TIDMSOHO
RNS Number : 0344G
Triple Point Social Housing REIT
25 March 2022
THIS ANNOUNCEMENT HAS BEEN DETERMINED TO CONTAIN INSIDE
INFORMATION FOR THE PURPOSES OF THE MARKET ABUSE REGULATION (EU)
NO. 596/2014.
25 March 2022
Triple Point Social Housing REIT plc
(the "Company" or, together with its subsidiaries, the
"Group")
RESULTS FOR THE YEARED 31 DECEMBER 2021
The Board of Triple Point Social Housing REIT plc (ticker: SOHO)
is pleased to announce its audited results for the year ended 31
December 2021.
31 December 2021 31 December 2020
---------------------------------- ----------------- -----------------
EPRA Net Tangible Assets per
share
(equal to IFRS NAV per share) 108.27p 106.42p
Earnings per share (basic and
diluted) 7.05p 6.82p
* IFRS basis 4.82p 4.61p
* EPRA basis
Total annualised rental income GBP35.8m GBP31.6m
Value of the portfolio
* IFRS basis GBP642.0m GBP571.5m
GBP692.0m GBP611.6m
* Portfolio valuation basis
Weighted average unexpired 26.2 yrs 26.2 yrs
lease term
Dividend paid or declared per
Ordinary Share 5.20p 5.18p
Financial highlights
-- EPRA Net Tangible Assets (equal to IFRS net asset value) per
share of 108.27 pence as at 31 December 2021 (2020: 106.42 pence),
an increase of 1.7 % .
-- Portfolio independently valued as at 31 December 2021 at
GBP642.0 million on an IFRS basis (2020: GBP571.5 million),
reflecting a valuation uplift of 8.7% against total invested funds
of GBP590.4 million (1) . The properties have been valued on an
individual basis.
-- The portfolio's total annualised rental income was GBP35.8
million as at 31 December 2021 (2020: GBP31.6 million).
-- Operating profit for the year ended 31 December 2021 was
GBP35.2 million (2020: GBP30.2 million).
-- Ongoing Charges Ratio of 1.54% as at 31 December 2021 (2020: 1.57%).
-- The Company has paid dividends totalling 5.20 pence per
Ordinary Share in respect of the year ended 31 December 2021, in
line with the Company's target for the year. The dividend was 0.99x
covered on an EPRA earnings run-rate basis as at 31 December
2021.
-- In August 2021, the Group refinanced all of its GBP130.0m of
drawn floating-rate debt and put in place GBP195.0 million of long
dated, fixed rate, interest only sustainability-linked loan notes
through a private placement with MetLife Investment Management
clients and Barings . The Company was assigned an Investment Grade
Long-Term Issuer Default Rating of 'A-' with a stable outlook, and
a senior secured rating of 'A' for the new loan notes.
Operational highlights
-- Acquired 44 properties (345 units) during the year for a
total of GBP60.0 million (including costs) bringing the total
investment portfolio to 488 properties.
-- IFRS blended net initial yield of 5.25% based on the value of
the portfolio on an IFRS basis as at 31 December 2021 , against the
portfolio's blended net initial yield on purchase of 5.90% .
-- Further diversified the portfolio:
o 11 regions
o 156 local authorities
o 382 leases
o 24 Approved Providers
o 114 care providers
-- As at 31 December 2021, the weighted average unexpired lease
term (" WAULT ") was 26.2 years.
-- 100% of contracted rental income was either CPI or RPI linked.
Post Balance Sheet Activity
-- The Company declared a dividend of 1.30 pence per ordinary
share in respect of the period from 1 October to 31 December 2021 ,
payable on or around 25 March 2022 to shareholders on the register
on 11 March 2022.
-- The Company acquired a further eight properties comprising 57
units in total for an aggregate consideration of approximately
GBP10.0 million (including costs).
-- On 8 March 2022, the Company announced that it had undertaken
a consultation with a number of shareholders regard i ng a proposed
change to the Company's investment policy. Having also been subject
to a successful review by the Financial Conduct Authority, the
proposed amendments to the investment policy will be put to a
shareholder vote at the upcoming Annual General Meeting.
Notes:
1 Including acquisition costs
Chris Phillips, Chair of Triple Point Social Housing REIT plc,
commented:
" If the pandemic has taught us anything it is that the
intersections of hea l th, economic and societal factors are more
profound than ever. We cannot tackle these issues alone, but we can
be a responsible participator in the wider system. By delivering on
our investment strategy we seek to make a positive contribution to
society while delivering sustainable financial returns for our
shareholders. "
FOR FURTHER INFORMATION ON THE COMPANY, PLEASE CONTACT:
Triple Point Investment Management Tel: 020 7201 8989
LLP
(Investment Manager)
Max Shenkman
Isobel Gunn-Brown
Akur Capital (Financial Adviser) Tel: 020 7493 3631
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-linked,
long-term (typically from 20 years to 30 years), Fully Repairing
and Insuring ("FRI") leases with Approved Providers (being Housing
Associations, Local Authorities or other regulated organisations in
receipt of direct payment from local government). The portfolio
comprises investments into properties which are already subject to
an FRI lease with an Approved Provider, as well as forward funding
of pre-let developments but does not include any direct development
or speculative development.
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.
The Company was admitted to trading on the Specialist Fund
Segment of the Main Market of the London Stock Exchange on 8 August
2017 and was admitted to the premium segment of the Official List
of the Financial Conduct Authority and migrated to trading on the
premium segment of the Main Market on 27 March 2018. The Company
operates as a UK Real Estate Investment Trust ("REIT") and is a
constituent of the FTSE EPRA/NAREIT index.
CHAIR'S STATEMENT
Introduction
We entered 2021 with cautious optimism. While the challenges of
the pandemic were still being laid bare on the centre stage, the
global economic outlook was brightening. Countries across the world
began vaccinating their citizens, lockdowns came to an end in the
spring and as a global community, we embarked on a journey of
learning to live with Covid-19. Despite the numerous challenges
that the virus continued to pose to all of our stakeholders, this
year was different.
We tackled 2021 armed with experience, knowledge and collective
resilience. First and foremost we would like to recognise the work
of our housing and care provider partners who continued to ensure
the safety and wellbeing of our residents throughout a prolonged
lockdown; during times when social distancing, restrictions, and
staffing shortages posed significant challenges. On our part we
aimed to ensure that our Approved Providers and care providers were
supported, where possible helping them continue to operate
effectively and to ensure minimal disruption. We continued to
collaborate with local authorities and Commissioners to ensure
referrals to our properties were made as efficiently and, most
importantly, as safely as possible.
As I wrote to you this time last year I reported that despite
all of its challenges, 2020 had been another year of strong
performance for us. I am pleased to tell you that 2021 was more of
the same. It has been another year where we have met our dividend
targets and another year in which we continued to execute our
investment strategy, working with our partners to provide homes to
some of the most vulnerable members of society. Continuing to build
upon our proven track record is something we strive for, but not
something we take for granted. Each and every one of our
stakeholders plays a vital role in allowing us to deliver our
investment strategy and without them I would not be able to write
to you today to report on this continued strong performance.
In December, the Department of Health & Social Care
published its White Paper on Adult Social Care Reform "People at
the Heart of Care" (1) . The paper highlighted the important role
that wider Supported Housing plays, and must continue to play in
delivering better resident outcomes within our social care system.
Demand for social care continues to grow year on year. Estimates
predict that at least 1.7 million more adults will require social
care over the next 15 years. Recent analysis found that among those
aged 18-64, requests for support rose from 500,000 in 2015-16 to
560,000 in 2019-20 (2) . There are more than 650,000 supported
homes in the UK, of which approximately a quarter are specialised
Supported Housing. The UK is lagging behind its peers in supporting
people to live in Supported Housing generally. The United States,
New Zealand and Australia each provide over 5% of their total
populations with Supported Housing, compared with the UK's 0.6% (3)
.
Over 10 years on from the Winterbourne View scandal, reports
continue to come to light of vulnerable people remaining in
inappropriate and expensive institutional care settings (4) . These
reports continue to highlight not only the urgent need for more
specialised Supported Housing to be provided throughout the UK, but
for greater awareness of the benefits this type of accommodation
has for residents, as well as their families and wider communities.
Since our IPO in 2017, we have provided 3,424 new units of
accommodation. Our properties provide value for money for the UK
tax-payer when compared with traditional institutional care
settings which cost the Government as much as GBP3,500 per
resident, per week. This is compared with specialised Supported
Housing which costs the Government on average GBP1,569 per
resident, per week (5) .
Growing demand inevitably puts pressure on the wider social care
delivery system as well as families and communities. I welcome the
Government's acknowledgement in the Adult Social Care White Paper
that as a country we must increase the supply of Supported Housing
and that private capital, exactly such as ours, is vital to meeting
this goal alongside our public sector partners.
As I remarked earlier in my statement, we are committed to
continually applying what we have learnt as a Company on our
journey so far. We learn every day, from listening to the needs of
Commissioners, local authorities, our Approved Providers, care
providers, residents and shareholders. Our investment strategy is
predicated on doing good by doing well.
Environmental considerations have been at the forefront of our
minds this year, brought further into focus as nations around the
world gathered in Glasgow for the COP 26 summit. Over 72% of our
portfolio already meets the Government's target E nergy P
erformance C ertificate ("EPC") level of ' C ' but we know we can
and must do more. In September we announced the launch of an
ambitious initiative to fund the upgrade of all remaining
properties within our portfolio to a minimum EPC rating of ' C '
over the next few years.
The Investment Manager will provide a more detailed overview of
our business and performance this year in its report. In the
meantime, I have summarised some highlights from both our financial
performance and our social impact performance before finishing with
a reflection on the outlook for our business.
Social Impact
Social Impact is engrained in our decision making processes and
is central to our business model. This set of results demonstrates
our conviction that financial performance and social impact are
mutually reinforcing. The independent Impact Report prepared by The
Good Economy this year incorporates a new and enhanced monetisation
methodology. This new methodology verifies that our properties have
delivered GBP2.74 of Total Social Value for every GBP1.00 invested
in the year to 31 December 2021. You can read more on the social
value and impact that our properties create in the Impact Report
prepared by the Good Economy, available separately on our
website.
Each property we acquire is assessed to ensure it meets our ESG
standards, providing value-for-money to local authorities, enhances
resident outcomes and delivers a positive overall social impact.
Integration of ESG standards at the core of our diligence processes
means that we identify ESG risks early in the acquisition process,
giving us an opportunity to engage on these issues early along with
our stakeholders.
As focus has grown on social impact investing so too has the
framework around it. We were early adopters of the Sustainability
Reporting Standard for Social Housing (a metric we monitor our
Approved Providers against) and we are a member of the Equity
Impact Project. We were also a participant of the Green Lease
Working Group for the Green Finance Institute. We look forward to
continuing to contribute to these projects and to helping to shape
the sector's impact framework along with other market stakeholders
in the years to come.
Financial performance
During the year, we invested GBP60.0 million on in acquiring 44
new properties providing 345 new homes. Our acquisitions during the
year were all in line with the existing portfolio's net initial
yield. Covid-19 restrictions caused delays at times, but we worked
with Commissioners and our Approved Providers to ensure residents
were able to move in safely and as quickly as possible.
The final two of our 22 forward funding projects successfully
completed this year. Since IPO, we have invested GBP53.7 million in
total in these types of construction projects, which have provided
318 new, high quality and much needed homes in community settings
for our residents. The numerous obstacles caused by Covid-19 and
the associated lockdowns have caused delays on some of these
developments, however, these have not come at a material financial
cost to our shareholders. We hope to commence work on new forward
funding projects over the course of 2022 as local authorities
continue to signal demand for more of these long-term homes for
people with care and support needs.
Since IPO, we have delivered cumulative total returns of
approximately 31.1% representing an annualised return of 7.07% per
annum.
Our acquisitions during the year were funded from existing cash
and debt balances. We were delighted with the outcome of the debt
refinancing reported earlier in the year which enabled us to put in
place a new long-term debt facility, which locks in competitive
interest rates for 10 to 15 years at a time of rising inflation.
The refinancing also provided GBP65.0 million of further capital
for investment into new specialised Supported Housing homes.
We were pleased to report that, as part of the refinancing, the
Group received an Investment Grade Issuer Default Rating from Fitch
of 'A-' (Stable Outlook) with a senior secured rating of 'A'. This
is a positive endorsement of both the Group's investment thesis and
the sector, that enabled the Group to pursue a broader strategy in
relation to debt financing. The Group's new long-term, attractively
priced, fixed-rate loan notes are reflective of this.
At the year end:
-- we owned 488 properties, comprising 3,424 units, having
cumulatively deployed GBP590.4 million since IPO;
-- we had 24 Approved Providers, and a portfolio weighted
average unexpired lease term of 26.2 years; and
-- the portfolio was valued at GBP642.0 million on an IFRS
basis, 8.7% above our total investment cost and reflecting an EPRA
NIY of 5.20%.
I am pleased to continue to report this year that we have paid
all target dividends in full as we have done since inception.
Following continued deployment, at 31 December 2021 our dividend
cover on a look through EPRA run - rate basis was 0.99x. We expect
to announce our dividend target for 2022 in May as we have done in
previous years.
Our EPRA earnings per share was 4.82 pence in the year (adjusted
EPRA earnings on a cash basis was 5.14 pence) while IFRS earnings
per share was 7.05 pence. Finally, the EPRA NTA and audited IFRS
NAV per share was 108.27 pence, an increase of 1.7% since 31
December 2020.
All in all, we are proud of another set of strong financial
results which builds on our performance to date.
Proposed amendments to the Group's Investment Policy
Today , alongside announcing our results , we have also
published in our Notice of Annual General Meeting (AGM) and
circular proposed changes to the Company's investment policy and
investment restrictions.
The Company was one of the first listed investment trusts to
invest equity directly into specialised Supported Housing in 2017.
During that time, the sector has evolved, and as a responsible
investor, we have moved forward alongside it. We have developed our
leases to reflect the collective learnings of the sector and
maximise their effectiveness. In 2019, we introduced a change in
law clause into our new leases which facilitated proportionate risk
sharing with Approved Providers if there was to be a material
future change in housing benefit policy. We have also consistently
increased the reporting onus on our Approved Providers,
strengthened the Group's right to assign leases if an Approved
Provider is underperforming and introduced "green" lease
provisions. Collectively these changes have helped ensure that the
Group's investments generate stable and sustainable financial
returns for investors and deliver social impact.
The Company operates in a regulated sector and the Investment
Manager maintains an ongoing dialogue with the Regulator of Social
Housing alongside our Approved Providers. The Regulator has
publicly commented on the risks associated with leases in the
specialised Supported Housing sector . Increasingly , Approved
Providers are looking to evolve the terms of the leases they enter
into going forward, in part, to address the observations made by
the Regulator. Simultaneously, over the last six months the
Investment Manager has seen an increasing prevalence of new lease
structures in the sector and the endorsement of those new lease
structures by other investors.
