TIDMSOHO
RNS Number : 8064O
Triple Point Social Housing REIT
03 February 2023
3 February 2023
Triple Point Social Housing REIT plc
(the "Company", "SOHO" or, together with its subsidiaries, the
"Group")
Trading Update
The Board of Triple Point Social Housing REIT plc and Triple
Point Investment Management LLP ("Triple Point" or the "Manager")
today provide a Trading Update for the twelve months ended 31
December 2022.
-- The Group's portfolio of 3,456 units and 497 properties with
a weighted average unexpired lease term of 25.3 years, demonstrated
strong resilience during the period, underpinned by growing excess
demand for Specialised Supported Housing which represents 88.5% [1]
of the Group's portfolio by rent roll.
-- 91.7% of rent due was collected for the period (31 December
2021: 99.8%), 25 of the Group's 27 lessees recorded no material
arrears.
-- The Board remain committed to its stated annual dividend
target of 5.46 pence per Ordinary Share in respect of the financial
year ended 31 December 2022.
-- 94.3% of the Group's portfolio by rent roll was leased to
Registered Providers that are subject to regulatory protections and
standards provided by the Regulator of Social Housing. In the
properties which provide Specialised Supported Housing (88.5% of
the portfolio by rent roll) a care provider, regulated by the Care
Quality Commission ("CQC"), provides care to residents
independently of the Registered Provider. For the remainder of the
portfolio (rent roll), 4.1% is classified as Registered Care or
Children's Services, and 7.4% is classified as Supported
Housing.
-- The portfolio recorded a strong weighted average rent
increase of 6.7% during the twelve month period. 92.6% of the
Group's leases are linked to CPI with the remaining 7.4% linked to
RPI, and 5.1% of the Group's leases have caps .
o For the financial year ending 31 December 2023, the Group will
prudently apply a temporary one-year cap of 7% to its leases to
Registered Providers. This accounts for the current high
inflationary environment facing Registered Providers, but is
consistent with both the UK government's 7% cap on social housing
rent increases (despite Specialised Supported Housing being
excluded from the cap) and the Group's highest historical weighted
average annual rental growth rate (being 6.7% for the year 2022).
The voluntary cap applied to the portfolio's leases for 2023 will
continue to allow for material rental growth whilst ensuring that
the Group's rent increases remain sustainable and in line with
wider social housing sector policy.
-- The Manager continues to actively engage with two of the
Group's 27 lessees in relation to the Company's previously reported
rent arrears (in 2022). The Group's latest reported Net Asset Value
(as at 30 September), published on 23 November 2022, reflected the
valuation impact of these isolated cases of rent arrears.
Whenever asset management decisions are made, the welfare of the
individuals living in the Group's properties is at the forefront of
the decision making process.
o My Space Housing ("My Space") (7.9% of rent roll): in the
Enforcement Notice published on 16 January 2023, the Regulator of
Social Housing noted concerns around My Space's solvency. The
Manager is actively looking to move properties away from My Space
to alternative housing providers but notes the Regulator's request
that My Space consider, amongst other things, the option of a
business combination or merger which might negate the need to move
properties. Were properties to be moved to an alternate housing
manager, protecting the welfare of the residents of these
properties would be the Group's principal concern. The Company
notes lease terms may be amended as part of any transfer.
o In order to establish a downside risk, the Board and the
Manager requested the Company's valuer, Jones Lang LaSalle ("JLL"),
to determine the potential negative impact on the value of the
Group's property portfolio in the event that My Space were to go
into administration. JLL have estimated this impact to be up to 38%
of the value of the properties let to My Space or 2.4% of the
Group's total portfolio valuation as of 30 September 2022.
o Parasol Homes Limited ("Parasol") ( 9.6% of rent roll) : due
to operational issues, in the latter half of 2022 Parasol failed to
pay all rent due to the Group. Parasol is working to address these
issues and the Manager expects to agree a rent repayment plan with
Parasol, including for rent arrears, which it is hoped will see the
Group's rent payments return to historical levels.
