes.
o The Group has undertaken a total of 21 forward funding
arrangements since IPO (an aggregate commitment of GBP52 million),
of which eight reached practical completion during the during the
period under review and 13 were on-going at the period end.
-- IFRS blended net initial yield of 5.28% based on the value of
the portfolio on an IFRS basis as at 30 June 2019, against the
portfolio's blended net initial yield on purchase of 5.89%, equal
to a yield compression of 61 bps.
-- Diversified the portfolio:
o 12 regions
o 127 local authorities
o 229 leases
o 16 Approved Providers
o 72 care providers
-- As at 30 June 2019, the weighted average unexpired lease term ("WAULT") was 26.2 years.
-- 100% of the Group's portfolio was fully let and income
producing or pre-let during the period.
-- 100% of contracted rental income was either CPI or RPI linked.
Post Balance Sheet Activity
-- The dividend payable on 27 September 2019 brings the total
dividend per Ordinary Share paid by the Company in respect of the
six month period to 30 June 2019 to 2.54 pence per share, in line
with the Company's stated target for the year to 31 December 2019
of 5.095 pence per share. Thie represents an increase of 1.9% over
the dividend paid for the year ended 31 December 2018, in line with
inflation, reflecting the CPI-based rent reviews typically
contained in the leases of the assets within portfolio.(4)
-- Announced the acquisition of a further eight Supported
Housing properties including one forward funding arrangement (81
units in total) for an aggregate purchase price of approximately
GBP13.6 million (including acquisition costs and total project
costs of the forward funding scheme).
-- Currently, the Group has drawn down GBP62.3 million of its
existing revolving credit facility and is actively exploring
further facilities.
Notes:
1 Earnings per share was impacted by the timing of the equity raise in October 2018
2 Excluding ongoing forward funded schemes that are under an agreement for lease
3 Including acquisition costs
4 These are targets only and not a profit forecast and there can
be no assurance that they will be met
Chris Phillips, Chairman of Triple Point Social Housing REIT
plc, commented:
"Looking back over the past six months, and forward over the
next six months, there is much to be pleased about. As expected,
our existing portfolio has performed well and we have continued to
deploy funds into high-quality assets leased to Approved Providers
which continue to strengthen as a result of ongoing regulatory
engagement. Commissioners continue to call for new housing, as
reflected in our pipeline of close to GBP400 million. We continue
to refine and evolve our due diligence processes and we have never
failed to receive rental payments in full under our leases. For all
these reasons, and despite movements in the Company's share price,
our continued operational performance makes us look to the future
with optimism."
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
Investec Bank plc (Joint Financial Tel: 020 7597 4000
Adviser and Corporate Broker)
Lucy Lewis
Denis Flanagan
Tom Skinner
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 analysts and audio recording of results
available
A Company presentation for analysts will take place at 8.15 a.m.
today at the offices of Investec Bank plc, 30 Gresham Street,
London, EC2V 7QP. The presentation will also be accessible
on-demand via the Company website:
https://www.triplepointreit.com/investors/72/.
The Interim Results will also be 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 10 September 2019.
CHAIRMAN'S STATEMENT
Introduction
After a good 2018, we have had a strong start to 2019. In the
first half of this year, we successfully deployed the proceeds of
our October 2018 equity raise and drew down the first tranche of
debt from the revolving credit facility that the Group entered into
at the end of last year. These funds have been deployed in the
purchase of 46 new assets at a total cost of GBP67.8 million, with
GBP25.7 million newly-committed to eight forward funded properties.
All acquisitions benefited from our continually-evolving due
diligence process and are diversified around the UK and by
counterparty. Our portfolio has produced an IFRS NAV uplift of 0.3%
since 31 December 2018. In doing all this, we have ensured that we
have delivered on our commitment to shareholders of acquiring
high-quality assets in areas of high demand.
Alongside this financial performance, our investments continue
to have a powerful social impact. By using our investors' funds to
acquire specialist properties in areas of known demand, we are
enabling the Approved Providers that lease these properties to
bring to market new Supported Housing units that unlock the social
benefits of this type of accommodation. Local Authorities and
commissioners around the UK continue to push for Supported Housing
precisely because it gives some of the most vulnerable people in
our society - people with lifelong learning disabilities, autism,
mental health issues and physical and/or sensory impairments -
adapted, community-based homes for life that are shown to provide
better health and social outcomes.(1) As a research paper by Mencap
has said, central to the concerns of people with learning
disabilities is "whether they will be able to find a home that
meets their needs and enables them to live an independent life".(2)
Beyond this, our housing has a material benefit on the government
purse, with each resident in our housing saving the government
about GBP200 a week compared to residential care and nearly
GBP2,000 a week compared to in-patient care.(3) Every one of the
2,306 units in our portfolio therefore contributes to society
through improving the lives of residents while costing the
government less. For these reasons, demand for this type of housing
shows no sign of abating, with an annual shortfall of 29,053 units
of Supported Housing in 2019/20, a figure expected to rise to
46,771 by 2024/25 if current trends continue.(4)
In the first half of 2019 we bought more of the same
high-quality assets. In February, for example, we bought Park
Street, two adjacent Grade II listed assets leased to Sunnyvale
Supported Accommodation with care provided by East Cheshire Housing
Consortium. In March we acquired the site at East Common Lane, a
forward funding development in Scunthorpe that will be leased to
Care Housing Association and which is being developed at the
request of commissioners based on the need to place specific
residents. In April we acquired Ty Coedwig, a recently adapted
asset in Newport, Wales, that is leased to Hilldale Housing
Association. Our strict due diligence criteria continue to be
applied and updated, allowing us to acquire best-in-class assets
diversified around the UK and across counterparties.
Forward funding remains a key part of our offering. Bringing
high-quality new housing stock to market is important for us,
because of both the superior new housing it provides residents and
the financial benefit it delivers our shareholders through
valuation uplifts. The first half of this year saw us continue to
deploy funds into forward funded assets, entering into commitments
to forward fund eight new assets for a total value of GBP25.7
million. As at 30 June 2019, we had entered into an aggregate of 21
forward funding commitments, with an aggregate value of GBP52
million, since IPO. As at 30 June 2019, eight of these had reached
practical completion, with the remaining 13 assets expected to
complete later this year and early next year. We always need to
balance our exposure to forward funding commitments with our
exposure to assets that generate income immediately, but wherever
possible we will continue to pursue forward funding projects
because of the benefits they deliver our residents, our
shareholders and wider society. We look forward to investing in
more forward funding schemes in the months and years to come.
The theme of growing regulation for the smaller Registered
Providers that permeate the Supported Housing sector, which was
reported on in our 2018 Annual Report, has continued into 2019. As
discussed in more detail in the Investment Manager's report (see
pages 25 to 26 of the Interim Report), the first half of this year
saw the Regulator of Social Housing publish three further
non-compliant ratings for lease-based Registered Providers, as well
as an addendum to its 2018 Sector Risk Profile looking at
leased-based providers of specialised Supported Housing. These
publications reflect the concerns of the Regulator regarding the
standards of governance and financial viability of some Registered
Providers operating in this sector which have not kept pace with
the speed of their growth. Nonetheless, the Regulator has
acknowledged both the important role played by private capital in
this sector (which the Regulator has a mandate to encourage) and
the improvements already made by the Registered Providers in this
sector.(5)
We are working with these few Registered Providers with which we
have leases while assessing what changes can be made to our
investment model in order to address some of the issues highlighted
by the Regulator. We look forward to working with all stakeholders
- including the Regulator - to accelerate the further development
of this sector in order to deliver the much-needed new stock,
leased to Registered Providers, that saves the government money at
the same time as improving resident outcomes.(6)
Deployment
In the first half of 2019, we acquired 46 assets, providing
accommodation for 414 residents, for a total investment cost of
GBP67.8 million.(7) As at 30 June 2019, we had outstanding
commitments of GBP37.2 million relating to seven properties on
which we had exchanged and 13 forward funded properties which had
yet to complete construction. These new assets are diversified
across the UK and are high-quality new-build or refurbished
properties with adaptations for the needs of the residents. We have
also completed our first investment into Scotland: a flagship
forward-funded development in the centre of Edinburgh developed in
conjunction with Edinburgh City Council.
As a result of this activity, we owned (as at 30 June 2019) 318
assets (31 December 2018: 272), providing accommodation for 2,306
residents (31 December 2018: 1,893), having deployed since IPO an
aggregate GBP370.4 million. A map showing where our assets are can
be found on page 34 of the Interim Report.
During this period, we began working with 10 new care providers
and 18 new Local Authorities. We now have leases with 16 Approved
Providers (31 December 2018: 16), and own schemes on which 72 care
providers operate (31 December 2018: 62) and where the housing
benefit is paid by 127 different Local Authorities (31 December
2018: 109). Our portfolio's weighted average unexpired lease term
(including put/call options and reversionary leases) is 26.2 years
(31 December 2018: 27.2 years).
Deployment over the period has been slower than in the previous
six months, reflecting developments in the sector resulting from
the Regulator's reviews. Registered Providers have slowed the speed
at which they sign new leases to ensure that they improve their
financial strength and that their governance supports the pace of
their growth. Boards have grown, asset bases have expanded through
the acquisition of freehold property, new reporting software has
been rolled out, financial analysis and reporting has improved, and
time has been dedicated to maximising the performance of existing
portfolios. These improvements should benefit the sector in the
long-term but the short-term effect has been to slow down the pace
of development of new Supported Housing properties and consequently
the pace of deployment for the Group.
Share Price
Until April 2019, the Company's share price was generally
trading at a premium to the Company's net asset value, reflecting
the strong performance of our portfolio underpinned by compelling
fundamentals. However, on 4 April 2019 the Regulator published a
report on lease-based Registered Providers, setting out its views
on some operators in this sector (as discussed in more detail on
pages 25 to 26 of the Interim Report). The day before the report
was published, the Company's share price was 103 pence. Two weeks
after the report was published the share price had dropped to 93.4
pence. The share price reached a low of 74.8 pence on 6 August
2019. Since then, the share price has steadily increased to its
current level of 85.4 pence, a trend we hope to continue as
investors distinguish between Regulatory pronouncements regarding a
small number of Registered Providers, and the operational
performance and robustness of the Group's portfolio and income
stream. Increasing the Company's share price relative to net asset
value is a key goal of both the Investment Manager and the
Board.
Share Buybacks
After the Company's Ordinary Shares began trading at a
significant discount to net asset value from April 2019 onwards, we
decided to consider share buybacks alongside the acquisition of new
assets, noting that share buybacks for investment purposes are
particularly attractive when the discount to net asset value is
wide given the accretion of value to ongoing shareholders. During
the period under review, the Company bought a total of 450,000
Ordinary Shares at a price of between 83 and 83.3 pence per share.
These are currently held in treasury. Further buybacks will be
considered, taking into account the terms of the Group's debt
facilities, the impact of shrinkage on secondary market liquidity
and the Company's ongoing charges ratio, as well as general market
conditions.
Equity and Debt Raising
As set out in our 2018 Annual Report, in October 2018 we put in
place a placing programme under which we raised GBP108.2 million of
equity (giving us net proceeds of GBP106 million), and in December
2018 we secured a GBP70 million revolving credit facility with
Lloyds Bank. These have served us well for the six months under
review, with the proceeds of the equity raise now spent and the
first tranche of the revolving credit facility drawn down before 30
June 2019 to fund investment opportunities and the second tranche
having been drawn down since then. We are now exploring putting in
place a further debt facility which will enable us to continue to
take advantage of developments in the market and achieve dividend
cover. As at 30 June 2019, our current LTV was 25.2% on drawn
funds.
As we have no need for further equity before the placing
programme's final closing date of 18 September 2019, the Board has
decided to close the placing programme with immediate effect.
