TIDMSOHO
RNS Number : 2570R
Triple Point Social Housing REIT
05 March 2021
THIS ANNOUNCEMENT HAS BEEN DETERMINED TO CONTAIN INSIDE
INFORMATION FOR THE PURPOSES OF THE MARKET ABUSE REGULATION (EU)
NO. 596/2014.
5 March 2021
Triple Point Social Housing REIT plc
(the "Company" or, together with its subsidiaries, the
"Group")
RESULTS FOR THE YEARED 31 DECEMBER 2020
The Board of Triple Point Social Housing REIT plc (ticker: SOHO)
is pleased to announce its audited results for the year ended 31
December 2020.
31 December 20 31 December 2019
20
--------------------------------- --------------- -----------------
EPRA Net Tangible Assets per
share
(equal to IFRS NAV per share
) 106.42p 105.37p
E arnings per share (basic
and diluted) 6.82p 6.75p
- IFRS basis 4.61p 3.39p
- EPRA basis
Total annual ised rental income GBP31.6m (1) GBP25.4m (1)
V alu e of the portfolio
- IFRS basis GBP571.5m GBP471.6m
- Portfolio valuation basis GBP611.6m GBP503.8m
Weighted average unexpired 26.2 yrs 25.7 yrs
lease term
Dividend paid or declared per
Ordinary S hare 5.18p 5.095p
Financial highlights
-- EPRA Net Tangible Assets (equal to IFRS net asset value ) per
share of 106.42 pence as at 31 December 2020 (2019: 105.37 pence),
an increase of 1.0 % .
-- Portfolio independently valued as at 31 December 2020 at GBP
571.5 million on an IFRS basis (2019: GBP471.6 million) ,
reflecting a valuation uplift of 7.7 % against total invested funds
of GBP530.7 million (2)
. The properties have been valued on an individual basis.
-- The Group's properties were valued at GBP611.6 million on a
portfolio valuation basis (2019: GBP 503.8 million ) , reflecting a
portfolio premium of 7.0% or a GBP 40.1 million uplift against the
IFRS valuation (3) .
-- The portfolio's total annualised rental income was GBP31.6
million (1) as at 31 December 2020 (2019: GBP 25.4 million ) .
-- Operating profit for the year ended 31 December 2020 was
GBP30.2 million (2019: GBP 26.9 million ) .
-- Ongoing Charges Ratio of 1.57% as at 31 December 2019 (2019: 1.63%) .
-- In October 2020 , a further GBP55 million of gross proceeds
(GBP53.3 million net of costs) was raised through an issuance of
new ordinary shares , and in December 2020 the existing debt
facility was increased by GBP 3 0 million .
Operational highlights
-- Acquired 58 properties (400 units) during the year for a
total investment cost of GBP 78.9 million ( including costs )
bringing the total investment portfolio to 445 properties.
-- As at 31 December 2020, 20 out of the Group's 22 forward
funding projects had reached practical completion. The Group had
committed GBP56.2m (including acquisition costs) to these projects
of which GBP2.8m remained oustanding at the end of the year. Of the
remaining 2 schemes, one completed on 26 February 2021 and the
final project is due to complete imminently.
-- IFRS blended net initial yield of 5.27% based on the value of
the portfolio on an IFRS basis as at 31 December 2020 , against the
portfolio's blended net initial yield on purchase of 5.90 % .
-- Further diversif ied the portfolio:
o 155 local authorities
o 341 leases
o 20 Approved Providers
o 98 care providers
-- A s at 31 December 2020 , the weighted average unexpired
lease term (" WAULT ") was 26.2 years .
-- 100% of rental income due and payable for the period ended 31
December 2020, and due and payable at 28 February 2021 has been
collected (4) .
-- 100% of contracted rental income was either CPI or RPI linked.
Post Balance Sheet Activity
-- The Company declared a dividend of 1.295 pence per ordinary
share in respect of the period from 1 October to 31 December 2020.
This dividend will be paid on or around 26 March 20 21 to
shareholders on the register at 12 March 20 21 .
-- The dividend payable on 26 March 2021 brings the total
dividend per Ordinary Share paid by the Company to 5. 18 pence per
s hare in respect of the financial year to 31 December 2020 in line
with the Company's stated target. The Company intends to maintain
its strategy of paying a progressive dividend.
-- Since the year end, the Group has acquired 1 property
comprising 7 units, and exchanged on 1 property comprising 10
units, for GBP2.9 million (including acquisition costs) at net
initial yields in line with the Company's existing portfolio.
Notes:
1 Excluding ongoing forward funded schemes that are under an agreement for lease
2 Including acquisition costs
3 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%
4 Due to a clerical error, there has been a short delay in the
payment of an immaterial amount of rent representing c.GBP45k
(0.16% of rent roll) for the quarter ended 31 December 2020. This
is expected to be paid in full in the next 2 weeks
Christopher Phillips, Chairman of Triple Point Social Housing
REIT plc, commented:
"T he fundamentals of our sector remain strong. The need is as
great - if not greater - than ever before. Our counterparties
remain committed to providing high-quality housing. In light of all
this, we look forward to 2021, conscious of the challenges that lie
ahead, but cautiously optimistic about the success that we can
achieve if we work hard to deliver the housing that our country,
and our residents, so desperately need . "
FOR FURTHER INFORMATION ON THE COMPANY, PLEASE CONTACT:
Triple Point Investment Management Tel: 020 7201 89 89
LLP
(Investment Manager)
Ben Beaton
Max Shenkman
Isobel Gunn-Brown
Akur Capital ( Joint Financial Tel: 020 7493 3631
Adviser)
Tom Frost
Anthony Richardson
Siobhan Sergeant
Stifel (Joint Financial Adviser Tel: 020 7710 7600
and
Corporate Broker)
Mark Young
Mark Bloomfield
Rajpal Padam
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 primarily newly developed social housing
assets in the UK, with a particular focus on supported housing. The
assets within the portfolio are subject to inflation-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 pressure and social need to
increase housing supply across the UK which is creating
opportunities for private sector investors to help deliver this
housing . The Group's ability to provide forward funding for new
developments not only enables the Company to secure fit for
purpose, modern assets for its portfolio but also addresses the
chronic undersupply of suitable supported housing properties in the
UK at sustainable rents as well as delivering returns to
investors.
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.
CHAIRMAN'S STATEMENT
Introduction
When I wrote to shareholders in our Annual Report at the start
of last year, I said that we looked forward to 2020 with optimism.
I noted that we had challenges to tackle - particularly in terms of
accommodating increased regulation and our share price - but our
continued operational success left us well equipped to meet those
challenges and more as we moved forward into 2020. Little did I
know that 2020 would bring a challenge unique in our history. The
social and economic damage it has wrought does not need repeating
here. But I am pleased to report that, a year on, with vaccines
having helped turn the tide in our fight against the pandemic, that
optimism for our business seems justified. As this report shows,
2020 has been another year of strong performance, made possible by
the tireless work of all our stakeholders.
Despite - or perhaps because of - the unprecedented pressures of
2020, our stakeholders across the board rose to the challenge.
Commissioners continued to support our business model, referring
residents into our housing whenever possible to relieve pressure on
the NHS. Local Authorities continued to pay rent and care fees to
ensure the viability of schemes. Approved Providers continued to
provide essential housing services to keep properties as safe and
suitable as possible for our residents. Care providers continued to
provide care, implementing their infectious disease control
policies and managing the challenges of social distancing to ensure
our residents remained safe. As chairman of our Board, and a
long-term participant in social housing, I was proud to see
everyone pulling together in a time of adversity to focus on the
ultimate purpose of our business: to provide better, safer, more
affordable housing for some of the most vulnerable people in our
society in a way that benefits our shareholders precisely because
it benefits society.
Indeed, that we received 100% of rent during 2020, and paid all
dividends in full, is testament to the resilience of not just our
stakeholders, but also the wider business model which derives the
strength of its rental income from the positive social impact it
generates (1) . As you know, the capital that we raise from
investors is typically used to acquire, or fund the development of,
newly-built or newly-renovated community-based homes, supported by
local health Commissioners, that provide long-term homes for some
of the most vulnerable people in society. In doing so, our
properties can improve the health and wellbeing of our residents
while generating cost-savings for the government. In light of these
benefits, it is hardly surprising that the sector has received such
widespread support during the pandemic. Investments that meet a
social need are often the most resilient precisely because they
provide the services that our society cannot live without. In this
context, we were pleased to be shortlisted for Property Investor of
the Year at the Laing Buisson Awards.
For all the resilience of our business model during 2020, we
should not forget the tragic human cost of the pandemic. Inevitably
in a portfolio of our size, a limited number of the individuals
living in our properties were infected with the virus. This was
despite the best efforts of our Approved Providers and care
providers to protect our residents as much as possible - the heroic
efforts of our key workers deserve particular gratitude. But it is
also true that our portfolio was spared the widely-publicised high
rates of infections in care homes during 2020, and we did not have
any reports of Covid-19-related deaths. In part, this reflects the
nature of our properties, which are smaller residential properties
rather than institutional facilities with large common areas. But
it also reflects the commitment of our counterparties who worked
hard to contain and manage the virus, with much-needed PPE and
hand-creams donated to care workers.
Beyond its human impact, Covid-19 also caused some difficulties
during 2020 by delaying the deployment of our funds and the
progress of our construction projects. As discussed more below, in
the early weeks of the first lockdown Approved Providers
understandably hesitated before signing long-term leases given the
uncertainty of referrals. Building sites suffered from temporary
shortages in personnel and materials because of social distancing
and supply chain disruption. Despite these delays, we achieved full
dividend cover on an EPRA earnings run-rate basis in August 2020
and was 97.6% as at 31 December 2020 (31 December 2019: 89.4%).
For all the challenges the year brought us in the short-term,
there may well be some benefits over the longer-term. The social
care system, which is often overlooked by the media and
politicians, saw renewed political support as the importance of the
social care system in easing the burden on the NHS became clear.
This translated into a number of accelerated referrals into
Supported Housing properties as Commissioners sought to create more
capacity in hospitals, a trend which we think and hope will
continue beyond the pandemic. Politically and medically, the
pandemic may have reminded our country of the benefits of better
integration between healthcare and social care, and the persistent
demand for this type of housing helped us successfully complete
both an equity raise and an extension to our debt facility during
the year, as discussed more below.
Deployment
During March and April of 2020, our plans for deployment during
2020 looked set to fall short. With our country entering a sudden
and unprecedented lockdown, the ability of our stakeholders to
successfully launch new schemes became difficult. Commissioners
were distracted by the challenges of Covid-19. Care providers were
focused on protecting existing residents, sourcing PPE, and
managing complex staffing schedules in the new world of social
distancing. Without certainty of referrals and limited contact with
care providers, Approved Providers were understandably cautious
about signing new long-term lease commitments. All this resulted in
a slow-down in the number of schemes that we completed in the
second quarter of 2020, meaning that schemes did not launch as fast
as we had hoped, and funds were deployed slower than expected.
But once the initial shock of the lockdown had passed, and
operating conditions stabilised, our ability to acquire or develop
properties continued. During the first half of the year, we
acquired 16 properties, comprising 144 units, for a total
investment cost of GBP29.9 million. From the start of lockdown in
March until the end of the year, we acquired 51 properties,
comprising 309 units, for a total investment cost of GBP59.6
million. Across the entire year, we bought 58 properties,
comprising 400 units, for a total investment cost of GBP78.9
million at net initial yields in line with the Company's existing
portfolio. The continued demand for this type of housing reflects
not only the commitment of everyone - including government - to
providing much-needed new housing to vulnerable individuals, but
also the heightened awareness of the benefits that investment in
the social care system provides to the NHS and wider society.
At the start of the year, we had seven forward funding projects
under construction. All seven projects that were yet to be
completed by the time the first national lockdown was imposed on 23
March 2020 inevitably suffered delays. Through maintaining close
relationships with both the developers and contractors responsible
for delivering these projects, we were able to work with all
stakeholders to ensure that, by adapting operating practices to
manage the virus, any resultant interruptions were minimised. It's
testament to the success of this approach that we suffered no major
setbacks on any of our projects and by the end of the year all but
two had been completed. As of 31 December 2020, we have committed
GBP56.2 million to 22 projects, with 20 projects already
successfully completed (providing homes for 280 residents). Of the
remaining 2 schemes, one completed on 26 February 2021 and the
final project is due to complete imminently.
As a result of all this deployment, at the end of the year we
owned 445 properties (31 December 2019: 388), providing
accommodation for 3,124 residents (31 December 2019: 2,728), having
deployed since IPO an aggregate GBP530.7 million. A map showing the
location of our properties can be found on page 12. In the period,
we started leasing to five new Approved Providers (bringing the
total to 20), 10 new care providers (bringing the total to 98) and
working in six new Local Authorities (bringing the total to 155).
The portfolio's weighted average unexpired lease term (including
put/call options and reversionary leases) is 26.2 years (31
December 2019: 25.7 years).
Share Price
At the start of the year, our share price ranged between 90
pence and 100 pence. Our business was not immune from the
turbulence caused by Covid-19 that swept across global financial
markets. Our share price dropped sharply in mid-March, reaching a
floor of 68 pence, before recovering to above 90 pence by the end
of March. Since then, it has continued to gain momentum,
consistently remaining above 100 pence and reaching an all-time
high of 113.50 pence in November. On 31 December 2020, we traded at
a premium of 4.77% to our net asset value of 106.42 pence per
share.
It is worth noting that, despite all that happened last year,
our share price was higher at the end of 2020 than it was at the
beginning. This reflects not only the resilience of our rental
income, but also our shareholders' endorsement of our
impact-focused investment strategy. Our ambition in 2021 is to
build upon our success in 2020 and maintain the upward momentum in
our share price.
Debt and Equity
Our deployment at the start of 2020 was funded by the GBP38.3
million that we drew down from our revolving credit facility with
Lloyds and NatWest in November 2019 (leaving GBP29.4 million
undrawn). The facility had been increased from GBP70 million to
GBP130 million in October 2019. Following further deployment, we
drew down an additional GBP16.0 million in May 2020 and the final
GBP13.4 million in October 2020.
In order to maintain target gearing levels following the recent
equity raise and continue to meet demand for new properties, in
December we signed a further GBP30 million increase in the
revolving credit facility. This increased the total facility amount
to GBP160 million and extended the initial term for a further 12
months, to 20 December 2023. The term of the revolving credit
facility may be extended by a further year, to 20 December 2024
(subject to the consent of the lenders).
In terms of equity, in October 2020 we successfully raised a
further GBP55 million of gross proceeds (GBP53.3 million net of
costs) through an issuance of new ordinary shares. This was part of
a 12-month placing programme (which will remain in place until the
end of September 2021) undertaken with our joint financial
advisers, Stifel Nicolaus Europe Limited and Akur Limited. During
the raise, we were pleased to see further investment from existing
shareholders, as well as first investments from new investors.
T he debt facility increase and equity raise do, of course,
provide us with further capital to meet our attractive pipeline and
persistent demand for Supported Housing. But they are also an
endorsement from our lenders and investors of our investment
strategy, even in the challenging circumstances.
Financial Results
As at 31 December 2020, our property portfolio was independently
valued at GBP571.5 million on an IFRS basis. This reflects a
valuation uplift of GBP40.7 million, or 7.7%, over our total
investment cost (including acquisition costs). The valuation of
GBP571.5 million equates to a blended valuation yield of 5.27%, an
improvement over the portfolio's blended net initial yield of
5.90%. This yield compression of 63 basis points reflects our
ability to buy high-quality properties at discounted prices
off-market through the Investment Manager's network of trusted
contacts in the sector.
As at 31 December 2020, our portfolio was also valued at
GBP611.6 million on a portfolio valuation basis. This assumes a
single sale of the property-holding SPVs to a third-party on an
arm's length basis, with purchasers' costs of 2.3%. The portfolio
valuation reflects a portfolio premium of GBP40.1 million, 7.02%,
against the IFRS valuation.
In June 2020, the Royal Institute of Chartered Surveyors
published guidance on the removal of material uncertainty clauses
when valuing Supported Housing. Our independent valuer, Jones Lang
LaSalle Limited, therefore no longer considers that there is
material uncertainty when valuing Supported Housing. This reflects
the timely receipt of rents in line with pre-Covid-19 levels and
continued market activity.
EPRA earnings per share was 4.61 pence in the year and IFRS
earnings per share was 6.82 pence. The EPRA NTA and audited IFRS
NAV per share was 106.42 pence, an increase of 1.0% since 31
December 2019.
Dividends
On 14 May 2020, we paid a dividend of 1.285 pence per share for
the period from 1 October 2019 to 31 December 2019, bringing our
total dividends for 2019 to our target level of 5.095 pence per
share.
During the rest of 2020, we paid three interim dividends of
1.295 pence per share each for the first three quarters of the
year. On 4 March 2021, we declared a dividend of 1.295 pence per
share for the final quarter of 2020, bringing the total dividend
for 2020 to our full year target of 5.18 pence per share. This
represents a 1.7% increase over 2019's aggregate dividend,
reflecting the CPI-based rent reviews typically contained in our
leases.
Full dividend cover on a look-through EPRA earnings run-rate
basis was achieved in August 2020 and was 97.6% as at 31 December
2020.
Social Impact
From the day we launched, the central thesis of our investment
strategy has been that, when deployed judiciously, private capital
can be used to benefit society at the same time as shareholders.
More than that, the strength of the returns we provide to
shareholders derives precisely from the social impact that the
investments generate. By funding the development of high-quality
newly-built and newly-renovated homes for residents whose rent is
funded by government, we save the government money at the same time
as improving the well-being of residents and generating a steady,
resilient income stream for our investors.
Although social impact is in our investment strategy's DNA, we
welcome the rise and growing adoption of Environmental, Social and
Governance metrics across the market and are committed to ensuring
ESG and impact metrics are explicitly considered throughout our
entire investment lifecycle. During 2020, the Investment Manager
helped pioneer and design sector-wide ESG and impact metrics,
signing up to become an early adopter. of sector-wide metrics which
are to be tested and implemented throughout 2021 and beyond. This
is further discussed in the Investment Manager's report on pages 34
to 35. Likewise, you will see elsewhere in this report an excerpt
from an independent impact report by social impact consultants The
Good Economy. We commissioned this report to ensure that we are
publicly held up to our own high impact standards and continue to
deliver a positive impact to society.
Outlook
Making predictions at a time like this is even more hazardous
than usual. Circumstances are changing with such speed, and such
consequence, that stating our outlook is particularly difficult.
But if 2020 taught our business anything, it is that a
well-executed investment strategy, predicated on meeting a critical
social need, can prove resilient even in a time of significant
disruption. I hope it is therefore not rash of me to predict that,
if we and our stakeholders continue to manage the risk of the
virus, and the government continues to support our investment
model, in 2021 we will achieve further strong financial and
operational performance as a result of the positive social impact
we deliver.
Indeed, the fundamentals of our sector remain strong. The need
is as great - if not greater - than ever before. Our counterparties
remain committed to providing high-quality housing. In light of all
this, we look forward to 2021, conscious of the challenges that lie
ahead, but cautiously optimistic about the success that we can
achieve if we work hard to deliver the housing that our country,
and our residents, so desperately need.
Before I finish, I would like to say that much of our continued
success is thanks to the Investment Manager's hard work. It has
built on its strong relationships, and continually refined its
processes, to deliver the high-quality homes that are central to
our positive social impact alongside financial and operational
performance. Likewise, we have benefited hugely from the hard work
of our corporate broker and joint financial adviser Stifel Nicolaus
Europe Limited, as well as our joint financial adviser Akur
Limited, both of which were instrumental in the success of our
equity raise during 2020.
Finally, I would like to thank our shareholders for their
continued support, and my fellow Board members for their ongoing
support and commitment throughout the year.
Chris Phillips
Chairman
4 March 2021
Note:
1 Due to a clerical error, there has been a short delay in the
payment of an immaterial amount of rent representing c.GBP45k
(0.16% of rent roll) for the quarter ended 31 December 2020. This
is expected to be paid in full in the next 2 weeks
STRATEGY AND BUSINESS MODEL
The Board is responsible for the Group's Investment Objective
and Investment Policy and has overall responsibility for ensuring
the Group's activities are in line with such overall strategy. The
Group's Investment Policy and Investment Objective are published
below.
Investment Objective
The Group's investment objective is to provide shareholders with
stable, long-term, inflation-linked income from a portfolio of
social housing assets in the United Kingdom with a focus on
Supported Housing assets. The portfolio comprises investments in
operating assets and the forward funding of pre-let development
assets, the Company seeks to optimise the mix of these assets to
enable it to pay a covered dividend increasing in line with
inflation and so generate an attractive risk-adjusted total
return.
Investment Policy
To achieve its investment objective, the Group invests in a
diversified portfolio of freehold or long leasehold social housing
assets in the UK. Supported Housing assets account for at least 80%
of the Group's gross asset value. The Group acquires portfolios of
social housing assets and single social housing assets, either
directly or via SPVs. Each asset is subject to a lease or occupancy
agreement with an Approved Provider for terms primarily ranging
from 20 years to 30 years, with the rent payable thereunder subject
to adjustment in line with inflation (generally CPI). Title to the
assets remains with the Group under the terms of the relevant
lease. The Group is not responsible for any management or
maintenance obligations under the terms of the lease or occupancy
agreement, all of which are serviced by the Approved Provider
lessee. The Group is not responsible for the provision of care to
residents of Supported Housing assets.
The social housing assets are sourced in the market by the
Investment Manager.
The Group intends to hold its portfolio over the long-term,
taking advantage of long-term upward-only inflation-linked leases.