-- In a rising interest rate environment, the Group continues to
benefit from its GBP263.5 million of long-term fixed-priced debt
with a weighted average coupon of 2.74% and a weighted average
maturity of 10.6 years. The earliest debt maturity occurs in
mid-2028.
-- The Group continues to maintain significant covenant headroom
within its credit facilities alongside additional liquidity in the
form of GBP26.9 million of cash, and unencumbered properties with
an aggregate valuation of GBP70.8 million as at 30 September
2022.
-- The Company will seek to introduce a new risk sharing clause
into its existing leases during Q2 2023 following ongoing
consultation with stakeholders, including the Regulator of Social
Housing. The implementation of the clause is intended to enhance
the Group's Registered Provider lessees' compliance with the
Regulator of Social Housing's standards.
-- The Board continues to actively engage with its shareholders
and is committed to addressing the current discount to the
Company's Net Asset Value. In order to deliver value to
shareholders, the Board and Manager are exploring making accretive
share buybacks outside of a close period and the potential sale of
a portfolio of the Group's properties. If the Group considered that
a potential sale of a portfolio would be in the best interests of
its shareholders, and conditional on such a transaction not having
a material adverse impact on the Group's leverage position, the
Board would seek to return capital from such a sale to its
shareholders.
Chris Phillips, Chair of SOHO, said: "The Board recognises the
ongoing resilience of the Company's portfolio, notwithstanding the
sector-wide pressures social housing providers are experiencing.
SOHO's focus on Specialised Supported Housing, and excess demand
for more homes underpins our confidence in the Group's outlook. The
proposed amendments to existing lease clauses are aimed at
strengthening the compliance of the Company's Registered Provider
partners. The Board and the Manager are focused on delivering value
to shareholders, and are exploring making accretive share buybacks
and the potential sale of a portfolio of the Group's
properties."
Max Shenkman, Head of Investment, Triple Point, said: "Over the
last five years, we have built a UK wide portfolio of properties
leased to a diversified range of counterparties most of whom focus
on providing long-term Specialised Supported Housing to people with
care and support needs. Other than in two isolated instances, our
lessees have adjusted to the impact of a changing macroeconomic and
operating environment effectively, despite the rising cost of
providing their services. We continue to actively manage two
isolated cases of material rent arrears in our portfolio. We
believe in proportionate specialist industry regulation and its
ability to enhance governance and service provision in social
housing. This, in turn, supports the sustainability of the
portfolio's cash flows and returns to SOHO's shareholders."
COMPANY AND MANAGER COMMENTARY
1. Portfolio Performance and Valuation
91.7% of rent due and generated by the Group's portfolio of 497
properties was collected during the period.
Properties that provide Specialised Supported Housing make up
88.5% [2] of the Group's portfolio by rent roll. In all of these
properties a care provider regulated by the CQC provides care to
residents independently of the Registered Provider who is
responsible for providing housing management services. Based on
data received by the Manager from lessees, the Company estimates
that, for those lessees, the average care hours received by
residents is over 40 hours per week, considerably above guidance
around the levels of care expected in Specialised Supported
Housing.
During 2022, rising inflation had a significant impact on the
cost of operating social housing properties. The majority of the
Group's lessees have adjusted to the impact of a changing
macroeconomic and operating environment effectively, as
demonstrated by the resilience in the portfolio's performance. If,
as forecast, inflation slows over the course of the current
financial year, the peak of these challenges should have
passed.
On a like for like basis, we expect the Company's property
portfolio valuation as at the 31 December 2022, provided by JLL, to
reflect some negative adjustment compared to the end of the prior
quarter (30 September 2022: GBP672.2 million), predominantly
reflecting an outward movement in some social housing yields. We
expect this movement to be limited relative to other commercial
property markets due to excess demand for Specialised Supported
Housing, coupled with a continued lack of supply.
2. Portfolio Composition and Regulatory Protections
2.1. Lessee Regulgation and Care Provision
25 of the Group's 27 leases are regulated by either the
Regulator of Social Housing, the CQC or Ofsted, representing 98.4%
of the portfolio's rent roll. The majority of the Group's lessees
are therefore subject to strong, specialist housing, care or, in
relation to two properties, children's services regulation.