The Company is proposing to change its investment policy and
investment restrictions at this time to ensure it has the requisite
flexibility to continue to be at the forefront of this evolving
sector, allow our Approved Providers to accommodate points raised
by the Regulator, and thereby remain an attractive partner.
Full details of the proposed changes are outlined in full in the
Notice of AGM and , in summary , focus on:
-- Removing the Company's minimum lease term restriction .
-- Allowing the Company to selectively take on the cost of funding planned maintenance .
-- Giving the Company the ability to enter into leases which are
subject to upward only adjustments, tracking either inflation or
central housing benefit policy .
Our mission remains clear. We remain determined to deploy our
capital into good quality homes, leased to the best quality
Approved Providers in the sector. These changes will enable us to
do just that.
In formulating these changes the Company has carefully
considered the impact that implementing them will have on its
performance, income and capital return targets going forward. An
initial pipeline of opportunities in excess of GBP15 million has
been identified which incorporate lease terms compatible with the
proposed changes. These opportunities are consistent with the
Group's income and capital return targets and will be supported by
formal valuation advice from the Group's independent valuer,
JLL.
A resolution will be proposed at the Company's 2022 Annual
General Meeting to approve these changes. If passed by
shareholders, we will, as ever, be focused on the quality of our
assets, the duration of our revenue streams and ensuring the
Company continues to build on its success to date.
Outlook
If the pandemic has taught us anything it is that the
intersections of hea l th, economic and societal factors are more
profound than ever. We cannot tackle these issues alone, but we can
be a responsible participator in the wider system. By delivering on
our investment strategy we seek to make a positive contribution to
society while delivering sustainable financial returns for our
shareholders.
I look forward to engaging with our shareholders in the weeks to
come on the proposed changes to the investment policy and
investment restrictions as we embark upon an exciting new chapter
of continued growth for the Group in 2022.
Sadly, I cannot end without mentioning the deeply upsetting and
ongoing situation in Ukraine. The Company is fortunate that its
investment strategy is resilient and not directly impacted by the
current conflict, however, the impending refugee and humanitarian
crisis cannot escape our minds. We would like to take this
opportunity to offer any support which we can to the wider sector
in the coming months as the human impact of the conflict takes its
toll.
I would like to thank all our advisers, and the Investment
Manager, for their continued hard work and dedication to our
investment strategy. Our corporate broker and joint financial
adviser, Stifel Nicolaus Europe Limited, and our joint financial
adviser, Akur Limited, as always have provided valuable and
high-quality advice during the year. Alongside the Investment
Manager, they have been instrumental in designing ways for the
Group to continue to build upon its success so far and helping us
to navigate plans for the Group's growth as I have announced
today.
Finally, I would like to thank our shareholders for their
continued support, as well as my fellow Board members for their
ongoing commitment and assistance this year.
Chris Phillips
Chair
24 March 2022
Notes:
1
https://www.gov.uk/government/publications/people-at-the-heart-of-care-adult-social-care-reform-white-paper/people-at-the-heart-of-care-adult-social-care-reform
2 Centre for Workforce Intelligence (2011). Report. The Adult
Social Care Workforce in England: Key facts
3 White Paper: "People at the Heart of Care"
4 https://www.bbc.co.uk/news/uk-england-597339 34
5
https://www.mencap.org.uk/sites/default/files/2018-04/2018.052%20Housing%20report_FINAL_WEB.pdf
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.
As noted in the Chair's statement, the Company is proposing a
resolution at the upcoming AGM in respect of a change to its
investment policy and investment restrictions. Further details can
be found in the Notice of Meeting and combined circular. A copy of
the Group's existing investment policy is set out 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, to date , 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 existing 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.
The Group is proposing amendments to its investment policy and
investment restrictions, which if approved by shareholders, will
enable the Group to enter into more flexible lease structures going
forward. These more flexible lease structures may include entering
into leases for shorter terms and, in certain cases, the Group may,
selectively, take on the cost of funding planned maintenance on
some properties.
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). The
majority of the Group's existing leases with Approved Providers are
linked to inflation, have a duration of 20 years or longer, and are
fully repairing and insuring - meaning that the obligations for
management, repair and maintenance of the property under those
leases are passed to the Approved Provider. The Group closely
monitors the long term risks to its portfolio, both physical risk,
as well as the regulatory risks associated with climate change. In
spite of the fact that the majority of the Group's existing leases
are fully repairing and insuring, during the year the Group
announced its sector-first retrofit programme to fund the upgrade
of all properties in the Group to a minimum EPC of 'C' over the
next few years. This commitment is a demonstration of the Group's
commitment to the long-term continued performance and strength of
its portfolio. As mentioned above, the Group has also now proposed
amendments to its investment policy and investment restrictions,
which if approved by shareholders, will enable the Group to enter
into more flexible lease structures going forward. If approved by
shareholders, the Group's future pipeline of assets may include
opportunities on shorter lease terms and, in a continuation of the
Group's commitment to the physical strength of its portfolio, would
allow the Group takes on the cost of funding planned maintenance on
newly acquired assets in certain circumstances. In each of these
opportunities, the Group will ensure that these assets are
consistent with its income and capital return targets.
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 18-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 5.20 The Company has declared a
shareholders and declared Company's ability to pence per share were paid dividend of 1.30 pence per
during the year. deliver a low risk but or declared in respect of Ordinary share in respect
growing income stream the period 1 January of the period
Further information is set from the portfolio. 2021 to 31 December 2021. 1 October 2021 to 31
out in Note 27 . December 2021, which will
(2020: 5.18 pence) be paid on 25 March 2022.
Total dividends paid
and declared for the year
are in line with the
Company's target.
---------------------------- --------------------------- ---------------------------
2. EPRA Net Tangible Assets (NTA)
---------------------------------------------------------- --------------------------- ---------------------------
The EPRA NTA is equal to EPRA NTA measure that 108.27 pence at 31 The EPRA NTA per share at
IFRS NAV as there are no assumes entities buy and December 2021. IPO was 98 pence.
deferred tax liabilities or sell assets, thereby This represents an
other adjustments crystal l ising certain (31 December 2020: 106.42 increase of 10.48% since
applicable to the Group levels of deferred tax pence) IPO driven primarily by
under the REIT regime. liability. yield compression in
the subsector.
Further information is set
out in Note 5 of the
Unaudited Performance
Measures.
---------------------------- --------------------------- ---------------------------
3. Loan to Value (LTV)
A proportion of our The Company uses gearing to 37.6 % LTV at 31 December Borrowings comprise two
portfolio is funded through enhance equity returns. 2021. private placements of loan
borrowings. Our medium to notes totalling GBP263.5
long term target (31 December 2020: 31.5% million provided
LTV is 35% to 40% with a The LTV covenant on the LTV) by MetLife Investment
maximum of 50%. revolving credit facility Management and Barings.
with Lloyds is < 50%. The GBP160 million
Further information is set revolving credit facility
out in Note 20. with Lloyds and NatWest
was completely undrawn as
at 31 December 2021. Since
the year end
, t he Group cancelled a
portion of this facility,
such that it has been
reduced to GBP50.0
million.
4. EPRA Earnings per Share
---------------------------- ---------------------------- --------------------------- ---------------------------
EPRA Earnings per share A measure of a Group's 4.82 pence per share EPRA EPS increased by
(EPRA EPS) excludes gains underlying operating for the year ended 31 4.53%.
from fair value adjustment results and an indication December 2021, based on
on investment of the extent to which earnings excluding the
property that are included current dividend payments fair value gain on .
in the IFRS calculation for are supported by earnings. properties,
Earnings per share. calculated on the weighted
average number of shares
Further information is set in issue during the year.
out in Note 36.
(31 December 2020: 4.61
pence)
---------------------------- --------------------------- ---------------------------
5. Adjusted Earnings per Share
---------------------------------------------------------- --------------------------- ---------------------------
Adjusted earnings per share A key measure which 5.14 pence per share This demonstrates the
includes adjustments for reflects actual cash flows for the year ended 31 Group's ability to meet
non-cash items. The supporting dividend December 2021, based on dividend payments from net
calculation is shown payments. earnings after deducting cash inflows. It
in note 36 . the fair value gain represents a dividend
on properties, cover for the year to 31
amortisation of loan December 2021 of 0.99x.
arrangement fees and
adding back capitalised
interest;
calculated on the weighted
average number of shares
in issue during the year.
(31 December 2020: 4.90
pence)
---------------------------- --------------------------- ---------------------------
6. Weighted Average Unexpired Lease Term (WAULT)
---------------------------------------------------------- --------------------------- ---------------------------
The average unexpired lease The WAULT is a key measure 26.2 years at 31 December As at 31 December 2021,
term of the investment of the quality of our 2021 (includes put and the portfolio's WAULT
portfolio, weighted by portfolio. Long lease terms call options). stood at 26.2 years.
annual passing rents. underpin the
security of our income (31 December 2020: 26.2
Further information is set stream. years)
out in the Investment
Manager's report.
---------------------------- --------------------------- ---------------------------
7. Adjusted Portfolio Earnings per Share
---------------------------------------------------------- --------------------------- ---------------------------
The post-tax earnings The Adjusted Portfolio EPS 19.46 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 2021 . on a long-term basis.
including portfolio and reflects
premium. the potential increase in (31 December 2020: 17.94 The increase in the
value the Group could pence) Adjusted Portfolio EPS
Further information is set realise if assets are sold from the previous period
out in Note 2 of the on a portfolio is reflective of the
Unaudited Performance basis. larger
Measures. 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 GBP486.1 million equates to shows a good market growth
valuation including value of net assets on an a Portfolio NAV of 120.68 in the underlying asset
portfolio premium. ongoing, long-term pence per Ordinary value of the
basis and reflects the Share. investment properties.
Further information is set potential increase in value
out in Note 1 of the the Group could realise (31 December 2020:
Unaudited Performance under the special Portfolio NAV GBP468.8
measures assumption of a million equated to 116.39
hypothetical sale of the pence per Ordinary Share)
underlying property
investment portfolio in one
single
transaction.
---------------------------- ---------------------------- ----------------------------
9. Exposure to Largest Approved Provider
----------------------------------------------------------------------------------------------------------------------
The percentage of the The exposure to the largest 28.3% at 31 December 2021. 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 2020: 29.8%)
largest Approved are not
Provider. overly exposed to one
Approved Provider in the
event of a default
scenario.
---------------------------- ---------------------------- ----------------------------
10. Total Return
----------------------------------------------------------------------------------------------------------------------
Change in EPRA NTA plus The Total Return measure EPRA NTA per share was The EPRA NTA per share at
total dividends paid during highlights the gross return 108.27 pence at 31 December 31 December 2021 was 108.27
the period. to investors including 2021. pence. Adding back
dividends paid dividends paid during
since the prior year. Total dividends paid during the year of 5.195 pence per
the year ended 31 December Ordinary Share to the EPRA
2021 were 5.195 pence per NTA at 31 December 2021
share. results in
an increase of 4.80%.
Total return was 6.62% for
the year to 31 December The Total Return since the
2021. IPO is 31.1% at 31 December
2021.
(31 December 2020: 5.9%)
---------------------------- ---------------------------- ----------------------------
EPRA PERFORMANCE MEASURES
The table shows additional performance measures, calculated in
accordance with the Best Practices Recommendations of the European
Public Real Estate Association (EPRA). We provide these measures to
aid comparison with other European real estate businesses.
Full reconciliations of EPRA Earnings and NAV are included in
Note 36 of the consolidated financial statements and Notes 3 to 5
of the Unaudited Performance Measures, respectively. A full
reconciliation of the other EPRA performance measures are also
included in the Unaudited Performance Measures section of the
Annual Report.
KPI AND DEFINITION PURPOSE PERFORMANCE
1. EPRA Earnings per Share
EPRA Earnings per share excludes A measure of a Group's underlying 4.82 pence per share for the year to
gains from fair value adjustment on operating results and an indication 31 December 2021.
investment property that of the extent to which current
are included in the IFRS calculation dividend payments are (31 December 2020: 4.61 pence)
for Earnings per share. supported by earnings.
Full dividend cover on a look-through
EPRA earnings run-rate basis
including committed funds
was 0.99x as at 31 December 2021.
======================================
2. EPRA Net Reinstatement Value (NRV) per share
------------------------------------------------------------------------------ --------------------------------------
The EPRA NRV adds back the A measure that highlights the value GBP475.4 million / 118.08 pence per
purchasers' costs deducted from the of net assets on a long-term basis. share as at 31 December 2021.
IFRS valuation.
GBP463.3 million / 115.02 pence per
share as at 31 December 2020.
-------------------------------------- -------------------------------------- --------------------------------------
3. EPRA Net Tangible Assets (NTA) per share
------------------------------------------------------------------------------ --------------------------------------
The EPRA NTA is equal to IFRS NAV as A measure that assumes entities buy GBP436.1 million / 108.27 pence per
there are no deferred tax liabilities and sell assets, thereby share as at 31 December 2021.
or other adjustments crystallising certain levels
applicable to the Group under the of deferred tax liability. GBP428.6 million / 106.42 pence per
REIT regime. share as at 31 December 2020.
-------------------------------------- -------------------------------------- --------------------------------------
4. EPRA Net Disposal Value (NDV)
------------------------------------------------------------------------------ --------------------------------------
The EPRA NDV provides a scenario A measure that shows the shareholder GBP434.0 million / 107.76 pence per
where deferred tax, financial value if assets and liabilities are share as at 31 December 2021.
instruments, and certain other not held until maturity.
adjustments are calculated as to the GBP420.9 million / 104.50 pence per
full extent of their liability. share as at 31 December 2020.
-------------------------------------- -------------------------------------- --------------------------------------
5. EPRA Net Initial Yield (NIY)
Annualised rental income based on the A comparable measure for portfolio 5.20% at 31 December 2021.
cash rents passing at the balance valuations. This measure should make
sheet date, less non-recoverable it easier for investors 5.27% at 31 December 2020.
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 5.27% 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 5.28% at 31 December 2020.
periods (or other unexpired lease on the full rent that is contracted
incentives such as discounted rent at 31 December 2021.
periods and step rents).
======================================
7. EPRA Vacancy Rate
Estimated Market Rental Value (ERV) A "pure" percentage measure of 0.26 % at 31 December 2021.
of vacant space divided by ERV of the investment property space that is
whole portfolio. vacant, based on ERV. 0.290% at 31 December 2020.
======================================
8 . EPRA Cost Ratio
====================================== ====================================== ======================================
Administrative and operating costs A key measure to enable meaningful 20.91% at 31 December 2021.
(including and excluding costs of measurement of the changes in a
direct vacancy) divided Group's operating costs. 23.27% at 31 December 2020.
by gross rental income.
