TIDMSOHO
RNS Number : 7438R
Triple Point Social Housing REIT
03 March 2023
THIS ANNOUNCEMENT HAS BEEN DETERMINED TO CONTAIN INSIDE
INFORMATION FOR THE PURPOSES OF THE MARKET ABUSE REGULATION (EU)
NO. 596/2014.
3 March 2023
Triple Point Social Housing REIT plc
(the "Company" or, together with its subsidiaries, the
"Group")
RESULTS FOR THE YEARED 31 DECEMBER 2022
The Board of Triple Point Social Housing REIT plc (ticker: SOHO)
is pleased to announce its audited results for the year ended 31
December 202 2 .
31 December 202 31 December 202
2 1
------------------------------------------ ---------------- ----------------
EPRA Net Tangible Assets per
share
(equal to IFRS NAV per share) 109.06p 108.27p
Earnings per share (basic and
diluted) 6.18p 7.05p
* IFRS basis 4.78p 4.82p
* EPRA basis
Total annualised rental income GBP39.0m GBP35.8m
Operating profit GBP35.7m GBP35.2m
Value of the portfolio ( IFRS GBP669.1m GBP642.0m
basis )
Weighted average unexpired 25.3 yrs 26.2 yrs
lease term
Dividend paid or declared per
Ordinary Share 5.46p 5.20p
Financial highlights
-- EPRA Net Tangible Assets (equal to IFRS net asset value) per
share of 109. 06 pence as at 31 December 2022 (2021: 108.27 pence),
an increase of 0.7 % .
-- Portfolio independently valued as at 31 December 2022 at
GBP669.1 million on an IFRS basis (2021: GBP642.0 million),
reflecting a valuation uplift of 11.1% against total invested funds
of GBP602.2 million (1) . The properties have been valued on an
individual basis.
-- The portfolio's total annualised contracted rental income was
GBP39.0 million as at 31 December 2022 (2021: GBP35.8 million).
-- Operating profit for the year ended 31 December 2022 was GBP
35.7 million (2021: GBP35.2 million).
-- Ongoing Charges Ratio of 1.60 % as at 31 December 2022 (2021: 1.54%).
-- All debt is long-term (weighted average term of 10.6 years)
and fixed priced (weighted average fixed coupon of 2.74%).
-- The Company has paid or declared dividends totalling 5.46
pence per Ordinary Share in respect of the year ended 31 December
2022, in line with the Company's target for the year. The dividend
was 0.92 x covered on an adjusted earnings basis as at 31 December
2022. (2)
Operational highlights
-- Acquired 14 properties ( 113 units) during the year for a
total of GBP 20.3 million (including costs) bringing the total
investment portfolio to 497 properties.
-- 100% of contracted rental income was either CPI or RPI linked
(see Post Balance Sheet Activity in the Annual Report for further
information). Weighted average contracted rental growth during the
year was 6.7%.
-- 91.8% of rent due was collected during the year, 25 out of
the Group's 27 lessees recorded no material rent arrears.
-- EPRA net initial yield of 5.46 % based on the market value of
the portfolio (including estimated purchasers' costs) as at 31
December 202 2 , against the portfolio's blended net initial yield
on purchase of 5.90 % .
-- Further diversified the portfolio:
o 11 regions
o 153 local authorities
o 497 properties
o 2 7 Approved Providers
-- 94.3% of the Group's portfolio by rent roll was leased to
Registered Providers that are subject to the regulatory protections
and standards provided by the Regulator of Social Housing (the "
Regulator" ).
Post Balance Sheet Activity
-- The Company declared a dividend of 1.365 pence per ordinary
share in respect of the period from 1 October to 31 December 202 2
, payable on or around 31 March 202 3 to shareholders on the
register at 17 March 202 3 .
-- Following the announcement of a government cap of 7% on
social and affordable rent increases from April 2023,
notwithstanding that the cap does not apply to Specialised
Supported Housing, the Company has voluntarily chosen to implement
this cap for rent reviews applicable to its Registered Provider
lessees in 2023
Notes:
1 Including acquisition costs
2 Historically dividend cover has been reported on a contracted
run-rate basis which for 2021, due to all rent being in payment,
was the same as adjusted earnings dividend cover. Due to an
increase in rent arrears over the period we have moved to a
reporting on an adjusted earnings basis.