The Group will not be actively seeking to dispose of any of its
assets, although it may sell investments should an opportunity
arise that would enhance the value of the Group as a whole.
The Group may forward fund the development of new social housing
assets when the Investment Manager believes that to do so would
enhance returns for shareholders and/or secure an asset for the
Group's portfolio at an attractive yield. Forward funding will only
be provided in circumstances in which:
(a) there is an agreement to lease the relevant property upon
completion in place with an Approved Provider;
(b) planning permission has been granted in respect of the site; and
(c) the Group receives a return on its investment (at least
equivalent to the projected income return for the completed asset)
during the construction phase and before the start of the
lease.
For the avoidance of doubt, the Group will not acquire land for
speculative development of social housing assets.
In addition, the Group may engage third party contractors to
renovate or customise existing social housing assets as
necessary.
Gearing
The Group uses gearing to enhance equity returns. The Directors
will employ a level of borrowing that they consider prudent for the
asset class and will seek to achieve a low cost of funds while
maintaining flexibility in the underlying security requirements and
the structure of both the Company's portfolio and the Group.
The Directors intend that the Group will target a level of
aggregate borrowings over the medium-term equal to approximately
40% of the Group's gross asset value. The aggregate borrowings will
always be subject to an absolute maximum, calculated at the time of
drawdown, of 50% of the Group's gross asset value.
Debt will typically be secured at the asset level, whether over
a particular property or a holding entity for a particular property
(or series of properties), without recourse to the Company and
having consideration for key metrics including lender diversity,
cost of debt, debt type and maturity profiles.
Use of Derivatives
The Group may use derivatives for efficient portfolio
management. In particular, the Group may engage in full or partial
interest rate hedging or otherwise seek to mitigate the risk of
interest rate increases on borrowings incurred in accordance with
the Investment Policy as part of the Group's portfolio management.
The Group will not enter into derivative transactions for
speculative purposes.
Investment Restrictions
The following investment restrictions apply:
-- the Group will only invest in social housing assets located in the United Kingdom;
-- the Group will only invest in social housing assets where the
counterparty to the lease or occupancy agreement is an Approved
Provider. Notwithstanding that, the Group may acquire a portfolio
consisting predominantly of social housing assets where a small
minority of such assets are leased to third parties who are not
Approved Providers. The acquisition of such a portfolio will remain
within the Investment Policy provided that at least 90% (by value)
of the assets are leased to Approved Providers and, in aggregate,
all such assets within the Group's total portfolio represent less
than 5% of the Group's gross asset value at the time of
acquisition;
-- at least 80% of the Group's gross asset value will be
invested in Supported Housing assets;
-- the unexpired term of any lease or occupancy agreement
entered into (or in the case of an acquisition of a portfolio of
assets, the average unexpired term of such leases or occupancy
agreements) shall not be less than 15 years, unless the Investment
Manager reasonably expects the term of such shorter lease or
occupancy agreement (or in the case of an acquisition of a
portfolio of assets, the average term of such leases or occupancy
agreements) to be extended to at least 15 years;
-- the maximum exposure to any one asset (which, for the
avoidance of doubt, will include houses and/or apartment blocks
located on a contiguous basis) will not exceed 20% of the Group's
gross asset value;
-- the maximum exposure to any one Approved Provider will not
exceed 30% of the Group's gross asset value, other than in
exceptional circumstances for a period not to exceed three
months;
-- the Group may forward fund social housing units in
circumstances where there is an agreement to lease in place and
where the Group receives a coupon (or equivalent reduction in the
purchase price) on its investment (generally slightly above or
equal to the projected income return for the completed asset)
during the construction phase and before entry into the lease.
Forward funding equity commitments will be restricted to an
aggregate value of not more than 20% of the Group's net asset
value, calculated at the time of entering into any new forward
funding arrangement;
-- the Group will not invest in other alternative investment
funds or closed-ended investment companies (which, for the
avoidance of doubt, does not prohibit the acquisition of SPVs which
own individual, or portfolios of, social housing assets);
-- the Group will not set itself up as an Approved Provider; and
-- the Group will not engage in short selling.
The investment limits detailed above apply at the time of the
acquisition of the relevant asset in the portfolio. The Group will
not be required to dispose of any investment or to rebalance its
portfolio as a result of a change in the respective valuations of
its assets or a merger of Approved Providers.
Investment Strategy
The Group specialises in investing in UK social housing, with a
focus on Supported Housing. The strategy is underpinned by strong
local authority demand for more social housing, which is reflected
in the focus on acquiring recently developed and refurbished
properties across the United Kingdom. The assets within the
portfolio have typically been developed for pre-identified
residents and in response to demand specified by local authorities
or NHS commissioners. On acquisition, the properties are subject to
inflation-adjusted, long-term (typically from 20 years to 30
years), fully repairing and insuring leases with specialist
Approved Providers in receipt of direct payment from local
government (usually Registered Providers regulated by the Regulator
of Social Housing). The portfolio comprises investments made into
properties already subject to a fully repairing and insuring lease
as well as forward funding of pre-let developments. The portfolio
will not include any direct development or speculative development
investments.
Business Model
The Group owns and manages social housing properties that are
leased to experienced housing managers (typically Registered
Providers, which are often referred to as housing associations)
through long-term, inflation-linked, fully repairing and insuring
leases. The vast majority of the portfolio and future deal pipeline
is made up of Supported Housing homes which are residential
properties that have been adapted or built such that care and
support can easily be provided to vulnerable residents who may have
mental health issues, learning difficulties or physical
disabilities. We are focused on acquiring specially or recently
developed properties in order to help local authorities meet
increasing demand for suitable accommodation for vulnerable
residents (the drivers of this demand are discussed in the
Investment Manager's report). Local authorities are responsible for
housing these residents and for the provision of all care and
support services that are required.
The Supported Housing properties owned by the Group are leased
to Approved Providers which are usually not-for-profit
organisations focused on developing, tenanting and maintaining
housing assets in the public (and private) sectors. Approved
Providers are approved and regulated by the Government through the
Regulator of Social Housing (or in rare instances, where the Group
contracts with care providers, the Care Quality Commission). All
the Group's leases with Approved Providers are linked to inflation,
have a duration of 20 years or longer, and are fully repairing and
insuring - meaning that the obligations for management, repair and
maintenance of the property are passed to the Approved Provider.
The Approved Provider is also responsible for tenanting the
properties. Typically, the Government funds both the rent of the
individuals housed in Supported Housing and the maintenance costs
associated with managing the property. In addition, because of the
vulnerable nature of the residents, the rent and maintenance costs
are paid directly from the local authority to the Approved
Provider. The rent received from the local authority by the
Approved Provider is then paid to the Group via the lease. Ultimate
funding for the rent and maintenance comes from the Department for
Work and Pensions in the form of housing benefit.
The majority of residents housed in Supported Housing properties
require support and/or care. This is typically provided by a
separate care provider regulated by the Care Quality Commission.
The agreement for the provision of care for the residents is
between the local authority and the care provider. The care
provider is paid directly by the local authority. Usually the Group
has no direct financial or legal relationship with the care
provider and the Group never has any responsibility for the
provision of care to the residents in properties the Group owns.
The care provider will often be responsible for nominating
residents into the properties and, as a result, will normally
provide some voids cover to the Approved Provider should they not
be able to fill the asset (i.e. if occupancy is not 100% it is
often the care provider rather than the Approved Provider that will
cover the cost). The Group receives full rent regardless of
underlying occupancy, but monitors occupancy levels and the payment
of voids cover by care providers, to ensure that Approved Providers
are appropriately protected.
Many assets that the Investment Manager sources for the Group
have been recently developed and are either specifically designed
new build properties or renovated existing houses or apartment
blocks that have been adapted for Supported Housing. The benefit of
buying recently-developed stock is that it has been planned in
response to local authority demand and is designed to meet the
specific requirements of the intended residents. In addition, it
enables the Group to work with a select stable of high-quality
developers on pipelines of deals rather than being reliant on
acquiring portfolios of already-built assets on the open market.
This has two advantages: firstly, it enables the Group to source
the majority of its deals off-market through trusted developer
partners and, secondly, it ensures the Group has greater certainty
over its pipeline with visibility over the long-term deal flow of
the developers it works with and knows it will not have to compete
with other funders.
As well as acquiring recently-developed properties, the Group
can provide forward funding to developers of new Supported Housing
properties. Being able to provide forward funding gives the Group a
competitive advantage over other acquirers of Supported Housing
assets as it enables the Group to offer developers a single funding
partner for both construction and the acquisition of the completed
property. This is often more appealing to developers than having to
work with two separate funders during the build of a new property
as it reduces practical and relationship complexity. As well as
strengthening developer relationships, forward funding enables the
Group to have a greater portion of new build properties in its
portfolio which typically attract higher valuations, are modern and
have been custom-built to meet the needs of the residents they
house, helping to achieve higher occupancy levels. The Group
benefits from the Investment Manager's long track record of
successfully forward funding a range of property and infrastructure
assets. The Group will only provide forward funding when the
property has been pre-let to an Approved Provider and other
protections, such as fixed-priced build contracts and deferred
developer profits, have been put in place to mitigate construction
risk.
Since the Company's IPO, the Group has set out to build a
diversified portfolio that contains assets leased to a variety of
Approved Providers, in a range of different counties, and serviced
by a number of care providers. This has been possible due to the
Investment Manager's 1 7 -year track record of asset-backed
investments, its active investment in the Supported Housing sector
since 2014, and the strong relationships it has enjoyed with local
authorities for over a decade. These relationships have enabled the
Group, in a relatively short space of time, to work with numerous
Approved Providers, care providers and local authorities to help
deliver new Supported Housing assets that provide homes to some of
the most vulnerable members of society.
KEY PERFORMANCE INDICATORS
In order to track the Group's progress the following key
performance indicators are monitored:
KPI AND DEFINITION RELEVANCE TO STRATEGY PERFORMANCE EXPLANATION
1. Dividend
---------------------------- ---------------------------- --------------------------- ---------------------------
Dividends paid to The dividend reflects the Total dividends of 5.18 The Company has declared a
shareholders and declared Company's ability to pence per share were paid dividend of 1.295 pence
during the period. deliver a low risk but or declared in respect of per Ordinary share in
growing the period 1 January respect of the period
income stream from the 2020 to 31 December 2020. 1 October 2020 to 31
portfolio. December 2020, which will
(2019: 5.095 pence) be paid on 26 March 2021.
Total dividends paid
and declared for the
period are in line with
the Company's target.
---------------------------- --------------------------- ---------------------------
2. EPRA Net Tangible Assets (NTA) (NEW)
---------------------------------------------------------- --------------------------- ---------------------------
The EPRA NTA is equal to EPRA NTA measure that 106.42 pence at 31 The EPRA NTA per share at
IFRS NAV as there are no assumes entities buy and December 2020. IPO was 98.0 pence.
deferred tax liabilities or sell assets, thereby This is an increase of
other adjustments crystalising certain levels (31 December 2019: 105.37 8.59% since IPO driven by
applicable to the Group of deferred tax liability. pence) growth in the underlying
under the REIT regime. asset value of
the investment properties.
---------------------------- --------------------------- ---------------------------
3. Loan to Value (LTV)
A proportion of our The Company uses gearing to 31.5% LTV at 31 December Borrowings comprise a
investment portfolio is enhance equity returns. 2020. GBP68.5 million private
funded by borrowings. Our placement of loan notes
medium to long term The LTV covenant on the (31 December 2019: 31.1% with MetLife and a GBP160
target L T V is 40% with a revolving credit facility LTV) million secured revolving
hard cap of 50%. with Lloyds is < 50%. credit facility with
Lloyds/NatWest of which
GBP130 million was
drawn as at 31 December
2020.
4. EPRA Earnings per S hare (NEW)
---------------------------------------------------------- --------------------------- ---------------------------
EPRA Earnings per share A measure of a Group's 4.61 pence per share EPRA EPS increased
excludes gains from fair underlying operating for the year ended 31 year-on-year by 36.0%.
value adjustment on results and an indication December 2020, based on
investment property that of the extent to which earnings excluding the The outlook remains
are included in the IFRS current dividend payments fair value gain on positive and we continue
calculation for Earnings are supported by earnings. properties, to invest to generate an
per share. calculated on the weighted attractive total return.
average number of shares
in issue during the year.
(31 December 2019: 3.39
pence)
---------------------------- --------------------------- ---------------------------
5 . Adjusted E arnings per S hare
---------------------------------------------------------- --------------------------- ---------------------------
Adjusted earnings per share A key measure which 4.90 pence per share This demonstrates the
includes adjustments for reflects actual cashflows for the period ended 31 Group's ability to meet
non-cash items. The supporting dividend December 2020, based on dividend payments from net
calculation is shown payments. earnings after deducting cash inflows. It
in Note 35. the fair value gain represents a dividend
on properties, cover for the year to 31
amortisation of loan December 2020 of 94.5%.
arrangement fees and
adding back capitalised
interest;
calculated on the weighted
average number of shares
in issue during the year.
(31 December 2019: 3.50
pence)
---------------------------- --------------------------- ---------------------------
6 . Weighted A verage U nexpired L ease T erm (WAULT)
---------------------------------------------------------- --------------------------- ---------------------------
The average unexpired lease The WAULT is a key measure 26.2 years at 31 December As at 31 December 2020,
term of the investment of the quality of our 2020 (includes put and the portfolio's WAULT
portfolio, weighted by portfolio. Long lease terms call options). stood at 26.2 years and
annual passing rents. underpin the remains well ahead of
Our target is a WAULT of at security of our income (31 December 2019: 25.7 the Group's minimum term
least 15 years. stream. years) of 15 years.
---------------------------- --------------------------- ---------------------------
7. Adjusted Portfolio Earnings per Share (NEW)
---------------------------------------------------------- --------------------------- ---------------------------
The post-tax earnings The Adjusted Portfolio EPS 17.94 pence per share The Adjusted Portfolio EPS
adjusted for the market reflects the application of for the period ended 31 shows the value per share
portfolio valuation using the portfolio value December 2020, as shown on on a long-term basis.
including portfolio and reflects page 140. The increase in the
premium. the potential increase in Adjusted Portfolio EPS
value the Group could (31 December 2019: 15.92 from the previous period
realise if assets are sold pence) is reflective of the
on a portfolio larger
basis. portfolio size.
---------------------------- --------------------------- ---------------------------
8 . Portfolio NAV
---------------------------------------------------------- ---------------------------- ----------------------------
The IFRS NAV adjusted for The Portfolio NAV measure The Portfolio NAV of The Portfolio NAV per share
the market portfolio is to highlight the fair GBP468.8 million equates to shows a good market growth
valuation including value of net assets on an a Portfolio NAV of 116.39 in the underlying asset
portfolio premium. ongoing, long-term pence per Ordinary value of the
basis and reflects the Share, as shown on page investment properties.
potential increase in value 140.
the Group could realise
under the special (31 December 2019:
assumption of a Portfolio NAV GBP401.9
hypothetical sale of the million equated to 114.53
underlying property pence per Ordinary Share)
investment portfolio in one
single
transaction.
---------------------------- ---------------------------- ----------------------------
9. Exposure to Largest Approved Provider
----------------------------------------------------------------------------------------------------------------------
The percentage of the The exposure to the largest 29.8% at 31 December 2020. Our maximum exposure limit
Group's gross assets that Approved Provider must be is 30%.
are leased to the single monitored to ensure that we (31 December 2019: 20.6%)
largest Approved are not The Group increased its
Provider. overly exposed to one target from 25% to 30% in
Approved Provider in the order to acquire properties
event of a default at a significant
scenario. discount to market value
that are leased to the
Group's largest Approved
Provider which provides
high-quality housing
services.
---------------------------- ---------------------------- ----------------------------
10. Total Return
----------------------------------------------------------------------------------------------------------------------
EPRA NTA plus total The total return measure EPRA NTA 106.42 pence at 31 The EPRA NTA per share at
dividends paid during the highlights the gross return December 2020. 31 December 2020 was 106.42
year. to investors including Total dividends paid during pence. Adding back
dividends paid the year ended 31 December dividends paid during
since the prior year. 2020 were 5.18 pence per the year of 5.18 pence per
share. Ordinary Share to the EPRA
NTA at 31 December 2020
Total return was 5.9% for results in an
the year to 31 December increase of 5.9%.
2020.
(31 December 2019: 6.5%)
---------------------------- ---------------------------- ----------------------------
EPRA PERFORMANCE MEASURES
The table below shows additional performance measures,
calculated in accordance with the Best Practices Recommendations of
the European Public Real Estate Association (EPRA). We provide
these measures to aid comparison with other European real estate
businesses.
Full reconciliations of EPRA Earning s and NAV are included in
Notes 3 5 and 3 6 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 S hare
EPRA Earnings per share excludes A measure of a Group's underlying 4.61 pence per share for the period
gains from fair value adjustment on operating results and an indication to 31 December 2020.
investment property that of the extent to which
are included in the IFRS calculation current dividend payments are (31 December 2019: 3.39 pence)
for Earnings per share. supported by earnings.
Full dividend cover on a look-through
EPRA earnings run-rate basis was
achieved in August
2020 and following the equity raise
in October 2020 was 97.6% as at 31
December 2020.
======================================
2. EPRA Net Reinstatement Value (NRV) per share
------------------------------------------------------------------------------ --------------------------------------
The EPRA NRV adds back the A measure that highlights the value GBP463.3 million / 115.02 pence per
purchasers' costs deducted from the of net assets on a long-term basis. share as at 31 December 2020.
IFRS valuation.
GBP397.2 million / 113.20 pence per
share as at 31 December 2019.
-------------------------------------- -------------------------------------- --------------------------------------
3. EPRA Net Tangible Assets (NTA) per share
------------------------------------------------------------------------------ --------------------------------------
The EPRA NTA is equal to IFRS NAV as A measure that assumes entities buy GBP428.6 million / 106.42 pence per
there are no deferred tax liabilities and sell assets, thereby share as at 31 December 2020.
or other adjustments crystallising certain levels
applicable to the Group under the of deferred tax liability. GBP369.7 million / 105.37 pence per
REIT regime. share as at 31 December 2019.
-------------------------------------- -------------------------------------- --------------------------------------
4. EPRA Net Disposal Value (NDV)
------------------------------------------------------------------------------ --------------------------------------
The EPRA NDV provides a scenario A measure that shows the shareholder GBP420.9 million / 104.50 pence per
where deferred tax, financial value if assets and liabilities are share as at 31 December 2020.
instruments, and certain other not held until maturity.
adjustments are calculated as to the GBP364.7 million / 103.93 pence per
full extent of their liability. share as at 31 December 2019.
-------------------------------------- -------------------------------------- --------------------------------------
5 . EPRA Net Initial Yield (NIY)
Annualised rental income based on the A comparable measure for portfolio 5.27% at 31 December 2020.
cash rents passing at the balance valuations. This measure should make
sheet date, less non-recoverable it easier for investors 5.29% at 31 December 2019.
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.
======================================
6 . EPRA 'Topped-Up' NIY
This measure incorporates an The topped-up net initial yield is 5.28% at 31 December 2020.
adjustment to the EPRA NIY in respect useful in that it allows investors to
of the expiration of rent-free see the yield based 5.29% at 31 December 2019.
periods (or other unexpired lease on the full rent that is contracted
incentives such as discounted rent at 31 December 2020.
periods and step rents).
======================================
7 . EPRA Vacancy Rate
Estimated Market Rental Value (ERV) A "pure" percentage measure of 0.29 % as at 31 December 2020 (1) .
of vacant space divided by ERV of the investment property space that is
w hole portfolio. vacant, based on ERV. 0.00% as at 31 December 2019.
======================================
7. EPRA Cost Ratio
====================================== ====================================== ======================================
Administrative & operating costs A key measure to enable meaningful 23.27% as at 31 December 2020.
(including & excluding costs of measurement of the changes in a
direct vacancy) divided by Group's operating costs. 28.35% as at 31 December 2019.
gross rental income.
====================================== ====================================== ======================================
Note:
1 This has increased from 0.00% due to there being two
properties in the portfolio without a lease, which are therefore
vacant.
INVESTMENT MANAGER'S REPORT
Review of the Business
The Chairman has described well both the challenges that
Covid-19 brought to the Group's business, and the impressive way
that all stakeholders rose to the challenges. As Investment
Manager, our priority was the safety and wellbeing of the Group's
residents and the people who support them. As the lockdown began in
early 2020, we moved quickly to speak to our Approved Providers and
care providers to understand how they were coping and to offer help
however we could. We made sure to share 'best practices' among
counterparties with a focus on ensuring resident safety. Inevitably
there have been cases of Covid-19 among individuals housed in our
properties. But our Approved Provider and care provider partners
have worked tirelessly to ensure that these were kept to a minimum,
and for that we are incredibly grateful.
The diligence, collaboration and resourcefulness of all
stakeholders is worth commenting on. Approved Providers postponed
non-essential maintenance wherever necessary as a way of minimising
the spread of infection while ensuring schemes remained safe and a
good standard of housing was maintained. Care providers continued
to provide the care and support that residents need and deserve,
implementing their infectious diseases policies and successfully
managing their complex staffing schedules at a time of social
distancing. Regulatory obligations were eased during the height of
lockdown, while government funding continued to flow uninterrupted.
Although the continuing lockdowns present further challenges, we
are pleased that Covid-19 was managed so capably and
collaboratively by all stakeholders during 2020.