Financial Results
As at 30 June 2019, our portfolio was independently valued at
GBP395.9 million on an IFRS basis. This reflects a valuation uplift
of GBP25.4 million, or 6.88%, over our total investment cost (i.e.
including transaction costs). The valuation reflects a blended
valuation net initial yield of 5.28%, which is better than the
portfolio's blended average net initial yield at purchase of 5.89%.
This equates to a yield compression of 61 basis points, reflecting
the quality of the Group's asset selection and off-market
acquisition process.
Beyond this, as at 30 June 2019 our assets were valued at
GBP423.2 million on a portfolio valuation basis (i.e. assuming a
single sale of the property holding 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 GBP27.3 million against
the IFRS valuation.
EPRA earnings per share in the first half of 2019 was 1.53
pence. The audited IFRS NAV per share and the EPRA NAV per share
were both 103.96 pence, an increase since IPO of 6.1%.
Dividends
On 23 May 2019, we declared our first dividend for the 2019
financial year of 1.27 pence per share for the period from 1
January 2019 to 31 March 2019. This dividend was paid on 28 June
2019. A second dividend, of 1.27 pence per share for the period
from 1 April 2019 to 30 June 2019, was declared on 29 August 2019
and will be paid on or around 27 September 2019. We are targeting
an aggregate dividend of 5.095 pence per share for the whole year,
which is an increase of 1.9% over 2018's aggregate dividend, in
line with inflation reflecting the CPI-based rent reviews typically
contained in the leases of the assets within the portfolio.
Achieving a fully covered dividend remains a key priority for
the Board. Currently, EPRA earnings cover 60% of dividends. Full
dividend cover by EPRA earnings is expected at the end of Q2 2020
once debt funds are deployed. The delay in full dividend cover is a
result of slow deployment caused by Approved Providers engaging
with the Regulator as described above. However, on an annualised
basis, if all completed assets were income generating, the dividend
cover would be 67%, and if income on all exchanged and forward
funded assets were included, dividend cover would be 84%.
Outlook
Looking back over the past six months, and forward over the next
six months, there is much to be pleased about. As expected, our
existing portfolio has performed well and we have continued to
deploy funds into high-quality assets leased to Approved Providers
which continue to strengthen as a result of ongoing regulatory
engagement. Commissioners continue to call for new housing, as
reflected in our pipeline of close to GBP400 million. We continue
to refine and evolve our due diligence processes and we have never
failed to receive rental payments in full under our leases. For all
these reasons, and despite movements in the Company's share price,
our continued operational performance makes us look to the future
with optimism.
Much of our success can be attributed to the Investment
Manager's due diligence and strong network of counterparties.
Through its work, we have been able to source most of our
properties off-market and at attractive yields.
I would like to take this opportunity to thank shareholders for
your continued support, and our Investment Manager and my fellow
Board members for their support and commitment in the first half of
the year.
Chris Phillips
Chairman
5 September 2019
Notes:
1 Mencap, Funding supported housing for all (2018)
2 Mencap, Funding supported housing for all (2018), p.2
3 Mencap, Funding supported housing for all (2018)
4 National Housing Federation, Supported housing: Understanding
need and supply (2015)
5
https://www.gov.uk/government/organisations/regulator-of-social-housing/about;
https://www.gov.uk/government/publications/lease-based-providers-of-specialist-supported-housing
6 Mencap, Funding supported housing for all (2018)
7 Including acquisition costs
INVESTMENT MANAGER'S REPORT
Review of the Business
Our goal in 2019 has been to build on the Group's success in
2018. Operationally, we have achieved that, deploying the proceeds
of the Group's October 2018 equity raise and part of the Group's
revolving credit facility in acquiring 46 new high-quality assets
providing accommodation for 414 residents, diversified across the
country and by counterparty. As at 30 June 2019, the Group leased
properties to 16 Approved Providers and had schemes with 72 care
providers and 127 Local Authorities. One highlight of the last six
months has been the Group starting its first forward funding
project in Scotland, where the need for this type of housing is at
least as great as in England but where the specialist supported
model has progressed less. The Group acquired a flagship site in
the heart of Edinburgh that was specifically commissioned by the
City Council and which, once completed, will provide
state-of-the-art housing for 24 vulnerable residents, to the
benefit of both the residents and the government. In the context of
regulatory engagement, deployment has been slower over the last six
months than during the previous six months, but the year has
nonetheless got off to a strong start.
Our due diligence processes improve with every transaction, as
evidenced by the quality of the Group's portfolio, which has
received all its rental payments to date. Numerous transactions
have been rejected for failing to meet our due diligence criteria
and the Group's Investment Policy. All the Group's properties
benefit from long-term, inflation-linked, fully repairing and
insuring leases to Approved Providers specialising in providing
housing services to vulnerable residents. Before the Group funds
any new development, we verify the physical quality of the asset,
the demand for its units, the suitability of its rent level, and
the financial and governance strength of the counterparties,
ensuring the robustness of the long-term income stream. To
safeguard the wellbeing of residents and the financial viability of
the scheme, it is important for us to check that all counterparties
understand the nature of the scheme and their contractual
responsibilities, and that the scheme makes financial sense to
them. The high-quality of the Group's portfolio, most of which has
been acquired off-market, has resulted in the portfolio being
independently valued at GBP395.9 million on an IFRS basis, an
uplift of 6.87% against total invested funds of GBP370.4
million.
Market Review
A significant theme of the last six months has been the series
of regulatory notices and judgements published by the Regulator of
Social Housing. In February, the Regulator published its Regulatory
Judgement on Inclusion Housing C.I.C., an Approved Provider that as
at 30 June 2019 the Group had 75 assets leased to (21.1% of the
Group's contracted rental income), giving it a non-compliant G3, V3
rating. In April, Encircle Housing, which the Group had two assets
leased to (as at 30 June 2019), received a non-compliant rating,
and in May, Bespoke Supportive Tenancies Limited, which the Group
had five assets leased to (as at 30 June 2019), likewise received a
non-compliant rating. Because Encircle and Bespoke Supportive
Tenancies had fewer than 1,000 units under management at the time
of the Regulator's investigations, neither received a formal
governance or viability rating though they were deemed
non-compliant. The reasons for these non-compliant judgements
varied, but they centre on the under-developed governance functions
and relatively small balance sheets of these Registered Providers.
The Regulator has pointed to specific issues for Encircle and BeST,
primarily based around risk management. Westmoreland's judgement,
published on 30 November 2018, likewise highlighted specific issues
with its reporting processes, property maintenance and reliance on
third-parties. By contrast, Inclusion's judgement focused on the
general implications of the lease model rather than anything
specific to its operations.
Beyond these specific regulatory judgements in April 2019, the
Regulator published an addendum to its 2018 Sector Risk Profile.
The addendum looked at providers of specialised Supported Housing
which have a model of leasing, rather than owning, properties which
are owned by public or private funds. The addendum acknowledges the
important role played by private investment in supporting
much-needed growth and sustainable development in this sector as
well as identifying the risks that should be borne in mind by both
Registered Providers and investors into the sector. The report
highlighted the fact that in some of the small Supported Housing
Registered Providers there had been material governance
shortcomings and that Registered Providers should not enter into
long-term leases without first analysing, understanding and
reporting on the financial implications of, and risks associated
with, long-term financial commitments. The addendum states that the
boards of Registered Providers have strengthened over time, but
that
the Regulator intends to work with them to discuss the leasing
model and how its concerns can be addressed.
Taken together, these publications make clear that the Regulator
is serious about improving the governance and financial positions
of lease-based Registered Providers. The Regulator has rightly
identified shortcomings that need to be remedied to avoid
operational difficulties and, as Investment Manager for the Group,
we support what the Regulator is seeking to achieve. Like all
fast-growing sectors, this one is undergoing growing pains that
need to be worked through promptly and efficiently. It is important
that Registered Providers have the infrastructure to provide
cyclical and responsive housing services to the vulnerable
residents in properties in different geographical areas. It is
vital Registered Providers manage their financial positions
prudently as they take advantage of this financing structure. Above
all, Registered Providers must have strong, independent boards
whose governance will help them to understand the nature of the
leases they enter and to prevent any risks to health and safety, or
financial viability. Although we do not fall under the jurisdiction
of the Regulator, as a stakeholder in this model we are committed
to working with the Regulator and all other market participants to
ensure that any Registered Providers using leases to grow are doing
so in a considered, risk-averse manner that safeguards their
residents and their financial position through the development of
proper governance functions.
Nonetheless it is important to remember that this sector has
grown fast for good reason: the fundamentals are strong. Beyond the
housing crisis in the general residential market, the demand for
new Supported Housing remains as compelling as ever - something
reflected by our pipeline of close to GBP400 million. As we deploy
the Group's funds on the ground, we hear, on an almost daily basis,
commissioners in all parts of the UK calling for more Supported
Housing. It is perhaps no coincidence that during the last six
months the Group invested for the first time in Scotland, forward
funding the new-build scheme in Edinburgh strongly supported by the
City Council described above. It is likewise important to note that
the Regulatory commentary and judgements has had no impact on the
valuation of the Group's assets, which have in fact continued to
appreciate in value in line with market dynamics.
Indeed, commissioners continue to push for this type of housing
because the proportion of people with high needs is growing as a
percentage of the population and the government continues its
policy of moving people out of institutions and into
community-based homes set in motion by the 2015 Transforming Care
programme.(1) The government chose the policy of pursuing Supported
Housing because it has been shown to not only provide better social
and health outcomes for residents by giving them the dignity of a
home and the independence that comes with that, but also because it
saves the government considerable amounts of money.(2) Research
demonstrates that someone in specialised Supported Housing saves
the government around GBP200 a week compared to them being in
residential care and around GBP2,000 a week compared to them being
in a hospital.(3) Multiplied across all the units in the market -
or the 2,306 units in the Group's portfolio as at 30 June 2019 - it
is clear that the financial benefits are considerable, particularly
at a time when government grant funding is limited and Local
Authorities struggle with rising costs.(4)
It is in the knowledge of specialised Supported Housing's
dual-benefit - of improving the lives of some of the most
vulnerable people in society at the same time as saving the
government money - that we continue to support the efforts of the
Regulator to ensure that their concerns around Registered Providers
are addressed. Only by continuing to improve the quality of
Registered Providers operating in this sector can we unlock the
full benefits of the Supported Housing sector by enabling these
providers to take on the management of new Supported Housing assets
thereby bringing new social housing stock to market. Every one of
the 2,306 units leased by Registered Providers in the Group's
portfolio is helping achieve the government's policy of giving more
people the opportunity to move out of expensive, often-ageing
institutional care properties into newly-refurbished or
purpose-built homes for life in the community, with all that this
entails for resident outcomes and the government purse.
To continue achieving these benefits, we need to ensure that the
risks associated with this sector continue to reduce and standards
continue to rise. We have already started to roll out a change in
law clause that gives Registered Providers the opportunity to
re-negotiate leases in the unlikely event that changes in national
rent regulations cause a material drop in the amount of housing
benefit that Registered Providers can receive. Similarly, we have
been introducing to our leases a call option that allows Registered
Providers to extend the term of their leases, giving them more
control of their housing stock and addressing the Regulator's
concern over social housing not remaining social housing in
perpetuity.
More generally, we have seen the growth strategies of smaller
Registered Providers begin to mature as intended. Beyond general
improvements in their financial position, Registered Providers are
beginning to use surpluses to not only invest in new staff and
reporting software, but also to diversify into freehold stock
(rather than simply leasing all properties), creating fixed asset
bases for them to draw upon. Governance has improved at the same
time. More process policies are being designed and implemented, and
new members are being appointed to boards of directors. Since the
start of 2018, 31 new board members - with backgrounds in housing,
care, finance and law - have been appointed to the boards of the
Group's lessees. This is all part of the wider process of
high-quality operators in this sector squeezing out operators who
cannot meet the rising standards of the Supported Housing sector as
it matures.