Christopher Phillips, Chair of Triple Point Social Housing REIT
plc, commented:
" I am pleased to report that we have delivered a stable and
consistent set of result s . The need for more Specialised
Supported Housing in the UK continues to grow and this fact, more
than anything, underpins our resilient financial performance.
Through continued engagement with our care provider and Approved
Provider partners we will seek to optimise the performance of the
Group's properties with a focus on delivering good homes and
long-term income to our investors. 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. "
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
Madison Kominski
The Company's LEI is 213800BERVBS2HFTBC58.
Further information on the Company can be found on its website
at www.triplepointreit.com .
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.
CHAIR'S STATEMENT
2022 has proven to be another year of unforeseen challenges.
Inflation and resultant rising interest rates were to be expected,
but their pace of increase was accelerated by geopolitical events,
most notably the tragic war in Ukraine, as well as the fallout from
heightened domestic political volatility in the UK in the latter
half of the year. The Bank of England base rate increased by 375
basis points in 12 months, and inflation reached levels not seen in
over 40 years. Higher interest rates have provided investors
seeking income with a range of options, many of which have not been
viable over the last 15 years, and inflation and its root causes
have created operational challenges for business throughout the UK
and indeed the world. Questions remain about the impact these
challenges will have on property valuations as investors and
valuers grapple with understanding the real impact on the
performance of property assets, and their relative attractiveness
when compared to alternative sources of income.
As with most publicly traded REITs, these factors, combined with
further regulatory judgements issued by the Regulator in relation
to two of the Group's Approved Providers, have contributed to the
Company's shares trading at a discount to Net Asset Value during
the period. The Board continues to actively engage with its
shareholders and is committed to addressing this discount. As noted
in our recent trading update, 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 use the proceeds to optimise shareholder value
in the most efficient way .
Whilst we remain conscious of the need to address the current
share price discount to Net Asset Value, I am pleased to report
that we have delivered a stable and consistent set of results, and
we have been able to continue to focus on providing more good homes
for vulnerable people throughout the UK. Our strategy is well
insulated against the fallout from deteriorating economic
circumstances and any resultant decline in demand for other goods
and services. The need for more Specialised Supported Housing in
the UK continues to grow and this fact, more than anything,
underpins our resilient financial performance.
Despite challenging operating conditions, we have delivered a
total return of 5.7% comprising 5.0% from dividend income and 0.7%
from a growth in capital value. Given current concerns around
interest rates, it is worth reiterating that all of the Group's
debt is long-term and fixed-price with a weighted average term of
10.6 years and a weighted average coupon of 2.74%.
This year we have been able to demonstrate to our investors the
strong inflation protection within our portfolio. We increased our
dividend target by 5.0%, supported by strong underlying rental
growth (the weighted average rental growth for the period was
6.7%). Looking forward, whilst Specialised Supported Housing is
excluded from the Government's 7% cap on social housing rent
increases, we have prudently decided to temporarily cap the Group's
rent increases at 7% for the year of 2023. The voluntary cap
applied to the portfolio's leases with Registered Providers for
2023 allows for material rental growth (in excess of the Group's
highest historical weighted average annual rental growth rate),
whilst ensuring that the Group's rent increases remain sustainable
and in line with wider social housing sector policy.
Whilst the Group is well placed to navigate the current economic
headwinds, we must acknowledge that the Group's Approved Providers
have been presented with significant operating challenges. We
continue to work closely with our counterparties whose operating
margins have come under pressure from increases in maintenance,
staffing and energy costs at a time where local authorities and
central Government are tightening fiscal policy. Rent collection
during the year fell below historic levels of 100% to 91.8%. As
noted in the Company's recent trading update, these rent arrears
are predominantly attributable to two Approved Providers, My Space
Housing Solutions and Parasol Homes. A full update on what steps
are being taken to actively address the causes of the rental
arrears and preserve the Group's rental income generated from these
two lessees going forward is provided in the Investment Manager's
Report.