====================================== ====================================== ======================================
INVESTMENT MANAGER'S REPORT
Introduction
At the onset of the pandemic few could have predicted the
devastating toll it has had or its prolonged impact. We have
endured a second year of restrictions and the emergence of new
variants posed continual risks. As we shifted our focus to learning
how to live with Covid-19, important lessons emerged. It is
critical that new ways are found to support the increasing burden
on our National Health Service which was already operating under
sustained pressures. With demand for adult social care services
exacerbated by the pandemic, along with rising population growth,
demand across the country for new specialised Supported Housing
properties such those provided by the Group has never been more
pressing.
The Group's investment strategy is underpinned by important
fundamentals, including, increasing the supply of affordable
housing in areas of demand and providing shareholders with stable,
generally inflation-linked income. Delivering on these fundamentals
has positive tangible benefits. Our properties provide specialist
adapted homes with appropriate care for our residents. This in turn
continues to be recognised as contributing to improving resident
outcomes by providing greater independence and placing residents
within their communities, close to friends and families.
Demonstrating our commitment to continual evolution and growth,
in August we welcomed our new Director of Housing, Anne-Britt
Karunaratne, who was previously an Executive Director of Housing
& Customer Services of a large Registered Provider that
provides over 20,000 social homes, mostly in the South East of
England. She has brought a wealth of knowledge, experience and
valuable insights to the team, and she further enhances our
relationships with our Approved Providers. The team has now grown
to over 25 people, each with a unique skill set and background. The
team brings together expertise from a range of disciplines and
backgrounds including finance, surveying, local authorities,
Registered Providers, lawyers and accountants. With such a breadth
of experience, the Group has continued to invest in new
relationships, beginning relationships with 4 new Approved
Providers. This year reflects another year of sustained strong
performance for the Group which is illustrated in the results set
out below.
As mentioned in our Chair's Statement, during 2021 the Group
bought 44 new schemes for a total investment cost of GBP60.0
million (including acquisition costs) funded from existing cash and
debt balances. These schemes provided 345 new units of
accommodation to the Group's portfolio in 2021 alone, and meant
that at 31 December 2021 the Group had 488 properties in total,
comprising 3,424 units, leased to 24 Approved Providers, across 156
different local authorities with support in these homes provided by
114 care providers. The Group's deployment was slightly slowed at
times due to construction delays, supply chain issues and the
rising cost of materials impacting development costs. However, the
Group was able to weather these challenges alongside its
stakeholders and worked hard to deploy its capital into new, much
needed, high-quality properties across the UK throughout the year
.
The Group continues to focus on its robust due diligence
processes and enhanced asset management programme, which together
ensure s that it safeguards the financial and operational
resilience of its portfolio. Insights from every opportunity the
Group assesses and every stakeholder it is engaged with are
factored into these processes and they are constantly evolving to
ensure that they represent best practice. Since the Group's IPO in
2017 over half of the deals that have been considered have been
rejected. This demonstrates the Group's commitment to acquiring
good quality homes and working with trusted counterparties to
deliver its investment strategy.
Our investments continue to create positive social impact. The
Group's third Impact Report, available separately, was commissioned
to independently verify how the Group is delivering on these
fundamentals. The report shows that, in 2021 alone, the Group
delivered GBP84.8 million of direct fiscal savings and GBP105.8
million of social value (which is the monetary value ascribed to
improving the wellbeing of residents. This year the report has been
calculated using a new and established Wellbeing Valuation
methodology developed by Simetrica-Jacobs which has been endorsed
in HM Treasury Green Book and associated guidance. This new metric
uses a new and enhanced monetisation methodology and is therefore
not comparable to historic reports. The report confirms that for
every GBP1 .00 invested, the Group generates GBP2.74 in social
value annually over the duration of the investment. The report also
shows that 86% of residents sampled reported feeling satisfied with
the quality of their home and 66% of residents sampled reported an
improvement in their confidence since moving into their home. For
further information, please see the Company's website for a copy of
the full report.
As outlined in the Chair's statement we are announcing planned
changes to the Group's investment policy and investment
restrictions. T he Chair has noted the reasons behind the proposed
changes. The Chair also noted that, having been one of the first
listed investors in 2017 we have witnessed the evolution of both
the sector and its stakeholders. As a manager we first undertook
due diligence on the specialised Supported Housing sector in 2013
before making our initial investment in 2015. Over the last 9 years
we have seen the structures through which we make investment
constantly iterate and develop, reflecting combined learnings and
the evolution of a nascent asset class. Whilst this latest
iteration requires a change of the Group's investment policy and
investment restrictions we see it as a continuation of this
process.
Most importantly it will enable us to remain focused on working
with the best Approved Providers in the sector and investing into
good homes for vulnerable adults.
Market Review
High levels of demand remained a central theme during 2021. The
need for more adapted homes within communities is well known and is
enshrined in both the Care Act 2014 as well as the Transforming
Care Programme 2015. With the publication of the Department of
Health's White Paper "People at the Heart of Care" the urgent need
for the type of properties that the Group provides could not be
clearer. This message was reinforced directly during the year th r
ough conversations with Commissioners, local authorities and care
providers.
As the Chair reported in his statement, we are members of the
Equity Impact Project which is being run by The Good Economy and
Big Society Capital. The Equity Impact Project published its own
White Paper on the standardisation of impact metrics for equity
investors in social housing in July 2021. With the rise of impact
investing in social housing we welcome the initiative to provide a
consistent approach for investors to assess and report on how they
are able to deliver social value through their investments. We have
been working closely with The Equity Impact Project to test and
pilot these metrics and are pleased to play a role in ensuring
responsible stewardship of investing in the sector.
ESG considerations have dominated the wider housing market in
the shadow of the Grenfell tragedy. Much attention has been focused
on the Government's response and it is clear that there is still
more to be done to provide a comprehensive solution to tackle
rising building safety remediation costs, particularly for social
housing. There has also been a spotlight on emissions data,
highlighted following renewed commitments at COP 26 to the UK
achieving its 2030 net zero target. As a responsible investor
involved in the provision of social housing we are actively taking
steps to ensure that our portfolio is as environmentally efficient
as it can be. We have signed our first "green" lease which commits
Approved Providers to reporting on and driving energy efficiency in
our homes and we hope to sign more in the year ahead.
In September we announced a sector-first retrofit programme to
fund the upgrade of all properties in the Group to a minimum EPC
rating of "C" over the next few years. 72% of the Group's portfolio
already meets this target and since our announcement in September
2021 we have made good progress to design the scope and the
programme of works required to get to 100%. We have launched an
initial pilot programme targeting 12 properties in the South East
where we hope to begin work within the next 2 months. While
environmental performance and energy efficiency is at the front of
our minds in this endeavour, we are ensuring at all times that the
needs and safety of residents is prioritised to make certain the
right outcomes are delivered. Once the pilot has been completed,
the outcomes and learnings evaluated, the Group will commence b y
rolling out a phased programme of works across our remaining
targeted properties.
During the year, the Regulator continued to review Registered
Providers which focus on managing specialised Supported Housing. As
part of its ongoing strategy of reactive engagement, Pivotal
Housing Association (0.6% of the Group's rent roll as at 31
December 2021), Hilldale Housing Association Limited (8.5% of the
Group's rent roll as at 31 December 2021), Auckland Home Solutions
C.I.C (4.7% of the Group's rent roll as at 31 December 2021),
Parasol Homes Limited (9.6% of the Group's rent roll as at 31
December 2021) and Falcon Housing CIC (9.7% of the Group's rent
roll as at 31 December 2021) each received non-compliant judgements
or notices at one point during the year. The reasons for these
notices generally cited concerns with respect to the providers'
compliance with the Regulator's Economic Standards. The Group has
been in regular contact with each of these Approved Providers since
they received their regulatory notices. The Group is supportive of
each of their active engagement with the Regulator in addressing
the concerns it has raised. These judgements have not had a
material impact on valuations, nor have they impacted rent
collection. We continue to speak directly to the Regulator to
ensure our investments reflect the latest regulatory guidance, but
as a whole our Approved Providers continue to perform well, with
growing financial strength and operational depth.
Financial Review
We are pleased to present another strong set of financial
results as highlighted earlier. The Group's continued strong
financial performance is underpinned by an increase of annualised
rental income leading to a look through dividend cover of 0.99x at
the year end.
Touching on some of the key highlights:
The annualised rental income of the Group was GBP35.8 million as
at 31 December 2021 compared to GBP31.6 million as at 31 December
2020. 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 GBP9.0 million was recognised during the
year on the revaluation of the Group's properties.
IFRS Earnings per share was 7.05 pence for the year, compared to
6.82 pence in 2020.
The EPRA EPS excludes the fair value gain on investment property
and is measured on the weighted average number of shares in issue
during the period. EPRA EPS was 4.82 pence for the year compared to
4.61 pence in 2020. Adjusted portfolio earnings per share were
19.46 pence for the year compared to 17.94 pence for 2020, where
post-tax earnings were adjusted for a valuation on a portfolio
basis (as opposed to individual property IFRS basis).
The EPRA NTA per share as at 31 December 2021 was 108.27 pence
per share, the same as the IFRS NAV per share. The IFRS NAV
adjusted for the portfolio valuation (including portfolio premium)
was GBP486.1 million, which equates to a Portfolio NAV of 120.68
pence per share compared to the 31 December 2020 figure of GBP468.8
million which equated to a Portfolio NAV of 116.39 pence per share.
.
At the year end, the portfolio was independently valued at
GBP642.0 million on an IFRS basis compared to GBP571.5 million in
2020, reflecting a valuation uplift of 8.7% against the portfolio's
aggregate purchase price (including acquisition costs). This
reflects an EPRA net yield of 5.25%, against the portfolio's
blended net initial yield of 5.90% at the point of acquisition.
This equates to a yield compression of 65 basis points, reflecting
the quality of the Group's asset selection and off-market
acquisition process.
The EPRA ongoing charges ratio is calculated as a percentage of
the average net asset value for the period under review. The
ongoing charges ratio for the year was 1.5 4 % compared to 1.57% in
2020.
The Group's properties were valued at GBP692.0 million on a
portfolio valuation basis, reflecting a portfolio premium of 7.8%,
or GBP49.9 million, against the IFRS valuation. The portfolio
valuation assumes a single sale of the property-holding SPVs to a
third-party on an arm's length basis with purchaser's costs of
2.3%.
The Group held cash and cash equivalents of GBP52.5 million at
31 December 2021 of which GBP0.6 million was restricted, compared
to GBP53.7 million in 2020, of which GBP0.8 million was restricted,
leaving available cash of GBP51.9 million as at 31 December 2021.
During the year cash from operating activities increased by GBP0.2
million from GBP24.5 million to GBP24.7 million.
Debt Financing
As announced in the Interim Results, during 2021 the Group
secured GBP195.0 million of new long-term, fixed-rate, interest
only, sustainability linked loan notes through a private placement
with MetLife Investment Management and Barings. The loan notes are
divided into two tranches. Tranche-A has a value of GBP77.5
million, a tenure of 10 years and an all-in coupon of 2.403%.
Tranche-B has a value of GBP117.5 million, a tenure of 15 years and
an all-in coupon of 2.786%. Across both tranches, as at 31 December
2021, the weighted average term is 12.7 years and the weighted
average coupon is 2.63%. The loan notes require the Group to
maintain an asset cover ratio of 1.67x and an interest cover ratio
of 1.75x.
The loan notes enabled the Group to refinance the full GBP130.0
million of debt that had been drawn under its GBP160.0 million
revolving credit facility provided by NatWest and Lloyds. This
means that all of the Group's drawn debt is now fixed-price (with a
weighted average coupon of 2.74%) and long-term, and so offers
strong protection against the ongoing risk of rising inflation and
interest rates. In addition the loan notes were secured against a
portfolio of properties at a day one LTV of 50% (compared to the
40% day one LTV of the revolving credit facility) which has enabled
the Group to draw an additional GBP65.0 million of capital. As at
31 December, the Group's LTV was 37.6%, in line with the medium to
long-term gearing target of 35% to 40% and the Group had GBP29.7
million of capital remaining for deployment.
As part of the re-financing all of the Group's loan notes have
been rated. The Group obtained a first-time Investment Grade
Long-Term Issuer Default Rating (IDR) of 'A-' with a Stable Outlook
and a senior secured rating of 'A' from Fitch Ratings. This is a
great endorsement of the Group's strategy and financial position.
The new loan notes are also linked to sustainability targets agreed
with the lenders that are to be maintained at all times by the
Group.
Following the refinancing the revolving credit facility has
remained in place and was undrawn at the year end. The facility
runs until 20 December 2023 and has an unhedged, floating interest
rate of 185bps over 3 month SONIA. For undrawn debt under the
revolving credit facility the Group pays a commitment fee of 40% of
the margin. Since the period end, t he Group has cancelled a
portion of its existing revolving credit facility, reducing from
GBP160.0 million to GBP50.0 m illion in order to reduce commitment
fees, but maintain flexibility around upcoming deployment
opportunities . The facility remains undrawn and the Group
continues to review the revolving credit facility in light of its
current capital requirements.
In addition to the undrawn revolving credit facility and the new
GBP195.0 million facility, the Group has a long-term, fixed-rate
facility with MetLife Investment Management providing GBP68.5
million of loan notes secured against a defined portfolio of the
Group's properties at a Day-1 LTV of 40%. The loan notes are
divided into two tranches of GBP41.5 million and GBP27.0 million
with maturities in 2028 and 2033 respectively. Across both tranches
as at 31 December 2021, the weighted average term was 11.6 years
and the weighted average coupon was 2.74%. The facility requires
the Group to maintain an asset cover ratio of 2.00x and an interest
cover ratio of 1.75x. At all times, the Group has complied with
these debt covenants.
Further information is set out in note 20 of the financial
statements.
Strategic Alignment and Asset Selection
Despite the continuing challenges presented by Covid-19 during
the year, the Group continued to execute on its investment strategy
by utilising its remaining equity and recently secured debt
funding, 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 44
properties for a total investment cost of GBP60.0 million
(including acquisition costs). These schemes provide 345 new units
of accommodation and saw the Group lease to 4 new Approved
Providers.
In addition, as at 31 December 2021 the Group had outstanding
commitments of GBP4.2 million (including acquisition costs) for
contracts exchanged on three properties.
Committed Capital Total Funds (m)
----------------------------- ----------------
Total Invested since IPO GBP590.4
Exchanges GBP4.2
Total Invested and Committed GBP594.6
Capital
Property Portfolio
As at 31 December 2021, the portfolio comprised 488 properties
with 3,424 units and showed a broad geographic diversification
across the UK. The four largest concentrated areas by market value
were the North West (21.4%), the West Midlands (16.7%), Yorkshire
(14.2%) and the East Midlands (11.5%). The IFRS value of the
portfolio at 31 December 2021 was GBP642.0 million, compared to
GBP571.5 million in 2020. The table below sets out the Group's
portfolio at the year end:
31 December 31 December Change in
2021 2020 2021
Number of Assets 488 445 +43 (1)
------------ ------------ ----------
Number of Leases 382 341 +41
------------ ------------ ----------
Number of Units 3,424 3,124 +300 (2)
------------ ------------ ----------
Number of Approved
Providers 24 20 +4
------------ ------------ ----------
Number of Forward
Funding Agreements 22 22 0
------------ ------------ ----------
WAULT (years) 26.2 26.2 +0.3
------------ ------------ ----------
1 One asset within the existing portfolio has been 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.
In total since IPO, the Group has committed GBP53.7 million to
forward funding schemes providing homes to 318 residents.