In this context, it is worth reflecting on the resilience of the
Group's investment model, and its portfolio, during 2020. After
some initial delays, we were able to continue deploying capital
into new schemes, our forward funding projects continued, and
existing schemes continued to operate well and safely. The Group
received 100% of rent (1) . It paid all dividends due in full, and
achieved full dividend cover on a run-rate basis before the new
equity raise on 23 October. The share price ended the year higher
than it began, achieving an all-time high of 113.50 pence in
November. The Group drew GBP29.4 million of debt from its revolving
credit facility, secured a further GBP30 million increase to that
facility, and raised GBP55 million of equity capital from both
existing and new investors. This resilience may have contributed
towards the Group being shortlisted for Property Investor of the
Year at the Laing Buisson Awards, with the announcement of the
results of the awards postponed until early 2021.
As mentioned in our Chairman's Statement above, during 2020 the
Group bought 58 new schemes for a total investment cost (i.e.
including acquisition costs) of GBP78.9 million using the proceeds
of the extended revolving credit facility. These schemes provide
400 new units of accommodation. At the year end, the Group had 445
properties, containing 3,124 units of accommodation, leased to 20
Approved Providers, operating in 155 Local Authorities, with care
provided by 98 different care providers. In terms of forward
funding, during 2020 five of the Group's projects successfully
completed. As such, as at 31 December 2020, 20 of the 22 projects
that the Group has funded since inception were complete, and o f
the remaining 2 schemes, one completed on 26 February 2021 and the
final project is due to complete imminently. Covid-19 caused some
construction delays from staff and materials shortages, but the
successful completion of the projects reflects the resourcefulness
and strength of the Group's counterparties as well as the continued
demand by all stakeholders for high-specification properties in
areas of proven demand that add to the country's overall housing
stock.
Operational performance is always a function of the quality of
the investment processes in place. Strong performance is only
possible when good investments are made in the first place. We
therefore continually iterate our due diligence processes on the
principle that, as the market is always evolving and every
transaction is different, our processes should be continually
updated to reflect all of our latest experience. We continue to
reject at least as many deals as we invest in, and during the year
we piloted, and have begun adopting, a market-leading property
management system, Coyote. This software drives efficiencies by
managing properties through the entire investment lifecycle on a
single digital platform, and by automating the generation of
reports. It also gives us access to more data, which we can more
easily analyse, and it enables us to use third-party analytics
software.
This meticulous approach to due diligence has been developed
over the 17 years that we have been an investment manager. Since
2004, Triple Point Investment Management LLP has been investing in
high-impact investments which generate long-term predictable income
streams. We invest where there is a social challenge because the
greater the social need, the greater the demand, which in turn
drives long-term financial performance. Over the years of investing
in the social housing sector, we have developed a strong network
which enables us to successfully source off-market deals and work
with the sector's leading providers. We have also organically built
a multi-disciplinary social housing team which contains a diverse
blend of fund managers, social housing professionals, accountants,
lawyers and surveyors. Being part of a wider fund management
business means that we are able to keep in-house our business
functions including finance, marketing, legal, property management
and company secretary. We were recently authorised by the Financial
Conduct Authority as a full scope Alternative Investment Fund
Manager ("AIFM") and were appointed as the Company's AIFM, taking
over the Group's risk and portfolio management from 1 July 2020,
with the Board continuing to provide oversight and ensure the Group
acts within the Company's Investment Policy.
As the number of properties under our management has grown, it
has become more important than ever that we pro-actively manage the
portfolio. Central to that is ensuring that all properties are
properly maintained, and are looked after by the Approved Provider
which has the most suitable processes, Commissioner relationships,
and geographical focus for the specific properties. As part of this
strategy, during 2020 we transferred away all 15 properties that
the Group had with Westmoreland as part of Westmoreland's stock
rationalisation programme. To that end, we selected one of the
Group's existing Approved Providers which is already operating in
the local areas with strong Commissioner relationships. 12 of the
properties have already transferred with no material valuation
impact, and the Approved Provider has already begun managing the
properties to a high standard. Of the remaining three properties,
we expect one property to transfer shortly to the same Approved
Provider, and another property to transfer to another existing
Approved Provider of the Group. The final property is a two-bedroom
property with a value of less than GBP200,000 which is in the
process of being sold. If and when we identify the need for further
property transfers in future, we will take the same approach to
ensure we remain a responsible, pro-active landlord focused on
optimising the portfolio for the benefit of all stakeholders.
Market Review
One of the major themes for the Supported Housing market in 2020
was the robustness of its performance - reflected in its strong
rent collection and resultant continuing market activity - at a
time when many other property sectors suffered from the effects of
the pandemic. As described elsewhere, the Group's investment model
proved its resilience amid the disruptions of Covid-19, with all
rent received and its valuations upheld. Supported Housing was in
fact one of the first three property sectors to have its 'material
uncertainty' clause removed from valuations by the Royal Institute
of Chartered Surveyors.
Demand for supported housing remains strong - perhaps stronger
than ever. The last available data forecast a shortfall of 46,771
units by 2024-2025. (2) This demand has been driven by a growing UK
population; a growing incidence of people with long-term care needs
living to adulthood as a result of medical advances; and a
government policy of moving people with care needs out of
institutions and into the community, as enshrined in the Care Act
2014 and the Transforming Care Programme 2015. We do not have
up-to-date demand data since the pandemic began, but our experience
on the ground suggests that demand has grown as many Commissioners
have found a way through the obstacles that too often prevent
people being moved out of inappropriate institutional settings into
community-based homes. Commissioners have sought to create space in
hospitals for Covid-19 patients, and to achieve the long-term
health and financial benefits unlocked through Supported Housing.
Evidence suggests that every person living in Supported Housing
saves the government about GBP200 per week compared to them being
in a care home, and about GBP2,000 per week compared to them being
in a hospital. (3) At the same time, the independence that comes
with living in the community improves the health and well-being of
residents. (4)
The need for more, and better, community-based care settings was
powerfully reinforced by a report by the Care Quality Commission
published in October 2020 called Out of Sight - Who Cares?:
Restraint, segregation and seclusion review. (5) The report
describes how too many people in the UK with mental health
conditions, learning disabilities or autism are restrained,
secluded and segregated when they would be better served by a
tailored package of care based in the community. In the words of
the CQC, " This lack of support in the community often led to
people becoming increasingly distressed and, in some cases,
suicidal or violent " and most hospitals visited by the CQC were "
not therapeutic environments " that " could add to people's
distress " which was then " used as a rationale for using
restraint, seclusion and segregation ". In conclusion, the CQC's
first recommendation is that " People with a learning disability
and/or autistic people who may also have a mental health condition
should be supported to live in their communities ". To deepen its
engagement with issues like these, in January 2021 the Company
became a Supporter Member of Care England.
Another major theme in 2020, which was accelerated by Covid-19,
was the growing awareness of the value of socially-impactful
investments. The Group was established in 2017 to generate
shareholder returns by investing where there is identified local
need across the UK to deliver a positive social impact. As the
Impact Report by The Good Economy states, the Group has delivered
GBP136.1 million of Total Social Value in the year to December
2020. This is divided into GBP53.9 million of Social Impact (the
value of improved personal outcomes for residents) and GBP82.1
million of fiscal savings (savings generated for public budgets
through reduced costs). Overall, The Good Economy have calculated
that, for every GBP1 invested, the Group will generate GBP3.62 in
social value over the duration of the investment. Likewise, 65% of
residents in a survey by The Good Economy reported a greater
independence after moving into their accommodation. So it was
encouraging in 2020 to see growing collaboration between market
participants eager to enhance the positive impact that investing in
high-quality social housing can have on society. In May 2020, a
White Paper, Building a Sector Standard Approach for ESG Reporting
, was published to create a set of sector-wide ESG metrics. Because
of the benefits that standardised metrics will bring, we have
signed up as early adopters of those metrics which will be tested
throughout 2021. Likewise, we are active participants in the Equity
Impact Project being run by The Good Economy and Big Society
Capital to standardise impact metrics for equity investors in
social housing. This should create another set of valuable
cross-sector metrics which will drive up impact performance by
creating comparability for investors.
Our investment strategy has always been focused on investing
where there is clear long-term social need, and where our
properties will be managed by high-quality, well-governed
counterparties. But the importance of environmental efficiency is
becoming increasingly integral to our investment strategy.
Residential housing contributes to 15% of carbon emissions in the
UK, and the recent Energy White Paper is pushing for all social
housing properties to have an Energy Performance Certificate
("EPC") rating of 'C' or above by 2035 - which is only 14 years
away. (6) Although the government minimum for new tenancies is
currently still only an 'E', we want to do better - and believe
that, as a sector, we can do better. At the end of 2020, the entire
portfolio of the Group had an EPC rating of 'E' or above except for
3 units which dropped to an 'F' after further testing, though they
expect to be upgraded to at least an 'E' by April following works.
70% of the portfolio is rated 'C' or above, and 33% is rated 'B' or
above. This compares favourably to the market, with only 56% of
socially rented homes across the UK rated 'C' or above. (7)
Moreover, the portfolio's rating will improve over time as we
require an EPC rating of at least 'C' for existing or renovated
properties that the Group buys, and at least a 'B' for new-build
properties that the Group buys. Likewise, we require building
contractors on forward funding projects to sign up to the
guidelines of the Code of Considerate Contractors scheme as well as
the Site Waste Management Plan 2008, both of which encourage
environmental efficiency.
As mentioned, regulatory engagement reduced during Covid-19. The
Regulator of Social Housing sensibly paused its In-Depth
Assessments to enable Registered Providers to focus on operations.
When the full lockdown eased in the summer, regulatory engagement
re-started. In December 2020 one of the Group's Approved Providers,
My Space Housing Solutions, which comprised 8.5% of the investment
value of the Group's property portfolio at 31 December 2020,
received a non-compliant rating of G3, V3. The Group's independent
valuer, Jones Lang LaSalle Limited, confirmed that there should be
no impact on the value of the Group's portfolio as a result of this
rating. In October 2020, Westmoreland Supported Housing also
received a Regulatory Notice concerning its compliance with the
Rent Standard, though since the notice was published the Group has
reduced its exposure to Westmoreland from less than 0.5% of the
Group's portfolio value to 0%. We continue to speak directly to the
Regulator to better understand the areas they want the sector to
focus on and to ensure that our processes continue to evolve to
reflect the latest regulatory guidance.
Financial Review
The annualised rental income of the Group was GBP31.6 million as
at 31 December 2020. Excluding forward funding transactions, the
rental income of the Group for 2020 was GBP28.4 million, compared
to GBP21.1 million in the previous 12 months. 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 GBP8.0 million was recognised during the
period on the revaluation of the Group's properties.
Earnings per share was 6.82 pence for the year, compared to 6.75
pence for the year ending 31 December 2019. EPS includes the fair
value gain on investment property which was lower this year
compared to last year due to slower deployment.
The EPRA earnings per share excludes the fair value gain on
investment property and was 4.61 pence for the year, compared to
3.39 pence for the year ending 31 December 2019. Adjusted portfolio
earnings per share were 17.94 pence for the year, where post-tax
earnings were adjusted for a valuation on a portfolio basis (as
opposed to individual property IFRS basis) (2019: 15.92 pence).
From the beginning of this year, the EPRA NAV has been replaced
by three EPRA NAV metrics which are shown in the Financial
Statements on page 141. The one most comparable to the previously
reported EPRA NAV measure is EPRA Net Tangible Asset (NTA), which,
therefore, the Group has adopted as its primary reporting metric.
The EPRA NTA per share as at the period end is 106.42 pence per
share, the same as the IFRS NAV per share. The IFRS NAV adjusted
for the portfolio valuation (including portfolio premium) was
GBP468.8 million, which equates to a Portfolio NAV of 116.39 pence
per share.
The audited IFRS NAV per share was 106.42 pence, a 1.0% increase
from 105.37 pence as at 31 December 2019.
The EPRA ongoing charges ratio is calculated as a percentage of
the average net asset value for the period under review. The
ongoing charges ratio for the period was 1.57% compared to 1.63% at
31 December 2019.
At the year end, the portfolio was independently valued at
GBP571.5 million on an IFRS basis, reflecting a valuation uplift of
7.7% against the portfolio's aggregate purchase price (including
acquisition costs). The valuation reflects a portfolio yield of
5.27%, against the portfolio's blended net initial yield of 5.90%
at the point of acquisition. This equates to a yield compression of
63 basis points, reflecting the quality of the Group's asset
selection and off-market acquisition process.
The Group's properties were valued at GBP611.6 million on a
portfolio valuation basis, reflecting a portfolio premium of 7.0%,
or GBP40.1 million, against the IFRS valuation, compared to a
portfolio valuation of GBP503.8 million and a portfolio premium of
6.82% or GBP32.2 million uplift for the year ending 31 December
2019. 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 2.3%.
The Group held cash and cash equivalents of GBP53.7 million at
31 December 2020 of which GBP0.9 million was restricted and GBP2.8
million was committed for the completion of forward funded
transactions, leaving available cash of GBP50 million. During the
year cash from operating activities increased by GBP8.2
million.
Debt Financing
During 2020, the Group drew and deployed the remaining GBP29.4
million of its GBP130 million revolving credit facility. The
facility had been increased from GBP70 million to GBP130 million
with Lloyds Bank Plc and National Westminster Bank in October 2019.
Following a successful equity raise in October 2020 (with net
proceeds of GBP55 million), the Group signed a further GBP30
million increase to the revolving credit facility, bringing the
total facility to GBP160 million. As part of this, the facility's
term was extended for a further 12 months to 20 December 2023 and,
subject to lender consent, may be extended by a further year to 20
December 2024.
Under the increase and extension of the RCF, the interest rate
for drawn funds remains at 1.85% per annum over three-month LIBOR.
In the light of the ceasing of LIBOR as a benchmark rate during
2021, the Group has negotiated and agreed provisions within the
terms of the increase and extension of the RCF setting pre-agreed
terms for the transition of LIBOR to the new benchmark rate SONIA.
The date for the transition from LIBOR to SONIA is 1 July 2021. The
facility remains unhedged, though the Board regularly reviews
potential hedging arrangements which can be put in place at any
time during the term of the facility. Once fully utilised, the
facility will have a loan-to-value of 40% against a defined
security pool of the Group's properties in a separate, wholly-owned
subsidiary. Once the increased facility is fully drawn, the gearing
of the Group will be in the region of 40%.
The Group's facility with MetLife in the amount of GBP68.5
million requires the Group to maintain an asset cover ratio of
2.25x and an interest cover ratio of 1.75x. The RCF 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 2.75x. At all
times, the Group has complied with the debt covenants on both
credit facilities.
The Group will continue to monitor capital requirements as the
extended capacity under the revolving credit facility is drawn
down.
Further information is set out in Note 19 of the financial
statements.
Strategic Alignment and Asset Selection
Despite the challenges presented by Covid-19, the Group
continued to execute on its investment strategy and secured both
new equity and debt funding to deploy, allowing it to continue
delivering inflation-protected income underpinned by a careful
selection of secure, long-let and index-linked properties. During
the year, the Group bought 58 properties for a total investment
cost of GBP78.9 million (including acquisition costs).
31 December 31 December Change in
2020 2019 2020
Number of Assets 445 388 +57 (1)
------------ ------------ ----------
Number of Leases 341 300 +41
------------ ------------ ----------
Number of Units 3,124 2,728 +396 (2)
------------ ------------ ----------
Number of Approved
Providers 20 16 +4 (3)
------------ ------------ ----------
Number of Forward
Funding Agreements 22 22 0
------------ ------------ ----------
WAULT (years) 26.2 25.7 +0.5
------------ ------------ ----------
(1) One asset within the existing portfolio is currently being
held for sale.
(2) Unit adjustments have been made to assets within the
existing portfolio as a result of ongoing asset management
activities and one asset within the existing portfolio being
currently held for sale.
(3) The Group transferred away all 15 properties that were
leased with Westmoreland Supported Housing.
In addition, as at 31 December 2020 the Group had outstanding
commitments of GBP2.8 million (including acquisition costs), for
undrawn forward funding commitments.
Committed Capital Total Funds (GBPm)
------------------------------- -------------------
Total Invested since IPO GBP530.7
Commitments to Forward Funding
projects GBP2.8
Total Invested and Committed GBP533.5
Capital
Property Portfolio
As at 31 December 2020, the portfolio comprised 445 properties
with 3,124 units and showed a broad geographic diversification
across the UK. The four largest concentrated areas by market value
were the North West (22.2%), West Midlands (17.7%), East Midlands
(12.7%) and London (9.4%). The IFRS value of the portfolio at 31
December 2020 was GBP571.5 million.
As at 31 December 2020, the Group had entered a total of 22
forward funding projects with 20 schemes having reached practical
completion , with one scheme having completed on 26 February 2021
and the final project due to complete imminently.
Rental Income
In total, the Group had 339 fully repairing and insuring leases
(excluding agreement for leases on forward funding transactions).
The Group had a total annualised rental income of GBP31.6 million
on its standing investments.
During 2020, the Group entered into leases with another five
Approved Providers and removed SOHO's exposure to Westmoreland,
increasing its total to 20. This enhanced the Group's counterparty
diversification. The Group's three largest Approved Providers by
rental income were Inclusion Housing (31.1%), Falcon (11.0%) and
Parasol Homes (10.7%).
The Group's three largest Approved Providers by units were
Inclusion Housing (914), Falcon (366) and Hilldale (328).
As at 31 December 2020, the portfolio had a WAULT of 26.2 years
(well in excess of the Group's minimum term of at least 15 years),
with 98.5% of the portfolio's rental income showing an unexpired
lease term above 21 years. The WAULT includes the initial lease
term upon completion as well as any reversionary leases and
put/call options available to the Group at expiry of the initial
term.
Rents under the leases are indexed against either CPI (91.7%) or
RPI (8.3%), which provides investors with the comfort 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 8.5% of the Group's
leases. For the purposes of the portfolio valuation, JLL assumed
CPI and RPI to increase at 2% per annum and 2.5% per annum
respectively over the term of the relevant leases.
Outlook and Pipeline
Despite the pressure on budgets exerted by the pandemic, the
government has kept to its affordable housing spending commitments.
On 8 September 2020 it was confirmed that, subject to the
prevailing economic circumstances, over the next five years GBP12
billion will be made available to fund the development of new
discounted homes to rent and buy. But the government also
acknowledges that there is a requirement for private capital to
complement public spending if this country is going to receive the
homes it so desperately needs. While Supported Housing makes up a
relatively small proportion of the social housing market, we can
see the positive impact that the Group's investments have on the
lives of the vulnerable individuals we house, and we remain
determined to continue to use the Group's capital to make more
specialised supported homes available to Registered Providers and
Local Authorities so that waiting lists can be reduced. Our ability
to do this is underpinned by the strong pipeline that we have
maintained which in turn reflects ongoing demand for adapted
independent community-based homes.
The recent government Social Housing White Paper (8) focused
firmly on the rights of residents, promoting higher standards among
social housing providers and creating greater transparency and
accountability throughout the sector. It will take time for the
ideas raised to be delivered upon but we will encourage our
partners to move early and do our best to support them as they
adapt and improve. We want to drive positive change, both
internally through constantly improving and updating our investment
and asset management processes, and throughout the wider sector by
helping to establish universal metrics that can better measure the
impact of private capital and the quality of social housing it
provides. This is why we have chosen to participate in projects
such as the Equity Impact Project referred to earlier.
Our current pipeline has over GBP150 million of live investment
opportunities which should enable us to deploy the proceeds from
the Group's recent debt and equity raises. But 2020 has shown us
that nothing should be taken for granted. Despite recent progress,
the pandemic is sadly far from over and so we will continue to be
watchful for unforeseen shockwaves that could impact the Group's
business and the individuals living in its properties. This year
the portfolio has proved to be resilient to the greatest of shocks
and, while we will remain vigilant, it is this resilience that
enables us to look to 2021 with renewed, cautious optimism.
Max Shenkman
Head of Investment
4 March 2021
Notes:
1 Due to a clerical error, there has been a short delay in the
payment of an immaterial amount of rent representing c.GBP45k
(0.16% of rent roll) for the quarter ended 31 December 2020. This
is expected to be paid in full in the next 2 weeks.
2 National Housing Federation, Supported housing: Understanding need and supply (2015)
3 Mencap, Funding Supported Housing for All
4 Mencap, Funding Supported Housing for All
5 https://www.cqc.org.uk/publicati ons/themed-work/rssreview
6 HM Government, Energy White Paper: Powering our Net Zero Future, 2020
7 HM Government, Energy White Paper: Powering our Net Zero Future, 2020
8
https://www.gov.uk/government/publications/the-charter-for-social-housing-residents-social-housing-white-paper
PORTFOLIO SUMMARY
% of funds invested
Region Properties *
--------------- ----------- --------------------
North West 97 22.5
West Midlands 81 17.3
East Midlands 57 12.8
London 26 9.6
North East 45 9.2
South East 52 8.9
Yorkshire 36 9.0
South West 29 5.4
East 18 3.9
Scotland 2 0.9
Wales 2 0.5
Total 445 100.0
--------------- ----------- --------------------
* calculated excluding acquisition costs
CORPORATE SOCIAL RESPONSIBILITY
A fundamental aspect of our ambition to be the leading UK
Supported Housing investor, to the achievement of our long-term
financial objectives, coupled with the aim of having a positive
societal impact, is to ensure that we embed and drive ESG across
the business.
Our business model (pages 24 to 25) seeks to ensure that our
properties are suitable to meet residents' evolving needs and
assist Local Authorities in meeting these demands for the benefit
of the wider community. Our social impact is therefore at the heart
of what we do, and we focus on investing where there is clear
long-term social need. We maintain a robust corporate governance
framework, and this is set out in further detail within our
corporate governance report on pages 69 to 96. We recognise the
importance of environmental efficiency, which is becoming
increasingly integral to our investment strategy, and we have set
out how we execute this strategy in practice in further detail
below and on pages 34 to 35 of the Investment Manager's Report.