In conjunction with working with Approved Providers to help them
address specific challenges, we have also remained focused on
helping all of our Registered Provider partners respond to concerns
raised by the Regulator about the risks associated with the
long-lease model that is commonly employed in the sector. Through
amending the Company's investment policy and investment
restrictions in May last year, which enabled the Group to enter
into more flexible leases, we commenced a process of looking to
address these concerns in a way that we hope will help deliver
meaningful change to our Approved Providers whilst enhancing the
sustainability and performance of the Group's portfolio. The
Investment Manager's report will expand on the new flexible leases
that the Group can now enter into, and the roll-out of a new clause
in the Group's existing leases to help address concerns about risk
sharing. The clause has been developed in consultation with key
stakeholders, including the Regulator. The implementation of the
clause is intended to enhance the Group's Registered Provider
lessees' compliance with the Regulator 's standards .
It is important to us that over 94% of our lessees benefit from
being regulated by the Regulator. We believe in proportionate
specialist regulation and the enhancements and protections around
governance and service provision that this brings. In over 88% of
our properties specialist care and support is provided by care
providers regulated by the Care Quality Commission ("CQC") further
enhancing both the services provided to the individuals living in
our properties and the associated regulatory protections.
As well as proving commercially challenging, 2022 exacerbated a
number of existing societal issues and has seen a growing
cost-of-living crisis begin to impact the lives of millions of
people throughout the UK. Despite additional government support,
high inflation has created an affordability crisis which research
has shown to disproportionately impact the most vulnerable members
of society. In the social housing sector, rising interest rates,
growing maintenance costs, labour shortages and a need to invest
into existing homes to bring them up to standard in terms of fire
safety and energy efficiency have eroded the development budgets of
Registered Providers. This, combined with growing pressure on
people's ability to afford private rents, has exacerbated the
housing crisis and increased demand for social housing at a time
when Registered Providers are struggling to meet supply targets.
Finally, it is rightly impossible to ignore the clear daily
pressures faced by the NHS and the social care sector and hard to
see, given the current strain on public finances, how things can
materially improve in the short term without additional
funding.
More than ever therefore, it is clear that private capital is
required to help meet the UK's social housing needs. The Group has
continued to deploy capital into both new and existing Specialised
Supported Housing properties over the course of the year. In 2022,
we have delivered 14 newly developed or newly adapted properties
containing 113 homes. These additional homes should help l ocal a
uthorities move people off social housing waiting lists and in some
cases relieve pressure on the NHS by enabling people to move out of
long-stay hospitals and into their own homes.
Financial Performance
During the year, we continued to deploy our remaining capital in
order to address the acute need for this type of housing and
provide additional homes for people with care and support needs.
The Group invested GBP20.3 million in acquiring 14 properties
providing 113 additional homes. This has enabled us to grow the
Group's portfolio to over GBP669.1 million in value and provide
over 3,400 homes working alongside our Approved Provider and care
provider partners with the continued support of our shareholders
and lenders.
I am pleased to continue to report this year that we have paid
all target dividends in full as we have done consistently since
IPO. For the year ending 31 December 2022, dividend cover, based on
adjusted earnings, was 0.92x. Dividend cover was lower than in
previous years due to the higher than usual level of rent arrears.
Through our focus on addressing the current level of rent payments
with My Space and Parasol (as expanded on in the Investment
Manager's Report) we will look to increase dividend cover this
coming year and preserve it over the longer-term. We expect to
announce our dividend target for 2023 in May as we have done in
previous years.
Overall, we are proud of another set of stable financial results
which build on our performance to date. This would not have been
possible without the support of our stakeholders, all of whom
played an important role in supporting us with delivering on our
investment strategy during the period. You can read more about our
financial performance during the period in our Key Highlights,
along with a more in-depth review in the Investment Manager's
report.
Despite the relative resilience of the Group's financial
performance and the sector's compelling supply and demand
fundamentals, the Company's share price has traded at a discount to
Net Asset Value during the period. As noted above, the Board along
with the Investment Manager, are actively considering what further
steps can be taken to address the discount.
Social Impact
Social Impact remains engrained in our decision-making processes
and is central to our business model. This set of results once
again demonstrates our conviction that financial performance and
social impact are mutually reinforcing. The independent Impact
Report prepared by The Good Economy identifies that our properties
have delivered GBP 3.30 of Total Social Value for every GBP1.00
invested in the year to 31 December 2022. 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.