Rental Income
In total, the Group had 382 fully repairing and insuring leases
(excluding agreement for leases on exchanged properties). The Group
had a total annualised rental income of GBP35.8 million on its
standing investments, compared to GBP31.6 million in 2020.
During 2021, the Group entered into leases with another four
Approved Providers, increasing its total to 24. This enhanced the
Group's counterparty diversification. The Group's three largest
Approved Providers by rental income and units were Inclusion
(GBP10.7 million and 932 units), Falcon (GBP3.5 million and 364
units and Parasol Homes (GBP3.4 million and 247 units).
As at 31 December 2021, the portfolio had a WAULT of 26.2 years
in line with 2020, with 92.5% of the portfolio's rental income
showing an unexpired lease term above 20 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 (92.6%) or
RPI (7.4%), 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 7.9% 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
We hope that the worst of Covid-19 is behind us but after the
after effects of the virus still continue be felt across the
housing, health and social sectors. . The recent government Adult
Social Care White Paper places a clear emphasis on putting people
at the heart of care. We are firm believers in stakeholder
capitalism and people remain at the heart of all that we do. Our
focus remains on delivering investing into properties which provide
our residents with good homes in their community. Resident
wellbeing remains at the forefront of our minds and permeates all
aspects of our investment lifecycle, from property selection to
counterparty evaluation and our robust asset management
programme.
Our pipeline has over GBP100 million of live investment
opportunities which will enable us to deploy the Group's remaining
cash and debt balances. Should we obtain shareholder approval in
amending the Group's investment policy and investment restrictions.
GBP10 million of this GBP100 million will be allocated to an
identified pipeline of more flexible lease terms would be
compatible with the proposed changes to the Group's investment
policy and investment restrictions.
As we learn to live with Covid-19 we remain committed to our
goal of providing high-quality properties in community settings,
providing shareholders with a resilient investment as inflationary
pressures persist and, importantly, creating social impact through
our properties.
We echo the Chair's remarks on the devastating situation in
Ukraine. As the humanitarian crisis inevitably, and sadly, worsens,
we emphasise our commitment to support in any way that we can in
the coming months.
Finally, we look forward to deepening our existing relationships
in the sector, working with new partners and providing additional
much needed quality homes for residents in 2022.
Max Shenkman
Head of Investment
24 March 2022
PORTFOLIO SUMMARY
Region Properties % of funds invested*
--------------- ----------- ---------------------
North West 104 21.5
West Midlands 83 16.3
Yorkshire 60 14.2
East Midlands 56 11.3
South East 60 9.2
London 27 8.7
North East 45 8.3
South West 29 4.9
East 20 4.2
Scotland 2 1.0
Wales 2 0.4
Total 488 100.0
--------------- ----------- ---------------------
* calculated excluding acquisition costs
SUSTAINABILITY REPORT
Our ambition to be the leading UK Supported Housing investor, is
to ensure that we embed and drive sustainability across the
business.
Our business model 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. How we do this is summarised below and set out in further
detail in the independent Impact Report available separately on the
website. We maintain a robust corporate governance framework, and
this is set out in further detail within our corporate governance
report. 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.
An important aspect of the Investment Manager's approach to ESG
is the adoption of the Principles for Responsible Investment
('PRI'), which they signed up to in 2019. The PRI are designed to
guide and demonstrate best practice ESG integration, and to promote
alignment between the objectives of investors and wider society.
The principles, which are voluntary, are intended to be actionable
and measurable are detailed in the table below.
Principle Summary of investment manager action
1 We will incorporate ESG issues As evidenced through our detailed
into investment analysis approach to ESG due diligence and
and decision-making processes laid out in our ESG Integration Policy.
---------------------------------- ----------------------------------------------
2 We will be active owners As evidenced through engagement with
and incorporate ESG issues RPs and developers on processes that
into our ownership policies would benefit from improved ESG performance.
and practices. For example, seeking developers to
become signatories of the Considerate
Code of Constructors.
---------------------------------- ----------------------------------------------
3 We will seek appropriate As evidence through our increasing
disclosure on ESG issues expectations on those we work with,
by the entities in which for example requesting developers
we invest. to become signatories to the Considerate
Contractors Code.
---------------------------------- ----------------------------------------------
4 We will promote acceptance As evidence through our involvement
and implementation of the in the Sustainability Reporting Standard
Principles within the investment for Social Housing and the Equity
industry. Impact Project, and participation
in the Green Lease Working Group
for the Green Finance Institute initiatives
which seek to drive industry best
practice in ESG and impact.
---------------------------------- ----------------------------------------------
5 We will work together to As evidenced by the ongoing participation
enhance our effectiveness of the investment manager in collaborative
in implementing the Principles. initiatives, and in ESG innovation,
such as our work towards improved
energy efficiency.
---------------------------------- ----------------------------------------------
6 We will each report on our As evidenced through the detail we
activities and progress towards publish in our Annual Report, our
implementing the Principles ESG Integration Policy, our Impact
Report and the Investment Manager's
Group Sustainable Business Objectives
report.
---------------------------------- ----------------------------------------------
In conjunction with the Board's endorsement, and in line with
these principles, 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.
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 further
strengthened by the environmental, social and governance
assessments in our due diligence.
Environment
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.
For example, we require every property we acquire to have a
minimum energy performance rating of at least a 'C' on an EPC for
renovated properties and at least a 'B' on an EPC for new-build
properties, notwithstanding the legal requirement for any privately
rented properties to have a minimum energy performance rating of E
on an EPC. A retrofit programme has also commenced to increase all
our properties EPC ratings to a minimum of ' C ' .
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
The Investment Manager, in accordance with the FCA's ESG
Sourcebook, is committed to the implementation of disclosures
consistent with the recommendations of the Taskforce on
Climate-related Financial Disclosures (TCFD) by 30 June 2024.
Social and Social Impact
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.
Governance
The Group encourages best practice governance among all
counterparties in order to minimise operational risks and encourage
them to continually assess how they can contribute more to
employees, residents, wider society and the environment, through
compliance with legislation and regulations, and the adoption and
implementation of issue-specific policies.
Wider Governance and sustainable business behaviours of the
Group and Investment Manager
Business Relationships
The Group has a set of corporate providers that ensure the
smooth running of the Group's activities. The Group's key service
providers 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 important 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.
The I nvestment M anager has an Inclusion and Diversity Policy
which outlines commitments including compulsory training for all
employees on equality and diversity in the workplace and
unconscious bias training. All staff are expected to conduct
themselves to help the organisation provide equal opportunities in
employment, and prevent bullying, harassment, victimisation and
discrimination. Behaviours contrary to those outlined in the policy
result in disciplinary procedures.
The Investment Manager are members of the Diversity Project, an
initiative championing a more inclusive culture within the Savings
and Investment profession and this further informs our approach to
Inclusion and Diversity. Some of the Diversity Project's 5 Year
Goals include:
-- All member firms to support one or more graduate/school
leaver recruitment programmes focused on socio-economic
diversity.
-- Gender pay gaps reduced by one third from their 2019 figures.
-- 50:50 male:female graduate and school leaver recruitment.
Some of the initiatives used by Triple Point to support these
goals are the 100 Black Intern Programme, Investment 2020 and Girls
are Investors Programme.
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 comply with the provisions of the
UK Modern Slavery Act 2015.
The investment manager takes the risk of Modern Slavery
extremely seriously. The manager's responsibilities as both an
employer and investor are laid out in a separate and public Modern
Slavery Act Statement available on the Triple Point website
https://www.triplepoint.co.uk/approach-to-sustainability/116/.
STAKEHOLDER ENGAGEMENT
This section describes how the Board engages with its key
stakeholders, how it considers their interests and the outcome of
the engagement when making its decisions, the likely consequences
of any decision in the long-term, and further ensures that it
maintains a reputation for high standards of business conduct. The
Group is committed to continual stakeholder engagement and
implements a cycle of constant engagement at all stages of the
Group's investment lifecycle.
S ection 172(1) Statement
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 Investment The way in 1. Financial
from our shareholders which we engage and
plays an important with our shareholders operational 1. The Board
role by providing is set out performance. and Investment
capital to in our Corporate Manager consider
ensure we can Governance 2. The shareholder
deliver of Report. regulatory concerns when
high-quality environment speaking to
new housing of the the Regulator
into the Supported Supported and agreed
Housing market. Housing to keep
Through the sector. shareholders
investment updated of
of private any
capital into 3. developments.
an under-funded Environmental, We understand
sector, we social and the importance
can achieve governance of, and are
a positive considerations committed to,
social impact . working with
whilst ensuring 4. The Registered
our shareholders Company's Providers to
receive a long-term key service address the
inflation-linked provider concerns of
return. appointments, the Regulator.
including the Refer to the
AIFM and Market Review
broker in the
arrangements. Investment
Manager's
Report.
2. The
Investment
Manager has
enhanced
environmental,
social and
governance
considerations
within its
investment
process, and
within its
own business.
Refer to
Investment
Manager's Report
and the
Sustainability
Report.
---------------------- ---------------------- -------------------------- ----------------------
Residents Our strategy The Investment We provide The Investment
is centred Manager monitors oversight of Manager actively
on providing resident welfare resident welfare engaged with
Supported Housing through engagement by ensuring care providers
for our residents. with Approved properties to ensure plans
We remain focused Providers. are safe and and processes
on providing The Investment secure before were in place
homes to our Manager receives residents move in respect
residents which quarterly reports in by: monitoring of the Covid-19
offer them from Approved compliance pandemic, for
greater independence Providers to with health the health
than institutional ensure compliance and safety and safety
accommodation, with health standards; of the tenants,
as well as and safety ensuring residents and that those
meeting their standards. are looked plans continued
specialist Any concerns after by competent to be fit for
care needs. are raised counterparties; purpose
to the Board. and requesting
We do not generally updates on Resident issues
engage with any health raised as a
residents directly and safety result of engagement
since they issues every through care
are vulnerable. quarter. providers were
Instead, day-to-day addressed.
engagement
is done by Compliance
care providers issues have
and, to a lesser been remedied
extent, Approved and any necessary
Providers. works have
been undertaken.
The Group's
investment
decisions are
informed by
the long-term
needs of our
residents.
---------------------- ---------------------- -------------------------- ----------------------
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 the
the Local Authority every six months policies and
is paid to and are in plans that
the Group and regular dialogue were implemented
that properties on a variety in 2020 in
are managed of matters. response to
appropriately Quarterly key the operational
to safeguard performance and financial
tenants. indicator reporting risks associated
All of the is also provided. with the Covid-19
Group's leases pandemic, and
with Approved that those
Providers are plans continued
fully repairing to be fit for
and insuring purpose: that
- meaning that properties
Approved Providers are managed
are responsible in accordance
for management, with their
repair and leases; financial
maintenance, reporting and
in addition governance;
to tenanting and specific
the properties. property-related
issues such
as occupancy,
health and
safety issues,
rent levels,
management
accounts and
governance.
---------------------- ---------------------- -------------------------- ----------------------
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 our 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 Following engagement,
Approved Providers operational scope of works
are able to capacity for were agreed
pay our rent new schemes; with care providers
in the event occupancy levels; to produce
of empty units. and financial high quality,
Therefore, performance. 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 To maintain
and strong the Group's
engagement reputation
with the Group for high standards
ensures the of business
best possible conduct, care
care for our providers were
residents. changed where
the standard
of care expected
by the Group
were not met
or where engagement
identified
care providers
in financial
difficulties.
---------------------- ---------------------- -------------------------- ----------------------
Local authorities Local authorities The Investment The Investment
are responsible The Investment Manager has Manager listens
for locating Manager engages ongoing engagement to feedback
housing for with various with local from the local
the residents. departments authorities authorities
The properties within local at each stage in order to
are assessed authorities of the investment improve and
to ensure they including lifecycle, upgrade properties
meet high quality Commissioners particularly and ensure
social and and Housing during due that they meet
safety standards Benefit officers diligence to ongoing commissioning
in order to during its assess demand, requirements.
ensure that initial due commissioning In particular,
referrals are diligence on requirements the Investment
made as efficiently a scheme as and rent levels. Manager engages
and safely well as on with Commissioners
as possible an ongoing Following acquisition, to ensure that
from the local basis. the Investment properties
authorities. Manager retains meet the Government's
an ongoing target EPC
dialogue with level of "C".
local authorities
to ensure they An initial
continue to pilot programme
meet ongoing to commence
commissioning upgrades across
requirements. 12 initial
properties
has commenced.
---------------------- ---------------------- -------------------------- ----------------------
The Regulator The Regulator The Investment Discussions The Investment
of Social regulates Registered Manager is with the regulator Manager is
Housing Providers of in regular are focused working with
social housing contact with on ensuring Registered
to ensure providers the Regulator the market Providers to
are financially through telephone evolves in ensure the
viable and calls and regular line with its standards of
properly governed. meetings to requirements, the Regulator
It is important ensure new how standards are met. Refer
to ensure that investments of Registered to the Investment
the Regulator reflect the Providers can Manager's Report.
does not object latest regulatory be improved
to the way guidance. and how to
the Group invests best address
and the way its concerns.
Approved Providers
operate.
---------------------- ---------------------- -------------------------- ----------------------
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 The Investment
by debt. Prudent of financial and; active Manager's pro-active
debt financing and information asset management engagement
is critical covenants under activities with the Group's
to achieve the existing undertaken lenders is
the target loan agreements by the Group welcome by
return promised on a quarterly e.g. any other its lenders
to shareholders basis. portfolio performance and to date
and to meet In addition, enhancing activity no concerns
full dividend there are regular that requires in relation
cover once ad-hoc engagements lenders' consent. to the performance
equity proceeds in relation The Group also of its loans
have been fully to general engaged with have been raised
deployed. topics relating the lenders by the lenders.
Further, engagement to the social in relation The Investment
with debt funders housing sector to the issue Manager successfully
is also a significant as well as of GBP195 million refinanced
signal to the specific topics of loan notes the existing
sector that arising from and a refinance Revolving Credit
they are aligned the financial of the existing Facility.
with shareholders' and operational Revolving Credit The Investment
interests e.g. performance Facility to Manager successfully
long-term support of the Group's make sure sufficient issued GBP195
of the social activities debt capital million of
housing sector. and future is available loan notes.