In conjunction with the Board's endorsement, the Investment
Manager has an ESG integration policy in place, directly relating
to the Company's investments with the aim of ensuring value for
investors, coupled with creating value for society and the
environment. Within this policy, the Investment Manager has set out
principles which it will seek to incorporate throughout its
business, for example, to consider the impact of operations on
local communities and to uphold high standards of business
integrity and honesty. Further, incorporated within the ESG
integration policy, the Investment Manager has become a signatory
to the United Nations Principles for Responsible Investment,
committing to the principles set out therein to show dedication to
strengthening environmental, social and governance considerations
into its business.
Environment
Policy presents new challenges and opportunities for the real
estate industry and the social housing market, with potentially
profound implications for both owners and occupiers. A good
investment strategy must incorporate environmental and social
issues alongside traditional economic considerations. Impact
assessment is central to our investment process and is demonstrated
through the environmental, social and governance assessments in our
due diligence. For example, we require every property we acquire to
have a minimum energy performance rating of at least a 'C' on an
Energy Performance Certificate ("EPC") for renovated properties and
at least a 'B' on an EPC for new-build properties, notwithstanding
the legal requirement for any privately rented properties to have a
minimum energy performance rating of E on an EPC.
When acquiring assets, we look closely at their environmental
impact, and encourage a sustainable approach for new development as
well as the maintenance and upgrading of existing properties.
Through our rigorous due diligence process, the high standards we
expect from developers and significant investment in the Supported
Housing sector, we have been able to provide capital and expertise
that has enabled parties in the industry to professionalise and to
lead to further high-quality housing. Offering residents
resource-efficient and adapted living areas is critical to ensure
our investments are fit-for-purpose and sustain their value over
the long-term. As a landlord, we consider the opportunities we have
to help reduce running costs for our lessees and occupiers,
increase resident well-being and contribute to the prosperity of a
location through supporting new building design and development.
Ignoring these issues when considering property management and
investments would risk the erosion of income and value as well as
missing opportunities to enhance investment returns.
Climate Change and Greenhouse Gas Emissions
The Board is cognisant of the impact of the Group's operations
on emissions. In supporting the construction of new build
properties, we hope to encourage best practice, in turn helping to
reduce the industry's impact on emissions and the consumption of
depleting resources.
The Board has considered the requirements to disclose the annual
quantity of emissions in tonnes of carbon dioxide equivalent for
activities for which the Group is responsible and believes that the
Group has no reportable emissions for the year ended 31 December
2020, and therefore has not included the information or
methodologies for the calculation of emissions, for the following
reasons:
-- emissions from the Group's properties were the lessees'
responsibility rather than the Group's;
-- emissions produced from either the registered office of the
Company or from the offices of other service providers are deemed
to fall under the responsibility of other parties; and
-- the Group has not leased or owned any vehicles which fall
inside the scope of the GHG Protocol Corporate Standard.
In relation to the Streamlined Energy and Carbon Reporting
(SECR), implemented by The Companies (Directors' Report) and
Limited Liability Partnerships (Energy and Carbon Report)
Regulations 2018, for the year ended 31 December 2020 the Group is
considered to be a low energy user.
Community
Our properties provide multiple benefits to local communities.
They provide residents with safe and secure accommodation, tailored
to meet their individual care needs. They provide Approved Provider
lessees with a way of growing sustainably, allowing them to expand
the number of individual lives they support and improve and they
provide employment for local carers, housing managers and builders.
While development and refurbishment can cause some minor short-term
disruption to an area, these activities help create employment and,
at the same time, help alleviate the UK's housing crisis.
Further information on the impact and benefits to the Community
of our properties is set out in the Market Review section of the
Investment Manager's Report
Business Relationships
As well as the critical day-to-day portfolio management, the
Group has a set of corporate providers that ensure the smooth
running of the Group's activities. The Group's key service
providers are listed on page 143, and the Management Engagement
Committee annually reviews the effectiveness and performance of
these service providers, taking into account any feedback received.
The Group also benefits from the commitment and flexibility of its
corporate lenders for its debt facilities and works with a
selection of high-quality trusted developer partners to source the
majority of its deals off market and to who forward funding is
provided. Each of these relationships is critical to the long-term
success of the business. Therefore, the Group and the Investment
Manager maintain high standards of business conduct by acting in a
collaborative and responsible manner with all its business partners
that protects the reputation of the Group as a whole.
Employees
The Group has no employees and accordingly no requirement to
separately report on this area.
The Investment Manager is an equal opportunities employer who
respects and seeks to empower each individual and the diverse
cultures, perspectives, skills and experiences within its
workforce. The Investment Manager places great importance on
company culture and the wellbeing of its employees and considers
various initiatives and events to ensure a positive working
environment.
Health and Safety
The Group is committed to fostering the highest standards in
health and safety. Before the Group acquires a property, we ensure
it includes all installations necessary to minimise the risk to the
vulnerable people who will live in it. Day-to-day responsibility
for health and safety in our properties is then shared by the
Approved Providers and care providers who manage the housing and
provide care. Nonetheless, our Investment Manager still requests
confirmation from Approved Providers that all properties remain
compliant and visit properties to verify this. Every quarter the
Board is provided with updates on the health and safety of our
residents.
Diversity
We are an externally managed business and do not have any
employees or office space. As such the Group does not operate a
diversity policy with regards to any administrative, management and
supervisory functions. A description of the Board's policy on
diversity can be found in the Annual Report .
Human Rights
The Group is not within the scope of the Modern Slavery Act 2015
because it has not exceeded the turnover threshold and is therefore
not obliged to make a slavery and human trafficking statement.
The Board are satisfied that, to the best of their knowledge,
the Company's principal advisers, which are listed in the
Shareholder Information section of the Annual Report , comply with
the provisions of the UK Modern Slavery Act 2015.
Our business is solely in the UK and therefore we consider there
is a low risk of human rights abuses.
SECTION 172(1) STATEMENT
The following disclosure describes how the directors have had
regard to the matters set out in section 172(1)(a) to (f) when
performing their duty under s172 and forms the directors' statement
required under section 414CZA of the Act.
Stakeholder Engagement
This section describes how the Board engages with its key
stakeholders, and how it considers their interests when making its
decisions. Further, it demonstrates how the Board takes into
consideration the long-term impact of its decisions, and its desire
to maintain a reputation for high standards of business
conduct.
Stakeholder Why is it important How have the What were the What was the
to engage? Investment key topics feedback obtained
Manager/Directors of engagement? and the outcome
engaged? of the engagement?
Shareholders A fundamental The way in 1 Financial 1. Refer to
aspect of our which we engage and operational shareholder
ambition to with our shareholders performance. engagement
be the leading is set out in the Annual
UK Supported on page 78 2 The regulatory Report.
Housing investor, in our Corporate environment
to the achievement Governance of the Supported 2. The Board
of our long-term Report Housing sector. and Investment
financial objectives, Manager take
coupled with 3 Environmental, into account
the aim of social and shareholder
having a positive governance concerns when
societal impact, considerations. speaking to
is to ensure the Regulator
that we embed 4 The Company's and agreed
and drive ESG key service to keep shareholders
across the provider appointments, updated of
business. including the any developments.
AIFM and broker We understand
arrangements. the importance
of, and are
committed to,
working with
Registered
Providers to
address the
concerns of
the Regulator.
Refer to the
Market Review
in the Investment
Manager's Report.
3. The Investment
Manager has
enhanced
environmental,
social and
governance
considerations
within its
investment
process, and
within its
own business.
Refer to Investment
Manager's Report,
and the Corporate
Social Responsibility
Report in the
Annual Report.
4. Shareholders
were supportive
of the change
of AIFM as
it resulted
in some improvements
to operational
efficiency,
and were satisfied
that the terms
of the existing
services provided
by the Investment
Manager remained
unchanged.
Shareholders
were equally
supportive
of the appointment
of the Broker,
who have since
engaged with
shareholders,
in particular
in relation
to the recent
equity raise
----------------------- ----------------------- ------------------------- ------------------------
Investment The Investment The Board maintains In addition As a result
Manager Manager is regular and to all matters of the engagement
responsible open dialogue related to between the
for executing with the Investment the execution Board and the
the Investment Manager at of the Company's Investment
Objective within Board meetings Investment Manager the
the Investment and has regular Objective, Group has been
Policy of the contact on the Board engaged able to execute
Company. operational with the Investment its investment
and investment Manager on strategy and
matters outside the structure has considered
of meetings. of the Group, what adjustments
developments can be made
in the market to the Group's
and updates model that
from the Regulator. will uphold
financial and
governance
standards while
attracting
further private
investment
long term.
Additionally,
the Investment
Manager produces
reports to
the Board every
quarter on
various governance
and operational
matters at
the Board's
request. Capital
allocation
is also considered
with regard
to the views
of the Board.
----------------------- ----------------------- ------------------------- ------------------------
Approved Our relationship The Investment The Investment Refer to the
Providers with Approved Manager maintains Manager discussed Investment
Providers is strong relationships a number of Manager's Report.
integral to with Approved topics with
ensuring rent Providers, Approved Providers
received from having meetings including ensuring
the Local Authority every six months that properties
is paid to and are in are managed
the Group and regular dialogue in accordance
that properties on a variety with their
are managed of matters. leases; financial
appropriately Quarterly key reporting and
to safeguard performance governance;
tenants. indicator reporting and specific
is also provided. property-related
All of the issues such
Group's leases as occupancy,
with Approved health and
Providers are safety issues,
fully repairing rent levels,
and insuring management
- meaning that accounts and
Approved Providers governance.
are responsible
for management,
repair and
maintenance,
in addition
to tenanting
the properties.
----------------------- ----------------------- ------------------------- ------------------------
Care Providers Our residents The Investment The Investment The Investment
receive care Manager engages Manager engages Manager rejected
from Care Providers. with Care Providers with Care Providers deals where
It is important as part of on: the specific care providers
to ensure that its due diligence care and support did not meet
our vulnerable process and requirements the high-quality
residents receive regularly meets of residents standards expected
the best possible and engages including health or where care
care. In addition, with Care Provider and safety providers were
the Care Providers representatives compliance unable to demonstrate
share the cost when inspecting (refer to Investment the financial
of voids with the Group's Manager's Report); strength to
Approved Providers portfolio and property management meet its obligations
so we engage looking at by Approved under a Service
with Care Providers occupancy figures Providers; Level Agreement.
to ensure our every quarter. financial and
Approved Providers operational Following engagement,
are able to capacity for scope of works
pay our rent new schemes; were agreed
in the event occupancy levels; with care providers
of empty units. and financial to produce
performance. high quality,
Therefore, fit for purpose
Care Providers properties
play an essential that meet the
role in the specific care
occupancy levels needs of residents.
of our properties
and strong To maintain
engagement the Group's
with the Group reputation
ensures the for high standards
best possible of business
care for our conduct, care
residents. providers were
changed where
the standard
of care expected
by the Group
were not met
or where engagement
identified
care providers
in financial
difficulties.
----------------------- ----------------------- ------------------------- ------------------------
Residents We remain focused The Investment We provide The Investment
on providing Manager monitors oversight of Manager actively
homes to our resident welfare resident welfare engaged with
residents which through engagement by ensuring care providers
offer them with Approved properties to ensure plans
greater independence Providers. are safe and and processes
than institutional The Investment secure before were in place
accommodation, Manager receives residents move in respect
as well as quarterly reports in by: monitoring of the Covid-19
meeting their from Approved compliance pandemic, for
specialist Providers to with health the health
care needs. ensure compliance and safety and safety
with health standards; of the tenants.
and safety ensuring residents
standards. are looked Resident issues
Any concerns after by competent raised as a
are raised counterparties; result of engagement
to the Board. and requesting through care
updates on providers were
We do not generally any health addressed.
engage with and safety
residents directly issues every Compliance
since they quarter. issues have
are vulnerable. been remedied
Instead, day-to-day and any necessary
engagement works have
is done by been undertaken.
Care Providers
and, to a lesser The Group's
extent, Approved investment
Providers. decisions are
informed by
the long-term
needs of our
residents.
----------------------- ----------------------- ------------------------- ------------------------
The Regulator The Regulator The Investment Discussions The Investment
of Social regulates Registered Manager is focused on Manager is
Housing Providers of in regular ensuring the working with
social housing contact with market evolves Registered
to ensure providers the Regulator in line with Providers to
are financially through telephone its requirements, ensure the
viable and calls and regular to discuss standards of
properly governed. meetings. how standards the Regulator
It is important of Registered are met. Refer
to ensure that Providers can to the Investment
the Regulator be improved Manager's Report
does not object and to address for more detail.
to the way its concerns.
the Group invests Regulatory
and the way engagement
Approved Providers reduced during
operate. the Covid-19
pandemic, to
allow for Registered
Providers to
focus on operations.
Engagement
re-started
in summer 2020.
----------------------- ----------------------- ------------------------- ------------------------
Lenders The Group's The Investment The Group engaged The Group is
investments Manager engages on the following fully compliant
in social housing with the existing topics: financial with its debt
assets are lenders mainly and information covenants.
partly funded via the reporting covenant reporting;
by debt. Prudent of financial active asset The Investment
debt financing and information management Manager's pro-active
is critical covenants under activities engagement
to achieve the existing undertaken with the Group's
the target loan agreements by the Group lenders is
return promised on a quarterly e.g. altering welcome by
to shareholders basis. leases and/or its lenders
and to meet any other portfolio and to date
full dividend In addition, performance no concerns
cover once there are regular enhancing activity in relation
equity proceeds ad-hoc engagements that requires to the performance
have been fully in relation lenders' consent. of its loans
deployed. to general have been raised
topics relating The Group also by the lenders.
Further, engagement to the social engaged with
with debt funders housing sector the lenders The Investment
is also a significant as well as in relation Manager successfully
signal to the specific topics to a further increased and
sector that arising from increase and extended the
they are aligned the financial extension of Revolving Credit
with shareholders' and operational the Revolving Facility.
interests e.g. performance Credit Facility
long-term support of the Group's to make sure
of the sector activities sufficient The Board continues
social housing. and any other debt capital to monitor
general matters is available compliance
affecting the during 2021 with debt covenants
relationship to meet deployment and keeps liquidity
between the and dividend under constant
Group and the cover targets. review to make
lenders. certain the
There was also Group will
frequent liaison always have
with lenders' sufficient
rates desks headroom in
in order to its debt facilities.
monitor the
movement of
the 3M Libor
forward curve
as part of
the Group's
monitoring
of interest
rates for the
unhedged Revolving
Credit Facility.
----------------------- ----------------------- ------------------------- ------------------------
Principal Decisions
Principal decisions have been defined as those that have a
material impact to the Group and its key stakeholders. In taking
these decisions, the Directors considered their duties under
section 172 of the Act.
AIFM arrangements
The Company appointed Triple Point Investment Management LLP as
AIFM from 1 July 2020, replacing Langham Hall Fund Management LLP
as the previous AIFM.
The change in AIFM resulted in some improvements in operational
efficiency, but in all other material respects, the provision and
terms of service were effectively unchanged.
Extension of Debt Facility
During the year the Group secured a GBP30 million extension to
its existing GBP130 million revolving credit facility. In
considering whether to approve the transaction the Board had regard
to the interests of the Group's shareholders, lenders and the
community.
The Board believed that the extension of the debt facility was
in the best interest of shareholders as it would provide additional
capital and would allow the Group to continue to execute its
pipeline and achieve a fully covered dividend. The Group was able
to secure the extension of the debt facility on identical terms to
its existing facility. Further, the Group maintained an active
dialogue for the lender to appraise the Group's business model and
its portfolio. As described in the Corporate Social Responsibility
section on pages 42 to 43 the Board also considered that further
funds available to be deployed into the Supported Housing sector
would benefit the wider community.
Further details of the Group's debt financing are detailed on
pages 36 of the Investment Manager's Report.
Equity Raise
The Board published a prospectus dated 30 September 2020, in
relation to a placing, open offer and offer for subscription, and
subsequently raised GBP55 million through the issue of 51,886,792
Ordinary Shares at a price of 106 pence per Ordinary Share (the
"Issue").
The additional equity capital enabled the Company to capitalise
on attractive acquisition and development opportunities available
in the Supported Housing sector and have a further positive impact
on society by increasing overall investment into adapted homes for
vulnerable individuals who would otherwise be living in unsuitable
accommodation. In addition, the Board considered that shareholders
benefit from the scale up of the Group's portfolio as fixed costs
are spread over a larger asset base, reducing the ongoing charges
per Ordinary Share for shareholders. The Board considered that
increasing the size of the Company would help to increase liquidity
and make the Ordinary Shares more attractive to a wider investor
base, particularly as certain institutional investors are
constrained by the maximum percentage of an issuer which they can
own.
RISK MANAGEMENT
The Board recognises that effective risk management is key to
the Group's success and that a proactive approach is critical to
ensuring the sustainable growth and resilience of the Group.
We operate in a low-risk environment, focusing on a single
sub-sector of the UK real estate market to deliver an attractive,
growing and secure income for shareholders. We have a specific
Investment Policy, as outlined above , which we adhere to and for
which the Board has overall responsibility. As our risk appetite is
low, we do not undertake speculative development. Furthermore, we
have experienced lessees in our properties and we possess a
portfolio of high-quality assets with a robust WAULT to them.
As an externally managed investment company, we outsource key
services to the Investment Manager and other service providers and
rely on their systems and controls. The Board undertakes a formal
risk review, with the assistance of the audit committee, twice a
year to assess and challenge the effectiveness of our risk
management and internal control systems. The Board regularly review
the control reports of the key service providers and the external
auditors note any deficiencies in internal controls and processes
that have been identified during the course of the audit. A
description of the key internal controls of the Group can be found
in the Annual Report .
The Investment Manager has responsibility for identifying
potential risks at an early stage, escalating risks or changes to
risk and relevant considerations and implementing appropriate
mitigations which are recorded in the Group's risk register. Where
relevant the financial model is stress tested to assess the
potential impact of recorded risks against the likelihood of
occurrence and graded suitably. The principal risks that have been
subject to this methodology are noted in the Risk Heat Matrix
below. The Board regularly reviews the risk register to ensure
gradings and mitigating actions remain appropriate.
As part of this risk management evaluation the Board has
identified and undertaken a robust assessment of the Group's
emerging risks by assessing upcoming or potential changes in the
market or regulatory environment. The Board considers the
likelihood of the emerging risk materialising and its potential
impact on the Group. Emerging risks are regularly monitored, and to
the extent possible or practicable, mitigating actions are
implemented.
Our risk management process is designed to identify, evaluate
and mitigate (rather than eliminate) the significant and emerging
risks we face and continues to evolve to reflect changes in the
business and operating environment. The process can therefore only
provide reasonable, and not absolute, assurance. It does however
ensure a defined approach to decision making that decreases
uncertainty surrounding anticipated outcomes, balanced against the
objective of creating value for shareholders.
The Board has not identified or been advised of any failings or
weaknesses in our risk management and internal control systems
Principal risks and uncertainties
The table below sets out what we believe to be the principal
risks and uncertainties facing the Group. The table does not cover
all of the risks that the Group may face. Additional risks and
uncertainties not presently known to management or deemed to be
less material at the date of this report may also have an adverse
effect on the Group .
Risk Category Risk Risk Impact Risk Mitigation Impact Likelihood Change in
Description year
Financial Expensive or Without sufficient When raising Moderate Low Stable
lack of debt debt funding at debt finance
finance may sustainable rates, the Investment
limit our we will be unable to Manager adopts
ability to pursue suitable a flexible
grow and investments in line approach
achieve a with our Investment involving
fully covered Policy. This would speaking
dividend significantly impair to multiple
our ability funders
to pay dividends to offering
shareholders at the various rates,
targeted rate. structures and
tenors. Doing
this allows the
Investment
Manager to
maintain
maximum
competitive
tension between
funders. After
proceeding with
a funder
the Investment
Manager agrees
heads of terms
early in the
process to
ensure a
streamlined,
transparent
fund-raising
process. The
Board also
keeps liquidity
under constant
review and
we will always
aim to have
headroom in our
debt facilities
ensuring that
we have a level
of
protection in
the event of
adverse
fund-raising
conditions.
-------------- --------------------- ---------------- -------------- ------------- --------------
Financial Floating rate The Group's The Group Moderate Low to Decrease
debt exposes Revolving Credit considers cash Moderate
the business Facility is flow forecasts
to underlying currently non-hedged and ensures
interest rate and therefore sufficient cash
movements interest is payable balances are
based on a margin held within
over 3M Libor. Any the Group to
adverse movements in meet future
the 3M Libor forward needs. Prudent
curve could liquidity risk
significantly impair management
our profitability implies
and ability to pay maintaining
dividends. 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. In
addition the
Board regularly
reviews
potential
hedging
arrangements
which can be
put in place at
any time during
the duration of
the Revolving
Credit
Facility. The
Group's 10-year
and 15-year
MetLife
tranches have a
fixed rate
coupon.
-------------- --------------------- ---------------- -------------- ------------- --------------
Financial Unable to The borrowings the The Investment High Low Stable
operate Group currently has Manager
within debt and which the Group monitors loan
covenants uses in the future to value and
may contain interest
loan to value and covenants
interest covenants ratios on an
ratios. If property ongoing
valuations and basis. In the
rental income unlikely event
decrease, that an event
such covenants could of default
be breached, and the occurs under
impact of such an these covenants
event could include: the Group
an increase has a remedy
in borrowing costs; period during
a requirement for which it can
additional cash cure the
collateral; payment covenant breach
of a fee to the by either
lender; a sale of an injecting cash
asset or assets or a collateral or
forfeit of any asset equity funded
to a lender. assets in order
This may result in to restore
the Group selling covenant
assets to repay compliance.
drawn loan amounts
resulting in a
decrease
on Group's Net Asset
Value.