The Board
The Board, led by Ian Reeves, Chair of the Nomination Committee,
has instructed Nurole Ltd, an external search consultancy (there is
no connection between the Company or any individual Directors and
the external search consultancy), to commence a robust succession
exercise to recruit a new non-executive director and hopes to
provide an update before the 2023 AGM . As part of this succession
exercise, the Board has taken into consideration the diversity
targets within the FCA's Listing Rules, which we consider to be in
the interests of the Group and its shareholders .
Further detail regarding the succession process that has
commenced can be found in the Nomination Committee Report section
of the Annual Report.
Outlook
The Group's focus in 2023 will be on optimising the performance
of our portfolio. We will look to help ensure that our Approved
Providers are able to weather the operational obstacles,
principally driven by high inflation, facing organisations
throughout the UK. With a combination of routine property
inspections and continued engagement with our care provider and
Approved Provider partners we will seek to optimise the performance
of the Group's properties with a focus on delivering good homes and
long-term income to our investors. Finally, through delivering on
our strategic initiatives, which are focused on addressing concerns
raised by the Regulator, we hope to deliver meaningful and
sustainable change to both the Group's portfolio and the wider
sector.
We take comfort from the fact that the majority of the Group's
Approved Providers are regulated by the Regulator and the
additional accountability and higher standards this brings to their
provision of social housing. We will continue to work with our
Registered Provider partners to, where relevant, help them address
any points that have been raised by the Regulator. Similarly, we
will continue to engage directly with the Regulator in order to
ensure that we can better understand and accommodate any
observations they have about our investment model and our
engagement with our lessees.
We will remain focused on controlling and positively influencing
what we can, but we must also accept that there are factors that we
cannot control, and which could have an impact on the Group's
performance. Specialised Supported Housing valuations showed
resilience throughout the COVID pandemic and are relatively
well-insulated from the impact of an economic downturn, however
they are not impervious to the pressures of rising interest rates.
Whilst we feel well positioned relative to most other real estate
sectors, the risk of further outward movement in social housing
yields remains, principally driven by the tighter spread versus the
risk-free rate. We expect any movement to be limited relative to
some other commercial property sectors due to the excess demand for
Specialised Supported Housing coupled with a continued lack of
supply.
Despite these challenges, it is important to also focus on the
Group's current strengths. We have successfully mitigated any
direct negative impact of rising interest rates on the Group's
financial performance having ensured that all debt financing was
long-term and fixed rate. Whilst we have capped rent increases at
7% for next year, we expect to deliver strong rental growth
nonetheless, which will help protect investors against a backdrop
of persistent high inflation. Finally, the Company has met its
dividend target for the full year ended 31 December 2022.
As ever, 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 Capital, continue to provide valuable and
high-quality advice during the year. 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
2 March 202 3
STRATEGY AND BUSINESS MODEL
The Board is responsible for the Company's investment objective
and investment policy and has overall responsibility for ensuring
the Group's activities are in line with such overall strategy. As
noted in the interim report, in May 2022 shareholders approved the
resolution to amend the Company's investment policy. The Company's
investment policy, reflecting these amendments, and investment
objective are published below.
As noted in the Chair's Statement and the Investment Man a ger's
report, in 2023 most of the Group's leases will be subject to a
one-off rental increase cap of 7%.
Investment Objective
The Company'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 Group 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. The rent payable thereunder
is, or is expected to be, subject to adjustment in line with
inflation (generally CPI) or central housing benefit policy. Title
to the assets remains with the Group under the terms of the
relevant lease. The Group is not primarily responsible for any
management or maintenance obligations under the terms of the lease
or occupancy agreement, which typically are serviced by the
Approved Provider lessee, save that the Group may take
responsibility for funding the cost of planned maintenance. 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,
benefitting from generally long-term upward-only leases which are,
or are expected to be, linked to inflation or central housing
benefit policy. 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 Group 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 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. The existing portfolio comprises investments
made into properties already subject to a fully repairing and
insuring lease with specialist Approved Providers in receipt of
direct payment from local government (usually Registered Providers
regulated by the Regulator), as well as forward funding of pre-let
developments. The portfolio will not include any direct development
or speculative development investments. Following the amendments to
the Company's investment policy in May 2022, the Group expects to
enter into more flexible lease structures in future. 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.