In light of all this, it is clear that regulatory scrutiny has
been successful in helping the Regulator achieve one of its
objectives, which is proper standards of governance and financial
viability for Registered Providers. We welcome this engagement and
will continue our ongoing dialogue with the Regulator and other
stakeholders to continue the process of improvement. Over time,
however, we hope the cumulative impact of these improvements will
allow the Regulator to achieve its other, important objective of
encouraging the investment of private finance into social
housing.(5) Because it is only through investing private capital in
this under-funded sector that we can facilitate Registered
Providers bringing new stock to market in order to achieve the
benefit of improving government finances at the same time as
improving the lives of some of the most vulnerable people in our
society.
Financial Review
The annualised rental income of the Group was GBP21.1 million as
at 30 June 2019 and GBP9.3 million for the period, compared to
GBP4.7 million for the period 30 June 2018 (excluding forward
funding transactions). The Group is a UK REIT for tax purposes and
is exempt from corporation tax on its property rental business.
A fair value gain of GBP4.6 million was recognised during the
period on the revaluation of the Group's properties.
Earnings per share was 2.82 pence for the period, compared to
8.37 pence for the year ending 31 December 2018 and 3.02 pence for
the period to 30 June 2018. The EPRA earnings per share was 1.53
pence for the period, compared to 2.27 pence for the year ending 31
December 2018 and 1.39 pence for the period to 30 June 2018.
Slower than expected deployment, resulting from the engagement
of Registered Providers with the Regulator, has delayed when the
Group will achieve full dividend cover. Our priority remains to
achieve a fully covered dividend from operations, which we expect
to be achieved by Q2 2020. Earnings per share and EPRA earnings per
share are calculated on the weighted average number of shares in
issue during the period. Adjusted earnings per share were 9.29
pence for the period, where post-tax earnings were adjusted for a
valuation on a portfolio basis (as opposed to individual asset IFRS
basis).
The audited IFRS NAV per share was 103.96 pence, a marginal
increase from 103.65 pence as at 31 December 2018. The Group's EPRA
NAV per share is the same as the IFRS NAV at 103.96 pence. The IFRS
NAV adjusted for the portfolio valuation (including portfolio
premium) was GBP392 million, which equates to a Portfolio NAV of
111.73 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 1.59% compared to 1.58% at 31
December 2018.
At the period end, the portfolio was independently valued at
GBP395.9 million on an IFRS basis, reflecting a valuation uplift of
6.87% against the portfolio's aggregate purchase price (including
transaction costs). The valuation reflects a portfolio yield of
5.28%, against the portfolio's blended net initial yield of 5.89%
at the point of acquisition. This equates to a yield compression of
61 basis points, reflecting the quality of the Group's asset
selection and off-market acquisition process.
The Group's properties were valued at GBP423.2 million on a
portfolio valuation basis, reflecting a portfolio premium of 6.89%
or a GBP27.3 million uplift against the IFRS valuation. The
portfolio valuation assumes a single sale of the property holding
SPVs to a third-party on an arm's length basis with purchaser's
costs of 2.30%.
Debt Financing
In December 2018, just before the start of the period, the Group
entered into a GBP70 million revolving credit facility with Lloyds
Bank. The facilities 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 funds is 1.85% pa over
3-month LIBOR. For undrawn funds, the Group pays a commitment fee
of 40% of the margin.
During the period, the Group drew down GBP31.3 million of the
Lloyds facility, equating to 45% of the debt available under the
facility. All proceeds have been used by the Group to meet
deployment opportunities. The Group drew further funds in August
2019, bringing the total drawn funds under the facility to 89%. As
at 30 June 2019, the Lloyds facility remained unhedged. The Board
regularly reviews potential hedging arrangements which can be put
in place at any time during the duration of the facility.
The Lloyds facility followed the long-dated, fixed-rate,
interest-only private placement of loan notes signed with MetLife
in July 2018 for GBP68.5 million, whose proceeds were fully
deployed during 2018. Once all funds under the Lloyds facility have
been drawn, both facilities combined will represent a loan-to-value
of 40% of the value of secured assets in the defined portfolios, 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.
The MetLife facility requires the Group to maintain an asset
cover ratio of x2.25 and an interest cover ratio of x1.75. The
Lloyds facility requires the Group to maintain on drawn funds a
loan-to-value ratio of lower than 50% and an interest cover ratio
in excess of x2.75. At all times the Group has complied with debt
covenants on both facilities.
The Group will continue to monitor capital requirements and is
actively exploring further facilities to ensure we take advantage
of developments in the market and achieve dividend cover.
Strategic Alignment and Asset Selection
In the first half of 2019, the Group has continued to execute
its investment strategy, delivering inflation-protected income
underpinned by a careful asset selection of secure, long-let and
index-linked properties. During this period, the Group purchased 46
assets, which included eight new forward funding transactions, for
a total investment cost of GBP67.8 million (including transaction
costs).
30 June 2019 30 June 2018 31 Dec 2018
# of Assets 318 167 272
# of Leases 229 113 189
# of Units 2,306 1,164 1,893
# of APs 16 13 16
# of FFAs 21 8 13
WAULT 26.2 years 29.0 years 27.2 years
In addition, as at 30 June 2019 the Group had outstanding
commitments of GBP37.2 million (including transaction costs),
comprising of GBP13.5 million for contracts exchanged on seven
assets at the period end and GBP23.7 million for outstanding
forward funding commitments.
Total Funds GBP
Committed Capital m
----------------------------- ----------------
Total Invested since
IPO GBP370.4
Exchanges GBP13.5
Forward Funding Commitments GBP23.7
Total Invested and Committed GBP407.6
Capital
Property Portfolio
As at 30 June 2019, the property portfolio comprised 318 assets
with 2,306 units and showed a broad geographic diversification
across the UK. The four largest concentrated areas by market value
were the North West (24.0%), East Midlands (15.1%), London (14.0%)
and the West Midlands (13.1%). The IFRS value of the property
portfolio at 30 June 2019 was GBP395.9 million.
During the first half of 2019, the Group continued its forward
funding programme which forms an integral part of the Group's
investment strategy, adding significant value-add to the property
portfolio. As at 30 June 2019, the Group had entered into a total
of 21 forward funding projects with eight schemes having reached
practical completion and 13 schemes still under construction.
Rental Income
As at 30 June 2019, the property portfolio was fully let (with
all assets either let or pre-let on financial close), comprising
216 fully repairing and insuring leases which excludes the
agreement for leases in relation to current forward funding
transactions. The total annualised rental income of GBP21.1 million
is the aggregate rental income of the standing investments.
The Group has not expanded its tenant base of 16 Approved
Providers in the period, yet it remains well diversified across the
sector with some of the most specialist UK housing associations.
Our three largest Approved Providers by rental income were
Inclusion Housing (21.1%), 28A Supported Living (15.6%) and Falcon
Housing Association (14.1%).
Our three largest Approved Providers by units were Inclusion
Housing (527), Falcon Housing Association (324) and My Space
Housing Solutions (302).
As at 30 June 2019, the property portfolio had a WAULT of 26.2
years (well in excess of the Group's minimum term of at least 15
years), with 90.5% of the portfolio's rental income showing an
unexpired lease term of between 21-30 years. Compared with 31
December 2018, the WAULT has shortened slightly by 1 year as most
additions in the last six months have had a lease term of c.25
years (compared to some of our first investments which had lease
terms of up to 60 years). The WAULT includes the initial lease term
upon completion as well as any reversionary leases and put/call
options available to the Group at expiry.
Rents under the leases are indexed against either CPI (91.1%) or
RPI (8.9%), which provides investors with the security that the
rental income will increase in line with inflation. Some leases
have an index 'premium' under which the standard rental increase is
based upon CPI or RPI plus a further percentage point, reflecting
top-ups by Local Authorities. These account for 7.3% of the Group's
leases. For the purposes of the portfolio valuation, Jones Lang
LaSalle assumed CPI and RPI to increase at 2.0% per annum and 2.5%
per annum respectively over the term of the relevant leases.
As at 30 June 2019, the total rent passing was GBP21.1 million
(excluding forward funding transactions). In this reporting period,
there were 128 leases which benefited from an annual rental uplift
linked to CPI/RPI, equating to a total rental value increase of
approximately GBP0.2 million more than the initially contracted
rent. The annual rent uplifts typically happen every April or on
the anniversary of the lease start date.
Pipeline and Outlook
As we reach the half-way point of 2019, the Group's pipeline
remains strong, with close to GBP400 million of properties
available to be acquired. This reflects the persistently strong
demand dynamics of this sector, with the pipeline spread across the
country with a range of existing and new Approved Providers, care
providers and Local Authorities, all of which will further enhance
the Group's geographic and counterparty diversification. Based on
this pipeline, we anticipate that the Group will draw down and
spend the rest of the December 2018 revolving credit facility
during the second half of 2019 as well as substantially deploy a
third debt facility which is in the process of being put in place.
The Group will look to raise further capital as and when necessary
to meet investment opportunities.
As set out in our 2018 Annual Report, the Group's ability to
forward fund the development of properties remains an important
part of its offering. As forward funded properties provide the
highest quality housing, as well as strong relationships with
developers requiring development finance, the Group will, wherever
possible, continue to fund these properties.
As mentioned elsewhere, ongoing regulatory engagement is
providing a welcome opportunity for all stakeholders in this sector
to improve due diligence processes, financial positions and
governance arrangements. We anticipate that this engagement will
continue through the rest of this year and into 2020 and beyond. In
the meantime, we will continue to help the Group invest in
high-quality assets leased to good Approved Providers, working
alongside experienced care providers, in areas of known demand -
all of which will benefit our residents, our taxpayers and wider
society.
Max Shenkman
Head of Investment
5 September 2019
Notes:
1 https://www.england.nhs.uk/learning-disabilities/natplan/
2 Mencap, Funding supported housing for all (2018)
3 Mencap, Funding supported housing for all (2018)
4 Institute for Fiscal Studies, Social Rent Policy: Choices and
Trade-Offs (2015)
5
https://www.gov.uk/government/organisations/regulator-of-social-housing/about
PORTFOLIO SUMMARY
Region Properties % of Funds Invested*
------------------------------------ ----------- ---------------------
North West 85 24.0
East Midlands 44 15.1
London 26 14.0
West Midlands 42 13.1
North East 38 11.1
South East 27 6.9
Yorkshire 18 5.6
South 16 4.3
South West 15 3.9
East 4 1.0
South Wales 2 0.8
South Scotland 1 0.2
Total 318 100.0
------------------------------------ ----------- ---------------------
* calculated excluding acquisition
costs
KEY PERFORMANCE INDICATORS
In order to track the Group's progress the following key
performance indicators are monitored:
KPI AND DEFINITION RELEVANCE TO STRATEGY PERFORMANCE EXPLANATION
1. Dividend - Ordinary
Shares
--------------------------- --------------------------- ----------------------------- ---------------------------
Dividends paid to The dividend reflects the Total dividends of 2.52 Total dividends paid and
shareholders and declared Company's ability to pence per Ordinary Share declared for the period
in relation to the period. deliver a low risk but were paid during the period are in line with the
growing income stream 1 January 2019 Company's target of
from the portfolio. to 30 June 2019. 5.095 pence per share for
year ending 31 December
2.25 pence per share for the 2019.
period 1 January 2018 to 30
June 2018.
--------------------------- ----------------------------- ---------------------------
2. IFRS NAV per share
--------------------------- --------------------------- ----------------------------- ---------------------------
The value of our assets The IFRS NAV reflects our 103.96 pence at 30 June The IFRS NAV per share at
(based on an independent ability to grow the 2019. 30 June 2019 was 103.96
valuation) less the book portfolio and to add value 103.65 pence at 31 December pence.
value of our liabilities, to it throughout 2018. This is an increase of
attributable to the life cycle of our 0.3% since 31 December
shareholders. assets. 2018 driven by growth in
the underlying asset
value of the investment
properties.