88.5% of the Group's properties benefit from a separate care
provider, regulated by the CQC. The care provider delivers care
and/or support to the residents living in the Group's properties. A
further 3.8%, of the Group's properties are leased directly to a
care provider regulated by the CQC, meaning that over 92.3% of the
Group's properties have care and support provided by a CQC
registered care provider.
The provision of care and support is contracted directly between
the Local Authority and the care provider. Separately, where the
care provider is not the lessee, the care provider will typically
enter into a service level agreement with the relevant Registered
Provider which, amongst other things, will usually see the care
provider underwrite the rent of any unoccupied units in the
property. These contracts typically last for between 5 to 10 years.
Of the Group's properties, 408 properties or 82% benefit from this
voids cover.
On average, the Group's lessees are 17 years old, and they were
typically established to provide homes in the community to adults
with care and support needs.
Regulator Lessees Portfolio Composition Rent Roll
By number of (%)
properties As at 31
December 2022
Regulator
of Social
Housing (RSH) 18 460 94.3
-------- ---------------------- ---------------
Care Quality
Commission
(CQC) 5 29 3.8
-------- ---------------------- ---------------
Ofsted 2 2 0.3
-------- ---------------------- ---------------
Sub Total
(Subject to
specialist
Regulation) 25 491 98.4
-------- ---------------------- ---------------
Community
Interest Groups
or Charities
(Not subject
to specialist
care or housing
regulation) 2 6 1.6
-------- ---------------------- ---------------
TOTAL 27 497 100.0
-------- ---------------------- ---------------
2.2. Portfolio Diversification and Monitoring
The Group has seven lessees each representing 5% or more of the
Group's rent roll and which together represent 74.3% of the Group's
rent roll as at 31 December 2022. All these lessees are Registered
Providers. Except for Inclusion Housing CIC which represents 29.4%,
none of the Group's other lessees represent more than 10% of rent
roll.
Despite a changing macroeconomic and operating environment, most
of the seven lessees that represent 5% or more of the Group's rent
roll have demonstrated an improvement in net profitability in their
latest management accounts shared with the Manager. The Manager
receives and analyses management accounts for all of these seven
lessees and does the same for lessees representing 99.1% of the
portfolio (by rent roll).
The Manager's Housing Team of 24 people are focused on
monitoring the performance of the properties, lessees and care
providers within the Group's portfolio. Since launch properties
have been inspected by the Manager's in-house surveyors every two
years and this is complemented by quarterly and bi-annual
operational, financial and compliance surveys as well as frequent
engagement with senior management teams.
2.3. Regulatory Engagement
The Company's focus is on leasing Specialised Supported Housing
properties to Registered Providers regulated by the Regulator of
Social Housing (per paragraph 2.1 above). Over the last five years,
the Regulator of Social Housing has actively engaged with
Registered Providers operating the long-lease model in the
Specialised Supported Housing sector.
Of the Group's 18 Registered Provider lessees, three have over
1,000 units and 15 under 1,000 units. Typically, Registered
Providers with under 1,000 units are subject to a lower level of
regulatory oversight.
However, due to the Regulator of Social Housing's focus on the
Specialised Supported Housing sector, all of SOHO's Registered
Providers have been subject to relatively intensive engagement,
which promotes a greater degree of accountability and transparency
in the sector.
The Company and the Manager welcome the ongoing engagement by
the Regulator of Social Housing as it ultimately serves the best
interests of the Company's tenants and shareholders. We believe
that improvements in the governance and operations of the Group's
lessees is bought about by strong regulation and, combined with the
active asset management undertaken by the Manager, strengthens
portfolio performance.
All regulatory judgements and notices concerning the Group's
Registered Providers have been reported by the Group in various
announcements dating back to May 2018. In nearly all cases we
believe that the Regulator of Social Housing's engagement has
promoted improvements in both the governance and operations of
these organisations.