The support opportunities, into 2022 to The Board continues
of our lenders and any other meet deployment to monitor
has ensured general matters and dividend compliance
that we are affecting the cover targets. with debt covenants
in a strong relationship There was also and keeps liquidity
financial position. between the frequent liaison under constant
Group and the with lenders' review to make
lenders. rates desks certain the
in order to Group will
monitor the always have
movement of sufficient
the 3M SONIA headroom in
forward curve its debt facilities.
as part of In August 2021,
the Group's Fitch Ratings
monitoring Limited assigned
of interest the Group an
rates for the Investment
unhedged Revolving Grade Long-Term
Credit Facility. Issuer Default
Rating of 'A-'
with a stable
outlook, and
a senior secured
rating of 'A'
for the Group's
new issued
loan notes.
---------------------- ---------------------- -------------------------- ----------------------
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.
Issue of Loan Notes and refinance of existing revolving credit
facility.
During the year the Group issued GBP195 million of long dated,
fixed-rate, interest only sustainability-linked loan notes through
a private placement with MetLife Investment Management clients and
Barings .
The issue of loan notes enabled the Group to refinance the full
GBP130 million drawn under its existing GBP160 million debt
facility . The Board believed that the issue of loan notes and
refinance of the existing debt facility was in the best interest of
shareholders as it would provide additional capital and would allow
the Group to continue to acquire further income-producing,
specialised Supported Housing properties from the Group's pipeline
and achieve a fully covered dividend. The Group maintained an
active dialogue for the lender to appraise the Group's business
model and its portfolio. The Board also considered that further
funds available to be deployed into the Supported Housing sector
would benefit the wider community.
In considering whether to approve the transaction the Board had
regard to the interests of the Group's shareholders, lenders and
the community.
Further details of the Group's debt financing are detailed in
the Investment Manager's Report.
Initiative to upgrade EPC ratings of properties
During the year the Board considered a wide range of
Environmental, Social and Governance matters and the Group's social
impact.
The Board approved an initiative to upgrade all existing
renovated properties within the Group to a minimum EPC rating of C.
72% of the Group's portfolio already meets this target and since
our announcement in September 2021 we have made good progress in
kickstarting the programme of works required to get to 100%. We
have launched an initial pilot programme targeting 12 properties in
the South East where we hope to begin works within the next 2
months.
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 i
nvestment p olicy, 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.
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 pro cesses
that have been identified during the course of the audit.
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 .
The Board has proposed amendments to the Company's Investment
Policy and Investment Restrictions which , if approved by
shareholders at the AGM, will enable the Group to enter into a
broader range of lease structures, including : shorter leases ;
selectively taking on the cost of planned maintenance ; and leases
where upward only rent reviews are linked to either inflation or
central housing benefit policy. The Board is currently considering
the impact these proposed changes will have on the Company's
principal risks and uncertainties and will provide an update at the
time of the Company's interim results . H owever, given the limited
amount of cash available for deployment in immediate term , the
Board does not expect these changes will have a material impact on
the Group's risks and KPIs, particularly its WAULT.
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 to
ensure 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 Decrease
debt exposes Revolving Credit considers cash
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 SONIA. Any the Group to
adverse movements in meet future
the SONIA forward needs. Prudent
curve could liquidity risk
significantly management
impair our implies
profitability and maintaining
ability to pay sufficient
dividends. 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.
Following the
refinancing of
the Revolving
Credit
Facility, all
drawn debt is
fixed price
with the
Group's 10-year
and 15-year
MetLife
Investment
Management
tranches and
the new Loan
Notes having a
fixed-rate
coupon meaning
they are
insulated from
interest rate
fluctuations.
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.
-------------- --------------------- ---------------- -------------- ------------- --------------
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
to restore
This may result in covenant
the Group selling compliance.
assets to repay
drawn loan amounts During the year
resulting in a to 31 December
decrease 2021, no debt
on Group's Net Asset covenants have
Value. been breached.
-------------- --------------------- ---------------- -------------- ------------- --------------
Property Default of The default of one Under the terms Low to Moderate Stable
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, to
of Social Housing, mitigate
we may have to against the
terminate or risk of
negotiate the lease, significant
meaning a sustained rent loss .
reduction Were a lessee
in revenues while a to default or
replacement is were the Group
found. Additionally, to believe it
were a care provider likely that a
not to renew lessee
the service level would default
agreement with a the Group would
lessee, this may look to move
result in a lessee the affected
having to cover properties to
rental another
payment on void Approved
units without Provider
receiving the with whom the
corresponding Group have a
payment from the good
care provider. relationship to
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
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.
-------------- --------------------- ---------------- -------------- ------------- --------------
Financial Higher than The Group's leases The Investment Moderate Low
Risk projected contain upward only Manager closely
levels of rent reviews, monitors
(NEW) inflation may generally linked to inflation
impact inflation (typically levels. There
Approved CPI). has been a
Providers strong
Annual rental historical
uplifts will be correlation
higher than between
projected as a inflation and
result of increased central housing
inflation in benefit policy
2022. which has
generally
tracked
CPI + 1%.
The annual
rental
increases in
the Group's
leases are
linked to
increases in
central
government
housing benefit
allocations.
These tend to
increase in
line with CPI,
and so the
inflationary
risk is largely
mitigated.
-------------- --------------------- ---------------- -------------- ------------- --------------
Property Forward Our forward funded Before entering Low to Low Decrease
funding developments are into any 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. 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.
As at 31
December 2021,
all forward
funding
agreements had
reached
practical
completion.
-------------- --------------------- ---------------- -------------- ------------- --------------
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 which 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 the with the
Group's Net Asset Approved
Value until such Providers with
time as the matter whom
is resolved through it works. The
an Approved
improvement in the Providers keep
relevant Approved the Investment
Provider's rating or Manager
a change in Approved informed of
Provider. developments
surrounding
the regulatory
notices.
The Group has
leases in place
with five
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.
-------------- --------------------- ---------------- -------------- ------------- --------------
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
a 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.
those assets in the Default risk of
portfolio may be lessees
negatively affected. is mitigated in
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 at
least every two
years since it
has been
acquired,
, and works
closely with
lessee to
ensure, to the
extent
reasonably
possible, their
financial
strength and
governance
procedures
remain robust
through the
duration of the
relevant lease.
-------------- --------------------- ---------------- -------------- ------------- --------------
Financial Non-payment If a care provider The Investment High Low
Risk of voids gets into financial Manager closely
cover by care difficulty and is monitors the
(NEW) providers unable to pay performance of
contracted voids the care
cover providers to
to an Approved ensure that
Provider this could they are
have a negative financially
impact on the viable and
financial performing
performance of well. Should a
the Approved care provider
Provider which get into
ultimately could financial
impact its ability difficulty, the
to pay the Group its Group works
rent. with a wide
This risk is range of care
compounded if there providers who
is low occupancy in could provide
a property. services
and therefore
meet the voids
payment.
Occupancy is
also closely
monitored and
the Investment
Manager works
with Approved
Providers
and care
providers to
ensure
occupancy.
-------------- --------------------- ---------------- -------------- ------------- --------------
Emerging Risks
Change in social housing legislation
In November 2020, the UK Government released the Social Housing
White Paper which set out a number of measures intended to provide
residents with a greater voice and influence, to improve the
quality of social housing, with a particular focus on building and
resident safety. The sentiment of these proposals is welcomed by
the Board and the Investment Manager. There is currently no
timetable from the Government to deliver on the measures.
The Regulator of Social Housing has committed to engage with all
stakeholders on the proposed reforms outlined in the White Paper in
preparation for any future legislation that could be
implemented.
The Board will continue to monitor the potential changes in
legislation. The Investment Manager engages regularly with the
Regulator of Social Housing to ensure that it is informed as soon
as possible of any likely changes to the regulatory regime.
Ukraine-Russia Conflict
In late February 2022, Russia began an invasion of Ukraine with
devastating consequences for the country's citizens and has major
implications for wider humanity, the global economy and capital
markets. Whilst the full impact of the conflict is yet to be fully
understood, the possibility of increased fuel inflation and rising
gas prices is highly probable. The Group has no direct exposure to
Russia or eastern European territorie s , and would not be directly
impacted by increased energy prices given both the inflation linked
nature of its rental income and the FRI nature of its leases . The
Board will continue to monitor any impact this could have on the
Group and our stakeholders.
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 GBP590.4 million up to 31 December 2021,
and GBP 10.0 million (including acquisition costs) since the year
end. The cash balance of the Group at year end was GBP52.5 million,
of which GBP29.7 million was readily available for use. This is the
cash balance at 31 December 2021 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 GBP100 million of attractive
investment opportunities for acquisition over the next 12 months.
The Board has evaluated the financial position of the Group and
plans in order to fund the Group's investments to 31 March 2023.
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 Approved 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. 99.8% of rental income due and payable for the period
ended 31 December 2021 has been collected. 97.16 % of all rent due
and payable at 28 February 2022 has been collected.
The Directors have also considered reverse stress testing and
the circumstances that would lead to a covenant breach. The
property portfolio valuation at 31 December 2021 is based on a
blended net initial yield of 5.21% for Norland Estates Limited, and
5.87% for TP REIT Propco 2 Limited. Yields would have to move by
239bps for Norland Estates Limited and 142bps for TP REIT Propco 2
Limited 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 to 36% before the covenant is
breached. F or TP REIT Propco 2 Limited, the interest cover ratio
would need rental income collection to fall to 59% before the
covenant is breached.
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 2026, is the maximum timescale over
which the performance of the Group can be forecast with a material
degree of accuracy and therefore is the appropriate period over
which to consider the viability.
In determining this timescale the Board has considered the
following:
-- That the business model of the Group assumes the future
growth in its investment portfolio through the acquisition of
Supported Housing assets which are intended to be held for the
duration of the viability period.
-- The length of the service level agreements between Approved
Providers and care providers.
-- The future growth of its investment portfolio of properties
is achieved through long-term, inflation linked, fully repairing
and insuring leases.
-- The Group's property portfolio has a WAULT of 26.2 years to
expiry, representing a secure income stream for the period under
consideration.
-- The Group's Loan Notes have a weighted average term of 12 to 13 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 and how they
could impact the prospects of the Group and Company both
individually and in aggregate. The following risks in particular
have been addressed in the assessment:
1. Default of one or more Approved Provider lessees
2. Risk of changes to the social housing regulatory regime
3. Non-payment of voids cover by care providers
The business model was subject to a sensitivity analysis, which
involved flexing a number of key assumptions underlying the
forecasts. The sensitivities performed were designed to provide the
Directors with an understanding of the Group's performance in the
event of a severe but plausible downturn scenario, taking full
account of mitigating actions that could be taken to avoid or
reduce the impact or occurrence of the underlying risks outlined
below:
-- Rental income : 8% decrease in rent received. This assumes
that some care providers do not cover voids and this causes
Approved Providers to default under 8% of SOHO's leases.
-- Property valuations : It is assumed that the 8% of leases
that Approved Providers default under will be valued at 20% below
their vacant possession value. This leads to a 15.4% drop in value
of the Company's portfolio. We believe that this is a severe
downside case given that the valuation yields have not been
affected by Covid-19 and we have collected 99.8% of rent due
throughout the pandemic.
-- Inflation : No inflation uplift on rental income but costs
and dividends increase in line with inflation. We believe this is a
severe downside assumption as we have been successful in collecting
inflation linked uplifts on all leases to date.
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 such as marketing, PR and any other non-critical spend would
be required to enable the Group to meet its future liabilities.
The remaining principal risks and uncertainties, whilst having
an impact on the Group's business, are not considered by the
Directors to have a reasonable likelihood of impacting the Group's
viability over the five year period.
Based on the results of this analysis, the Directors have a
reasonable expectation that the Group and Company will be able to
continue in operation and meet its liabilities as they fall due for
the next five years.
BOARD APPROVAL OF THE STRATEGIC REPORT
The Strategic Report was approved by the Board and signed on its
behalf by:
Chris Phillips
Chair
24 March 2022
GROUP FINANCIAL STATEMENTS
GROUP STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2021
Year ended Year ended
31 December 31 December
2021 2020
Note GBP'000 GBP'000
------------------------------------- ----- ------------- -------------
Income
Rental income 5 33,117 28,393
Other Income 535
------------- -------------
Total income 33,117 28,928
Expenses
Directors' remuneration 6 (307) (307)
General and administrative expenses 9 (2,067) (2,200)
Management fees 8 (4,552) (4,100)
------------- -------------
Total expenses (6,926) (6,607)
Gain from fair value adjustment
on investment property 14 8,998 7,894
Operating profit 35,189 30,215
------------- -------------
Finance income 11 44 102
Finance costs 12 (6,823) (5,723)
------------- -------------
Profit for the year before tax 28,410 24,594
------------- -------------
Taxation 13 - -
Profit and total comprehensive
income
for the year 28,410 24,594
============= =============
IFRS Earnings per share - basic
and diluted 35 7.05p 6.82p
The accompanying notes form an integral part of these Group
Financial Statements.
GROUP STATEMENT OF FINANCIAL POSITION
As at 31 December 2021
31 December 31 December
2021 2020
Note GBP'000 GBP'000
-------------------------------- ----- ------------ ------------
Assets
Non-current assets
Investment properties 14 641,293 572,101
Trade and other receivables 15 2,311
------------ ------------
Total non-current
assets 643,604 572,101
Current assets
Assets held for sale 480 110
Trade and other receivables 16 3,435 4,152
Cash, cash equivalents
and restricted cash 17 52,470 53,701
------------ ------------
Total current assets 56,385 57,963
Total assets 699,989 630,064
============ ============
Liabilities
Current liabilities
Trade and other payables 18 3,651 4,969
------------ ------------
Total current liabilities 3,651 4,969
Non-current liabilities
Other payables 19 1,523 1,517
Bank and other Borrowings 20 258,702 194,927
------------ ------------
Total non-current liabilities 260,225 196,444
------------ ------------
Total liabilities 263,876 201,413
============ ============
Total net assets 436,113 428,651
============ ============
Equity
Share capital 22 4,033 4,033
Share premium reserve 23 203,753 203,776
Treasury shares
reserve 24 (378) (378)
Capital reduction
reserve 25 160,394 166,154
Retained earnings 26 38,311 55,066
------------ ------------
Total Equity 436,113 428,651
============ ============
IFRS Net asset value per share
- basic and diluted 37 108.27p 106.42p
The Group Financial Statements were approved and authorised for
issue by the Board on 24 March 2022 and signed on its behalf
by:
Chris Phillips
Chair
24 March 2022
The accompanying notes form an integral part of these Group
Financial Statements.