-------------- --------------------- ---------------- -------------- ------------- --------------
Property Default of The default of one Under the terms Low to Moderate Increase
one or more or more of our of our Moderate
Approved lessees could impact Investment
Provider the revenue gained Policy and
lessees from relevant restrictions,
assets. no more than
If the lessee cannot 30% of the
remedy the default Group's
or no support is gross asset
offered to the value may be
lessee by the exposed to one
Regulator lessee, meaning
of Social Housing, the risk of
we may have to significant
terminate or rent loss
negotiate the lease, is low. Were a
meaning a sustained lessee to
reduction default or were
in revenues while a the Group to
replacement is believe it
found. Additionally, likely that a
were a care provider lessee would
not to renew default the
the service level Group would
agreement with a look to move
lessee, this may the affected
result in a lessee properties to
having to cover another
rental Approved
payment on void Provider
units without with whom the
receiving the Group have a
corresponding good
housing benefit relationship to
payment. ensure that
both the
provision of
housing
to vulnerable
individuals and
the income
stream
associated with
the properties
were preserved.
In addition,
the lessees are
predominantly
regulated by
the Regulator
of Social
Housing,
meaning
that, if a
lessee was to
suffer
financial
difficulty, it
is likely that
the Regulator
of Social
Housing would
look to ensure
that the
vulnerable
residents did
not have to be
rehoused,
however,
an Approved
Provider may
seek to
renegotiate the
lease.
The Investment
Manager has
continued to
monitor the
implications of
the pandemic
and maintains
a specific
Covid-19
related risk
register with
regards to the
Group's
Registered
Providers
and care
providers. The
Investment
Manager has
remained in
regular
communication
with
counterparties
and monitored
financial
strength,
occupancy and
referrals
closely.
Details
regarding the
extent
of the impact
of Covid-19 on
the Group's
counterparties
is detailed in
the Annual
Report.
-------------- --------------------- ---------------- -------------- ------------- --------------
Property Forward Our forward funded Before entering Low to Low to Stable
funding developments are into any Moderate moderate
properties likely to involve a forward funding
involves a higher degree of arrangements,
higher degree risk than is the Investment
of risk than associated Manager
that with standing undertakes
associated investments. This substantial
with could include due diligence
completed general construction on developers
investments risks, delays in the and their main
development subcontractors,
or the development ensuring they
not being completed, have a strong
cost overruns or track
developer/contractor record. We
default. If enter into
any of the risks contracts on a
associated with our fixed price
forward funded basis and then,
developments during the
materialised, this development
could work,
reduce the value of we typically
these assets and our defer
portfolio. development
profit until
work has been
completed and
audited by a
chartered
surveyor.
Further, less
than 1.5% of
our portfolio
is
forward-funded
at present and
we are
limited by our
Investment
Policy which
restricts us to
forward funding
a maximum of
20% of
the Group's net
asset value at
any one time.
Ultimately,
with these
mitigating
factors in
place, the
flexibility to
forward fund
allows us to
acquire assets
and
opportunities
which
will provide
prime revenues
in future
years.
-------------- --------------------- ---------------- -------------- ------------- --------------
Regulatory Risk of an Should an Approved As part of the Low Moderate to Stable
Approved Provider with which Group's High
Provider the Group has one or acquisition
receiving a more leases in place process, the
non-compliant receive a Investment
financial non-compliant rating Manager
viability or by the Regulator, in conducts a
governance particular in thorough due
rating relation to diligence
by the viability, depending process on all
Regulator on Registered
the further actions Providers with
of the Regulator, it which the
is possible that Company enters
there may be a into lease
negative impact on agreements
the market value of that takes
the relevant account of
properties which are their financial
the subject of such strength and
lease(s). Depending governance
on the exposure of procedures.
the Group to such
Approved Provider, The Investment
this in turn may Manager has
have a material established
adverse relationships
effect on Group's with the
Net Asset Value Approved
until such time as Providers with
the matter is whom
resolved through an it works. The
improvement Approved
in the relevant Providers keep
Approved Provider's the Investment
rating or a change Manager
in Approved informed of
Provider. developments
surrounding
the regulatory
notices.
The Group has
leases in place
with four
Approved
Providers that
have been
deemed
non-compliant
by the
Regulator.
These assets
did not suffer
from an
impairment in
value as part
of the Q4
valuation by
the Group's
independent
Valuer.
More detail on
this risk can
be found in the
Annual Report .
-------------- --------------------- ---------------- -------------- ------------- --------------
Regulatory Risk of Future governments As demand for High Low to Stable
changes to may take a different social housing Moderate
the social approach to the remains high
housing social housing relative to
regulatory regulatory regime, supply, the
regime resulting in changes Board and the
to the law and other Investment
regulation or Manager is
practices of the confident there
Government with will continue
regard to be a viable
to social housing. market within
which to
operate,
notwithstanding
any future
change of
Government.
Even if
Government
funding was to
reduce, the
nature of the
rental
agreements the
Group has in
place means
that the Group
will enjoy
continued
lessee
rent commitment
for the term of
the agreed
leases.
-------------- --------------------- ---------------- -------------- ------------- --------------
Regulatory Risk of not If the Group fails The Group High Low Stable
being to remain in intends to
qualified as compliance with the continue to
REIT REIT conditions, the operate as a
members of the Group REIT and work
will be subject to within its
UK corporation tax investment
on some or all of objective
their property and policy. The
rental income and Group will
chargeable retain legal
gains on the sale of and regulatory
properties which advisers and
would reduce the consult with
funds available to them on a
distribute to regular basis
investors. to ensure it
understands and
complies with
the
requirements.
In addition,
the
Board oversees
adherence to
the REIT
regime,
maintaining
close dialogue
with the
Investment
Manager to
ensure we
remain
compliant with
legislation.
-------------- --------------------- ---------------- -------------- ------------- --------------
Corporate Reliance on We continue to rely Unless there is High Low Stable
the on the Investment a default,
Investment Manager's services either party
Manager and its reputation may terminate
in the social the Investment
housing market. As a Management
result, our Agreement
performance will, to by giving not
a large extent, less than 12
depend on the months' written
Investment notice. The
Manager's abilities Board regularly
in the property reviews and
market. Termination monitors
of the Investment the Investment
Management Agreement Manager's
would severely performance. In
affect our ability addition, the
to effectively Board meets
manage our regularly with
operations and may the Manager
have a negative to ensure that
impact on the share we maintain a
price of the positive
Company. working
relationship.
-------------- --------------------- ---------------- -------------- ------------- --------------
Financial Property Property valuations All of the Moderate Moderate Stable
valuations are inherently Group's
may be subjective and property assets
subject to uncertain. Market are
change over conditions, which independently
time may valued
impact the quarterly by
creditworthiness of Jones Lang
lessees, may LaSalle,
adversely affect a specialist
valuations. The property
portfolio is valuation firm,
valued on a Market who are
Value basis, which provided with
takes into account regular updates
the expected rental on portfolio
income to be activity
received under the by the
leases in the Investment
future. This Manager. The
valuation Investment
methodology provides Manager meets
a significantly with the
higher valuation external
than the Vacant valuers to
Possession value of discuss
a property. In the the basis of
event of an their
unremedied valuations and
default of an their quality
Approved Provider control
lessee, the value of processes.
the assets in the Default risk of
portfolio may be lessees
negatively is mitigated in
affected. accordance with
Any changes could the lessee
affect the Group's default
net asset value and principal risk
the share price of explanation
the Group . provided above.
In order to
protect against
loss in value,
the Investment
Manager's
property
management team
seeks to visit
each property
in the
portfolio once
a year, and
works closely
with lease
counterparties
to ensure, to
the extent
reasonably
possible, their
financial
strength and
governance
procedures
remain robust
through the
duration of the
relevant lease.
Details of the
impact of
Covid-19 are
described in
the Annual
Report.
-------------- --------------------- ---------------- -------------- ------------- --------------
Emerging Risks
The United Kingdom's Withdrawal from the European Union
The Board has continued to monitor the potential risks
associated with Brexit. Despite the trade deal reached on 24
December 2020 between the UK and EU, it still remains unclear as to
the extent or precise nature of the impact of Brexit on the UK
economy or the Company. Nevertheless, with care, housing and social
care, being UK based, the Group remains relatively insulated from
the impact of Brexit.
The Board will continue to monitor the ongoing developments
between the UK and the EU and the wider potential impact of Brexit
on the Group and its stakeholder base.
Covid-19 Pandemic
The outbreak of Covid-19 in early 2020 has negatively impacted
economic conditions globally and is having an adverse and
disruptive effect on the UK economy (triggering a technical
recession after the second quarter of 2020). The Group's financial
performance has proven to be resilient to the effects of Covid-19
thus far, however, its way of operating has adapted and is likely
to need to continue to adapt in the near term in response to the
developments relating to the Covid-19 outbreak. The Board has
considered the potential significant and wide-ranging adverse
effect on the Group, including a reduction in portfolio valuations,
an increase in bad debts, void rates and costs, an adverse impact
on existing banking covenants and health risks to the Group's
employees and residents. The Directors have performed an assessment
of the ability of the Company to continue as a going concern, which
includes the impact of Covid-19 further details of which can be
found in Note 2.
The Board will continue to monitor economic conditions and
implement appropriate controls and processes in order to mitigate
the potential impact of the pandemic on the Group.
GOING CONCERN AND VIABILITY
Going Concern
The Strategic Report and financial statements have set out the
current financial position of the Group and Parent Company. The
Board has regularly reviewed the position of the Company and its
ability to continue as a going concern in Board meetings throughout
the year. The Group has targeted high-quality properties in line
with yield expectations and will continue to analyse investment
opportunities to ensure that they are the right fit for the
Group.
The Group has invested GBP530.7 million up to 31 December 2020,
and GBP2.9 million (including acquisition costs) since the year end
(1) . The cash balance of the Group at year end was GBP53.7
million, of which GBP41.4 million was readily available for use.
This is the cash balance at 31 December 2020 less any funds that
are committed for future deployment, retentions, or working capital
requirements. As stated in the Strategic Report, the Investment
Manager has identified a visible pipeline of over GBP150 million of
attractive investment opportunities for acquisition over the next
12 months. The Board has evaluated the financial position of the
Group and plans to raise both debt and equity capital, as
necessary, in order to fund the Group's investments for the next 12
months. Income generated from the Group's portfolio of assets is
expected to substantially facilitate the payment of dividends to
shareholders at the targeted rate. Based on this, the Board
believes that the Group is in a position to manage its financial
risks for the foreseeable future.
Impact of Covid-19
To date, Covid-19 has not impacted the Group's ability to
continue as a going concern for reasons discussed below. As a
result, the Directors believe that the Group is still well placed
to manage its financing and other business risks and that the Group
will remain viable, continuing to operate and meet its liabilities
as they fall due despite the risk of Covid-19.
The Directors have performed an assessment of the ability of the
Company to continue as a going concern, which includes the impact
of Covid-19, for a period of at least 12 months from the date of
signing these financial statements. The Directors have considered
the expected obligations of the Company and its subsidiaries for
the next 12 months and are confident that all will be met.
In considering the ability of the Group to continue as a going
concern, the Directors also considered the impact of Covid-19 on
their tenants. Tenants of the Group are Registered Providers who
receive their housing benefit from Local Authorities, before it is
passed to subsidiaries in the form of rental income. Local
Authorities have confirmed they will not stop helping vulnerable
people or paying for essential services during this time, and
therefore the Directors do not foresee any issues in rent
collection, however in the event of a downturn in revenue, variable
costs would be reduced to enable the Group to meet its future
liabilities. 100% of rental income due and payable for the period
ended 31 December 2020 has been collected. 100% of all rent due and
payable at 28 February 2021 has been collected. (2)
The Board believes that there are currently no material
uncertainties in relation to the Group's and Company's ability to
continue for a period of at least 12 months from the date of the
approval of the Group and Parent Company's financial statements
and, therefore, has adopted the going concern basis in the
preparation of the financial statements, please see Note 2 of the
financial statements for more information.
Viability Statement
In accordance with Principle 21 of the AIC Code, the Board has
assessed the prospects of the Group over a period longer than 12
months required by the relevant 'Going Concern' provisions. The
Board has considered the nature of the Group's assets and
liabilities, and associated cash flows, and has determined that
five years, up to 31 December 2025, is the maximum timescale over
which the performance of the Group can be forecast with a material
degree of accuracy and therefore is the appropriate period over
which to consider the viability.
In determining this timescale the Board has considered the
following:
-- That the business model of the Group assumes the future
growth in its investment portfolio through the acquisition of
Supported Housing assets which are intended to be held for the
duration of the viability period
-- The length of the service level agreements between Approved
Providers and care providers is typically five years
-- The future growth of its investment portfolio of properties
is achieved through long-term, inflation linked, fully repairing
and insuring leases
-- The Group's property portfolio has a WAULT of 26.2 years to
expiry, representing a secure income stream for the period under
consideration
-- The Group's floating rate Revolving Credit Facility has an
initial term of four years (of which three remain) which may be
extended by a further two years.
In assessing the Company's viability, the Board has carried out
a robust assessment of the emerging risks and principal risks
facing the Group, including those that would threaten its business
model, future performance, solvency, liquidity and dividend cover
for a five year period.
The Directors' assessment has been made with reference to the
principal risks and uncertainties and emerging risks summarised
above and how they could impact the prospects of the Group and
Company both individually and in aggregate.
The business model was subject to a sensitivity analysis, which
involved flexing a number of key assumptions underlying the
forecasts. The sensitivities performed were designed to provide the
Directors with an understanding of the Group's performance in the
event of a severe but plausible downturn scenario, taking full
account of mitigating actions that could be taken to avoid or
reduce the impact or occurrence of the underlying risks outlined
below:
-- Rental income: 10% decrease in rent received. This assumes
that in the worst-case scenario of voids not being covered by care
providers, the Registered Provider does not pay the Group 50% of
the uncovered voids. Operational Occupancy at 31 December 2020 was
81% and so the sensitised model assumes 10% (rounded up) shortfall
in rent and a 7% drop in property valuations.
-- Property valuations: As part of the transfer of assets from
Westmoreland to Inclusion, we know that assets without a lease
agreement will be valued at vacant possession value. We have
therefore assumed that 10% of the portfolio (the void units) will
be valued at vacant possession value - 48.6% of the original
purchase price - rather than investment value. To further stress
test this, we have applied an additional 20% reduction to the
vacant possession value, meaning that the total drop in value of
the Company's portfolio is 7% in the Downside and Mitigated cases.
We believe that this is a very severe and prudent reduction in
value given that the valuation yields have not been affected by
Covid-19 and we have collected 100% of rent (2) due throughout the
pandemic, unlike many other property and healthcare sectors.
-- Inflation: No inflation uplift on rental income but costs and
dividends increase in line with inflation.
-- Interest rates: sensitised to the average of the LIBOR curves
provided by Lloyds and NatWest in September 2019, before the
Covid-19 pandemic. Pre-Covid-19 forward curves for SONIA are not
available so we have used the LIBOR curves and removed the
additional 9bps margin from July 2021 onwards which only applies as
a result of the change to SONIA. LIBOR has been confirmed at
2.55bps for Q1 2021, which compares with the pre-pandemic forecasts
that have an average of 57bps. We therefore think this is a
suitable and prudent downside assumption.
The outcome in the downturn scenario on the Group's covenant
testing is that there are no breaches and the Group can maintain a
covenant headroom on existing facilities.
In the downturn scenario mitigating actions to reduce variable
costs would be required to enable the Group to meet its future
liabilities.
The remaining principal risks and uncertainties, whilst having
an impact on the Group's business, are not considered by the
Directors to have a reasonable likelihood of impacting the Group's
viability over the five year period.
Based on the results of this analysis, the Directors have a
reasonable expectation that the Group and Company will be able to
continue in operation and meet its liabilities as they fall due for
the next five years.
Notes:
1 Including an acquisition of 1 property and exchange on 1 property.
2 Due to a clerical error, there has been a short delay in the
payment of an immaterial amount of rent representing c.GBP45k
(0.16% of rent roll) for the quarter ended 31 December 2020. This
is expected to be paid in full in the next 2 weeks.
BOARD APPROVAL OF THE STRATEGIC REPORT
The Strategic Report was approved by the Board and signed on its
behalf by:
Chris Phillips
Chairman
4 March 20 21
GROUP FINANCIAL STATEMENTS
GROUP STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2020
Year ended Year ended
31 December 31 December
20 20 2019
Note GBP'000 GBP'000
------------------------------------- ----- ------------- -------------
Income
Rental income 5 28,393 21,112
Other Income 535 -
------------- -------------
Total income 28,928 21,112
Expenses
Directors' remuneration 6 (307) (307)
General and administrative expenses 9 (2,200) (1,809)
Management fees 8 (4,100) (3,869)
-------------
Total expenses (6,607) (5,985)
Gain from fair value adjustment
on investment property 14 7,957 11,809
Loss from fair value adjustment
on assets held for sale (63)
-------------
Operating profit 30,215 26,936
-------------
Finance income 11 102 229
Finance costs 12 (5,723) (3,448)
-------------
Profit for the year before tax 24,594 23,717
------------- -------------
Taxation 13 - -
Profit and total comprehensive
income
for the year 24,594 23,717
============= =============
IFRS Earnings per share - basic
and diluted 3 5 6.82p 6.75p
The accompanying notes form an integral part of these Group
Financial Statements.
GROUP STATEMENT OF FINANCIAL POSITION
As at 31 December 2020
31 December 31 December
20 20 2019
Note GBP'000 GBP'000
-------------------------------- ----- ------------ ------------
Assets
Non-current assets
Investment properties 14 572,101 472,349
------------
Total non-current
assets 572,101 472,349
Current assets
Assets held for sale 110 -
Trade and other receivables 15 4 ,152 4,287
Cash, cash equivalents
and restricted cash 16 53,701 67,711
------------ ------------
Total current assets 57,963 71,998
Total assets 630,064 544,347
============ ============
Liabilities
Current liabilities
Trade and other payables 17 4,969 8, 145
------------ ------------
Total current liabilities 4,969 8, 145
Non-current liabilities
Other payables 18 1,517 1,514
Bank and other Borrowings 19 194,927 164,955
------------
Total non-current liabilities 196,444 166,469
------------
Total liabilities 201,413 174,614
============ ============
Total net assets 428,651 3 69,733
============ ============
Equity
Share capital 2 1 4,033 3,514
Share premium reserve 2 2 203,776 151,157
Treasury shares
reserve 2 3 (378) (378)
Capital reduction
reserve 2 4 166,154 166,154
Retained earnings 2 5 55,066 49,286
------------ ------------
Total Equity 428,651 36 9,733
============ ============
IFRS Net asset value per share
- basic and diluted 3 6 10 6.42 p 10 5.37 p
The Group Financial Statements were approved and authorised for
issue by the Board on 4 March 202 1 and signed on its behalf
by:
Chris Phillips
Chairman
4 March 202 1
The accompanying notes form an integral part of these Group
Financial Statements.
GROUP STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2020
Share Treasury Capital
Share premium shares reduction Retained Total
capital reserve reserve reserve earnings equity
Year ended
31 December 20
20 Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------ ----- --------- --------- ---------- ----------- ---------- ---------
Balance at 1 January
201 9 3,514 151,157 (378) 166,154 49,286 369,733
Total comprehensive
income for the year - - - - 24,594 24,594
Transactions with
owners
2
1
Ordinary Shares ,
issued in the year 2
at a premium 2 519 54,481 - - - 55,000
Share issue costs 2
capitalised 2 - (1,862) - - - (1,862)
2
Dividends paid 6 - - - - (18,814) (18,814)
Balance at 31 December
20 20 4,033 203,776 (378) 166,154 55,066 428,651
========= ========= ========== =========== ========== =========
Share Treasury Capital
Share premium shares reduction Retained Total
capital reserve reserve reserve earnings equity
Year ended
31 December 2019 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 year - - - - 23,717 23,717
Transactions with
owners
2
Own shares repurchased 3 - - (378) - - (378)
2
Dividends paid 6 - - - (17,767) - (17,767)
Balance at 31 December
2019 3,514 151,157 (378) 166,154 49,286 369,733
========= ========= ========== =========== ========== =========
The accompanying notes form an integral part of these Group
Financial Statements.
GROUP STATEMENT OF CASH FLOWS
For the year ended 31 December 2020
Year ended Year ended
31 December 31 December
20 20 20 19
Note GBP'000 GBP'000
------------------------------------------ ----- ------------- -------------
Cash flows from operating activities
Profit before income tax 24,594 23,717
Adjustments for:
Gain from fair value adjustment
on investment property (7,957) (11,809)
Loss from fair value adjustment
on assets held for sale 64 -
Finance income (102) (229)
Finance costs 5,723 3,448
Operating results before working
capital changes 22,322 15,127
Decrease/ Increase in trade and
other receivables 640 (11)
Increase in trade and other payables 1,545 1,188
------------- -------------
Net cash flow generated from operating
activities 24,507 16,304
------------- -------------
Cash flows from investing activities
Purchase of investment properties (95,609) (137,724)
Prepaid acquisition costs (paid) (3) (884)
Restricted cash - (paid) (2,862) (8,375)
Restricted cash - released 4,042 11,348
Interest received 59 163
Net cash flow used in investing
activities (94,373) (135,472)
------------- -------------
Cash flows from financing activities
Proceeds from issue of Ordinary
Shares at a premium 55,000 -
Ordinary Share issue costs capitalised (1,862) -
Own shares repurchased 23 - (378)
Interest paid (4,645) (2,898)
Bank borrowings drawn 19 29,408 100,592
Restricted bank borrowings 19 - 10,460
Loan arrangement fees paid 20 (1,101) (3,455)
Dividends paid 26 (18,814) (17,767)
------------- -------------
Net cash flow generated from financing
activities 57,986 86,554
------------- -------------
Net (decrease) in Cash, cash equivalents
and restricted cash (11,880) (32,614)
Cash and cash equivalents at the
beginning of the year 64,732 97,346
Cash and cash equivalents at the
end of the year 16 52,852 64,732
============= =============
The accompanying notes form an integral part of these Group
Financial Statements.