--------------------------- ----------------------------- ---------------------------
3. Loan to GAV
A proportion of our The Company uses gearing 21% Loan to GAV at 30 June As at 30 June 2019:
investment portfolio is to enhance equity returns. 2019. GBP68.5 million private
funded by borrowings. Our placement of loan notes
medium to long-term 15.5% Loan to GAV at 31 with MetLife; and a GBP70
target Loan to GAV is 40% December 2018. million secured revolving
with a hard cap of 50%. credit facility with
Lloyds of which GBP31
million was drawn at
30 June 2019. A further
GBP31 million was drawn on
5 August 2019.
4. Earnings per Share
--------------------------- --------------------------- ----------------------------- ---------------------------
The post-tax earnings The EPS reflects our 2.82 pence per share for the The outlook remains
generated that are ability to generate period to 30 June 2019, positive and we continue
attributable to earnings from our calculated on the weighted to invest to generate an
Shareholders. portfolio including average number attractive total return.
valuation increases. of shares in issue during
the period.
3.02 pence per share for the
period to 30 June 2018.
--------------------------- ----------------------------- ---------------------------
5. Weighted Average Unexpired Lease Term (WAULT)
-------------------------------------------------------- ----------------------------- ---------------------------
The average unexpired The WAULT is a key measure 26.2 years at 30 June 2019 As at 30 June 2019, the
lease term of the of the quality of our (includes put/call options portfolio's WAULT stood at
investment portfolio, portfolio. Long lease and reversionary leases). 26.2 years and remains
weighted by annual passing terms underpin the significantly ahead
rents. security of our income 27.2 years at 31 December of the Group's minimum
Our target is a WAULT of stream. 2018 (includes put options). term of 15 years.
at least 15 years.
--------------------------- ----------------------------- ---------------------------
6. Adjusted Earnings per Share
-------------------------------------------------------- ----------------------------- ---------------------------
The post-tax earnings The Adjusted EPS reflects 9.29 pence per share for the The Adjusted EPS shows the
adjusted for the market the application of using period to 30 June 2019, as value per share on a long-
portfolio valuation the portfolio premium shown in Note 31 of the term basis.
including portfolio value and reflects Financial
premium. the potential increase in Statements.
value the Group could
realise if assets are sold 9.38 pence per share for the
on a portfolio year to 30 June 2018.
basis.
--------------------------- ----------------------------- ---------------------------
7. Portfolio NAV
-------------------------------------------------------- ----------------------------- ---------------------------
The IFRS NAV adjusted for The Portfolio NAV measure The Portfolio NAV of GBP392 The Portfolio NAV per
the market portfolio is to highlight the fair million equates to a share shows a good market
valuation including value of net assets on an Portfolio NAV of 111.73 growth in the underlying
portfolio premium. ongoing, long-term pence per Ordinary asset value of the
basis and reflects the Share, as shown in Note 31 investment properties.
potential increase in to the Financial Statements
value the Group could
realise if assets are sold
on a portfolio basis.
--------------------------- ----------------------------- ---------------------------
8. Largest Approved Provider Exposure
--------------------------------------------------------------------------------------------------------------------
The percentage of the The exposure to the 23.50%. We are below our maximum
Group's gross assets that largest Approved Provider exposure target of 25%
are leased to the single must be monitored to with our largest Approved
largest Approved ensure that we are not Provider, Inclusion
Provider. overly exposed to one Housing.
Approved Provider in the
event of a default
scenario.
--------------------------- ----------------------------- ---------------------------
9. Total Return
--------------------------------------------------------------------------------------------------------------------
IFRS NAV plus total The total return measure Total return was 2.73% for The IFRS NAV per share at
dividends paid during the highlights the gross the period to 30 June 2019. 30 June 2019 was 103.96
year. return to investors pence. Adding back
including dividends paid Total return was 2.99% for dividends paid during
since the prior year. the period to 30 June 2018. the period of 2.52 pence
per Ordinary Share to the
IFRS NAV at 30 June 2019
results in an
increase of 2.73%.
--------------------------- ----------------------------- ---------------------------
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 29 and 30 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 1.53 pence per share for the period
gains from fair value adjustment on operating results and an indication to 30 June 2019.
investment property that of the extent to which
are included in the IFRS calculation current dividend payments are Slower than expected deployment,
for Earnings per share. supported by earnings. resulting from the engagement of
Registered Providers with
the Regulator, has delayed when the
Group will achieve full dividend
cover. Our priority remains
to achieve a fully covered dividend
from operations. We expect this to be
achieved by Q2 2020
once the third debt tranche has been
deployed.
1.39 pence per share for the period
to 30 June 2018.
-------------------------------------- --------------------------------------
2. EPRA NAV per Share
-------------------------------------- -------------------------------------- --------------------------------------
EPRA NAV makes certain adjustments to Provides stakeholders with the most 103.96 pence per share at 30 June
IFRS NAV to exclude items not relevant information on the fair 2019.
expected to crystallise value of the assets and
in a long-term investment property liabilities within a true real estate 103.65 pence per share at 31 December
business model. investment company with a long-term 2018.
investment strategy.
As at 30 June 2019 both the EPRA NAV
and the IFRS NAV were equivalent.
-------------------------------------- --------------------------------------
3. EPRA NNNAV per Share
-------------------------------------- -------------------------------------- --------------------------------------
EPRA NAV adjusted to include the fair EPRA NAV is adjusted to provide 103.15 pence per share at 30 June
values of: stakeholders with the most relevant 2019.
1. financial instruments; information on the fair
2. debt; and value of the assets and liabilities 103.60 pence per share at 31 December
3. deferred taxes. within a true real estate investment 2018.
company.
-------------------------------------- --------------------------------------
4. EPRA Net Initial Yield (NIY)
-------------------------------------- -------------------------------------- --------------------------------------
Annualised rental income based on the A comparable measure for portfolio 5.25% at 30 June 2019
cash rents passing at the balance valuations. This measure should make
sheet date, less non-recoverable it easier for investors 5.13% at 31 December 2018
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.
purchasers' costs.
-------------------------------------- --------------------------------------
5. EPRA 'Topped-Up' NIY
-------------------------------------- -------------------------------------- --------------------------------------
This measure incorporates an The topped-up net initial yield is 5.25% at 30 June 2019
adjustment to the EPRA NIY in respect useful in that it allows investors to
of the expiry of rent-free see the yield based 5.21% at 31 December 2018
periods (or other unexpired lease on the full rent that is contracted
incentives such as discounted rent at 30 June 2019.
periods and step rents).
-------------------------------------- --------------------------------------
6. EPRA Vacancy Rate
-------------------------------------- -------------------------------------- --------------------------------------
Estimated Market Rental Value (ERV) A 'pure' percentage measure of 0.00% as at 30 June 2019
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 2018
-------------------------------------- --------------------------------------
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 Description Risk Impact Risk Mitigation Impact Likelihood
Financial Expensive or lack Without sufficient When raising debt Moderate Low
of debt finance may debt funding at finance the
limit our ability sustainable rates, Investment Manager
to grow and achieve we will be unable to adopts a flexible
a fully covered pursue suitable approach involving
dividend investments in line speaking
with our Investment to multiple funders
Policy. This would offering various
significantly impair rates, structures
our ability and tenors. Doing
to pay dividends to this allows the
shareholders at the Investment
targeted rate. 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 debt Interest on our debt The Group considers Moderate Low to moderate
exposes the facilities is cash flow forecasts
business to payable based on a and ensures
underlying interest margin over Libor sufficient cash
rate movements and Gilt rates. Any balances are held
adverse movements in within
these rates could the Group to meet
significantly impair future needs.
our profitability Prudent liquidity
and ability risk management
to pay dividends. 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 operate The borrowings the The Investment High Low
within debt Group currently has Manager monitors
covenants and which the Group loan to value and
uses in the future interest covenants
may contain ratios on an
loan to value and ongoing
interest covenants basis. In the
ratios. If property unlikely event that
valuations and an event of default
rental income occurs under these
decrease, covenants the Group
such covenants could has a sufficient
be breached, and the remedy period to
impact of such an cure the covenant
event could include: breach by either
an increase injecting cash
in borrowing costs; collateral
a requirement for or equity funded
additional cash assets in order to
collateral; payment restore covenant
of a fee to the compliance.
lender; a sale of an
asset or assets or a
forfeit of any asset
to a lender.
This may result in
the Group selling
assets to repay
drawn loan amounts
resulting in a
decrease
on Group's Net Asset
Value.
-------------------- --------------------- -------------------- ---------------- -----------------
Property Default of one or The default of one Under the terms of Low to Moderate Low
more Approved or more of our our Investment
Provider lessees lessees could impact Policy and
the revenue gained restrictions, no
from relevant more than 30%
assets. (although the
If the lessee cannot Group has a target
remedy the default of 25%) of the
or no support is Group's gross asset
offered to the value may be
lessee by the exposed to one
Regulator lessee,
of Social Housing, meaning the risk of
we may have to significant rent
terminate or loss is low. The
renegotiate the lessees are
lease, meaning a predominantly
sustained regulated
reduction in by the Regulator of
revenues while a Social Housing,
replacement is meaning that, if a
found. 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 Moderate Low to moderate
properties involves developments are into any forward
a higher degree of likely to involve a funding
risk than that higher degree of arrangements, the
associated with risk than is Investment Manager
completed associated undertakes
investments with standing substantial
investments. This due diligence on
could include developers and
general construction their main
risks, delays in the subcontractors,
development ensuring they have
or the development a strong track
not being completed, record. We enter
cost overruns or into contracts on a
developer/contractor fixed price basis
default. If and then, during
any of the risks the development
associated with our work,
forward funded we defer
developments development profit
materialised, this until work has been
could completed and
reduce the value of audited by a
these assets and our chartered surveyor.
portfolio. 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 Approved Should an Approved As part of the Low Moderate to High
Provider receiving Provider with which Group's acquisition
a non-compliant the Group has one or process, the
financial viability more leases in place Investment Manager
or governance receive a conducts a thorough
rating non-compliant rating due
by the Regulator by the Regulator, in diligence process
particular in on all Registered
relation to Providers with
viability, depending which the Group
on enters into lease
the further actions agreements
of the Regulator, it that takes account
is possible that of their financial
there may be a strength and
negative impact on governance
the market value of procedures.
the relevant The Investment
properties which are Manager has
the subject of such established
lease(s). Depending relationships with
on the exposure of the Approved
the Group to such Providers with whom
Approved Provider, it works. The
this in turn may Approved Providers
have a material keep the Investment
adverse Manager informed of
effect on Group's developments
Net Asset Value surrounding
until such time as the regulatory
the matter is notices.
resolved through an
improvement The Group has
in the relevant leases in place
Approved Provider's with four Approved
rating or a change Providers that have
in Approved been deemed
Provider. non-compliant
by the Regulator.
These assets did
not suffer from an
impairment in value
as part of the Q2
valuation by the
Group's independent
Valuer.
-------------------- --------------------- -------------------- ---------------- -----------------
Regulatory Risk of changes to Future governments As demand for High Low to Moderate
the Social Housing may take a different social housing
regulatory regime approach to the remains high
social housing relative to supply,
regulatory regime, the Board and the
resulting in changes Investment
to the law and other Manager are
regulation or confident there
practices of the will continue to be
Government with a viable market
regard within which to
to social housing. 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 being If the Group fails The Group intends High Low
qualified as REIT to remain in to continue to
compliance with the operate as a REIT
REIT conditions, the and work within its
members of the Group investment
will be subject to objective
UK corporation tax and policy. The
on some or all of Group will retain
their property legal and
rental income and regulatory advisers
chargeable and consult with
gains on the sale of them on a
properties which regular basis to
would reduce the ensure it
funds available to understands and
distribute to complies with the
investors. 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 a High Low
Investment Manager on the Investment default, either
Manager's services party may terminate
and its reputation the Investment
in the social Management
housing market. As a Agreement
result, our by giving not less
performance will, to than 12 months'
a large extent, written notice,
depend on the which may not
Investment expire before
Manager's abilities August 2020.
in the property The Board regularly
market. Termination reviews and
of the Investment monitors the
Management Agreement Investment
would severely Manager's
affect our ability performance. In
to effectively addition,
manage our the Board meets
operations and may regularly with the
have a negative Manager to ensure
impact on the share that we maintain a
price of the positive working
Company. relationship.