In addition, as noted in the Chair's Statement and the
Investment Manager's report, we are considering including a new
clause in the Group's existing leases. The aim of this clause is to
protect Registered Providers if factors beyond their control, such
as a change in government policy in relation to Specialised
Supported Housing rents, reduce the amount of rent they are able to
generate from a property or properties that they lease from the
Group. In some such circumstances the clause allows for the
Registered Provider to agree a new rent level which is reflective
of the revised circumstances. Should the new rent level not be
acceptable to the Group, the Group has the ability to re-assign or
terminate the lease. As noted, we have consulted with the Group's
valuers and lenders, and following the publication of these results
it is our intention to gain feedback from investors before looking
to roll out the new lease clause with our Registered Provider
lessees.
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).
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. Whilst we have
acquired operational properties, we have tended to focus more on
acquiring recently developed or adapted 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 with the
majority through the Regulator (or in some instances, where the
Group contracts with care providers and charitable entities, the
Care Quality Commission and the Charity Commission, respectively).
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 are passed to
the Approved Provider. 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 typically paid directly from the
local authority to the Approved Provider on behalf of the
individuals living in the property. The rent paid by the local
authority to the Approved Provider on behalf of the residents is
then paid to the Group via the lease. Ultimate funding for the rent
of the individuals living in the properties owned by the Group
typically 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 of the rent due on void units). Under the terms of
its lease, the Group is owed 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 or adapted 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 over 15-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 Supported Housing 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 5.46 The Company has declared a
shareholders and declared Company's ability to pence per share were paid dividend of 1.365 pence
during the year. deliver a low risk income or declared in respect of per Ordinary share in
stream from the portfolio. the period 1 January respect of the period
Further information is set 2022 to 31 December 2022. 1 October 2022 to 31
out in Note 27 December 2022, which will
(2021: 5.20 pence) be paid on 31 March 2023.
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 109.06 pence at 31 December The IFRS NAV (equivalent
IFRS NAV as there are no assumes entities buy and 2022. to EPRA NTA) per share at
deferred tax liabilities or sell assets, thereby IPO was 98 pence.
other adjustments crystallising certain (31 December 2021: 108.27 This represents an
applicable to the Group levels of deferred tax pence) increase of 11.3% since
under the REIT regime. liability. IPO driven primarily by
yield compression at
Further information is set acquisition
out in Note 5 of the and subsequent annual
Unaudited Performance rental uplifts.
Measures.
--------------------------- ---------------------------- ---------------------------
3. Loan to Value (LTV)
A proportion of our The Group uses gearing to 37.4% LTV at 31 December Borrowings comprise two
portfolio is funded through enhance equity returns. 2022. private placements of loan
borrowings. Our medium to notes totalling GBP263.5
long-term target (31 December 2021: 37.6% million provided
LTV is 35% to 40% with a LTV) by MetLife Investment
maximum of 50%. Management and Barings.
The GBP160.0 million
Further information is set revolving credit facility
out in Note 20. with Lloyds and NatWest
was completely undrawn as
at 31 December 2021, and
during the year,
the Group cancelled this
facility in its entirety.
4. EPRA Earnings per Share
---------------------------- --------------------------- ---------------------------- ---------------------------
EPRA Earnings per share A measure of a Group's 4.78 pence per share for EPRA EPS reduced slightly
(EPRA EPS) excludes gains underlying operating the year ended 31 December reflecting the expected
from fair value adjustment results and an indication 2022, based on earnings credit loss.
on investment of the extent to which excluding the
property that are included current dividend payments fair value gain on
in the IFRS calculation for are supported by earnings. properties, calculated on
Earnings per share. the weighted average number
of shares in issue
Further information is set during the year.
out in Note 36.