GROUP STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2021
Share Treasury Capital
Share premium shares reduction Retained Total
capital reserve reserve reserve earnings equity
Year ended
31 December 2021 Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------ ----- --------- --------- ---------- ----------- ---------- ---------
Balance at 1 January
2021 4,033 203,776 (378) 166,154 55,066 428,651
Profit and total
comprehensive income
for the year - - - - 28,410 28,410
Transactions with
owners
Dividends paid 27 - - - (5,760) (15,165) (20,926)
Share issue costs
capitalised 23 - (23) - - - (23)
Balance at 31 December
2021 4,033 203,753 (378) 160,394 68,311 436,113
========= ========= ========== =========== ========== =========
Share Treasury Capital
Share premium shares reduction Retained Total
capital reserve reserve reserve earnings equity
Year ended
31 December 2020 Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------ ----- --------- --------- ---------- ----------- ---------- ---------
Balance at 1 January
2020 3,514 151,157 (378) 166,154 49,286 369,733
Profit and total
comprehensive income
for the year - - - - 24,594 24,594
Transactions with
owners
Ordinary Shares
issued in the year 22,
at a premium 23 519 54,481 - - - 55,000
Share issue costs
capitalised 23 - (1,862) - - - (1,862)
Dividends paid 27 - - - - (18,814) (18,814)
Balance at 31 December
2020 4,033 203,776 (378) 166,154 55,066 428,651
========= ========= ========== =========== ========== =========
The accompanying notes form an integral part of these Group
Financial Statements.
GROUP STATEMENT OF CASH FLOWS
For the year ended 31 December 2021
Year ended Year ended
31 December 31 December
2021 2020
Note GBP'000 GBP'000
---------------------------------------- ----- ------------- -------------
Cash flows from operating activities
Profit before income tax 28,410 24,594
Adjustments for:
Gain from fair value adjustment
on investment property (8,998) (7,894)
Finance income (44) (102)
Finance costs 6,823 5,723
Operating results before working
capital changes 26,191 22,322
(Increase)/Decrease in trade and
other receivables (1,237) 640
(Decrease)Increase in trade and
other payables (242) 1,545
------------- -------------
Net cash flow generated from operating
activities 24,712 24,507
------------- -------------
Cash flows from investing activities
Purchase of investment properties (61,350) (95,609)
Prepaid acquisition costs (paid) (18) (3)
Disposal proceeds from sale of assets 125 -
Restricted cash - paid (410) (2,862)
Restricted cash - released 279 4,042
Interest received - 59
------------- -------------
Net cash flow used in investing
activities (61,374) (94,373)
------------- -------------
Cash flows from financing activities
Proceeds from issue of Ordinary
Shares at a premium - 55,000
Ordinary Share issue costs capitalised (23) (1,862)
Interest paid (5,615) (4,645)
Bank borrowings drawn 20 195,000 29,408
Restricted bank borrowings 20 (130,000) -
Loan arrangement fees paid 21 (2,728) (1,101)
Dividends paid 27 (20,925) (18,814)
------------- -------------
Net cash flow generated from financing
activities 35,709 57,986
------------- -------------
Net decrease in Cash, cash equivalents
and restricted cash (953) (11,880)
Cash and cash equivalents at the
beginning of the year 52,852 64,732
Cash and cash equivalents at the
end of the year 17 51,899 52,852
============= =============
The accompanying notes form an integral part of these Group
Financial Statements.
NOTES TO THE GROUP FINANCIAL STATEMENTS
For the ended 31 December 2021
1. CORPORATE INFORMATION
Triple Point Social Housing REIT PLC (the "Company") is a Real
Estate Investment Trust ("REIT") incorporated in England and Wales
under the Companies Act 2006 as a public company limited by shares
on 12 June 2017 . The address of the registered office is 1 King
William Street, United Kingdom, EC4N 7AF. The Company is registered
as an investment company under section 833 of the Companies Act
2006 and is domiciled in the United Kingdom.
The principal activity of the Company is to act as the ultimate
parent company of Triple Point Social Housing REIT PLC and its
subsidiaries (the "Group") and to provide shareholders with an
attractive level of income, together with the potential for capital
growth from investing in a portfolio of social homes.
2. BASIS OF PREPARATION
The financial information contained in this results announcement
has been prepared on the basis of the accounting policies set out
in the statutory financial statements for the year ended 31
December 2021 which are consistent with policies those adopted in
the year ended 31 December 2020. Whilst the financial information
included in this announcement has been computed in accordance with
UK adopted international accounting standards, this announcement
does not itself contain sufficient disclosures to comply with IFRS.
The financial information does not constitute the Group's statutory
financial statements for the years ended 31 December 2021 or 31
December 2020, but is derived from those financial statements.
Financial statements for the year ended 31 December 2020 have been
delivered to the Registrar of Companies and those for the year
ended 31 December 2021 will be delivered following the Company's
Annual General Meeting. The auditors' reports on both the 31
December 2021 and 31 December 2020 financial statements were
unqualified; did not draw attention to any matters by way of
emphasis; and did not contain statements under section 498 (2) or
(3) of the Companies Act 2006.
The financial statements of the Group have been prepared in
accordance with UK-adopted International Accounting Standards and
with the requirements of the Companies Act 2006 as applicable to
companies reporting under those standards. All accounting policies
have been applied consistently.
The Group's Financial Statements have been prepared on a
historical cost basis, as modified for the Group's investment
properties, which have been measured at fair value. Gains or losses
arising from changes in fair values are included in profit or
loss.
On 31 December 2020, IFRS as adopted by the European Union at
that date was brought into UK law and became UK-adopted
international accounting standards, with future changes being
subject to endorsement by the UK Endorsement Board. The Company
transitioned to UK-adopted international accounting standards in
its consolidated financial statements on 1 January 2021. There was
no impact or changes in accounting policies from the transition.
The Group has applied the same accounting policies in these
Financial Statements as in its 2020 annual financial statements,
except for those that relate to new standards and interpretations
effective for the first time for periods beginning on or after 1
January 2021. The new standards and amendments impacting the Group
are:
-- Interest Rate Benchmark Reform - Phase 2 (Amendments to IFRS
9, IAS 39, IFRS 7, IFRS 4 and IFRS 16); and
-- Covid-19-Related Rent Concessions beyond 30 June 2021 (Amendment to IFRS 16)
-- The Directors have given due consideration to the impact on
the financial statements of the amendments as follows:
Interest Rate Benchmark Reform - Phase 2
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. The amendments also allow a series of
exemptions from the regular hedge accounting. During the year the
Group renegotiated the Revolving Credit Facility, setting pre
agreed terms for the transition of LIBOR to SONIA. Given that the
original facility was repaid in August 2021, and the new facility
remains undrawn at 31 December 2021, there has been no material
impact on the Group's financial statements from the amendments.
Covid-19-Related Rent Concessions beyond 30 June 2021
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. No material impact as a result of new
standards is expected, as the Group is the lessor.
Amendments to IAS 1 on Classification of liabilities as Current
or Non-Current are effective for the financial years commencing on
or after 1 January 2023 and are to be applied retrospectively. It
is not expected that the amendments may have an impact on the
presentation and classification of liabilities in the Group
Statement of Financial Position based on rights that are in
existence at the end of the reporting period.
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
condensed consolidated financial statements of the Group.
2.1. Going concern
The Group benefits from a secure income stream from long leases
which are not overly reliant on any one tenant and present a
well-diversified risk. The Directors have reviewed the Group's
forecast which shows the expected annualised rental income exceeds
the expected operating costs of the Group. 99.82% of rental income
due and payable for the period ended 31 December 2021 has been
collected. 97. 16% of all rent due and payable at 28 February 2022
has been collected.
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. During the year, Fitch Ratings Limited assigned
the Company an Investment Grade Long-Term Issuer Default Rating of
'A-' with a stable outlook, and a senior secured rating of 'A'.
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 Group 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. To date,
Covid-19 has not had any impact on, and 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.
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 Investment Management and Barings
respectively. TP REIT Propco 5 Ltd has a RCF with Lloyds and Nat W
est however this was undrawn at the year end and remains so at date
of signing. The loan secured by Norland Estates Limited is subject
to an asset cover ratio covenant of x2.00 (amended from previous
covenant of x2.25 in August 2021 to bring more in line with the ACR
covenant in the new Note Purchase Agreement with Met L ife
Investment Management and Barings). The latest external valuation
was carried out at 31 December 2021 and at that point the asset
cover ratio was x2.75. The loan is also subject to an interest
cover ratio. The covenant ratio is not less than x1.75 and at 31
December 2021 the interest cover ratio was x4.90. The loan secured
by TP REIT Propco 2 Limited with Met L ife Investment Management
and Barings is subject to an asset cover ratio covenant of x1.67.
As at 31 December 2021, the asset cover ratio was x2.01. The loan
is also subject to an interest cover ratio. The covenant ratio is
not less than x1.75 and at 31 December 2021 the interest cover
ratio was x4.33.
The Directors have also considered reverse stress testing and
the circumstances that would lead to a covenant breach. For Norland
Estates Limited, the property portfolio valuation at 31 December
2021 is based on a blended net initial yield of 5.21%, and 5.34%
for TP REIT Propco 2 Limited. Yields would have to move by 179bps
for Norland Estates Limited and 101bps for TP REIT Propco 2 Limited
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 to 36% before the covenant is breached.
And for TP REIT Propco 2 Limited, the interest cover ratio would
need rental income collection to fall to 40% before the covenant is
breached. Given the level of headroom, the Directors are of the
view that the risk of scenarios materialising that would lead to a
breach of the covenants are remote.
Under the downside model the forecasts have been stressed to
show the effect of Care Providers ceasing to pay their voids
liability, and as a result lessees being unable to pay rent on void
units. 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. As a result of the above, the Directors are
of the opinion that the going concern basis adopted in the
preparation of the financial statements is appropriate.
The Group has no short or medium - term refinancing risk given
the 11.6 year average maturity of its long - term debt facilities
with MetLife Investment Management and Barings, the first of which
expires in June 2028, and which are fully fixed at an all-in
weighted average rate of 2.74%.
Based on the forecasts prepared and the intentions of the parent
company, the Directors consider that the 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.
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 2020,
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 28)
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.
3.4. Lease term (note 5)
Rental income is recognised on a straight line basis over the
expected lease term. A judgement has to be made by the Directors as
to the expected term of each lease. The judgement involves
determining whether put and call options on certain leases will be
exercised. This judgement impacts the length of time over which
lease incentives are recognised. The key element of this judgement
is whether the Directors can be "reasonably certain" that any
options or breaks in place to extend the lease term will be
exercised at the expiry of the current lease, which is typically
some 20 years in the future. In particular, consideration was given
to the future regulatory environment, government policy on social
housing and future alternative uses for the property. The Directors
concluded that it was impossible to say with reasonable certainty
that an option will be exercised. The Directors concluded that
lease terms should be restricted to the initial term of the lease,
or to the break date, except where reversionary lease s have
already been executed or where options to extend have already been
exercised.
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. 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
expenditure 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. If the
modification is deemed non-substantial, costs or fees incurred are
adjusted against the liability and are amortised over the remaining
term.
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
2021 2020
GBP'000 GBP'000
Rental income - freehold assets 31,071 26,406
Rental income - leasehold assets 2,046 1,987
------------
33,117 28,393
============ ============
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
2021 2020
GBP'000 GBP'000
Directors' fees 275 275
Employer's National Insurance
Contributions 32 32
307 307
Additional fees paid - capitalised
as share issue costs - 7
307 314
============ ============
The Directors are remunerated for their services at such rate as
the Directors shall from time to time determine. The Chair receives
a Director's fee of GBP75,000 per annum (2020: GBP75,000), and the
other Directors of the Board receive a fee of GBP50,000 per annum
(2020: 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 initial Issue). Each
Director received this additional fee in 2020 following the
publication of the prospectus, but no additional fees were received
during 2021. (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 (2020: none).
8. MANAGEMENT FEES
Year ended Year ended
31 December 31 December
2021 2020
GBP'000 GBP'000
Management fees 4,552 4,100
4,552 4,100
============ ============
On 20 July 2017 Triple Point Investment Management LLP 'TPIM'
was appointed as the delegated investment manager of the Company by
entering into the property management services and delegated
portfolio management agreement. Under this agreement the delegated
investment manager will advise the Company and provide certain
management services in respect of the property portfolio. A Deed of
Variation was signed on 23 August 2018. This defined cash balances
in the Net Asset Value calculation in respect of the management fee
as "positive uncommitted cash balances after deducting any
borrowings". The management fee is an annual management fee which
is calculated quarterly in arrears based upon a percentage of the
last published Net Asset Value of the Group (not taking into
account uncommitted cash balances after deducting borrowings as
described above) as at 31 March, 30 June, 30 September and 31
December in each year on the following basis with effect from
Admission:
-- on that part of the Net Asset Value up to and including
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 GBP4,552,000 (2020: GBP4,100,000) were
chargeable by TPIM during the year. At the year end GBP1,146,000
(2020: GBP1,132,000) was due to TPIM.
By two agreements dated 30 June 2020, the Company appointed TPIM
as its Alternative Investment Fund Manager by entering into an
Alternative Investment Fund Management Agreement and (separately)
documented TPIM's continued appointment as the provider of
portfolio and property management services by entering into an
Investment Management Agreement.
9. GENERAL AND ADMINISTRATIVE EXPENSES
Year ended Year ended
31 December 31 December
2021 2020
GBP'000 GBP'000
Legal and professional fees 673 666
Audit fees 256 227
Administration fees 336 327
Lease transfer costs 40 343
Other administrative expenses 762 637
2,067 2,200
============ ============
On 1 October 2019 Hanway Advisory Limited, who are associated
with Triple Point Investment Management LLP , the investment
manager, were appointed to provide Administration and Company
Secretarial Services to the Group.
Within Administration Fees is an amount of GBP326,000 (2020:
GBP315,000) for Company Secretarial Services chargeable by Hanway
Advisory Limited.
The audit fees in the table above are inclusive of VAT, and
therefore differ to the fees in note 10 which are reported net of
VAT.
On 30 June 2020 Triple Point Investment Management LLP was
appointed as the fund's Alternative Investment Fund Manager (AIFM)
to perform certain functions for the Group. During the year AIFM
services of GBP175,000 (2020: GBP76,000) were chargeable by TPIM.
At the year end GBP44,000 (2020: GBP38,000) was due to TPIM.
Lease transfer costs represent legal and administrative costs
incurred in relation to the transfer of 12 leases from Westmoreland
and amortisation costs in relation to the original transfer
costs.
10. AUDIT FEES
Year ended Year ended
31 December 31 December
2021 2020
GBP'000 GBP'000
Group audit fees - current year 189 155
Group audit fees - prior year - 15
Subsidiary audit fees 24 19
213 189
============ ============
Non audit fees paid to BDO LLP included GBP29,000 (2020:
GBP27,000) in relation to the half year interim review and nil
(2020: GBP22,000) in relation to eNAV work.