Following engagement with key stakeholders, including the
Regulator of Social Housing, and in order to complement the work
done by the boards and management teams of the Group's lessees, the
Company will seek to implement a new risk sharing clause in the
Group's existing leases. The clause is aimed at strengthening the
compliance of the Company's Registered Providers by addressing some
of the general risks raised by the Regulator of Social Housing in
relation to long leases.
3. Outlook
The Group remains focused on providing Specialised Supported
Housing to people with care and support needs throughout the
UK.
The Company expects the Specialised Supported Sector to maintain
its ongoing resilience due to its strength in recessionary periods
relative to other commercial property sectors, which in turn is
underpinned by the growing excess demand for more Specialised
Supported Housing in the UK.
The majority of the Group's lessees continue to perform in-line
with our expectations. Other than in relation to two of the Group's
27 lessees, rent collection remains consistent with historical
levels. The Company and Manager will continue to engage positively
and collaboratively with our lessee partners to help them respond
to both inflationary pressures and the observations around their
compliance made by the Regulator of Social Housing, as evidenced
through the voluntary implementation of the 7% rent increase cap
and the proposed roll out of the new risk sharing clause
respectively.
S.
FOR FURTHER INFORMATION ON THE COMPANY, PLEASE CONTACT:
Triple Point Investment Management LLP (Manager) Tel: 020 7201
8989
Max Shenkman
Isobel Gunn-Brown
Akur Capital (Joint Financial Adviser) Tel: 020 7493 3631
Tom Frost
Anthony Richardson
Siobhan Sergeant
Stifel (Joint Financial Adviser and Corporate Broker) Tel: 020 7710 7600
Mark Young
Mark Bloomfield
Rajpal Padam
Madison Kominski
NOTES
The Company focuses on investing in newly developed social
housing assets in the UK, with a particular focus on specialised
supported housing. The majority of the assets within the portfolio
are subject to inflation-linked, long-term, Fully Repairing and
Insuring ("FRI") leases with Approved Providers (being Housing
Associations, Local Authorities or other regulated organisations in
receipt of direct payment from local government). The portfolio
comprises investments into properties which are already subject to
a lease with an Approved Provider, as well as forward funding of
pre-let developments but does not include any direct development or
speculative development.
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 is a UK Real Estate Investment Trust ("REIT") listed
on the premium segment of the Official List of the UK Financial
Conduct Authority and is a constituent of the FTSE EPRA/NAREIT
index.
Additional information on regulation
The Specialised Supported Housing sector is regulated by the
Regulator who carries out assessments on registered providers
either through a scheduled In-depth assessment ("IDA") or reactive
engagement. When a registered provider passes the 1,000-unit
threshold, it automatically becomes subject to a detailed IDA by
the Regulator.
The IDA assesses compliance with the requirements of the
Governance and Financial Viability Standard. The outcome of an IDA
results in the Regulator publishing a formal grading (V 1-4 for
Viability and G 1-4 for Governance, where V1-2 and G1-2 are
considered "compliant" ratings, and V3-4 and G3-4 are considered
"non-compliant" ratings), known as a regulatory judgement.
[1] Including Specialised Supported Housing properties at
affordable rents.
[2] Including Specialised Supported Housing properties at
affordable rents.
, the news service of the London Stock Exchange. RNS is approved by
the Financial Conduct Authority to act as a Primary Information
Provider in the United Kingdom. Terms and conditions relating to
the use and distribution of this information may apply. For further
information, please contact rns@lseg.com or visit www.rns.com.
RNS may use your IP address to confirm compliance with the terms
and conditions, to analyse how you engage with the information
contained in this communication, and to share such analysis on an
anonymised basis with others as part of our commercial services.
For further information about how RNS and the London Stock Exchange
use the personal data you provide us, please see our Privacy
Policy.
END
TSTFFFFIFVIFIIV
(END) Dow Jones Newswires
February 03, 2023 02:00 ET (07:00 GMT)
Triple Point Social Hous... (LSE:SOHO)
Historical Stock Chart
From Jun 2024 to Jul 2024
Triple Point Social Hous... (LSE:SOHO)
Historical Stock Chart
From Jul 2023 to Jul 2024