-------------------- --------------------- -------------------- ---------------- -----------------
Financial Property valuations Property valuations All of the Group's Moderate Moderate
may be subject to are inherently property assets are
change over time subjective and independently
uncertain. Market valued quarterly by
conditions, which Jones Lang LaSalle,
may a specialist
impact the property valuation
creditworthiness of firm, who are
lessees, may provided with
adversely affect regular updates on
valuations. The portfolio activity
portfolio is by the Investment
valued on a Market Manager. The
Value basis, which Investment Manager
takes into account meets with the
the expected rental external valuers to
income to be discuss
received under the the basis of their
leases in future. valuations and
This valuation their quality
methodology provides control processes.
a significantly Default risk of
higher lessees
valuation than the is mitigated in
Vacant Possession accordance with the
value of a property. lessee default
In the event of an principal risk
unremedied default explanation
of an Approved provided above.
Provider lessee, the In order to protect
value of the assets against loss in
in the portfolio may value, the
be negatively Investment
affected. Manager's property
Any changes could management team
affect the Group's seeks to visit each
net asset value and property in the
the share price of portfolio once a
the Company. 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.
-------------------- --------------------- -------------------- ---------------- -----------------
DIRECTORS' RESPONSIBILITY STATEMENT
The Directors confirm that to the best of their knowledge this
condensed set of financial statements has been prepared in
accordance with IAS 34 as adopted by the European Union and that
the operating and financial review on pages 24 to 43 of the Interim
Report includes a fair review of the information required by DTR
4.2.7 and DTR 4.2.8 of the Disclosure Guidance and Transparency
Rules of the United Kingdom's Financial Conduct Authority
namely:
-- an indication of important events that have occurred during
the first six months of the financial year and their impact on the
condensed financial statements and a description of the principal
risks and uncertainties for the remaining six months of the
financial year; and
-- material related party transactions in the first six months
of the financial year as disclosed in Note 24 and any material
changes in the related party transactions disclosed in the 2018
Annual Report.
A list of the Directors is shown on page 76 of the Interim
Report.
Shareholder information is as disclosed on the Triple Point
Social Housing REIT plc website.
Approval
This Directors' responsibilities statement was approved by the
Board of Directors and signed on its behalf by:
Chris Phillips
Chairman
5 September 2019
GROUP FINANCIAL STATEMENTS
CONDENSED GROUP STATEMENT OF COMPREHENSIVE INCOME
For the period from 1 January 2019 to 30 June 2019
Period from Period from
1 January 1 January Year ended
2019 to 30 2018 to 30 31 December
June 2019 June 2018 2018
(unaudited) (unaudited) (audited)
Note GBP'000 GBP'000 GBP'000
--------------------------------- ----- ---------------------- ---------------------- -------------------
Income
Rental income 5 9,348 4,744 11,490
---------------------- ---------------------- -------------------
Total income 9,348 4,744 11,490
Expenses
Directors' remuneration 6 (151) (127) (265)
Management fees 7 (1,859) (868) (2,309)
General and administrative
expenses (891) (878) (1,909)
---------------------- ---------------------- -------------------
Total expenses (2,901) (1,873) (4,483)
Gain from fair value adjustment
on investment property 11 4,551 3,257 14,497
---------------------- ---------------------- -------------------
Operating profit 10,998 6,128 21,504
---------------------- ---------------------- -------------------
Finance income 8 149 70 183
Finance expense 9 (1,232) (24) (1,790)
Finance expense - C shares
amortisation 9 - (134) -
---------------------- ---------------------- -------------------
Profit before tax 9,915 6,040 19,897
---------------------- ---------------------- -------------------
Taxation 10 - - -
Profit and total comprehensive
income
attributable to shareholders 9,915 6,040 19,897
====================== ====================== ===================
Earnings per share - basic 29 2.82p 3.02p 8.37p
Earnings per share - diluted 29 2.82p 2.75p 2.27p
All amounts reported in the Condensed Group Statement of
Comprehensive Income for the period ended 30 June 2019 relate to
continuing operations.
CONDENSED GROUP STATEMENT OF FINANCIAL POSITION
As at 30 June 2019
30 June
30 June 2019 2018 31 December 2018
(unaudited) (unaudited) (audited)
------------------------------- -----
Note GBP'000 GBP'000 GBP'000
------------------------------- ----- ------------- ------------ -----------------
Assets
Non-current assets
Investment properties 11 396,567 190,581 324,069
------------- ------------ -----------------
Total non-current assets 396,567 190,581 324,069
Current assets
Trade and other receivables 12 2,271 2,411 3,392
Cash and cash equivalents 13 74,824 63,346 114,624
------------- ------------ -----------------
Total current assets 77,095 65,757 118,016
Total assets 473,662 256,338 442,085
============= ============ =================
Liabilities
Current liabilities
Trade and other payables 14 10,021 5,288 8,998
C shares 17 - 46,684 -
------------- ------------ -----------------
Total current liabilities 10,021 51,972 8,998
Non-current liabilities
Other payables 15 1,505 1,154 1,565
Bank and other borrowings 16 97,082 - 67,361
------------- ------------ -----------------
Total non-current liabilities 98,587 1,154 68,926
Total liabilities 108,608 53,126 77,924
============= ============ =================
Total net assets 365,054 203,212 364,161
============= ============ =================
Equity
Share capital 18 3,514 2,000 3,514
Share premium reserve 19 151,157 - 151,157
Treasury shares reserve 20 (167) - -
Capital reduction reserve 21 175,066 189,533 183,921
Retained earnings 35,484 11,679 25,569
------------- ------------ -----------------
Total Equity 365,054 203,212 364,161
============= ============ =================
Net asset value per share
- basic 30 103.96p 101.61p 103.65p
Net asset value per share
- diluted 30 103.96p 101.61p 103.65p
The Condensed Group Financial Statements were approved and
authorised for issue by the Board on 5 September 2019 and signed on
its behalf by:
Chris Phillips
Chairman
5 September 2019
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY
For the period from 1 January 2019 to 30 June 2019
Share Treasury Capital
Period from 1 January Share premium shares reduction Retained Total
2019 to 30 June 2019 capital reserve reserve reserve earnings equity
(unaudited) Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------ ----- --------- --------- --------- ----------- ---------- -----------
Balance at 1 January
2019 3,514 151,157 - 183,921 25,569 364,161
Total comprehensive
income for the period - - - - 9,915 9,915
Transactions with
owners
Own shares repurchased 20 - - (167) - (167)
Dividends paid 22 - - - (8,855) - (8,855)
Balance at 30 June
2019 (unaudited) 3,514 151,157 (167) 175,066 35,484 365,054
========= ========= ========= =========== ========== =========
Share Treasury Capital
Period from 1 January Share premium shares reduction Retained Total
2018 to 30 June 2018 capital reserve reserve reserve earnings equity
(unaudited) Note GBP'000 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 - - - - 6,040 6,040
Transactions with
owners
Dividends paid 22 - - - (4,467) (33) (4,500)
Balance at 30 June
2018 (unaudited) 2,000 - - 189,533 11,679 203,212
========= ========= ========= =========== ========== =========
Share Treasury Capital
Share premium shares reduction Retained Total
Year ended capital reserve reserve reserve earnings equity
31 December 2018 (audited) Note GBP'000 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 year - - - - 19,897 19,897
Transactions with
owners
Ordinary Shares issued
in the period at a
premium 18,19 1,514 153,320 - - - 154,834
Share issue costs
capitalised 19 - (2,163) - - - (2,163)
Dividends paid 22 - - (10,079) - (10,079)
Balance at 31 December
2018 (audited) 3,514 151,157 - 183,921 25,569 364,161
========= ========= ========= =========== ========== =========
CONDENSED GROUP STATEMENT OF CASH FLOWS
For the period from 1 January 2019 to 30 June 2019
From 1 January From 1 January
2019 to 2018 to Year ended
30 June 30 June 31 December
2019 2018 2018
(unaudited) (unaudited) (audited)
-------------------------------------- ----- --------------- --------------- -------------
Note GBP'000 GBP'000 GBP'000
Cash flows from operating activities
Profit before income tax 9,915 6,040 19,897
Adjustments for:
Gain from fair value adjustment
on investment property 11 (4,551) (3,257) (14,497)
Finance income 8 (149) (70) (183)
Finance costs 9 1,232 24 1,790
Finance costs - C share amortisation 9 - 134 -
Operating results before working
capital changes 6,447 2,871 7,007
Decrease/ (increase) in trade
and other receivables 935 (499) (2,074)
(Decrease)/ increase in trade
and other payables (244) 710 473
--------------- --------------- -------------
Net cash flow generated from
operating activities 7,138 3,082 5,406
--------------- --------------- -------------
Cash flows from investing activities
Purchase of investment properties (66,805) (46,077) (163,995)
Prepaid acquisition costs refunded 12 208 6,060 6,655
Restricted cash - released 4,119 2,920 9,419
Restricted cash - (paid) (4,992) (2,373) (12,809)
Interest received 120 56 150
--------------- --------------- -------------
Net cash flow used in investing
activities (67,350) (39,414) (160,580)
--------------- --------------- -------------
Cash flows from financing activities
Proceeds from issue of Ordinary
Shares at a premium - - 108,150
Ordinary Share issue costs
capitalised - - (2,150)
Proceeds from issue of C Shares 17 - 47,500 47,500
C share issue costs capitalised 17 - (950) (950)
Own shares repurchased 20 (167) - -
Bank borrowings drawn 16 31,264 - 68,500
Restricted bank borrowings
released/(paid) 16 10,460 - (10,460)
Loan arrangement fees paid 16 (1,623) - (1,186)
Dividends paid 22 (8,855) (4,500) (10,079)
Interest paid (1,041) (10) (1,563)
--------------- --------------- -------------
Net cash flow generated from
financing activities 30,038 42,040 197,762
--------------- --------------- -------------
Net (decrease)/ increase in
cash and cash equivalents (30,174) 5,708 42,588
Unrestricted cash and cash
equivalents at the beginning
of the period 97,346 54,758 54,758
Unrestricted cash and cash
equivalents at the end of the
period 13 67,172 60,466 97,346
=============== =============== =============
NOTES TO THE GROUP CONDENSED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
For the period from 1 January 2019 to 30 June 2019
1. CORPORATE INFORMATION
Triple Point Social Housing REIT plc (the "Company") is a Real
Estate Investment Trust ("REIT") incorporated in England and Wales
under the Companies Act 2006 as a public company limited by shares
on 12 June 2017. The address of the registered office is 1 King
William Street, London, United Kingdom, EC4N 7AF. The Company is
registered as an investment company under section 833 of the
Companies Act 2006 and is domiciled in the United Kingdom.
The principal activity of the Company is to act as the ultimate
parent company of Triple Point Social Housing REIT plc and its
subsidiaries (the "Group") and to provide shareholders with an
attractive level of income, together with the potential for capital
growth from investing in a portfolio of social homes.
2. BASIS OF PREPARATION
The Condensed Group Financial Statements for the six months
ended 30 June 2019 have been prepared in accordance with the
Disclosure and Transparency Rules of the Financial Conduct
Authority and with IAS 34, Interim Financial Reporting, as adopted
by the European Union. The Condensed Group Financial Statements for
the six months ended 30 June 2019 have been reviewed by the
Company's Auditor, BDO LLP in accordance with International
Standard of Review Engagements 2410, Review of Interim Financial
Information Performed by the Independent Auditor of the Entity and
were approved for issue on 5 September 2019. The Condensed Group
Financial Statements are unaudited and do not constitute statutory
accounts for the purposes of the Companies Act 2006.