The audit fee for the following subsidiaries has been borne by
the Company:
* TP REIT Super Holdco Limited * Norland Estates Limited
-- --
* TP REIT Holdco 1 Limited * TP REIT Propco 2 Limited
-- --
* TP REIT Holdco 2 Limited * TP REIT Propco 3 Limited
-- --
* TP REIT Holdco 3 Limited * TP REIT Propco 4 Limited
* TP REIT Holdco 4 Limited * TP REIT Propco 5 Limited
* TP REIT Holdco 5 Limited
11. FINANCE INCOME
Year ended Year ended
31 December 31 December
2021 2020
GBP'000 GBP'000
Other interest income 44 43
Interest on liquidity funds - 59
44 102
============ ============
12. FINANCE COSTS
Year ended Year ended
31 December 31 December
2021 2020
GBP'000 GBP'000
Interest payable on bank borrowings 5,492 4,627
Borrowing costs capitalised (note
14) - (128)
Amortisation of loan arrangement
fees 1,279 1,163
Head lease interest expense 44 43
Bank charges 8 18
6,823 5,723
------------ ------------
Total finance cost for financial
liabilities not at fair value
through profit or loss 6,815 5,705
============ ============
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
2021 2020
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% (2020:19%). The differences are
explained below.
Year ended Year ended
31 December 31 December
2021 2020
GBP'000 GBP'000
Profit for the year before tax 28,410 24,594
------------ ------------
Tax at UK corporation tax standard
rate of 19% 5,398 4,673
Change in value of investment
properties (1,710) (1,500)
Exempt REIT income (4,202) (3,539)
Amounts not deductible for tax
purposes 22 21
Unutilised residual current period
tax losses 492 345
- -
============ ============
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 2021 565,533 6,568 572,101
------------ ------------------- ---------------------
Acquisitions and additions 59,114 1,568 60,682
Fair value adjustment* 9,513 - 9,513
Movement in head lease
ground rent liability 5 - 5
Transfer of completed
properties 8,136 (8,136) -
Reclassified to assets
held for sale (1,008) - (1,008)
------------ ------------------- ---------------------
As at 31 December
2021 641,293 - 641,293
------------ ------------------- ---------------------
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
2020 565,533 6,568 572,101
------------ ------------------- ---------------------
* Gain from fair value adjustment on investment property in the
S tatement of C omprehensive I ncome includes loss from fair value
adjustments on assets held for sale.
Reconciliation to independent 31 December 31 December
valuation: 2021 2020
GBP'000 GBP'000
Investment property valuation 642,018 571,463
Fair value adjustment - headlease
ground rent 1,462 1,457
Fair value adjustment - lease
incentive debtor (2,187) (819)
------------ ----------------------
641,293 572,101
------------ ----------------------
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. All properties under
development were completed in the year. There are no properties
under development as at 31 December 2021.
The carrying value of leasehold properties at 31 December 2021
was GBP39.36 million (2020: GBP36.5 million).
In accordance with "IAS 40: Investment Property", the Group's
investment properties have been independently valued at fair value
by Jones Lang LaSalle Limited ("JLL"), an accredited external
valuer with recognised and relevant
professional qualifications. The independent valuers provide
their fair value of the Group's investment property portfolio every
three months.
JLL were appointed as external valuers by the Board on 11
December 2017. JLL has provided valuations services to the Group.
The proportion of the total fees payable by the Company to JLL's
total fee income is minimal. Additionally, JLL has a rotation
policy in place whereby the signatories on the valuations rotate
after seven years.
% Key Statistic
The metrics below are in relation to the total investment
property portfolio held as at 31 December 2021.
31 December 31 December
Portfolio metrics 2021 2020
Capital Deployed (GBP'000)
* 569,991 512,296
Number of Properties 488 445
Number of Tenancies*** 382 341
Number of Approved Providers*** 24 20
Number of Local Authorities*** 156 155
Number of Care Providers*** 11 4 98
Valuation Net Initial Yield** 5.25% 5.27%
*calculated excluding acquisition costs
**calculated using IAS 40 valuations (excluding forward funding
acquisitions)
*** calculated excluding forward funding acquisitions
31 December 2021 31 December 2020
% of funds % of funds
Region *Cost GBP'000 invested *Cost GBP'000 invested
--------------- -------------- ----------- -------------- -----------
North West 122,622 21.5 115,025 22.5
West Midlands 92,794 16.3 88,397 17.3
East Midlands 64,595 11.3 65,559 12.8
London 49,526 8.7 49,213 9.6
North East 47,061 8.3 47,088 9.2
Yorkshire 81,034 14.2 46,013 9.0
South East 52,196 9.2 45,682 8.9
South West 27,900 4.9 27,900 5.4
East 23,703 4.2 20,229 3.9
Scotland 5,900 1.0 4,530 0.9
Wales 2,660 0.4 2,660 0.5
Total 569,991 100 512,296 100
--------------- -------------- ----------- -------------- -----------
*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 2021 641,293 - - 641,293
------------------------ ------------------- -------- ----------- ------------ --------------
31 December
Investment properties 2020 572,101 - - 572,101
------------------------ ------------------- -------- ----------- ------------ --------------
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 Regulator of Social Housing .
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. All properties under development were completed
in the year. There were no forward funded assets in the portfolio
as at 31 December 2021.
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 t wo 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 6.63% (2020: 6.62%).
The range of discount rates used in the Group's property
portfolio valuation is from 6.21% to 8% (2020: 6.3% to 7.4%).
-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 2021 26,922 (24,663) 21,190 (20,238)
Changes as at 31 December
2020 35,919 (32,643) 18,635 (17,811)
15. TRADE AND OTHER RECEIVABLES (non-current)
31 December 31 December
2021 2020
GBP'000 GBP'000
Other receivables 183 -
Lease incentive debtor 2,128 -
2,311 -
============ ============
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.
16. TRADE AND OTHER RECEIVABLES (current)
31 December 31 December
2021 2020
GBP'000 GBP'000
Rent receivable 1 , 971 2,112
Prepayments 796 608
Other receivables 608 613
Lease incentive debtor 60 819
3,435 4,152
============ ============
Included in Prepayments are prepaid acquisition costs which
include the cost of acquiring assets not completed at the year end.
The Directors consider that the carrying value of trade and other
receivables approximate their fair value. All amounts are due to be
received within one year from the reporting date. The Group applies
the IFRS 9 simplified approach to measuring expected credit losses
using a lifetime expected credit loss provision for rent
receivables. To measure expected credit losses on a collective
basis, rent receivables are grouped based on similar credit risk
and ageing. The expected loss rates are based on the Group's
historical credit losses experienced since incorporation in 2017.
The historical loss rates are then adjusted for the current and
forward-looking information on macroeconomic factors affecting the
Group's tenants. 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.
17. CASH, CASH EQUIVALENTS AND RESTRICTED CASH
31 December 31 December
2021 2020
GBP'000 GBP'000
Cash held by lawyers 8,459 3,938
Restricted cash 571 849
Ring-fenced cash 4,451 -
Cash at bank 38,989 48,914
------------ ------------
52,470 53,701
============ ============
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. It also includes funds held in an
escrow account in relation to the transfer of leases during
2020.
Ring-fenced cash includes retention monies held by Coutts in a
"charged" account which requires lender's permission to release,
and funds held in a separate bank account for upcoming commitment
fees on the Lloyds RCF.
31 December 31 December
2021 2020
GBP'000 GBP'000
Total Cash, cash equivalents and
restricted cash 52,470 53,701
Restricted cash (571) (849)
------------ ------------
Cash reported on Statement of Cash
Flows 51,899 52,852
============ ============
18. TRADE AND OTHER PAYABLES
Current liabilities
31 December 31 December
2021 2020
GBP'000 GBP'000
Accruals 2,373 2,929
Trade payables 48 79
Head lease ground rent (note 27) 39 39
Other creditors 1,191 1,922
3,651 4,969
============ ============
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 .
19. OTHER PAYABLES
Non-current liabilities
31 December 31 December
2021 2020
GBP'000 GBP'000
Head lease ground rent (note 28) 1,423 1,417
Rent deposit 100 100
1,523 1,517
============ ============
20. BANK AND OTHER BORROWINGS
31 December 31 December
2021 2020
GBP'000 GBP'000
Bank and other borrowings drawn at
year end 263,500 198,500
------------ ------------
Less: loan issue costs incurred (6,077) (4,736)
Add: loan issue costs amortised 1,279 1,163
------------ ------------
Unamortised costs at end of the year (4,798) (3,573)
------------ ------------
Balance at year end 258,702 194,927
============ ============
As at 31 December 2021, the Group's borrowings comprised two
debt facilities;
-- a long dated, fixed rate, interest only financing arrangement
in the form of a private placement of loan notes in an amount of
GBP68.5 million with MetLife Investment Management (and affiliated
funds)
-- GBP195 million long dated, fixed rate, interest only
sustainability-linked loan notes through a private placement with
MetLife Investment Management clients and Barings
The Group also have access to GBP160 million Revolving Credit
Facility (RCF) with Lloyds and NatWest which was undrawn at the
reporting date.
Loan Notes
The Loan Notes of GBP68.5 million are secured against a
portfolio of specialist supported living assets throughout the UK,
worth approximately GBP188 million (31 December 2020 : 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% p . a . ; and Tranche-B, is an amount of GBP27.0 million,
has a term of 15 years from utilisation and is priced at an all-in
coupon of 3.215% p . a. On a blended basis, the weighted average
term is 12 years carrying a weighted average fixed rate coupon of
3.04% p . a. At 31 December 2021, the Loan Notes have been
independently valued at GBP71.0 million which has been used to
calculate the Group's EPRA Net Disposal Value in note 4 of the
Unaudited Performance Measures. The fair value is determined by
comparing the discounted future cash flows using the contracted
yields with the reference gilts plus the margin implied. The
reference gilts used were the Treasury 0.804 % 2028 Gilt (Tranche
A) and Treasury 0.991% 2033 Gilt (Tranche B), with an implied
margin that is unchanged since the date of fixing.
In August this year, the Group put in place Loan Notes of GBP195
million which enabled the Group to refinance the full GBP130
million previously drawn under its GBP160 million RCF with Lloyds
and Nat W est. The Loan Notes are secured against a portfolio of
specialist supported living assets throughout the UK, worth
approximately GBP391 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 GBP77.5
million, has a term of 10 years from utilisation and is priced at
an all-in coupon of 2.403% pa; and Tranche-B, is an amount of
GBP117.5 million, has a term of 15 years from utilisation and is
priced at an all-in coupon of 2.786% p . a. On a blended basis, the
weighted average term is 13 years carrying a weighted average fixed
rate coupon of 2.634% p . a. At 31 December 2021, the Loan Notes
have been independently valued at GBP189.7 million which has been
used to calculate the Group's EPRA Net Disposal Value in note 4 of
the Unaudited Performance Measures. The fair value is determined by
comparing the discounted future cash flows using the contracted
yields with the reference gilts plus the margin implied. The
reference gilts used were the Treasury 0.899% 2028 Gilt (Tranche A)
and Treasury 1.141% 2033 Gilt (Tranche B), with an implied margin
that is unchanged since the date of fixing.
The loans are considered to be a Level 2 fair value
measurement.
RCF
The RCF was fully refinanced on the 26 August 2021 and as a
result, was novated from TP REIT Propco 2 Limited to TP REIT Propco
5 Limited. This was not considered to be a substantial modification
under IFRS 9 in the Group accounts, as there is no change to the
borrower at Group level. Otherwise, the terms remain unchanged and
at 31 December 2021 the facility remained undrawn. The originally
agreed four-year term was previously extended in 2020 by one
further year expiring on 20 December 2023. This may be extended by
a further year, to 20 December 2024 (subject to the consent of the
lenders). Originally, the interest rate for drawn amounts was 1.85%
per annum over three-month LIBOR. Under the amended and restated
facility agreement in place pre the refinance, the Group negotiated
and agreed provisions setting pre-agreed terms for the transition
of LIBOR to the new benchmark rate SONIA from the 1 July 2021. For
undrawn loan amounts the Company pays a commitment fee in the
amount of 40% of the margin. 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. For the RCF there is considered no other difference
between fair value and carrying value.
The Group has met all compliance with its financial covenants on
the above loans throughout the year.
Undrawn committed bank facilities - maturity profile
3 to
1 to 2 5 > 5
31 December 2021 Total < 1 year years years years
--------------------- -------- --------- -------- -------- --------
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 31 December 2021 160,000 - 160,000 - -
-------- --------- -------- -------- --------
At 31 December 2020 30,000 - - 30,000 -
-------- --------- -------- -------- --------
21. 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 20) (note 18,19)
At 1 January 2021 194,927 1,456 196,383
Cashflows:
Bank borrowings drawn 195,000 - 195,000
Bank borrowings repaid (130,000) - (130,000)
Repayment of principal
on head lease liabilities - (39) (39)
Loan arrangement fees
paid (2,728) - (2,728)
Non-cash flows:
-Amortisation of loan
arrangement fees 1,278 - 1,278
-Loan arrangement
fees paid in advance
recognised in prepayments 225 - 225
-Head lease additions - 2 2
-Accrued interest
on head lease liabilities - 44 44
---------------- ------------- ----------
At 31 December 2021 258,702 1,463 260,165
================ ============= ==========
Bank borrowings Head lease Total
GBP'000 GBP'000 GBP'000
(note 20) (note 18,19)
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 2020 194,927 1,456 196,383
================ ============= ========
22. SHARE CAPITAL
Issued and Issued and
fully paid fully paid
Number GBP'000
At 1 January 2021
403,239,002 4,033
------------ ------------
At 31 December 2021 403,239,002 4,033
============ ============
Number GBP'000
At 1 January 2020 351,352,210 3,514
Issued on public offer on 21
October 2020 51,886,792 519
------------ ------------
At 31 December 2020 403,239,002 4,033
============ ============
The Company achieved admission to the specialist fund segment of
the main market of the London Stock Exchange on 8 August 2017,
raising 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 24).
Treasury shares do not hold any voting rights.
23. SHARE PREMIUM RESERVE
The share premium relates to amounts subscribed for share
capital in excess of nominal value.
31 December 31 December
2021 2020
GBP'000 GBP'000
Balance at beginning of year 203,776 151,157
Share premium arising on Ordinary
Shares issue - 54,481
Share issue costs capitalised (23) (1,862)
Balance at end of year 203,753 203,776
============ ============
24. TREASURY SHARES RESERVE
31 December 31 December
2021 2020
GBP'000 GBP'000
Balance at beginning of year (378) (378)
Own shares repurchased - -
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
2021 and 31 December 2020, 450,000 1p Ordinary Shares were held by
the Company.
25. CAPITAL REDUCTION RESERVE
31 December 31 December
2021 2020
GBP'000 GBP'000
Balance at beginning of year 166,154 166,154
Dividends paid (5,760) -
Balance at end of year 16 0,394 166,154
============ ============
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
2021.