(31 December 2021: 4.82
pence)
--------------------------- ---------------------------- ---------------------------
5. Adjusted Earnings per Share
--------------------------------------------------------- ---------------------------- ---------------------------
Adjusted earnings per share A key measure which 5.03 pence per share This demonstrates the
includes adjustments for reflects actual cash flows for the year ended 31 Company's ability to meet
non-cash items. The supporting dividend December 2022, based on dividend payments from net
calculation is shown payments. earnings after deducting cash inflows. It
in N ote 36. the fair value gain represents a dividend
on properties, and cover for the year to 31
amortisation and write-off December 2022 of 0.92x.
of loan arrangement fees;
calculated on the
weighted average number of
shares in issue during the
year.
(31 December 2021: 5.14
pence)
--------------------------- ---------------------------- ---------------------------
6. Weighted Average Unexpired Lease Term (WAULT)
--------------------------------------------------------- ---------------------------- ---------------------------
The average unexpired lease The WAULT is a key measure 25.3 years at 31 December As at 31 December 2022,
term of the investment of the quality of our 2022 (includes put and call the portfolio's WAULT
portfolio, weighted by portfolio. Long lease options). stood at 25.3 years.
annual passing rents. terms underpin the
security of our income (31 December 2021: 26.2
Further information is set stream. years)
out in the Investment
Manager's report.
--------------------------- ---------------------------- ---------------------------
7 . Exposure to Largest Approved Provider
----------------------------------------------------------------------------------------------------------------------
The percentage of the The exposure to the largest 2 9.5 % at 31 December Our maximum exposure limit
Group's gross assets that Approved Provider must be 2022. is 30%.
are leased to the single monitored to ensure that we
largest Approved are not (31 December 2021: 28.3%)
Provider. overly exposed to one
Approved Provider in the
event of a default
scenario.
---------------------------- ---------------------------- ----------------------------
8 . 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 109.06 pence at 31 December 31 December 2022 was 109.06
the period. to investors including 2022. pence. Adding back
dividends paid dividends paid during
since the prior year. Total dividends paid during the year of 5.395 pence per
the year ended 31 December Ordinary Share to the EPRA
2022 were 5.395 pence per NTA at 31 December 2022
share. results in
an increase of 5.7%.
Total return was 5.7% for
the year to 31 December The Total Return since IPO
2022. is 37.4% at 31 December
2022.
(31 December 2021: 6.62%)
---------------------------- ---------------------------- ----------------------------
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 4.78 pence per share for the year to
gains from fair value adjustment on operating results and an indication 31 December 2022.
investment property that of the extent to which current
are included in the IFRS calculation dividend payments are (31 December 2021: 4.82 pence)
for Earnings per share. supported by earnings.
======================================
2. EPRA Net Reinstatement Value (NRV) per share
------------------------------------------------------------------------------ --------------------------------------
The EPRA NRV adds back the A measure that highlights the value GBP480.7 million/119.33 pence per
purchasers' costs deducted from the of net assets on a long-term basis. share as at 31 December 2022.
IFRS valuation.
GBP475.4 million/118.08 pence per
share as at 31 December 2021.
-------------------------------------- -------------------------------------- --------------------------------------
3. EPRA Net Tangible Assets (NTA) per share
------------------------------------------------------------------------------ --------------------------------------
The EPRA NTA is equal to IFRS NAV as A measure that assumes entities buy GBP439.3 million/109.06 pence per
there are no deferred tax liabilities and sell assets, thereby share as at 31 December 2022.
or other adjustments crystallising certain levels
applicable to the Group under the of deferred tax liability. GBP436.1 million/108.27 pence per
REIT regime. share as at 31 December 2021.
-------------------------------------- -------------------------------------- --------------------------------------
4. EPRA Net Disposal Value (NDV)
------------------------------------------------------------------------------ --------------------------------------
The EPRA NDV provides a scenario A measure that shows the shareholder GBP510.1 million /126.63 pence per
where deferred tax, financial value if assets and liabilities are share as at 31 December 2022.
instruments, and certain other not held until maturity.
adjustments are calculated as to the GBP434.0 million /107.76 pence per
full extent of their liability. share as at 31 December 2021.
-------------------------------------- -------------------------------------- --------------------------------------
5. EPRA Net Initial Yield (NIY)
Annualised rental income based on the A comparable measure for portfolio 5.46% at 31 December 2022.
cash rents passing at the balance valuations. This measure should make
sheet date, less non-recoverable it easier for investors 5.20% at 31 December 2021.