The comparative financial information for the period ended 31
December 2018 in this interim report does not constitute statutory
accounts for that year. The Group's annual report and accounts for
the period to 31 December 2018 have been delivered to the Registrar
of Companies. The independent auditor's report on those accounts
was unqualified, did not include reference to any matters to which
the auditors drew attention by way of emphasis without qualifying
their report and did not contain a statement under section 498(2)
or 498(3) of the Companies Act 2006.
The Group's Financial Statements have been prepared on a
historical cost basis, as modified for the Group's investment
properties, which have been measured at fair value. Gains or losses
arising from changes in fair values are included in profit or
loss.
The Group has applied the same accounting policies in these
Condensed Group Financial Statements as in its 2018 annual
financial statements, except for those that relate to new standards
and interpretations effective for the first time for periods
beginning on or after 1 January 2019. The new standard impacting
the Group is:
-- IFRS 16 Leases
IFRS 16 replaces IAS 17 Leases and introduced a single lessee
accounting model and requires a lessee to recognise assets and
liabilities for all leases with a term of more than 12 months,
unless the underlying asset is of low value. A lessee is required
to recognise a right-of-use asset representing its right to use the
underlying leased asset and a lease liability representing its
obligation to make lease payments.
Previously, the Group was required to classify all leases as
either operating or finance leases.
The Group adopted IFRS 16 using the modified retrospective
approach with recognition of any transitional adjustments being
made on the date of application (1 January 2019), without
restatement of comparative figures. The Group elected to apply the
practical expedient to not reassess whether a contract is, or
contains a lease at the date of initial application. Contracts
entered into before the transition date that were not identified as
leases under IAS 17 and IFRIC 4 were not reassessed. The definition
of a lease under IFRS 16 was applied only to contracts entered into
or changed on or after 1 January 2019.
The Directors have given due consideration to the impact on the
financial statements of IFRS 16 and have concluded that the
adoption of the standard has not had a material impact on the
financial statements in the period of initial application. 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.
2.1. 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.
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 period ended
30 June 2019. The comparative periods are the six-month period
ended 30 June 2018 and the year ended 31 December 2018.
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 11)
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 11.
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; and
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
The Group has determined based on an evaluation of the terms and
conditions of the arrangements that it retains all the significant
risks and rewards of ownership of its properties and so accounts
for the leases as operating leases. This evaluation involves
judgement and the key factors considered include comparing the
duration of the lease terms compared to the economic life of the
underlying property asset, or in the case of sub-leased properties,
the remaining life of the right-of-use asset arising from the
headlease, and the minimum lease payments, 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.
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 is 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.
Lessee
As a lessee the Group recognises a right-of-use asset within
investment properties and a lease liability for all leases, which
is included within other creditors. The lease liabilities are
measured at the present value of the remaining lease payments,
discounted using an appropriate discount rate. The discount rate
applied by the Group is the incremental borrowing rate at which a
similar borrowing could be obtained from an independent creditor
under comparable terms and conditions. Subsequent to initial
measurement lease liabilities increase as a result of interest
charged at a constant rate on the balance outstanding and are
reduced for lease payments made.
Sub-leases
Leases are classified as finance leases whenever the terms of
the lease transfer substantially all the risks and rewards of
ownership of the underlying property asset to the lessee.
Sub-leases of leasehold properties are classified with reference to
the right of use asset arising from the head lease. All other
leases are classified as operating leases.
4.4. 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 prior 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 were 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. Dividends payable to shareholders
Final 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 by shareholders. 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
1 January 1 January
2019 to 30 2018 to 30 Year ended31
June 2019 June 2018 December 2018
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Rental income - freehold
assets 8,432 4,163 10,016
Rental income - leasehold
assets 916 581 1,474
------------ ------------ ---------------
9,348 4,744 11,490
============ ============ ===============
The lease agreements between the Group and the Registered
Providers are full 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 the United Kingdom.
6. DIRECTORS' REMUNERATION
1 January 1 January Year ended
2019 to 30 2018 to 30 31 December
June 2019 June 2018 2018
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Directors' fees 138 112 234
Employer's National
Insurance Contributions 13 15 31
------------ -------------
151 127 265
============ ============ =============
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). None of the directors received any
advances or credits from any group entity during the period.
7. MANAGEMENT FEES
1 January
1 January 2018 to Year ended
2019 to 30 30 June 31 December
June 2019 2018 2018
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Management fees 1,859 868 2,309
------------ -------------
1,859 868 2,309
============ ============ =============
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 GBP1billion, an amount equal to 0.8% of such
part of the Net Asset Value; and
(d) on that part of the Net Asset Value over GBP1 billion, an
amount equal to 0.7% of such part of the Net Asset Value.
Management fees of GBP1,858,883 were chargeable by TPIM during
the period to 30 June 2019 (June 2018 - GBP867,926, December 2018 -
GBP2,309,000). At the period end, GBP979,880 was due to TPIM (June
2018 - GBP1,313,755, December 2018 - GBP811,000).
8. FINANCE INCOME
1 January 1 January Year ended
2019 to 30 2018 to 30 31 December
June 2019 June 2018 2018
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Head lease interest income 20 14 33
Interest on liquidity funds 129 56 150
------------ ------------ -------------
149 70 183
============ ============ =============
9. FINANCE COSTS
1 January 1 January Year ended
2019 to 30 2018 to 30 31 December
June 2019 June 2018 2018
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Interest payable on bank
borrowings 1,127 - 949
Amortisation loan arrangement
fees 80 - 47
C Share amortisation expense - 134 134
C Share interest expense - - 613
Head lease interest expense 21 14 33
Bank charges 4 10 14
------------ ------------ -------------
1,232 158 1,790
Total finance cost for
financial liabilities held
at amortised cost 1,228 148 1,762
============ ============ =============
10. 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 interim period from 1 January to 30 June 2019, 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.
1 January 1 January Year ended
2019 to 30 2018 to 30 31 December
June 2019 June 2018 2018
(unaudited) (unaudited) (audited)
GBP'000 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%. The differences are explained
below.
1 January 1 January Year ended
2019 to 30 2018 to 30 31 December
June 2019 June 2018 2018
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Profit before tax 9,915 6,040 19,897
------------ ------------ -------------
Tax at UK corporation tax
standard rate of 19% 1,884 1,148 3,780
Change in value of investment
properties (865) (619) (2,754)
Exempt REIT income (1,377) (625) (1,340)
Amounts not deductible for
tax purposes 23 - 145
Unutilised residual current
period tax losses 335 96 169
------------ ------------ -------------
- - -
============ ============ =============
The Government has announced that the corporation tax standard
rate is to be reduced from 19% to 17% with an 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.
11. INVESTMENT PROPERTY
Operational Properties
assets under development Total
GBP'000 GBP'000 GBP'000
------------ ------------------- ---------
As at 1 January 2019 (excluding
headlease ground rent) 314,812 7,952 322,764
Acquisitions and additions 56,413 11,394 67,807
Fair value adjustment 4,420 131 4,551
Head lease ground rent 1,445 - 1,445
Transfer of completed properties 1,780 (1,780) - -
------------ ------------------- ---------
As at 30 June 2019 (unaudited) 378,870 17,697 396,567
------------ ------------------- ---------
As at 1 January 2018 (excluding
headlease ground rent) 137,432 - 137,432
Acquisitions and additions 42,580 6,229 48,809
Fair value adjustment 3,547 (290) 3,257
Head lease ground rent 1,083 - 1,083
Transfer of completed properties - - -
------------ ------------------- ---------
As at 30 June 2018 (unaudited) 184,642 5,939 190,581
------------ ------------------- ---------
As at 1 January 2018(excluding
headlease ground rent) 137,432 - 137,432
Acquisitions and additions 154,127 16,708 170,835
Fair value adjustment 14,569 (72) 14,497
Head lease ground rent 1,305 - 1,305
Transfer of completed properties 8,684 (8,684) -
------------ ------------------- ---------
As at 31 December 2018 (audited) 316,117 7,952 324,069
------------ ------------------- ---------
Reconciliation to independent valuation:
31 December
30 June 2019 30 June 2018 2018
GBP'000 GBP'000 GBP'000
Investment property valuation 395,870 189,992 323,469
Fair value adjustment -
headlease ground rent 1,445 1,083 1,305
Fair value adjustment -
lease incentive debtor (748) (494) (705)
------------- ------------- ------------
396,567 190,581 324,069
------------- ------------- ------------
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 30 June 2019 was
GBP34.8 million (June 2018 - GBP24.4 million, December 2018 -
GBP26.5 million).
In accordance with "IAS 40: Investment Property", the Group's
investment properties have been independently valued at fair value
by Jones Lang LaSalle Limited ("JLL"), an accredited external
valuer with recognised and relevant professional qualifications.
The independent valuers provide their fair value of the Group's
investment property portfolio every 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 30 June 2019.
30 June 31 December
Portfolio Metrics 2019 30 June 2018 2018
Capital Deployed (GBP'000)* 359,272 175,056 293,858
Number of Properties 318 167 272
Number of Tenancies*** 229 100 189
Number of Registered Providers*** 16 12 16
Number of Local Authorities*** 127 69 109
Number of Care Providers*** 73 34 62
Average NIY** 5.28% 5.32% 5.25%
* calculated excluding acquisition costs
**calculated using IAS 40 valuations (excluding forward funding
acquisitions)
*** calculated excluding forward funding acquisitions
Regional exposure
30 June 2019 30 June 2018 31 December 2018
*Cost % of funds *Cost % of funds % of funds
Region GBP'000 invested GBP'000 invested *Cost GBP'000 invested
---------------- --------- ----------- --------- ----------- -------------- -----------
North West 86,099 24.0 56,979 32.5% 73,757 25.1
North East 40,009 11.1 28,786 16.4% 39,432 13.4
West Midlands 47,073 13.1 27,657 15.8% 41,327 14.1
East Midlands 54,156 15.1 21,018 12.0% 47,412 16.1
South East 24,649 6.9 13,832 7.9% 22,053 7.5
Yorkshire 20,164 5.6 12,580 7.2% 16,869 5.7
South 15,495 4.3 8,031 4.6% 14,665 5.0
London 50,347 14.0 4,676 2.7% 25,921 8.9
East 3,562 1.0 1,234 0.7% 2,889 1.0
South West 13,968 3.9 263 0.2% 8,650 2.9
South Wales 2,863 0.8 - - 883 0.3
South Scotland 887 0.2 - - - -
--------- ----------- --------- ----------- -------------- -----------
Total 359,272 100.00 175,056 100.00 293,858 100.00
--------- ----------- --------- ----------- -------------- -----------
*excluding acquisition costs
Fair value hierarchy
Quoted
prices Significant
in active observable Significant
markets inputs unobservable
Date of (Level (Level inputs
valuation Total 1) 2) (Level 3)
GBP'000 GBP'000 GBP'000 GBP'000
------------------------ ------------- -------- ----------- ------------ --------------
Assets measured
at fair value: 30 June
Investment properties 2019 396,567 - - 396,567
------------------------ ------------- -------- ----------- ------------ --------------
30 June
Investment properties 2018 190,581 - - 190,581
------------------------ ------------- -------- ----------- ------------ --------------
31 December
Investment properties 2018 324,069 - - 324,069
------------------------ ------------- -------- ----------- ------------ --------------
There have been no transfers between Level 1 and Level 2 during
the period, nor have there been any transfers between Level 2 and
Level 3 during the period.
The valuations have been prepared in accordance with the RICS
Valuation - Professional Standards (incorporating the International
Valuation Standards) by JLL, one of the leading professional firms
engaged in the social housing sector.