26. RETAINED EARNINGS
31 December 31 December
2021 2020
GBP'000 GBP'000
Balance at beginning of year 55,066 49,286
Total comprehensive income for the
year 28,410 24,594
Dividends paid (15,165) (18,814)
Balance at end of year 68,311 55,066
============ ============
27. DIVIDS
Year ended Year ended
31 December 31 December
2021 2020
GBP'000 GBP'000
1.285p for the 3 months to 31 December
2019 paid on 27 March 2020 - 4,509
1.295p for the 3 months to 31 March
2020 paid on 26 June 2020 - 4,544
1.295p for the 3 months to 30 June
2020 paid on 25 September 2020 - 4,544
1.295p for the 3 months to 30 September
2020 paid on 18 December 2020 - 5,217
1.295p for the 3 months to 31 December 5,217 -
2020 paid on 26 March 2021
1.3p for the 3 months to 31 March 5,236 -
2021 paid on 25 June 2021
1.3p for the 3 months to 30 June 2021 5,236 -
paid on 30 September 2021
1.3p for the 3 months to 30 September 5,236 -
2021 paid on 17 December 2021
------------- -------------
20,925 18,814
------------- -------------
On 3 March 2021, the Company declared an interim dividend of
1.30 pence per Ordinary Share for the period 1 October 2021 to 31
December 2021. The total dividend of GBP5.2 million will be paid on
25 March 2022 to Ordinary shareholders on the register on 11 March
2022.
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.
28. LEASES
A. Leases as lessee
The following table sets out a maturity analysis of lease
payments, showing the undiscounted lease payments to be paid after
the reporting date:
< 1 year 2-5 years > 5 years Total
GBP'000 GBP'000 GBP'000 GBP'000
Lease payables
--------- ---------- -------------- --------
31 December 2021 40 159 13,126 13,325
--------- ---------- -------------- --------
31 December 2020 40 159 14,366 14,565
--------- ---------- -------------- --------
31 December 31 December
2021 2020
GBP'000 GBP'000
Current liabilities (note 18) 40 39
Non-current liabilities (note 19) 1,423 1,417
Balance at end of year 1,463 1,456
============ ============
The above is in respect of properties held by the Group under
leasehold. There are 21 properties (2020: 21) 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 2021 35,771 143,199 461,561 640,531
--------- ---------- ---------- --------
31 December 2020 31,585 126,471 419,850 577,906
========= ========== ========== ========
Prior year restatement
In the prior year the Group incorrectly calculated the future
minimum lease receipts on the assumption that any put and call
options have been extended rather than the "expected lease" term
(see note 3.4) being the period to the first break clause, or to
the point where the put or call options become exercisable. The
prior year disclosure has therefore been restated to reflect the
future minimum lease payments receivable by the Group under
non-cancellable operating leases using the correct lease term. The
restatement has reduced the total amount receivable by GBP246m.
This has affected this disclosure only and does not change any of
the figures reported in the primary statements.
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 2021 31 December 2020
% of total annual % of total annual
Registered Provider rent rent
Inclusion Housing CIC 30 31
Falcon Housing Association
CIC 10 11
Parasol Homes (previously 28A
Supported Living) 10 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.
29. CONTROLLING PARTIES
As at 31 December 2021 there is no ultimate controlling party of
the Company.
30. 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 488 (2020: 445) Social
Housing properties as at 31 December 2021 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.
31. RELATED PARTY DISCLOSURE
Directors are remunerated for their services at such rate as the
Directors shall from time to time determine. The Chair receives a
Director's fee of GBP75,000 per annum (2020: GBP75,000), and the
other directors of the Board receive a fee of GBP50,000 per annum
(2020: 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). This was received
by the Directors in 2020 but not in the current year as no
prospectus was produced.
Dividends of the following amounts were paid to the Directors
during the year:
Chris Phillips: GBP2,850 (2020: GBP2,836)
Peter Coward: GBP4,031 (2019: GBP3,938)
Paul Oliver: GBP4,050 (2019: GBP4,031)
Tracey Fletcher-Ray: GBP1,960 (2020: GBP489l)
No shares were held by Ian Reeves as at 31 December 2021 (31
December 2020: nil).
32. CONSOLIDATED ENTITIES
The Group consists of a parent Company, Triple Point Social
Housing REIT PLC, incorporated in the UK and a number of
subsidiaries held directly by the Company, which operate and are
incorporated in the UK 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
2021:
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 HoldCo 5 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,
TP REIT PropCo 5 Limited EC4N 7AF UK 100%
1 King William Street, London,
Norland Estates Limited EC4N 7AF UK 100%
Grolar Developments SPV 1 King William Street, London,
6 Limited EC4N 7AF UK 100%
1 King William Street, London,
Parklands 1 Ltd EC4N 7AF UK 100%
1 King William Street, London,
Kirkdale House 1 Limited EC4N 7AF UK 100%
1 King William Street, London,
Connaught1 Ltd EC4N 7AF UK 100%
Earlsway (Macclesfield) 1 King William Street, London,
Limited EC4N 7AF UK 100%
1 King William Street, London,
Creed Housing SPV 5 Limited EC4N 7AF UK 100%
Grolar Developments SPV 1 King William Street, London,
10 Limited EC4N 7AF UK 100%
1 King William Street, London,
Applewood 1 Ltd EC4N 7AF UK 100%
1 King William Street, London,
SL Stoke Ltd EC4N 7AF UK 100%
1 King William Street, London,
Rowen 1 Ltd EC4N 7AF UK 100%
Challenger Homes (Crewe) 1 King William Street, London,
Limited EC4N 7AF UK 100%
1 King William Street, London,
MSL (114) Ltd 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
2021:
Name of Entity Registered Office Country Ownership
of Incorporation %
Grolar Developments SPV 1 King William Street, London,
6 Limited EC4N 7AF UK 100%
1 King William Street, London,
Kirkdale House 1 Limited EC4N 7AF UK 100%
1 King William Street, London,
Creed Housing SPV 5 Limited EC4N 7AF UK 100%
1 King William Street, London,
Parklands 1 Ltd EC4N 7AF UK 100%
Earlsway (Macclesfield) 1 King William Street, London,
Limited EC4N 7AF UK 100%
Grolar Developments SPV 1 King William Street, London,
10 Limited EC4N 7AF UK 100%
1 King William Street, London,
Connaught Ltd EC4N 7AF UK 100%
1 King William Street, London,
Applewood 1 Ltd EC4N 7AF UK 100%
1 King William Street, London,
SL Stoke Ltd EC4N 7AF UK 100%
Challenger Homes (Crewe) 1 King William Street, London,
Limited EC4N 7AF UK 100%
1 King William Street, London,
Rowen 1 Ltd EC4N 7AF UK 100%
1 King William Street, London,
MSL (114) Ltd EC4N 7AF UK 100%
The subsidiaries listed below have been struck off since 31 December
2021:
1 King William Street, London,
Creed Housing SPV 5 Limited EC4N 7AF UK 100%
1 King William Street, London,
Kirkdale House 1 Limited EC4N 7AF UK 100%
1 King William Street, London,
Applewood 1 Ltd EC4N 7AF UK 100%
1 King William Street, London,
Parklands 1 Ltd EC4N 7AF UK 100%
Grolar Developments SPV 1 King William Street, London,
10 Limited EC4N 7AF UK 100%
Grolar Developments 6 1 King William Street, London,
Limited EC4N 7AF UK 100%
33. FINANCIAL RISK MANAGEMENT
The Group is exposed to market risk, interest rate risk, credit
risk and liquidity risk in the current and future periods. The
Board oversees the management of these risks. The Board's policies
for managing each of these risks are summarised below.
33.1 Market risk
The Group's activities will expose it primarily to the market
risks associated with changes in property values.
Risk relating to investment in property
Investment in property is subject to varying degrees of risk.
Some factors that affect the value of the investment in property
include:
-- changes in the general economic climate;
-- competition for available properties;
-- obsolescence; and
-- Government regulations, including planning, environmental and tax laws.
Variations in the above factors can affect the valuation of
assets held by the Group and as a result can influence the
financial performance of the Group.
The factors mentioned above have not had a material impact on
the valuations of the investment properties as at 31 December 2021,
and are not expected to in the immediate future, but will continue
to be monitored closely.
Please refer to the Sustainability Report for further
information on Environmental Policy which may effect the investment
property valuations going forward. There was no impact on the
valuations in the year ended 31 December 2021 from climate change
factors, given that there is little measurable impact on inputs at
present.
33.2. 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 was undrawn at 31
December 2021. It 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. In the light of the
ceasing of LIBOR as a benchmark rate, 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 was 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 26 August 2021,
a Hedging Trigger Event remains in place which means a hedging
agreement will be required to be entered into if the Projected
Interest Cover falls below 400% on any date after the first
utilisation date.
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 3 3 .4 below outlines the bank
borrowings and interest payable on bank borrowings with a floating
interest rate.
All debt drawn at 31 December 2021 does not have any exposure to
interest rate risk.
33.3 Credit risk
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.
In August this year, Fitch has assigned the Company an
Investment Grade Long-Term Issuer Default Rating of 'A-' with a
stable outlook, and a senior secured rating of 'A' for the Group's
new Loan Notes.
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 of Social
Housing (RSH). 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 substantially all (99.82%) rents due at 31 December
2021 have been collected, and no material expected credit losses
have been identified.
33.4 Liquidity risk
The Group manages its liquidity and funding risks by considering
cash flow forecasts and ensuring sufficient cash balances are held
within the Group to meet future needs. Prudent liquidity risk
management implies maintaining sufficient cash and marketable
securities, the availability of financing through appropriate and
adequate credit lines, and the ability of customers to settle
obligations within normal terms of credit. The Group ensures,
through forecasting of capital requirements, that adequate cash is
available to fund the Group's operating activities.
The following table details the Group's liquidity analysis:
3-12 1-5 > 5
31 December 2021 < 3 months months Years years
------------------------------- -------- --------------- -------- -------- -------------
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Headleases (note
2 8 ) 13,325 10 30 159 13,126
Trade and other payables - -
Bank and other borrowings
(note 20):
* Fixed interest rate 263,500 - - - 263,500
* Variable interest rate - - - - -
Interest payable
on bank and other
borrowings:
* Fixed interest rate 83,827 1,804 5,413 28,869 47,741
* Variable interest rate - - - - -
360,652 1,814 5,443 29,028 324,367
======== =============== ======== ======== =============
3-12 1-5 > 5
31 December 2020 < 3 months months Years years
------------------------------- -------- ----------- -------- -------- --------
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Headleases (note
2 8 ) 14,565 10 30 159 14,366
Trade and other payables 4,908 4,717 191 - -
Bank and other borrowings
(note 20 ):
* 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 -
247,287 5,967 3,611 145,799 92,410
======== =========== ======== ======== ========
33.5 Financial instruments
The Group's principal financial assets and liabilities, which
are all held at amortised cost, are those that arise directly from
its operation: trade and other receivables, trade and other
payables, headleases, borrowings and cash 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
2021 2021 2020 2020
GBP'000 GBP'000 GBP'000 GBP'000
Financial assets:
Trade and other
receivables 4,739 4,739 3,368 3,368
Cash held at bank 52,470 52,470 53,701 53,701
------------- ------------- ------------- -------------
Financial liabilities:
Trade and other
payables 3,606 3,606 4,930 4,930
Borrowings 258,702 260,761 194,927 205,272
------------- ------------- ------------- -------------
34. POST BALANCE SHEET EVENTS
Property acquisitions
Since 31 December 2021, the Group has acquired portfolios of
eight properties deploying GBP10 million (including acquisition
costs).
Borrowings
On 21 February 2022 , the GBP160 million RCF with Lloyds was
reduced to GBP50 million, and remains undrawn a t the date of
signing.
35. CAPITAL COMMITMENTS
The Group had capital commitments of GBP4.2 million (2020:
GBP2.8 million) in relation to the cost to complete its forward
funded pre-let development assets at 31 December 2021.
36. 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
2021 2020
Calculation of Basic Earnings per
share
Net profit attributable to Ordinary
Shareholders (GBP'000) 28,410 24,594
Weighted average number of Ordinary
Shares (excluding treasury shares) 402,789,002 360,853,102
IFRS Earnings per share - basic and
diluted 7.05p 6.82p
------------ ------------
Calculation of EPRA Earnings per share
Net profit attributable to Ordinary
Shareholders (GBP'000) 28,410 24,594
Changes in value of fair value of
investment property (GBP'000) (8,998) (7,957)
EPRA earnings (GBP'000) 19,412 16,637
Non cash adjustments to include:
Interest capitalised on forward funded
developments - (128)
Amortisation of loan arrangement fees 1,279 1,163
------------ ----------------------------
Adjusted earnings (GBP'000) 20,691 17,672
------------ ----------------------------
Weighted average number of Ordinary
Shares (excluding treasury shares) 402,789,002 360,853,102
------------ ----------------------------
EPRA earnings per share - basic and
diluted 4.82p 4.61p
Adjusted earnings per share - basic
and diluted 5.14p 4.90p
------------ ----------------------------
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.
37. NET ASSET VALUE PER SHARE
Basic Net Asset Value ("NAV") per share is calculated by
dividing net assets in the Group Statement of Financial Position
attributable to Ordinary Shareholders of the 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
2021 2020
GBP'000 GBP'000
Net assets at end of the year 436,113 428,651
Shares in issue at end of the
year (excluding treasury shares) 402,789,002 402,789,002
Dilutive shares in issue - -
IFRS NAV per share - basic and
dilutive 108.27p 106.42p
------------ ------------
38. CAPITAL MANAGEMENT
The Group's objectives when managing capital are to safeguard
the Group's ability to continue as a going concern in order to
provide returns for shareholders and to maintain an optimal capital
structure to minimise the cost of capital.
The Group considers proceeds from share issuance, bank and other
borrowings and retained earnings as capital.
Until the Group is fully invested and pending re-investment or
distribution of cash receipts, the Group will invest in cash
equivalents, near cash instruments and money market
instruments.
The level of borrowing will be on a prudent basis for the asset
class and will seek to achieve a low cost of funds, whilst
maintaining the flexibility in the underlying security requirements
and the structure of both the investment property portfolio and the
Group.
The Directors currently intend that the Group should target a
level of aggregate borrowings over the medium term equal to
approximately 40% of the Group's Gross Asset Value. The aggregate
borrowings will always be subject to an absolute maximum,
calculated at the time of drawdown, of 50% of the Gross Asset
Value.
The fixed rate facility with MetLife Investment Management
requires an asset cover ratio of x2.00 (amended from previous
covenant of x2.25 in August 2021 to bring more in line with the ACR
covenant in the new Note Purchase Agreement with Metlife Investment
Management and Barings) 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 x2.75 (2020: x2.69) and an interest
cover ratio of x4.90 (2020: x4.89). The subsequent facility with
Metlife Investment Management and Barings requires an asset cover
ratio of x1.67 and an interest cover ratio of x1.75. At 31 December
2021, the Group was fully compliant with both covenants with an
asset cover ratio of x2.01 and an interest cover ratio of
x4.39.
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 RCF was undrawn.
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