NOTES TO THE GROUP FINANCIAL STATEMENTS
For the ended 31 December 2020
1. CORPORATE INFORMATION
Triple Point Social Housing REIT PLC (the "Company") is a Real
Estate Investment Trust ("REIT") incorporated in England and Wales
under the Companies Act 2006 as a public company limited by shares
on 12 June 2017 . The address of the registered office is 1 King
William Street, United Kingdom, EC4N 7AF. The Company is registered
as an investment company under section 833 of the Companies Act
2006 and is domiciled in the United Kingdom.
The principal activity of the Company is to act as the ultimate
parent company of Triple Point Social Housing REIT PLC and its
subsidiaries (the "Group") and to provide shareholders with an
attractive level of income, together with the potential for capital
growth from investing in a portfolio of social homes.
2. BASIS OF PREPARATION
The financial information contained in this announcement has
been prepared on the basis of the accounting policies set out in
the statutory accounts for the year ended 31 December 20 20 .
Whilst the financial information included in this announcement has
been computed in accordance with International Financial Reporting
Standards (IFRS), as adopted by the European Union, this
announcement does not itself contain sufficient information to
comply with IFRS. The financial information does not constitute the
Company's statutory accounts for the years ended 31 December 20 20
or 20 19 , but is derived from those accounts. Those accounts give
a true and fair view of the assets, liabilities, financial position
and profit and loss of the Company and the undertakings included in
the consolidation taken as a whole. Statutory accounts for 201 9
have been delivered to the Registrar of Companies and those for 20
20 will be delivered following the Company's Annual General
Meeting. The auditor's reports on both the 20 20 and 20 19 accounts
were unqualified; did not draw attention to any matters by way of
emphasis; and did not contain statements under s498(2) or (3) of
the Companies Act 2006.
The principal accounting policies adopted in the preparation of
this preliminary financial information are set out below.
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 financial information contained in this results announcement
has been prepared on the basis of the accounting policies set out
in the statutory financial statements for the year ended 31
December 2019, with the exception for those that relate to new
standards effective for the first time for periods beginning on or
after 1 January 2020. The new standards impacting the Group
are:
-- definition of a Business (Amendments to IFRS 3);
-- interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7); and
-- amendments to references to the Conceptual Framework in IFRS Standards.
Whilst the financial information included in this announcement
has been computed in accordance with the recognition and
measurement requirements of IFRS, as adopted by the European Union,
this announcement does not itself contain sufficient disclosures to
comply with IFRS. The financial information does not constitute the
Group's statutory financial statements for the years ended 31
December 2020 or 31 December 2019, but is derived from those
financial statements. Financial statements for the year ended 31
December 2019 have been delivered to the Registrar of Companies and
those for the year ended 31 December 2020 will be delivered
following the Company's Annual General Meeting. The auditors'
reports on both the 31 December 2020 and 31 December 2019 financial
statements were unqualified; did not draw attention to any matters
by way of emphasis; and did not contain statements under section
498 (2) or (3) of the Companies Act 2006.
The Directors have given due consideration to the impact on the
financial statements of the amendments as follows:
Definition of a Business (Amendments to IFRS 3)
Under these amendments, to be considered a business, an acquired
set of activities and assets must include, at a minimum, an input
and a substantive process that together significantly contribute to
the ability to create outputs. An optional concentration test has
also been added. This allows the acquirer to assess whether
substantially all of the fair value of the gross assets acquired is
concentrated in a single asset or group of similar assets. If such
a concentration exists, the transaction is not viewed as an
acquisition of a business and no further assessment of the business
combination guidance is required. The optional concentration test
has been performed and the Directors have concluded that at
present, the adoption of the amendment and interpretation does not
have a material impact on the financial statements in the period of
initial application. In previous reporting periods, subsidiaries
acquired by the Group were all treated as the acquisition of a
group of assets rather than a business as there was not an
integrated set of activities acquired in addition to the property.
In the current reporting period, the optional concentration test
has been performed which has determined that the fair value of the
gross asset acquired is concentrated into a single asset,
investment property and therefore is not a business combination.
The Group has not purchased, and does not intend to purchase, any
subsidiaries which incorporate any assets other than investment
property.
Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and
IFRS 7)
These amendments apply to all hedging relationships directly
affected by uncertainties related to IBOR reform. At present, the
Group does not have any hedging relationships and so these
amendments have had no impact on the financial statements.
Amendments to references to the Conceptual Framework in IFRS
Standards
The above provides amendments to various standards, however,
some revisions are only with regards to references and quotes so
that they refer to the revised Conceptual Framework. The standards
that have had proper updates that affect the Group are IFRS 3, IAS
1 and IAS 8 which have all been discussed above.
IFRS 16
As a result of Covid-19 there was an amendment to IFRS 16,
Leases, for Covid-19 related rent concessions. The amendment to the
standard has been considered, however at the reporting date had not
been required to be applied.
New standards issued but not yet effective
-- Interest Rate Benchmark Reform - Phase 2 (Amendments to IFRS
9, IAS 39, IFRS 7, IFRS 4 and IFRS 16)
The above is effective from 1 January 2021. The amendments state
that if a financial contract results in a substantial modification
as a direct result of IBOR reform, a practical expedient can be
applied and the changes will be accounted for by updating the
effective interest rate. This may apply to future financial
statements if the conditions are met. The amendments also allow a
series of exemptions from the regular hedge accounting which may be
relevant if the Directors decide to hedge in the future.
There are other new standards and amendments to standards and
interpretations which have been issued that are effective in future
accounting periods, and which the Group has decided not to adopt
early. None of these are expected to have a material impact on the
consolidated financial statements of the Group.
2.1. Going concern
The Group has invested GBP530.7 million up to 31 December 2020,
and GBP2.9 million since the year end. The cash balance of the
Group at year end was GBP53.7 million, of which GBP41.4 million was
readily available for use. This is the cash balance at 31 December
2020 less any funds that are committed for future deployment,
retentions, or working capital requirements. As stated in the
Strategic Report, the Investment Manager has identified a visible
pipeline of over GBP150 million of attractive investment
opportunities for acquisition over the next 12 months. The Board
has evaluated the financial position of the Group and plans to
raise both debt and equity capital, as necessary, in order to fund
the Group's investments for the next 12 months. Income generated
from the Group's portfolio of assets is expected to substantially
facilitate the payment of dividends to shareholders at the targeted
rate. Based on this, the Board believes that the Group is in a
position to manage its financial risks for the foreseeable
future.
To date, Covid-19 has not impacted the Group's ability to
continue as a going concern for reasons discussed below. As a
result, the Directors believe that the Group is still well placed
to manage its financing and other business risks and that the Group
will remain viable, continuing to operate and meet its liabilities
as they fall due despite the risk of Covid-19.
The Directors have performed an assessment of the ability of the
Group to continue as a going concern, which includes the impact of
Covid-19, for a period of at least 12 months from the date of
signing these financial statements. The Directors have considered
the expected obligations of the Company and its subsidiaries for
the next 12 months and are confident that all will be met.
In considering the ability of the Group to continue as a going
concern, the Directors also considered the impact of Covid-19 on
their tenants. Tenants of the Group are Registered Providers who
receive their housing benefit from Local Authorities, before it is
passed to subsidiaries in the form of rental income. Local
Authorities have confirmed they will not stop helping vulnerable
people or paying for essential services during this time, and
therefore the Directors do not foresee any issues in rent
collection, however in the event of a downturn in revenue, variable
costs would be reduced to enable the Group to meet its future
liabilities. 100% of rental income due and payable for the period
ended 31 December 2020 has been collected (1) . 100% of all rent
due and payable at 28 February 2021 has been collected (1) .
The Directors have also considered the financing provided to the
Group. Norland Estates Limited and TP REIT Propco 2 Limited have
bank facilities with MetLife and Lloyds Bank respectively. The loan
secured by Norland Estates Limited with MetLife is subject to an
asset cover ratio covenant of x2.25. The latest external valuation
was carried out at 31 December 2020 and at that point the asset
cover ratio was x2.69. The loan is also subject to an interest
cover ratio. The covenant ratio is not less than x1.75 and at 31
December 2020 the interest cover ratio was x4.89.
The loan secured by TP REIT Propco 2 Limited with Lloyds Bank is
subject to a loan to value covenant of <50%. As at the 31
December 2020, the loan to value was 40%. The loan is also subject
to an interest cover ratio. The covenant ratio is not less than
x2.75 and at 31 December 2020 the interest cover ratio was x6.11.
The loan had an initial term of four years expiring on 20 December
2022. On 15 December 2020, the Group extended the RCF's initially
agreed four-year term by a year to 20 December 2023. The term of
the RCF may be extended by a further year, to 20 December 2024
(subject to the consent of the lenders).
The Directors have also considered the circumstances that would
lead to a covenant breach. For Norland Estates Limited, the
property portfolio valuation at 31 December 2020 is based on a
blended net initial yield of 5.21%. Yields would have to move by
142 bps before valuations fell to a level at which the asset cover
ratio covenant was breached.
The interest cover ratio would need rental income collection to
fall from its current level of 100% (2) to 37% before the covenant
is breached.
And for TP REIT Propco 2 Limited, as at 31 December 2020, its
property portfolio valuation would need to fall by 20.1% before
valuations fell to a level at which the loan to value covenant was
breached. The interest cover ratio would need rental income
collection to fall from its current level of 100% (2) to 45% before
the covenant is breached.
The Group has no short or medium term refinancing risk given the
10-year average maturity of its long term debt facilities with
MetLife, the first of which expires in June 2028, and which are
fully fixed at an all-in weighted average rate of 3.04%.
Based on the forecasts prepared and the intentions of the parent
company, the Directors consider that the Company and its
subsidiaries will be able to settle its liabilities for a period of
at least 12 months from the date of signing these financial
statements and therefore has prepared these financial statements on
the going concern basis.
Under the downside model the forecasts have been stressed to
show the effect if Care Providers were unable to cover the voids
and the time taken to fill voids is 2 years. It assumes that the
Registered Provider (the tenant) will not be able to pay the voids.
Under the downside model the Company and its subsidiaries will be
able to settle its liabilities for a period of at least 12 months
from the date of signing these financial statements.
The Directors believe 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.
Notes:
1 Due to a clerical error, there has been a short delay in the
payment of an immaterial amount of rent representing c.GBP45k
(0.16% of rent roll) for the quarter ended 31 December 2020. This
is expected to be paid in full in the next 2 weeks.
2 Due to a clerical error, there has been a short delay in the
payment of an immaterial amount of rent representing c.GBP45k
(0.16% of rent roll) for the quarter ended 31 December 2020. This
is expected to be paid in full in the next 2 weeks.
2.2. Currency
The Group financial information is presented in Sterling which
is also the Company's functional currency.
3. SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
In the application of the Group's accounting policies, which are
described in note 4, the Directors are required to make judgements,
estimates and assumptions about the carrying amounts of assets and
liabilities that are not readily apparent from other sources. The
estimates and associated assumptions that have a significant risk
of causing a material adjustment to the carrying amounts of assets
and liabilities within the next financial year are outlined
below:
Estimates:
3.1. Investment properties (note 14)
The Group uses the valuation carried out by its independent
valuers as the fair value of its property portfolio. The valuation
is based upon assumptions including future rental income and the
appropriate discount rate. The valuers also make reference to
market evidence of transaction prices for similar properties.
Further information is provided in note 14.
The Group's properties have been independently valued by Jones
Lang LaSalle Limited ("JLL" or the "Valuer") in accordance with the
definitions published by the Royal Institute of Chartered
Surveyors' ("RICS") Valuation - Professional Standards, July 2019,
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
Director's best estimate, based on advice from relevant
knowledgeable experts, use of recognised valuation techniques and a
determination of which assumptions should be applied in valuing
such assets and with particular focus on the specific attributes of
the investments themselves.
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 whether a set of
activities and assets which include an input and a substantive
process that together significantly contribute to the ability to
create outputs has been acquired in determining whether the
acquisition represents the acquisition of a business. An optional
concentration test is also performed which assesses whether
substantially all of the fair value of the gross assets acquired is
concentrated in a single asset or group of similar assets. If such
a concentration exists, the transaction is not viewed as an
acquisition of a business and no further assessment of the business
combination guidance is required. The Group has not purchased, and
does not intend to purchase, any subsidiaries which incorporate any
assets other than investment 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 the
optional concentration test has been performed which has determined
that the fair value of the gross asset acquired is concentrated
into a single asset, investment property and therefore is not a
business combination.
3.3. The Group as lessor (note 27)
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 present value of minimum lease payments
compared to the fair value of the asset at acquisition.
The principal accounting policies applied in the preparation of
the financial statements are set out below.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
4.1. Basis of consolidation
The financial statements comprise the financial information of
the Group as at the year-end date.
Subsidiaries are all entities over which the Group has control.
The Group controls an entity when the Group is exposed to, or has
rights to, variable returns from its involvement with the entity
and has the ability to affect those returns through its power to
direct the activities of the entity. All intra-Group transactions,
balances, income and expenses are eliminated on consolidation. The
financial information of the subsidiaries are included in the
financial statements from the date that control commences until the
date that control ceases.
If an equity interest in a subsidiary is transferred but a
controlling interest continues to be held after the transfer then
the change in ownership interest is accounted for as an equity
transaction.
Accounting policies of the subsidiaries are consistent with the
policies adopted by the Company.
4.2. Investment property
Investment property, which is property held to earn rentals
and/or for capital appreciation, is initially measured at cost,
being the fair value of the consideration given, including
expenditure that is directly attributable to the acquisition of the
investment property. The Group recognises asset acquisitions on
completion. After initial recognition, investment property is
stated at its fair value at the Statement of Financial Position
date. Gains and losses arising from changes in the fair value of
investment property are included in profit or loss for the period
in which they arise in the Statement of Comprehensive Income.
Subsequent expenditure is capitalised only when it is probable that
future economic benefits are associated with the expenditure.
An investment property is derecognised upon disposal or when the
investment property is permanently withdrawn from use and no future
economic benefits are expected to be obtained from the disposal.
Any gain or loss arising on de-recognition of the property
(calculated as the difference between the net disposal proceeds and
the carrying amount of the asset) is recorded in profit or loss in
the period in which the property is derecognised.
Investment properties under construction are financed by the
Group where the Group enters into contracts for the development of
a pre-let property under a forward funding agreement. The Group
does not expose itself to any speculative development risk as the
proposed property is pre-let to a tenant under an agreement for
lease and the Group enters into a fixed price development agreement
with the Developer. Investment properties under construction are
initially recognised in line with stage payments made to the
developer. The properties are revalued at fair value at each
reporting date in the form of a work-in-progress value. The
work-in-progress value of investment properties under construction
is estimated as fair value of the completed asset less any costs
still payable in order to complete, which includes the Developer's
margin.
During the period between initial investment and the lease
commencement date (practical completion of the works) a coupon
interest due on the funds paid in the range of 6-6.75% 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 payables (note 18). 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.
As leasehold properties meet the definition of investment
property, the right-of-use assets are presented within investment
property (note 14), and after initial recognition are subsequently
measured at fair value.
Sub-leases
Leases are classified as finance leases whenever the terms of
the lease transfer substantially all the risks and rewards of
ownership of the underlying property asset to the lessee.
Sub-leases of leasehold properties are classified with reference to
the right-of-use asset arising from the head lease. All other
leases are classified as operating leases.
4.
4.4. Rent and other receivables
Rent and other receivables are amounts due in the ordinary
course of business. If collection is expected in one year or less,
they are classified as current assets.
Rent receivables are initially recognised at fair value plus
transaction costs and are subsequently carried at amortised cost,
less provision for impairment.
Impairment provisions for current and non-current rent
receivables are recognised based on the simplified approach within
IFRS 9 using a provision matrix in the determination of the
lifetime expected credit losses. During this process the
probability of the non-payment of the rent receivables is assessed.
This probability is then multiplied by the amount of the expected
loss arising from default to determine the lifetime expected credit
loss for the rent receivables. For rent 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 rent receivable will not be collectable, the gross carrying
value of the asset is written off against the associated
provision.
Impairment provisions for all other receivables are recognised
based on a forward-looking expected credit loss model using the
general approach. The methodology used to determine the amount of
the provision is based on whether there has been a significant
increase in credit risk since initial recognition of the financial
asset. For those where the credit risk has not increased
significantly since initial recognition of the financial asset,
twelve month expected credit losses along with gross interest
income are recognised. For those for which credit risk has
increased significantly, lifetime expected credit losses along with
the gross interest income are recognised. For those that are
determined to be credit impaired, lifetime expected credit losses
along with interest income on a net basis are recognised.
4.5. Cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash 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.
Modifications to borrowing terms are assessed when agreed with
the lender to determine if they represent a substantial or
non-substantial modification under IFRS 9. This involves the '10%
test' comparing the discounted present value of the revised cash
flows against the carrying value of the loan, as well as a review
of any other qualitative changes to the terms. If the modifications
are deemed substantial, the existing liability is extinguished and
a new liability is recognised, with the difference between the
carrying amount of the existing financial liability and the fair
value of the modified financial liability at modification date
being recognised in the Statement of Comprehensive Income.
4.9. 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.
4.10 Dividends payable to shareholders
Dividends to the Company's shareholders are recognised as a
liability in the Group's Financial Statements in the period in
which the dividends are approved. In the UK, interim dividends are
recognised when paid .
4.11 Rental income
Rental income from investment property is recognised on a
straight-line basis over the term of ongoing leases and is shown
gross of any UK income tax. A rental adjustment is recognised from
the rent review date in relation to unsettled rent reviews, where
the Directors are reasonably certain that the rental uplift will be
agreed.
Tenant lease incentives are recognised as a reduction of rental
revenue on a straight-line basis over the term of the lease. 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.
4.12 Finance income and finance costs
Finance income is recognised as interest accrues on cash
balances held by the Group. Finance costs consist of interest and
other costs that the Group incurs in connection with bank and other
borrowings. These costs are expensed in the period in which they
occur. Borrowing costs that are separately identifiable and
directly attributable to the acquisition or construction of forward
funded assets that take a substantial period of time to complete
are capitalised as part of the development cost in investment
property (note 14).
4.13 Expenses
All expenses are recognised in the Statement of Comprehensive
Income on an accruals basis.
4.14 Investment management fees
Investment advisory fees are recognised in the Statement of
Comprehensive Income on an accruals basis.
4.15 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.
4.16 Treasury shares
Consideration paid or received for the purchase or sale of
treasury shares is recognised directly in equity. The cost of
treasury shares held is presented as a separate reserve ("the
treasury share reserve"). Any excess of the consideration received
on the sale of treasury shares over the weighted average cost of
the shares sold is credited to retained earnings.
5. RENTAL INCOME
Year ended Year ended
31 December 31 December
20 20 2019
GBP'000 GBP'000
Rental income - freehold assets 26,406 19,205
Rental income - leasehold assets 1,987 1,907
------------
28,393 21,112
============ ============
The lease agreements between the Group and the Registered
Providers are fully repairing and insuring leases. The Registered
Providers are responsible for the settlement of all present and
future rates, taxes, costs and other impositions payable in respect
of the property. As a result, no direct property expenses were
incurred.
All rental income arose within United Kingdom.
6. DIRECTORS' REMUNERATION
Year ended Year ended
31 December 31 December
20 20 201 9
GBP'000 GBP'000
Directors' fees 275 275
Employer's National Insurance
Contributions 32 32
307 307
============ ============
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 (2019: GBP75,000),
and the other Directors of the Board receive a fee of GBP50,000 per
annum (2019: GBP50,000). The Directors are also entitled to an
additional fee of GBP7,500 (2019: GBP7,500) in connection with the
production of every prospectus by the Company (including the
initial Issue). (The additional fees are treated as a cost of issue
not included as an expense through the Statement of Comprehensive
Income).
A summary of the Directors' emoluments, including the
disclosures required by the Companies Act 2006, is set out in the
Directors' Remuneration Report within the Corporate Governance
Report. None of the Directors received any advances or credits from
any group entity during the year.
7. PARTICULARS OF EMPLOYEES
The Group had no employees during the year other than the
directors (201 9 : none).
8. MANAGEMENT FEES
Year ended Year ended
31 December 31 December
20 20 201 9
GBP'000 GBP'000
Management fees 4,100 3,869
4,100 3,869
============ ============
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. This defined cash balances
in the Net Asset Value calculation in respect of the management fee
as "positive uncommitted cash balances after deducting any
borrowings". The management fee is an annual management fee which
is calculated quarterly in arrears based upon a percentage of the
last published Net Asset Value of the Group (not taking into
account uncommitted cash balances after deducting borrowings as
described above) as at 31 March, 30 June, 30 September and 31
December in each year on the following basis with effect from
Admission:
-- on that part of the Net Asset Value up to and including
GBP250 million, an amount equal to 1% of such part of the Net Asset
Value;
-- 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;
-- on that part of the Net Asset Value over GBP500 million and
up to and including GBP1 billion, an amount equal to 0.8% of such
part of the Net Asset Value;
-- 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 GBP4,100,000 (2019: GBP3,869,000) were
chargeable by TPIM during the year. At the year-end GBP1,132,000
(2019: GBP986,000) was due to TPIM.