As noted previously all of the Group's investment properties are
reported as Level 3 in accordance with IFRS 13 where external
inputs are "unobservable" and value is the Directors' best
estimate, based upon advice from relevant knowledgeable
experts.
In this instance, the determination of the fair value of
investment 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 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 asset as
work-in-progress value whereby the Company 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 Company 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 Company 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 6.62% (June 2018 - 6.9%, December 2018 - 6.66%).
The range of discount rates used in the Group's property
portfolio valuation is from 6.3% to 7.1%. (June 2018 - 6.4-7.5%,
December 2018 - 6.4-7.2%).
-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 30
June 2019 24,466 (22,316) 12,470 (12,010)
Changes in the IFRS
fair value of investment
properties as at 30
June 2018 13,190 (11,891) 6,705 (6,388)
Changes in the IFRS
fair value of investment
properties as at 31
December 2018 20,362 (18,307) 10,447 (9,973)
12. TRADE AND OTHER RECEIVABLES
30 June 2019 30 June 2018 31 December
(unaudited) (unaudited) 2018 (audited)
GBP'000 GBP'000 GBP'000
Prepayments 414 1,339 1,755
Other receivables 792 556 766
Rent receivable 1,065 516 871
----------------
2,271 2,411 3,392
============= ============= ================
Included in Prepayments are prepaid acquisition costs which
include the cost of acquiring assets not completed at the year
end.
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 were
nil.
13. CASH AND CASH EQUIVALENTS
31 December
30 June 2019 30 June 2018 2018
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Cash held by lawyers 1,182 3,312 14,352
Liquidity funds 20,000 2,868 75,000
Restricted cash 7,652 2,880 17,278
Cash at bank 45,990 54,286 7,994
------------- ------------- ------------
74,824 63,346 114,624
============= ============= ============
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 0.60% 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.
30 June 31 December
2019 30 June 2018 2018
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Total cash and cash
equivalents 74,824 63,346 114,624
Restricted cash (7,652) (2,880) (17,278)
------------ ------------- ------------
Cash reported on Statement
of Cash Flows 67,172 60,466 97,346
============ ============= ============
14. TRADE AND OTHER PAYABLES
Current liabilities
30 June 30 June 2018 31 December
2019 (unaudited) (unaudited) 2018 (audited)
GBP'000 GBP'000 GBP'000
Other creditors 7,653 2,880 6,818
Accruals 2,210 2,030 1,471
Trade payables 118 229 589
Head lease ground rent 40 28 36
Deferred consideration - 121 84
10,021 5,288 8,998
================== ============= ================
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.
15. OTHER PAYABLES
Non-current liabilities
30 June 30 June 31 December
2019 (unaudited) 2018 (unaudited) 2018 (audited)
GBP'000 GBP'000 GBP'000
Head lease ground rent 1,405 1,054 1,270
Deferred consideration - - 195
Rent deposit 100 100 100
------------------
1,505 1,154 1,565
================== ================== ================
16. BANK AND OTHER BORROWINGS
30 June 30 June 2018 31 December
2019 (unaudited) (unaudited) 2018 (audited)
GBP'000 GBP'000 GBP'000
Bank and other borrowings
drawn at year end 99,764 - 68,500
------------------ ------------- ----------------
Less: loan issue costs incurred (2,763) - (1,186)
Add: loan issue costs amortised 81 - 47
------------------ ------------- ----------------
Unamortised costs at end of
the year (2,682) - (1,139)
------------------ ------------- ----------------
Balance at year end 97,082 - 67,361
================== ============= ================
At 30 June 2019 there were undrawn bank borrowings of GBP38.7
million. (June 2018 - GBPNil, December 2018 - 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 30 June 2019, GBP68.5
million was utilised (June 2018 - GBPNil, 31 December 2018 - GBP58
million); 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 30 June 2019 GBP31.3 million had 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 worth approximately GBP175 million 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
Total < 1 year years years years
--------------------- -------- --------- -------- -------- --------
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 30 June 2019 38,736 - - 38,736 -
-------- --------- -------- -------- --------
At 30 June 2018 - - - - -
-------- --------- -------- -------- --------
At 31 December 2018 70,000 - - 70,000 -
-------- --------- -------- -------- --------
Undrawn committed bank facilities - maturity profile
17. C SHARES
30 June 2019 30 June 2018 31 December
(unaudited) (unaudited) 2018 (audited)
GBP'000 GBP'000 GBP'000
At beginning of period - - -
Proceeds from issue of
shares - 47,500 47,500
C share issue costs - (950) (950)
Amortisation of C share
liability - 134 134
Conversion into ordinary
shares - - (46,684)
--------------- -------------
At end of period - 46,684 -
=============== ============= ================
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.
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.
18. SHARE CAPITAL
31 December
30 June 2019 30 June 2018 2018
(unaudited) (audited) (audited)
Number GBP'000 Number GBP'000 Number GBP'000
Balance at beginning
of period 351,352,210 3,514 200,000,000 2,000 200,000,000 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
Balance at end
of period 351,352,210* 3,514 200,000,000 2,000 351,352,210 3,514
=============== ======== ============== ======== ============== ========
*This figure excludes shares held in treasury
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.
Rights, preferences and restrictions on shares: All Ordinary
Shares carry equal rights, and no privileges are attached to any
shares in the Company. All the shares are freely transferable,
except as otherwise provided by law. The holders of Ordinary Shares
are entitled to receive dividends as declared from time to time and
are entitled to one vote per share at meetings of the Company. All
shares rank equally with regard to the Company's residual
assets.
Treasury shares do not hold any voting rights.
19. SHARE PREMIUM RESERVE
The share premium relates to amounts subscribed for share
capital in excess of nominal value.
30 June 2019 30 June 31 December
(unaudited) 2018 (unaudited) 2018 (audited)
GBP'000 GBP'000 GBP'000
Balance at beginning of period 151,157 - -
Share premium arising on
the conversion of C Shares
into Ordinary Shares - - 46,220
Share premium arising on
Ordinary Shares issued in
the period - - 107,100
Share issue costs capitalised - - (2,163)
------------- ----------------
Balance at end of period 151,157 - 151,157
============= ================== ================
20. TREASURY SHARES RESERVE
30 June 30 June 31 December
2019 (unaudited) 2018 (unaudited) 2018 (audited)
GBP'000 GBP'000 GBP'000
Balance at beginning of period - - -
Own shares repurchased 167 - -
Balance at end of period 167 - -
The treasury shares reserve relates to the value of shares
purchased by the Company in excess of nominal value. During the
period ended 30 June 2019, the Company purchased 200,000 of its own
1p Ordinary Shares at a total gross cost of GBP167,163 (GBP166,000
cost of shares and GBP1,163 associated costs). As at 30 June 2019,
200,000 1p Ordinary Shares are held by the company (30 June 2018 -
nil, 31 December 2018 - nil).
21. CAPITAL REDUCTION RESERVE
30 June 30 June 31 December
2019 (unaudited) 2018 (unaudited) 2018 (audited)
GBP'000 GBP'000 GBP'000
Balance at beginning of period 183,921 194,000 194,000
Transfer from share premium
reserve - - -
Dividends paid (8,855) (4,467) (10,079)
Balance at end of period 175,066 189,533 183,921
The capital reduction reserve relates to the distributable
reserve established on cancellation of the share premium
reserve.
22. DIVIDS
1 January
2019 to 1 January Year ended
30 June to 30 June 31 December
2019 (unaudited) 2018 (unaudited) 2018 (audited)
GBP'000 GBP'000 GBP'000
Dividend of 1p for the period
12 June to 31 December 2017 - 2,000 2,000
Dividend of 1.25p for the 3 months
to 31 March 2018 - 2,500 2,500
Dividend of 1.25p for the 3 months
to 30 June 2018 - - 2,500
Dividend of 1.25p for the 3 months
to 30 September 2018 - - 3,079
Dividend of 1.25p for the 3 months
to 31 December 2018 4,392 - -
Dividend of 1.27p for the 3 months
to 31 March 2019 4,463 - -
8,855 4,500 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 GBP2.0 million
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 GBP2.50 million 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 GBP2.50 million 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 GBP3.08 million 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 GBP4.39 million was 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.
On 23 May 2019, the Company declared an interim dividend of 1.27
pence per Ordinary share for the period 1 January 2019 to 31 March
2019. The total dividend of GBP4.46 million was paid on 28 June
2019 to Ordinary shareholders on the register on 6 June 2019.
On 29 August 2019, the Company declared an interim dividend of
1.27 pence per Ordinary share for the period 1 April 2019 to 30
June 2019. The total dividend of GBP4.46 million will be paid on 27
September 2019 to Ordinary shareholders on the register on 6
September 2019.
The Company intends to pay dividends to shareholders on a
quarterly basis and in accordance with the REIT regime.
Dividends are not payable in respect of its Treasury shares
held.
23. 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 318 (30 June 2018 -
167, 31 December 2018 - 272) Social Housing properties as at 30
June 2019 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.
24. 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 (30 June 2018 - GBP75,000,
31 December 2018 - GBP75,000), and the other directors of the Board
receive a fee of GBP50,000 (30 June 2018 - GBP50,000, 31 December
2018 - GBP50,000) per annum. The directors are also entitled to an
additional fee of GBP7,500 (30 June 2018 - GBP7,500, 31 December
2018 - GBP7,500) in connection with the production of every
prospectus by the Company.
Dividends of the following amounts were paid to the directors
during the year:
Chris Philips: GBP1,382 (30 June 2018 - GBP1,125, 31 December 2018 - GBP2,375)
Peter Coward: GBP1,896 (30 June 2018 - GBP1,688, 31 December
2018 - GBP3,563)
Paul Oliver: GBP1,965 (30 June 2018 - GBP975, 31 December 2018 - GBP2,924)
No shares were held by Ian Reeves or Tracey Fletcher as at 30
June 2019.
Acquisition
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 7.
The Board reviewed the transaction and concluded it was
conducted on an arm's length basis.
25. CONSOLIDATED ENTITIES
The Group consists of a parent company, Triple Point Social
Housing REIT plc, incorporated in the UK and a number of
subsidiaries ultimately held 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 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.
Name of Entity Registered Office Country Ownership
of Incorporation %
TP REIT Super HoldCo 1 King William Street,
Ltd* London, EC4N 7AF UK 100%
1 King William Street,
TP REIT Hold Co 1 Ltd London, EC4N 7AF UK 100%
1 King William Street,
TP REIT Hold Co 2 Ltd London, EC4N 7AF UK 100%
1 King William Street,
TP REIT Hold Co 3 Ltd London, EC4N 7AF UK 100%
1 King William Street,
TP REIT Hold Co 4 Ltd London, EC4N 7AF UK 100%
1 King William Street,
TP REIT Prop Co 2 Ltd London, EC4N 7AF UK 100%
1 King William Street,
TP REIT Prop Co 3 Ltd London, EC4N 7AF UK 100%
1 King William Street,
TP REIT Prop Co 4 Ltd London, EC4N 7AF UK 100%
TP Social Housing Investments 1 King William Street,
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%
1 King William Street,
PSCI Holdings III 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%
The subsidiaries listed below were acquired in the period ended
30 June 2019:
1 King William Street,
MSL (33) Ltd London, EC4N 7AF UK 100%
Rosewood (Albert Rd) 1 King William Street,
Ltd London, EC4N 7AF UK 100%
1 King William Street,
MSL (49) Ltd London, EC4N 7AF UK 100%
1 King William Street,
MSL (84) Ltd London, EC4N 7AF UK 100%
Global Capital Darwin 1 King William Street,
Avenue SPV Ltd London, EC4N 7AF UK 100%
1 King William Street,
MSL (46) Ltd London, EC4N 7AF UK 100%
1 King William Street,
FPI Co 250 Ltd London, EC4N 7AF UK 100%
1 King William Street,
FPI Co 242 Ltd London, EC4N 7AF UK 100%
1 King William Street,
73 Marsden Road Ltd London, EC4N 7AF UK 100%
1 King William Street,
FPI Co 217 Ltd London, EC4N 7AF UK 100%
1 King William Street,
FPI Co 349 Ltd London, EC4N 7AF UK 100%
1 King William Street,
Allerton SPV12 Ltd London, EC4N 7AF UK 100%
1 King William Street,
FPI CO 353 Ltd London, EC4N 7AF UK 100%
1 King William Street,
MSL (54) 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
period end:
1 King William Street,
MSL (38) Ltd London, EC4N 7AF UK 100%
1 King William Street,
MSL (43) Ltd London, EC4N 7AF UK 100%
1 King William Street,
MSL (45) Ltd London, EC4N 7AF UK 100%
1 King William Street,
MSL (55) Ltd London, EC4N 7AF UK 100%
1 King William Street,
MSL (51) 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%
1 King William Street,
FPI Co 243 Ltd London, EC4N 7AF UK 100%
1 King William Street,
FPI Co 267 Ltd London, EC4N 7AF UK 100%
TP REIT Orchard End 1 King William Street,
Limited London, EC4N 7AF UK 100%
1 King William Street,
MSL (61) Limited London, EC4N 7AF UK 100%
1 King William Street,
MSL (76) Ltd London, EC4N 7AF UK 100%
1 King William Street,
Diamond 72 Limited London, EC4N 7AF UK 100%
26. POST BALANCE SHEET EVENTS
Property acquisitions
Subsequent to the end of the period, the Group has acquired a
further eight supported Social Housing properties deploying GBP13.6
million (including acquisition costs and total project costs of
forward funding schemes).