A Deed of Variation was signed on 30 June 2020 to appoint TPIM
as the Group's alternative investment fund manager.
9. GENERAL AND ADMINISTRATIVE EXPENSES
Year ended Year ended
31 December 31 December
20 20 201 9
GBP'000 GBP'000
Legal and professional fees 666 735
Audit fees 227 167
Administration fees 327 353
Lease transfer costs 343 -
Directors' fees (note 6) 307 307
Other administrative expenses 637 247
2,507 1,809
============ ============
On 1 October 2019 Hanway Advisory Ltd, who are associated with
Triple Point Investment Management LLP the delegated investment
manager, were appointed to provide Administration and Company
Secretarial Services to the Group.
During the year Company Secretarial Services of GBP315,000
(2019: GBP336,000) were chargeable by Hanway Advisory Ltd.
The audit fees in the table above are inclusive of VAT, and
therefore differ to the fees in note 10 which are reported net of
VAT.
On 30 June 2020 Triple Point Investment Management LLP was
appointed as the fund's Alternative Investment Fund Manager (AIFM)
to perform certain functions for the Group. During the year AIFM
services of GBP76,000 (2019: GBPnil) were chargeable by TPIM. At
the year-end GBP38,000 (2019: GBPnil) was due to TPIM.
Lease transfer costs represent legal and administrative costs
incurred in relation to the transfer of 12 leases from
Westmoreland.
10. AUDIT FEES
Year ended Year ended
31 December 31 December
20 20 201 9
GBP'000 GBP'000
Group audit fees - current year 155 124
Group audit fees - prior year 15 -
Subsidiary audit fees 19 15
189 139
============ ============
Non audit fees paid to BDO LLP included GBP49,000 (2019:
GBP45,000) in relation to quarterly eNAV and the half year interim
reviews.
The audit fee for the following subsidiaries has been borne by
the Company:
* TP REIT Super Holdco Limited * Norland Estates Limited
* TP REIT Holdco 1 Limited * TP REIT Propco 2 Limited
* TP REIT Holdco 2 Limited * TP REIT Propco 3 Limited
* TP REIT Holdco 3 Limited * TP REIT Propco 4 Limited
* TP REIT Holdco 4 Limited
11. FINANCE INCOME
Year ended Year ended
31 December 31 December
20 20 201 9
GBP'000 GBP'000
Other interest income 43 50
Interest on liquidity funds 59 179
102 229
============ ============
12. FINANCE COSTS
Year ended Year ended
31 December 31 December
20 20 201 9
GBP'000 GBP'000
Interest payable on bank borrowings 4,627 2,992
Borrowing costs capitalised (note
14) (128) (60)
Amortisation of loan arrangement
fees 1,163 457
Head lease interest expense 43 50
Bank charges 18 9
5,723 3,448
------------ ------------
Total finance cost for financial
liabilities not at fair value
through profit or loss 5,705 3,439
============ ============
13. TAXATION
As a UK REIT, the Group is exempt from corporation tax on the
profits and gains from its property investment business, provided
it meets certain conditions as set out in the UK REIT regulations.
For the current period, the Group did not have any non-qualifying
profits and accordingly there is no tax charge in the period. If
there were any non-qualifying profits and gains, these would be
subject to corporation tax. It is assumed that the Group will
continue to be a group UK REIT for the foreseeable future, such
that deferred tax has not been recognised on temporary differences
relating to the property rental business.
Year ended Year ended
31 December 31 December
20 20 201 9
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% (2018:19%). The differences are
explained below.
Year ended Year ended
31 December 31 December
20 20 201 9
GBP'000 GBP'000
Profit before tax 24,594 23,717
------------ ------------
Tax at UK corporation tax standard
rate of 19% 4,673 4,506
Change in value of investment
properties (1,500) (2,244)
Exempt REIT income (3,539) (2,673)
Amounts not deductible for tax
purposes 21 34
Unutilised residual current period
tax losses 345 377
- -
============ ============
UK REIT exempt income includes property rental income that is
exempt from UK Corporation Tax in accordance with Part 12 of CTA
2010.
14. INVESTMENT PROPERTY
Operational Properties
assets under development Total
GBP'000 GBP'000 GBP'000
------------ ------------------- ---------------------
As at 1 January 2020 454,400 17,949 472,349
Acquisitions and additions 77,126 14,711 91,837
Fair value adjustment 7,049 908 7,957
Changes to head lease
right-of-use assets 3 - 3
Borrowing costs capitalised
(note 12) - 128 128
Transfer of completed
properties 27,128 (27,128) --
Reclassified to assets
held for sale (173) - (173)
------------ ------------------- ---------------------
As at 31 December
2019 565,533 6,568 572,101
------------ ------------------- ---------------------
As at 1 January 2019 316,117 7,952 324,069
------------ ------------------- ---------------------
Acquisitions and additions 114,835 21,428 136,263
Fair value adjustment 11,134 675 11,809
Changes to head lease
right-of-use assets 148 - 148
Borrowing costs capitalised
(note 12) - 60 60
------------ ------------------- ---------------------
Transfer of completed
properties 12,166 (12,166) -
------------ ------------------- ---------------------
As at 31 December
2019 454,400 17,949 472,349
------------ ------------------- ---------------------
Reconciliation to independent 31 December 31 December
valuation: 2020 2019
GBP'000 GBP'000
Investment property valuation 571,463 471,635
Fair value adjustment - headlease
ground rent 1,457 1,453
Fair value adjustment - lease
incentive debtor (819) (739)
------------------ ------------
572,101 472,349
------------------ ------------
Properties under development represent contracts for the
development of a pre-let property under a forward funding
agreement. Where the development period is expected to be a
substantial period, the borrowing costs that can be directly
attributed to getting the asset ready for use are capitalised as
part of the investment property value.
The carrying value of leasehold properties at 31 December 2020
was GBP36.5 million (2019: GBP35.3 million).
In accordance with "IAS 40: Investment Property", the Group's
investment properties have been independently valued at fair value
by Jones Lang LaSalle Limited ("JLL"), an accredited external
valuer with recognised and relevant professional qualifications.
The independent valuers provide their fair value of the Group's
investment property portfolio every three months.
JLL were appointed as external valuers by the Board on 11
December 2017. JLL has provided valuations services to the Group.
The proportion of the total fees payable by the Company to JLL's
total fee income is minimal. Additionally, JLL has a rotation
policy in place whereby the signatories on the valuations rotate
after 7 years.
% Key Statistic
The metrics below are in relation to the total investment
property portfolio held as at 31 December 2020.
31 December 31 December
Portfolio metrics 20 20 201 9
Capital Deployed (GBP'000)
* 512,296 424,266
Number of Properties 445 388
Number of Tenancies*** 341 300
Number of Registered Providers*** 20 16
Number of Local Authorities*** 155 149
Number of Care Providers*** 98 88
Valuation NIY** 5.27% 5.27%
*calculated excluding acquisition costs
**calculated using IAS 40 valuations (excluding forward funding
acquisitions)
*** calculated excluding forward funding acquisitions
31 December 20 20 31 December 201 9
% of funds % of funds
Region *Cost GBP'000 invested *Cost GBP'000 invested
--------------- -------------- ----------- -------------- -----------
North West 115,025 22.5 93,451 22.0
West Midlands 88,397 17.3 65,189 15.4
East Midlands 65,559 12.8 59,929 14.1
London 49,213 9.6 49,906 11.8
North East 47,088 9.2 43,691 10.3
Yorkshire 46,013 9.0 30,245 7.1
South East 45,682 8.9 43,697 10.3
South West 27,900 5.4 21,547 5.1
East 20,229 3.9 11,514 2.7
Scotland 4,530 0.9 2,437 0.6
Wales 2,660 0.5 2,660 0.6
Total 512,296 100 424,266 100
--------------- -------------- ----------- -------------- -----------
*excluding acquisition costs
Fair value hierarchy
Quoted
prices
in active Significant Significant
markets observable unobservable
(Level inputs inputs
Date of valuation Total 1) (Level 2) (Level 3)
GBP'000 GBP'000 GBP'000 GBP'000
------------------------ ------------------- -------- ----------- ------------ --------------
Assets measured
at fair value: 31 December
Investment properties 2020 572,101 - - 572,101
------------------------ ------------------- -------- ----------- ------------ --------------
31 December
Investment properties 2019 472,349 - - 472,349
------------------------ ------------------- -------- ----------- ------------ --------------
There have been no transfers between Level 1 and Level 2 during
the year, nor have there been any transfers between Level 2 and
Level 3 during the year.
The valuations have been prepared in accordance with the RICS
Valuation - Professional Standards (incorporating the International
Valuation Standards) by JLL, one of the leading professional firms
engaged in the social housing sector.
As noted previously, all of the Group's investment properties
are reported as Level 3 in accordance with IFRS 13 where external
inputs are "unobservable" and value is the Directors' best
estimate, based upon advice from relevant knowledgeable
experts.
In this instance, the determination of the fair value of
investment property requires an examination of the specific merits
of each property that are in turn considered pertinent to the
valuation.
These include i) the regulated social housing sector and demand
for the facilities offered by each Specialised Supported Housing
("SSH") property owned by the Group; ii) the particular structure
of the Group's transactions where vendors, at their own expense,
meet the majority of the refurbishment costs of each property and
certain purchase costs; iii) detailed financial analysis with
discount rates supporting the carrying value of each property; iv)
underlying rents for each property being subject to independent
benchmarking and adjustment where the Group considers them too high
(resulting in a price reduction for the purchase or withdrawal from
the transaction); and v) a full repairing and insuring lease with
annual indexation based on CPI or CPI+1% and effectively 25 years
outstanding, in most cases with a Housing Association itself
regulated by the Homes and Communities Agency.
The valuer treats the fair value for forward funded assets as
work-in-progress value whereby the Group forward funds a
development by committing a total sum, the Gross Development Value
("GDV") over the development period in order to receive the
completed development at practical completion. The work-in-progress
value of the asset increases during the construction period
accordingly as payments are made by the Group which leads, in turn,
to a pro-rata increase in the valuation in each quarter valuation
assuming there are no material events affecting the GDV adversely.
Interest accrued during construction as well as an estimation of
future interest accrual prior to lease commencement will be
deducted from the balancing payment which is the final payment to
be drawn by the developer prior to the Group receiving the
completed building.
Descriptions and definitions relating to valuation techniques
and key unobservable inputs made in determining fair values are as
follows:
Valuation techniques: Discounted cash flows
The discounted cash flows model considers the present value of
net cash flows to be generated from the property, taking into
account the expected rental growth rate and lease incentive costs
such as rent-free periods. The expected net cash flows are then
discounted using risk-adjusted discount rates.
There are three main unobservable inputs that determine the fair
value of the Group's investment property:
1. the rate of inflation as measured by CPI; it should be noted
that all leases benefit from either CPI or RPI indexation; and
2. the discount rate applied to the rental flows.
Key factors in determining the discount rates to assess the
level of uncertainty applied include: the performance of the
regulated social housing sector and demand for each 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% (2019: 6.60%).
The range of discount rates used in the Group's property
portfolio valuation is from 6.3% to 7.4% (2019: 6.3% to 7.1%).
-0.5% change +0.5% change +0.25% change -0.25% change
in in in in
Discount Discount
Rate Rate CPI CPI
GBP'000 GBP'000 GBP'000 GBP'000
Changes in the IFRS
fair value of investment
properties as at 31 December
20 20 35,919 (32,643) 18,635 (17,811)
Changes as at 31 December
20 19 28,803 (26,203) 14,911 (14,257)
15. TRADE AND OTHER RECEIVABLES
31 December 31 December
20 20 201 9
GBP'000 GBP'000
Prepayments 608 1,528
Other receivables 613 543
Lease incentive debtor 819 739
Rent receivable 2,112 1,477
4,152 4,287
============ ============
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 for rent
receivables to measure expected credit losses using a lifetime
expected credit loss provision for rent receivables. To measure
expected credit losses on a collective basis, rent receivables are
grouped based on similar credit risk and ageing.
The expected loss rates are based on the Group's historical
credit losses experienced since incorporation in 2017. The
historical loss rates are then adjusted for the current and
forward-looking information on macroeconomic factors affecting the
Group's tenants. Both the expected credit loss provision and the
incurred loss provision in the current and prior period are
immaterial. The Group does not hold any collateral as security.
The Group applies the general approach to providing for expected
credit losses under IFRS 9 for other receivables. Both the expected
credit loss and the incurred loss provision in the current and
prior year are immaterial.
16. CASH, CASH EQUIVALENTS AND RESTRICTED CASH
31 December 31 December
20 20 201 9
GBP'000 GBP'000
Cash held by lawyers 3,938 771
Liquidity funds - 50,000
Restricted cash 849 2,979
Cash at bank 48,914 13,961
------------ ------------
53,701 67,711
============ ============
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 0.75% 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 (held by lawyers
only) in relation to repair, maintenance and improvement works by
the vendors to bring the properties up to satisfactory standards
for the Group and the tenants. The cash is committed on the
acquisition of the properties. Restricted cash also includes
forward funding monies held by Lloyds in a "lockbox" account which
requires Lloyds to release on instruction, and also funds held in
an escrow account in relation to the transfer of leases.
31 December 31 December
20 20 201 9
GBP'000 GBP'000
Total Cash, cash equivalents and
restricted cash 53,701 67,711
Restricted cash (849) (2,979)
------------ ------------
Cash reported on Statement of Cash
Flows 52,852 64,732
============ ============
17. TRADE AND OTHER PAYABLES
Current liabilities
31 December 31 December
20 20 201 9
GBP'000 GBP'000
Other creditors 1,922 5,521
Accruals 2,929 1,913
Trade payables 79 672
Head lease ground rent (note 2 7
) 39 39
4,969 8,145
============ ============
The Other Creditors balance consists of retentions due on
completion of outstanding works. The Directors consider that the
carrying value of trade and other payables approximate their fair
value. All amounts are due for payment within one year from the
reporting date .
18. OTHER PAYABLES
Non-current liabilities
31 December 31 December
20 20 201 9
GBP'000 GBP'000
Head lease ground rent (note 2 7
) 1,417 1,414
Rent deposit 100 100
1,517 1,514
============ ============
19. BANK AND OTHER BORROWINGS
31 December 31 December
20 20 201 9
GBP'000 GBP'000
Bank and other borrowings drawn at
year end 198,500 169,092
------------ ------------
Less: loan issue costs incurred (4,736) (4,594)
Add: loan issue costs amortised 1,163 457
------------ ------------
Unamortised costs at end of the year (3,573) (4,137)
------------ ------------
Balance at year end 194,927 164,955
============ ============
At 31 December 2020 there were undrawn bank borrowings of GBP30
million (2019: GBP29.4 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 GBP184 million. The Loan Notes represent a
loan-to-value of 40% of the value of the secured pool of assets and
are split into two tranches: Tranche-A, is an amount of 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 had an initial term of four years
expiring on 20 December 2022. This could 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 three-month LIBOR. The revolving credit
facility represents a loan-to-value of 40% secured against a
defined portfolio of the Group's specialist supported housing
assets.
On 29 October 2019 the Group secured a GBP60 million extension
to the existing Revolving Credit Facility. As part of the
extension, National Westminster Bank plc provided debt alongside
Lloyds Bank plc and on identical terms providing the Group with the
ability to draw a total of up to GBP130 million under the Revolving
Credit Facility.
On 15 December 2020, the Group secured a further extension of
GBP30 million to the Revolving Credit Facility, and simultaneously
extended the RCF's initially agreed four-year term by a year to 20
December 2023. The term of the RCF may be extended by a further
year, to 20 December 2024 (subject to the consent of the lenders).
Under the increase and extension of the RCF, the interest rate for
drawn funds remains at 1.85% per annum over three-month LIBOR. In
the light of the ceasing of LIBOR as a benchmark rate during 2021,
the Group has negotiated and agreed provisions within the terms of
the increase and extension of the Revolving Credit Facility setting
pre-agreed terms for the transition of LIBOR to the new benchmark
rate SONIA. The date for the transition from LIBOR to SONIA is 1
July 2021. For undrawn loan amounts the Company pays a commitment
fee in the amount of 40% of the margin. As at 31 December 2020,
GBP130 million had been drawn under the revolving credit facility
and when fully drawn, the RCF will represent a loan-to-value of 40%
secured against a defined portfolio of the Group's specialist
supported housing assets located throughout the UK and held in a
wholly-owned Group subsidiary.
All financing arrangements are 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.
The transition to SONIA is not expected to result in a
substantial modification to the existing loan liability under IFRS
9 as the effect to the present value of the contractual cash flows
are not expected to meet the 10% test.
Undrawn committed bank facilities - maturity profile
3 to
1 to 2 5 > 5
31 December 20 20 Total < 1 year years years years
-------------------- -------- --------- -------- -------- --------
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 31 December 20
20 30,000 - - 30,000 -
-------- --------- -------- -------- --------
At 31 December 201
9 29,408 - - 29,408 -
-------- --------- -------- -------- --------
20. NOTES SUPPORTING STATEMENT OF CASH FLOWS
Reconciliation of liabilities to cash flows from financing
activities:
Bank borrowings Head lease Total
GBP'000 GBP'000 GBP'000
(note 19) (note 17,18)
At 1 January 2020 164,955 1,453 166,408
Cashflows:
Bank borrowings drawn 29,408 - 29,408
Repayment of principal
on head lease liabilities - (39) (39)
Loan arrangement fees
paid (1,101) - (1,101)
Non-cash flows:
-Amortisation of loan
arrangement fees 1,163 - 1,163
-Loan arrangement
fees paid in advance
recognised in prepayments 502 - 502
-Head lease additions - - -
-Accrued interest
on head lease liabilities - 42 42
---------------- ------------- --------
At 31 December 2019 194,927 1,456 196,383
================ ============= ========
Bank borrowings Head lease Total
GBP'000 GBP'000 GBP'000
(note 19) (note 17,18)
At 1 January 2019 67,361 1,306 68,667
Cashflows:
Bank borrowings drawn 100,592 - 100,592
Repayment of principal
on head lease liabilities - (39) (39)
Loan arrangement fees
paid (3,455) - (3,455)
Non-cash flows:
-Amortisation of loan
arrangement fees 457 - 457
-Head lease additions - 138 138
-Accrued interest
on head lease liabilities - 48 48
---------------- ------------- --------
At 31 December 2019 164,955 1,453 166,408
================ ============= ========
21. SHARE CAPITAL
Issued and Issued and
fully paid fully paid
Number GBP'000
At 1 January 20 20 351,352,210 3,514
Issued on public offer on 2 1
October 20 20 51,886,792 519
------------ ------------
At 31 December 2018 and 31 December
20 20 403,239,002 4,033
============ ============
Issued and Issued and
fully paid fully paid
Number GBP'000
At 1 January 2019 and 31 December
2019 351,352,210 3,514
============ ============
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.
Following a fourth public offer on 21 October 2020, a further
51,886,792 Ordinary Shares of one pence each were issued and fully
paid.
Rights, preferences and restrictions on shares: All Ordinary
Shares carry equal rights, and no privileges are attached to any
shares in the Company. All the shares are freely transferable,
except as otherwise provided by law. The holders of Ordinary Shares
are entitled to receive dividends as declared from time to time and
are entitled to one vote per share at meetings of the Company. All
shares rank equally with regard to the Company's residual
assets.
The table above includes 450,000 treasury shares (note 23).
Treasury shares do not hold any voting rights.
22. SHARE PREMIUM RESERVE
The share premium relates to amounts subscribed for share
capital in excess of nominal value.
31 December 31 December
20 20 201 9
GBP'000 GBP'000
Balance at beginning of year 151,157 151,157
Share premium arising on Ordinary 54,481
Shares issue -
Share issue costs capitalised (1,862) -
Balance at end of year 203,776 151,157
============ ============
23. TREASURY SHARES RESERVE
31 December 31 December
20 20 201 9
GBP'000 GBP'000
Balance at beginning of year (378) -
Own shares repurchased - (378)
Balance at end of year (378) (378)
============ ============
The treasury shares reserve relates to the value of shares
purchased by the Company in excess of nominal value. No treasury
shares were purchased during the current year. During the year
ended 31 December 2019, the Company purchased 450,000 of its own 1p
Ordinary Shares at a total gross cost of GBP377,706 (GBP374,668
cost of shares and GBP3,038 associated costs). As at 31 December
2020 and 31 December 2019, 450,000 1p Ordinary Shares were held by
the Company.
24. CAPITAL REDUCTION RESERVE
31 December 31 December
20 20 201 9
GBP'000 GBP'000
Balance at beginning of year 166,154 183,921
Dividends paid - (17,767)
Balance at end of year 166,154 166,154
============ ============
The capital reduction reserve relates to the distributable
reserve established on cancellation of the share premium reserve.
Dividends have been distributed out of Retained Earnings rather
than the Capital Reduction Reserve in the year ended 31 December
2020.
25. RETAINED EARNINGS
31 December 31 December
20 20 201 9
GBP'000 GBP'000
Balance at beginning of year 49,286 25,569
Total comprehensive income for the
year 24,594 23,717
Dividends paid (18,814) -
Balance at end of year 55,066 49,286
============ ============
26. DIVIDS
Year ended Year ended
31 December 31 December
20 20 20 19
GBP'000 GBP'000
1.25p for the 3 months to 31 December
2018 paid on 29 March 2019 - 4,392
1.27p for the 3 months to 31 March
2019 paid on 28 June 2019 - 4,463
1.27p for the 3 months to 30 June
2019 paid on 27 September 2019 - 4,456
1.27p for the 3 months to 30 September
2019 paid on 20 December 2019 - 4,456
1.285p for the 3 months to 31 December 4,509 -
2019 paid on 27 March 2020
1.295p for the 3 months to 31 March 4,544 -
2020 paid on 26 June 2020
1.295p for the 3 months to 30 June 4,544 -
2020 paid on 25 September 2020
1.295p for the 3 months to 30 September 5,217 -
2020 paid on 18 December 2020
18,814 17,767
============= =============
On 4 March 2021, the Company declared an interim dividend of
1.295 pence per Ordinary Share for the period 1 October 2020 to 31
December 2020. The total dividend of GBP5.21 million will be paid
on 26 March 2021 to Ordinary shareholders on the register on 12
March 2021.
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.
27. LEASES
A. Leases as lessee
The Group leases a number of properties that were previously
held as finance leases. In the prior year these were reclassified
to right-of-use assets under IFRS 16.
The following table sets out a maturity analysis of lease
payments, showing the undiscounted lease payments to be paid after
the reporting date:
< 1 year 2-5 years > 5 years Total
GBP'000 GBP'000 GBP'000 GBP'000
Lease payables
--------- ---------- -------------- --------
31 December 2020 40 159 14,366 14,565
--------- ---------- -------------- --------
31 December 2019 40 158 7,123 7,321
--------- ---------- -------------- --------
31 December 31 December
20 20 201 9
GBP'000 GBP'000
Current liabilities (note 17 ) 39 39
Non-current liabilities (note 18) 1,417 1,414
Balance at end of year 1,456 1,453
============ ============
The above is in respect of properties held by the Group under
leasehold. There are 21 properties (2019: 20) held under leasehold
with lease ranges from 125 years to 999 years.
The Group's leasing arrangements with lessors are headlease
arrangements on land and buildings that have been sub-let under the
Group's normal leasing arrangements (see above) to tenants. The
Group carries its interest in these headlease arrangements as long
leasehold investment property (note 14).
B. Leases as lessor
The Group leases out its investment properties (see note 14
).
The future minimum lease payments receivable by the Group under
non-cancellable operating leases are as follows:
< 1 year 2-5 years > 5 years Total
GBP'000 GBP'000 GBP'000 GBP'000
Lease receivables
--------- ---------- ---------- --------
31 December 2020 31,585 126,471 665,886 823,942
--------- ---------- ---------- --------
31 December 2019 25,460 101,841 530,954 658,255
========= ========== ========== ========
< 1 year 2-5 years > 5 years Total
GBP'000 GBP'000 GBP'000 GBP'000
31 December 2018 18,290 74,449 415,211 507,950
========= ========== ========== ========
Leases are direct-let agreements with Registered Providers for a
term of at least 15 years and usually between 20 to 25 years with
rent linked to CPI or RPI. All leases are full repairing and
insuring (FRI) leases, the tenants are therefore obliged to repair,
maintain and renew the properties back to the original
conditions.
The following table gives details of the percentage of annual
rental income per Registered Provider with more than a 10%
share:
31 December 31 December
20 20 201 9
% of total annual % of total annual
Registered Provider rent rent
Inclusion Housing CIC 31 21
Falcon Housing Association
CIC 11 13
Parasol Homes (previously 28A
Supported Living) 11 13
My Space - 11
Hilldale - 11
Annual rental income for My Space and Hilldale amounted to less
than 10% of the total annual rental income as at 31 December
2020.
Other disclosures about leases are provided in notes 5, 14, 17,
20 and 32.
28. CONTROLLING PARTIES
As at 31 December 20 20 there is no ultimate controlling party
of the Company.
29. SEGMENTAL INFORMATION
IFRS 8 Operating Segments requires operating segments to be
identified on the basis of internal financial reports about
components of the Group that are regularly reviewed by the Chief
Operating Decision Maker (which in the Group's case is delegated to
the Delegated Investment Adviser TPIM).
The internal financial reports received by TPIM contain
financial information at a Group level as a whole and there are no
reconciling items between the results contained in these reports
and the amounts reported in the financial statements.
The Group's property portfolio comprised 445 (2019: 388) Social
Housing properties as at 31 December 2020 in England, Wales and
Scotland. The Directors consider that these properties represent a
coherent and diversified portfolio with similar economic
characteristics and, as a result, these individual properties have
been aggregated into a single operating segment. In the view of the
Directors there is accordingly one reportable segment under the
provisions of IFRS 8. All of the Group's properties are engaged in
a single segment business with all revenue, assets and liabilities
arising in the UK, therefore, no geographical segmental analysis is
required by IFRS 8.
30. RELATED PARTY DISCLOSURE
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 (2019: GBP75,000), and the
other directors of the Board receive a fee of GBP50,000 per annum
(2019: GBP50,000). The Directors are also entitled to an additional
fee of GBP7,500 in connection with the production of every
prospectus by the Company (including the Issue).
Dividends of the following amounts were paid to the Directors
during the year:
Chris Phillips: GBP2,836 (2019: GBP2,776)
Peter Coward: GBP3,938 (2019: GBP3,823)
Paul Oliver: GBP4,031 (2019: GBP3,945)
Tracey Fletcher-Ray: GBP489 (2019: nil)
No shares were held by Ian Reeves as at 31 December 2020 (31
December 2019: nil).
31. CONSOLIDATED ENTITIES
The Group consists of a parent Company, Triple Point Social
Housing REIT PLC, incorporated in the UK and a number of
subsidiaries held directly by the Company, which operate and are
incorporated in the UK and Guernsey. The principal place of
business of each subsidiary is the same as their place of
incorporation.
The Group owns 100% of the equity shares of all subsidiaries
listed below and has the power to appoint and remove the majority
of the Board of those subsidiaries. The relevant activities of the
below subsidiaries are determined by the Board based on simple
majority votes. Therefore, the Directors of the Company concluded
that the Company has control over all these entities and all these
entities have been consolidated within the financial statements.
The principal activity of all the subsidiaries relates to property
investment.
The subsidiaries listed below were held as at 31 December
2020:
Name of Entity Registered Office Country of Ownership
Incorporation %
1 King William Street, London,
TP REIT Super HoldCo Limited* EC4N 7AF UK 100%
1 King William Street, London,
TP REIT HoldCo 1 Limited EC4N 7AF UK 100%
1 King William Street, London,
TP REIT HoldCo 2 Limited EC4N 7AF UK 100%
1 King William Street, London,
TP REIT HoldCo 3 Limited EC4N 7AF UK 100%
1 King William Street, London,
TP REIT HoldCo 4 Limited EC4N 7AF UK 100%
1 King William Street, London,
TP REIT PropCo 2 Limited EC4N 7AF UK 100%
1 King William Street, London,
TP REIT PropCo 3 Limited EC4N 7AF UK 100%
1 King William Street, London,
TP REIT PropCo 4 Limited EC4N 7AF UK 100%
1 King William Street, London,
Norland Estates Limited EC4N 7AF UK 100%
1 King William Street, London,
FPI Co 244 Limited EC4N 7AF UK 100%
1 Le Truchot St Peter Port,
PSCI Holdings Limited* GY1 1WD Guernsey 100%
1 Le Truchot St Peter Port,
SL Hexham Limited GY1 1WD Guernsey 100%
1 King William Street, London,
Creed Housing SPV 1 Limited EC4N 7AF UK 100%
1 King William Street, London,
MSL (87) Limited EC4N 7AF UK 100%
1 King William Street, London,
The Limes 1 Limited EC4N 7AF UK 100%
1 King William Street, London,
Allerton SPV 16 Limited EC4N 7AF UK 100%
1 Le Truchot St Peter Port,
SL Carsic Lane GY1 1WD Guernsey 100%
1 Le Truchot St Peter Port,
SL Auckland GY1 1WD Guernsey 100%
1 King William Street, London,
HS Derby 1 Limited EC4N 7AF UK 100%
1 King William Street, London,
Rosewood (Dunwoody) Limited EC4N 7AF UK 100%
Grolar Developments SPV 1 King William Street, London,
5 Limited EC4N 7AF UK 100%
1 King William Street, London,
TDIONEDEV Limited EC4N 7AF UK 100%
1 King William Street, London,
Creed Housing SPV 3 Limited EC4N 7AF UK 100%
* indicates entity is a direct subsidiary of Triple
Point Social Housing REIT plc.
The subsidiaries listed below were acquired in the year to 31 December
2020:
Name of Entity Registered Office Country Ownership
of Incorporation %
1 Le Truchot St Peter Port,
SL Hexham Limited GY1 1WD Guernsey 100%
1 King William Street, London,
Creed Housing SPV 1 Limited EC4N 7AF UK 100%
1 King William Street, London,
MSL (87) Limited EC4N 7AF UK 100%
1 King William Street, London,
The Limes 1 Limited EC4N 7AF UK 100%
1 King William Street, London,
Allerton SPV 16 Limited EC4N 7AF UK 100%
1 Le Truchot St Peter Port,
SL Carsic Lane GY1 1WD Guernsey 100%
1 Le Truchot St Peter Port,
SL Auckland GY1 1WD Guernsey 100%
1 King William Street, London,
HS Derby 1 Limited EC4N 7AF UK 100%
1 King William Street, London,
Rosewood (Dunwoody) Limited EC4N 7AF UK 100%
Grolar Developments SPV 1 King William Street, London,
5 Limited EC4N 7AF UK 100%
1 King William Street, London,
TDIONEDEV Limited EC4N 7AF UK 100%
1 King William Street, London,
Creed Housing SPV 3 Limited EC4N 7AF UK 100%
The subsidiaries listed below have been struck off since 31 December
2020:
1 King William Street, London,
FPI Co 244 Ltd EC4N 7AF UK 100%
1 King William Street, London,
Creed Housing SPV 1 Ltd EC4N 7AF UK 100%
32. FINANCIAL RISK MANAGEMENT
The Group is exposed to market risk, interest rate risk, credit
risk and liquidity risk in the current and future periods. The
Board oversees the management of these risks. The Board's policies
for managing each of these risks are summarised below.
32.1 Market risk
The Group's activities will expose it primarily to the market
risks associated with changes in property values.
Risk relating to investment in property
Investment in property is subject to varying degrees of risk.
Some factors that affect the value of the investment in property
include:
-- changes in the general economic climate;
-- competition for available properties;
-- obsolescence; and
-- Government regulations, including planning, environmental and tax laws.
Variations in the above factors can affect the valuation of
assets held by the Group and as a result can influence the
financial performance of the Group.
The factors mentioned above have not had a material impact on
the valuations of the investment properties as at 31 December 2020,
and are not expected to in the immediate future, but will continue
to be monitored closely.
Please refer to the Corporate Social Responsibility Report on
pages 42 to 43 for further information on Environmental Policy
which may effect the investment property valuations going
forward.
32.2. Interest rate risk
Interest rate risk is the risk that the fair value or future
cash flows of a financial instrument will fluctuate because of
changes in market interest rates.
The Revolving Credit Facility with Lloyds Bank has been secured
on a floating rate basis whereby the Group pays a margin of 1.85%
per annum above 3-month LIBOR for drawn loan amounts throughout the
loan term. Under the increase and extension of the RCF, the
interest rate for drawn funds remains at 1.85% per annum over
three-month LIBOR. In the light of the ceasing of LIBOR as a
benchmark rate during 2021, the Group has negotiated and agreed
provisions within the terms of the increase and extension of the
RCF setting pre-agreed terms for the transition of LIBOR to the new
benchmark rate SONIA. The date for the transition from LIBOR to
SONIA is 1 July 2021.
The director's decision was not to put hedging arrangements in
place from the date of signing the initial agreement, as up until
the most recent Amended and Restated Agreement signed on 14
December 2020 under the terms of the Revolving Credit Facility, the
Group has had full flexibility, and at its sole discretion, to put
hedging arrangements in place at any time during the loan term.
In the Amended and Restated Agreement signed on 14 December
2020, a Hedging Trigger Event has been introduced which means a
hedging agreement will be required to be entered into if the
Projected Interest Cover falls below 400% on any date falling on or
after the Rate Switch Date (which is the earlier of the 1 July 2021
or a date mutually agreed by the relevant parties). At 31 December
2020, the projected interest was 696%.
Throughout the loan term the Group has closely monitored changes
in interest rates to determine if it is necessary to implement
hedging. The liquidity table in 32.4 below outlines the bank
borrowings and interest payable on bank borrowings with a floating
interest rate. An increase in floating interest rates of 1% per
annum would decrease the profit before tax, and the net asset
value, by GBP1.1 million at 31 December 2020. The Board believes
that a movement of 1% in the current economic climate is reasonably
possible.
The fixed rate loan notes with MetLife do not have exposure to
interest rate risk.
Exposure to interest rate risk on the liquidity funds is
immaterial to the Group.
32.3. Credit risk
Credit risk is the risk that a counterparty will not meet its
obligations under a financial instrument or customer contract,
leading to a financial loss. The Group is exposed to credit risks
from both its leasing activities and financing activities,
including deposits with banks and other institutions as detailed in
notes 16 and 19.
Credit risk related to financial instruments and cash
deposits
One of the principal credit risks facing the Group arises with
the funds it holds with banks and other institutions. The Board
believes that the credit risk on short-term deposits and current
account cash balances is limited because the counterparties are
banks and institutions with high credit ratings.
Credit risk related to leasing activities
In respect of property investments, in the event of a default by
a tenant, the Group will suffer a rental shortfall and additional
costs concerning re-letting the property to another Social Housing
Registered Provider. Credit risk is primarily managed by testing
the strength of covenant of a tenant prior to acquisition and on an
ongoing basis. The Investment Manager also monitors the rent
collection in order to anticipate and minimise the impact of
defaults by occupational tenants. Outstanding rent receivables are
regularly monitored. The maximum exposure to credit risk at the
reporting date is the carrying value of each class of financial
asset.
The Group has leases in place with five Registered Providers
that have been deemed non-compliant by the Regulator. We continue
to conduct ongoing due diligence on all Registered Providers and
all rents
payable under these leases have been paid. The Group's valuer
has confirmed that there is no impact on the value of the Group's
assets as a result of the non-compliant rating. We continue to
monitor and maintain a dialogue with the Registered Providers as
they work with advisers and the Regulator to implement a financial
and governance improvement action plan in order to address the
Regulator's concerns and obtain a compliant rating. The Board
believes that the credit risk associated with the non-compliant
rating is limited and all rents are received by the Registered
Provider from local and central government.
The effects of Covid-19 on credit risk have been and continue to
be assessed but so far all rents have been collected, and no
expected credit losses have been identified.
32.4. Liquidity risk
The Group manages its liquidity and funding risks by considering
cash flow forecasts and ensuring sufficient cash balances are held
within the Group to meet future needs. Prudent liquidity risk
management implies maintaining sufficient cash and marketable
securities, the availability of financing through appropriate and
adequate credit lines, and the ability of customers to settle
obligations within normal terms of credit. The Group ensures,
through forecasting of capital requirements, that adequate cash is
available to fund the Group's operating activities.
The following table details the Group's liquidity analysis:
3-12 1-5 > 5
31 December 20 20 < 3 months months Years years
------------------------------- -------- --------------- -------- -------- -------------
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Headleases (note
2 7 ) 14,565 10 30 159 14,366
Trade and other payables 4,908 4,717 191 - -
Bank and other borrowings
(note 19):
* Fixed interest rate 68,500 - - - 68,500
* Variable interest rate 130,000 - - 130,000 -
Interest payable
on bank and other
borrowings:
* Fixed interest rate 19,951 520 1,561 8,326 9,544
* Variable interest rate 9,863 720 1,829 7,314 -
247,787 5,967 3,611 145,799 92,410
======== =============== ======== ======== =============
3-12 1-5 > 5
31 December 2019 < 3 months months Years years
------------------------------- -------- ----------- -------- -------- --------
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Headleases (note
28) 7,321 10 30 158 7,123
Trade and other payables 8,106 6,003 2,103 - -
Bank and other borrowings
(note 19):
* Fixed interest rate 68,500 - - - 68,500
* Variable interest rate 100,592 - - 100,592 -
Interest payable
on bank and other
borrowings:
* Fixed interest rate 22,033 520 1,561 8,326 11,626
* Variable interest rate 10,725 720 2,019 7,986 -
217,277 7,253 5,713 117,062 87,249
======== =========== ======== ======== ========
32.5 Financial instruments
The Group's principal financial assets and liabilities, which
are all held at amortised cost, are those that arise directly from
its operation: trade and other receivables, trade and other
payables, headleases, borrowings and cash held at bank.
Set out below is a comparison by class of the carrying amounts
and fair value of the Group's financial instruments that are
included in the financial statements:
Book value Fair value Book value Fair value
31 December 31 December 31 December 31 December
20 20 20 20 20 19 20 19
GBP'000 GBP'000 GBP'000 GBP'000
Financial assets:
Trade and other
receivables 3,368 3,368 2,759 2,759
Cash held at bank 53,701 53,701 67,711 67,711
------------- ------------- ------------- -------------
Financial liabilities:
Trade and other
payables 4,930 4,930 8,106 8,106
Borrowings 194,927 205,272 164,955 173,035
------------- ------------- ------------- -------------
33. POST BALANCE SHEET EVENTS
Property acquisitions
Since 31 December 2020, the Group has acquired 1 property and
exchanged on 1 property, deploying GBP2.9 million (including
acquisition costs).
34. CAPITAL COMMITMENTS
The Group had capital commitments of GBP2.8 million (2019:
GBP24.3 million) in relation to the cost to complete its forward
funded pre-let development assets at 31 December 2020.
35. EARNINGS PER SHARE
Earnings per share ("EPS") amounts are calculated by dividing
profit for the period attributable to ordinary equity holders of
the Company by the weighted average number of Ordinary Shares in
issue during the period. As there are no dilutive instruments
outstanding, both basic and diluted earnings per share are the
same.
The calculation of basic and diluted earnings per share is based
on the following :
Year ended Year ended
31 December 31 December
2020 2019
Calculation of Basic Earnings per
share
Net profit attributable to Ordinary
Shareholders (GBP'000) 24,594 23,717
Weighted average number of Ordinary
Shares (excluding treasury shares) 360,853,102 351,124,401
IFRS Earnings per share - basic and
diluted 6.82p 6.75p
------------ ------------
Calculation of EPRA Earnings per
share
Net profit attributable to Ordinary
Shareholders (GBP'000) 24,594 23,717
Changes in value of fair value of
investment property (GBP'000) (7,957) (11,809)
EPRA earnings (GBP'000) 16,637 11,908
Non cash adjustments to include:
Interest capitalised on forward funded
developments (128) (60)
Amortisation of loan arrangement
fees 1,163 457
---------------------------- -------------------------
Adjusted earnings (GBP'000) 17,672 12,305
---------------------------- -------------------------
Weighted average number of Ordinary
Shares (excluding treasury shares) 360,853,102 351,124,401
---------------------------- -------------------------
EPRA earnings per share - basic and
diluted 4.61p 3.39p
Adjusted earnings per share - basic
and diluted 4.90p 3.50p
---------------------------- -------------------------
Adjusted earnings is a performance measure used by the Board to
assess the Group's dividend payments. The metric adjusts EPRA
earnings for interest paid to service debt that was capitalised,
and the amortisation of loan arrangement fees. The Board sees these
adjustments as a reflection of actual cashflows which are
supportive of dividend payments. The Board compares the Adjusted
earnings to the available distributable reserves when considering
the level of dividend to pay.
36. NET ASSET VALUE PER SHARE
Basic Net Asset Value ("NAV") per share is calculated by
dividing net assets in the Group Statement of Financial Position
attributable to Ordinary Shareholders of the parent by the number
of Ordinary Shares outstanding at the end of the period. Although
there are no dilutive instruments outstanding, both basic and
diluted NAV per share are disclosed below.
Net asset values have been calculated as follows:
31 December 31 December
20 20 201 9
GBP'000 GBP'000
Net assets at the end of the year 428,651 369,733
Shares in issue at end of the
year (excluding treasury shares) 402,789,002 350,902,210
Dilutive shares in issue - -
IFRS NAV per share - basic and
dilutive 106.42p 105.37p
------------ ------------
37. CAPITAL MANAGEMENT
The Group's objectives when managing capital are to safeguard
the Group's ability to continue as a going concern in order to
provide returns for shareholders and to maintain an optimal capital
structure to minimise the cost of capital.
The Group considers proceeds from share issuance, bank and other
borrowings and retained earnings as capital.
Until the Group is fully invested and pending re-investment or
distribution of cash receipts, the Group will invest in cash
equivalents, near cash instruments and money market
instruments.
The level of borrowing will be on a prudent basis for the asset
class and will seek to achieve a low cost of funds, whilst
maintaining the flexibility in the underlying security requirements
and the structure of both the investment property portfolio and the
Group.
The Directors currently intend that the Group should target a
level of aggregate borrowings over the medium term equal to
approximately 40% of the Group's Gross Asset Value. The aggregate
borrowings will always be subject to an absolute maximum,
calculated at the time of drawdown, of 50% of the Gross Asset
Value.
The fixed rate facility with MetLife requires an asset cover
ratio of x2.25 and an interest cover ratio of x1.75. At 31 December
2020, the Group was fully compliant with both covenants with an
asset cover ratio of x2.69 (2019: x2.64) and an interest cover
ratio of x4.89 (2019: x4.78).
The RCF requires the Group to maintain a loan-to-value of less
than 50%, and an interest cover ratio in excess of x2.75. At 31
December 2020, the Group was fully compliant with both covenants
with a loan-to-value ratio of 40% and an interest cover ratio of
x6.11.
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