Forward funding arrangements
Since 30 June 2019 the Group has entered into one forward
funding agreement at a total project cost of GBP4.1 million. The
land has been acquired by the Group and a developer has been
contracted to carry out the construction. Jones Lang LaSalle
Limited has been appointed as the fund monitor for both sites and
will be overseeing the projects on behalf of the Group.
Debt financing
On 21 December 2018 the Group signed a secured GBP70 million
Revolving Credit Facility with Lloyds Bank. As at 30 June 2019
GBP31.3 million had been drawn under the revolving credit facility.
A further GBP31.0 million was drawn on 5 August 2019.
Dividends
On 29 August 2019, the Company declared a quarterly dividend in
respect of the Ordinary shares for the three months to 30 June 2019
of 1.27 pence per Ordinary share. The dividend will be paid on 27
September 2019 to holders of Ordinary shares on the register as at
6 September 2019.
Treasury shares
On the 29(th) June 2019, the Company entered into a trade to
purchase a further 250,000 ordinary shares of 1p each in the
capital of the Company at a price of 83.3p per Ordinary Share for
treasury. These shares were settled and recorded on the register on
the 1(st) July 2019. Following the transaction, the Company has
351,352,210 Ordinary Shares in issue. The Company now holds 450,000
shares in treasury, which do not carry any voting rights.
Accordingly, the total number of voting rights in the Company is
350,902,210.
27. CAPITAL COMMITMENTS
The Group has capital commitments of GBP37 million (June 18 -
GBP51.5 million, December 18 - GBP21 million) in relation to the
cost to complete its forward funded pre-let development assets and
on properties exchanged but not completed at 30 June 2019.
28. 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 x2.25 and an interest cover ratio of x1.75. At 30 June
2019, the Group was fully compliant with both covenants with an
asset cover ratio of x2.62 (December 2018 - x2.57) and an interest
cover ratio of x4.74 (December 2018 - x3.95). 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 x2.75. At
30 June 2019, the Group was fully compliant with both covenants
with an LTV loan to value of 18.53%, and an interest cover ratio of
1,138.99%.
29. EARNINGS PER SHARE
Earnings per share ("EPS") amounts are calculated by dividing
profit for the period attributable to Ordinary equity holders of
the Company by the weighted average number of Ordinary Shares in
issue during the period. Diluted EPS is calculated by dividing
profit for the period attributable to both Ordinary equity holders
and C preference shareholders by the weighted average number of
Ordinary Shares and C shares in issue during the period. The
weighted average number of shares, for the purposes of calculating
diluted earnings per share, has been calculated based on the actual
number of shares issued on conversion of the C shares in accordance
with IAS 33.
The calculation of basic, diluted and EPRA earnings per share is
based on the following:
1 January
1 January 2019 2018 Year ended
to 30 June 31 December
to 30 June 2019 2018 2018
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Calculation of Basic
Earnings per share
Net profit attributable
to ordinary shareholders
(GBP'000) 9,915 6,040 19,897
Weighted average number
of ordinary shares (including
treasury shares) 351,348,895 200,000,000 237,610,066
Earnings per share -
basic 2.82p 3.02p 8.37p
Calculation of Diluted
Earnings per share
Net profit attributable
to ordinary shareholders
(GBP'000) 9,915 6,040 19,897
Add back finance costs
associated with the
C share liability (GBP'000) - 134 -
Total (GBP'000) 9,915 6,174 19,897
Weighted average number
of ordinary shares (including
treasury shares) 351,348,895 200,000,000 237,610,066
Effects of dilution
from C shares - 24,584,603 -
351,348,895 224,584,603 237,610,066
Earnings per share -
diluted 2.82p 2.75p 8.37p
EPRA Earnings per share
1 January
1 January 2019 2018 to 30 Year ended
to 30 June June 2018 31 December
2019 (unaudited) (unaudited) 2018 (audited)
GBP'000 GBP'000 GBP'000
Net profit attributable
to ordinary shareholders
(GBP'000) 9,915 6,040 19,897
Changes in value of
fair value of investment
property (GBP'000) (4,551) (3,257) (14,497)
EPRA earnings (GBP'000) 5,364 2,783 5,400
Weighted average number
of ordinary shares (including
treasury shares) 351,348,895 200,000,000 237,610,066
Earnings per share -
EPRA 1.53p 1.39p 2.27p
30. NET ASSET VALUE PER SHARE
Net Asset Value per share is calculated by dividing net assets
in the Condensed Group Statement of Financial Position attributable
to Ordinary equity holders of the 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:
30 June 30 June 31 December
2019 2018 2018
(unaudited) (unaudited) (audited)
Net assets at end of period
(GBP'000) 365,054 203,212 364,161
Adjust for the effect of the
C Shares converting (GBP'000) - 46,684 -
Adjusted net assets (GBP'000) 365,054 249,896 364,161
Shares in issue at end of
period (excluding shares held
in treasury) 351,152,210 200,000,000 351,352,210
Dilutive shares in issue - 45,945,807 -
Total 351,152,210 245,945,807 351,352,210
Basic NAV per share 103.96p 101.61p 103.65p
Dilutive NAV per share 103.96p 101.61p 103.65p
For comparative purposes at 30 June 2018 calculating the diluted
NAV the number of shares equal the shares that would have been
issued if conversion of the C shares had happened on 30 June 2018,
based on the NAV of the C share pool at that date rather than
taking into account any impact on the C share pool NAV up to the
point of conversion.
31. UNAUDITED PERFORMANCE MEASURES
1. PORTFOLIO NET ASSET VALUE
The objective of the Portfolio Net Asset Value "Portfolio NAV"
measure is to highlight the fair value of the net assets on an
ongoing, long term basis, which aligns with the Group's business
strategy as an ongoing REIT with a long-term investment outlook.
This Portfolio NAV is made available on a quarterly basis on the
Company's website and announced via RNS.
In order to arrive at Portfolio NAV, two adjustments are made to
the IFRS Net Asset Value ("IFRS NAV") reported in the consolidated
financial statements such that;
i. The hypothetical sale of properties will take place on the
basis of a sale of a corporate vehicle rather than a sale of
underlying property assets. This assumption reflects the basis upon
which the Company's assets have been assembled within specific
SPVs.
ii. The hypothetical sale will take place in the form of a single portfolio disposal.
30 June 30 June 30 June
30 June 2018 Ordinary 2018 2018 31 December
2019 Share C Share Total 2018
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Net asset value per
the consolidated
financial statements 365,054 203,212 - 203,212 364,161
Add back C Share
liability - - 46,684 46,684 -
Value of Asset pools 365,054 203,212 46,684 249,896 364,161
Effects of the adoption
to the assumed, hypothetical
sale of properties
as a portfolio and
on the basis of sale
of a corporate vehicle 27,290 12,722 728 13,450 20,182
Portfolio Net Asset
Value 392,344 215,934 47,412 263,346 384,343
After reflecting these amendments, the movement in net assets is
as follows:
30 June 30 June 30 June 30 June 31 December
2019 2018 2018 2018 2018
Ordinary Ordinary C share Total Ordinary
share share share
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Opening reserves 384,342 211,072 - 211,072 211,072
Net issue proceeds - - 46,550 46,550 152,671
Own shares repurchased (167) - - - -
Operating profits/(losses) 6,447 2,988 (117) 2,871 7,008
Capital appreciation 11,660 6,329 978 7,307 25,278
Finance income 149 68 2 70 183
Finance costs (1,232) (24) - (24) (1,790)
Dividends paid (8,855) (4,500) - (4,500) (10,079)
Portfolio Net Assets 392,344 215,933 47,413 263,346 384,343
Number of shares
in issue at the period
end 351,152,210 200,000,000 47,500,000 351,352,210
Portfolio net asset
value per share 111.73p 107.97p 99.82p 109.4p
2. ADJUSTED EARNINGS PER SHARE - PORTFOLIO NAV BASIS
30 June 30 June 30 June 30 June 31 December
2019 2018 2018 2018 2018
Ordinary Ordinary Ordinary
share share C share Total share
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Net rental income 9,348 4,729 15 4,744 11,490
Expenses (2,901) (1,741) (132) (1,873) (4,482)
Fair value gains
on investment property 27,289 15,729 978 16,707 25,278
Finance income 149 68 2 70 183
Finance costs (1,232) (24) - (24) (1,790)
Value of each pool 32,653 18,761 863 19,624 30,679
Weighted average
number of shares 351,348,895 200,000,000 24,584,603 237,610,066
Adjusted earnings
per share - basic 9.29p 9.38p 3.51p 12.91p
3. EPRA NNNAV
30 June 31 December
30 June 2019 2018 2018
GBP'000 GBP'000 GBP'000
EPRA net assets (GBP'000) 365,054 203,212 364,161
Include:
Fair value of debt*
(GBP'000) (2,858) - (147)
EPRA NNNAV (GBP'000) 362,196 203,212 364,014
Shares in issue 351,152,210 200,000,000 351,352,210
EPRA NNNAV per share 103.15p 101.61p 103.60p
* Difference between interest-bearing loans and borrowings
included in balance sheet at amortised cost, and the fair value of
interest-bearing loans and borrowings.
4. EPRA net initial yield (NIY) and EPRA "topped up" NIY
30 June 31 December
30 June 2019 2018 2018
GBP'000 GBP'000 GBP'000
Investment Property
- wholly owned 395,871 189,993 323,469
Less: development
properties (17,697) (5,941) (7,952)
Completed property
portfolio 378,174 184,052 315,517
Allowance for estimated
purchasers' costs 23,461 11,491 19,185
Gross up completed
property portfolio
valuation 401,635 195,543 334,702
Annualised passing
rental income 21,066 10,045 17,187
Property outgoings - - -
Annualised net rents 21,066 10,045 17,187
Contractual increases
for lease incentives - 353 242
Topped up annualised
net rents 21,066 10,398 17,429
EPRA NIY 5.25% 5.14% 5.13%
EPRA Topped Up NIY 5.25% 5.32% 5.21%
5. ONGOING CHARGES RATIO
31 December
30 June 2019 30 June 2018 2018
GBP'000 GBP'000 GBP'000
Annualised ongoing
charges 5,802 3,746 4,482
Average undiluted
net assets 364,608 202,442 282,917
Ongoing charges 1.59% 1.85% 1.58%
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
IR BIGDCCUGBGCU
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