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 5.51% at 31 December 2022.
adjustment to the EPRA NIY in respect useful in that it allows investors to
of the expiration of rent-free see the yield based
periods (or other unexpired lease on the full rent that is contracted 5.27% at 31 December 2021.
incentives such as discounted rent at 31 December 2022.
periods and step rents).
======================================
7. EPRA Vacancy Rate
Estimated Market Rental Value (ERV) A "pure" percentage measure of 0.00% at 31 December 2022.
of vacant space divided by ERV of the investment property space that is
whole portfolio. vacant, based on ERV. 0.26% at 31 December 2021.
======================================
8 . EPRA Cost Ratio
====================================== ====================================== ======================================
Administrative and operating costs A key measure to enable meaningful 21.09% at 31 December 2022.
(including and excluding costs of measurement of the changes in a
direct vacancy) divided Group's operating costs.
by gross rental income. 20.91% at 31 December 2021.
====================================== ====================================== ======================================
INVESTMENT MANAGER'S REPORT
Introduction
Coming into 2022, the Group had evidenced its strong operational
performance despite the COVID pandemic and high inflationary
environment. All of the Group's debt was fixed-rate meaning that
concerns around the risk of rising interest rates had been
mitigated through the Group's refinancing in August 2021.
Similarly, the inflation-linked nature of the Group's leases (with
the majority being uncapped and linked to CPI) combined with the
Government's stated policy of increasing social housing rents by
CPI + 1% meant that the Group was well positioned to offer
investors strong protection against the risk of rising inflation.
Valuations had proven to be resilient and, given the strong
underlying supply and demand fundamentals of the sector, seemed
well placed to withstand a possible economic downturn. Given these
inherent protections against key macroeconomic investor concerns,
our focus at the start of the year was on making sure that the
Group's portfolio remained resilient and continued to perform well,
delivering good homes and sustainable returns to our investors,
deploying the Group's remaining capital into high quality
Specialised Supported Housing properties with a focus on
additionality, and making sure that the Group was able to
constructively respond to the known concerns raised by the
Regulator around the risks posed to Registered Providers through
entering into long leases.
Now that 2022 has drawn to a close, it is important to look back
and consider to what extent our assumptions around the Group's
protections against inflation and rising rates held firm, assess
how successful we were in achieving our strategic objectives, and
how well we responded to 2022, an unpredictable year that was more
volatile and tragic than anyone could have foreseen.
Taking interest rates first, this year has seen those with
floating rate debt scramble to refinance or hedge against a
backdrop of rapidly rising interest rates and hedging costs. Our
decision to refinance the Group's floating rate revolving credit
facility in August 2021 was hugely beneficial to the Group this
year and has fully insulated the Group from any direct financial
impact from rising interest rates. However, rates have risen at
such a pace, and to such an extent, that not only have they
increased the cost of borrowing but they have also begun to
undermine wider property market valuations, especially those with a
focus on long income, as the gap between property yields and the
risk-free rate has narrowed. The impact on the valuation of the
Group's properties has been limited so far and, whilst the risk of
further rate increases remains, we expect this to be the case going
forward.
This year, the Board took the decision to increase the Company's
target dividend by 5% which was supported by the Group's rental
income increasing on average by 6.7%. During November, in order to
help alleviate the cost-of-living crisis, the Government moved away
from the prevailing social housing rent policy (which was to
increase rents by CPI + 1%) and capped social housing rent
increases at 7% for the year, beginning April 2023. Specialised
Supported Housing was excluded from this cap. Despite Specialised
Supported Housing being excluded, the Group will voluntarily apply
a 7% temporary rent increase cap to the Group's leases. We took
this decision with the Board because we wanted to support the
Group's lessees and ensure that the Group's rent increases remained
consistent with the wider social housing sector. It also felt like
the right thing to do in the midst of a cost-of-living crisis.
A lot of the focus of the last twelve months has been on
optimising the performance of the Group's property portfolio. The
rate of making new acquisitions was impacted by many of the
properties we targeted being in development and so suffered from
the supply chain issues, labour shortages and/or cost increases
that have caused delays for development projects throughout the UK.
We have deployed during the year GBP 20.3 million into 14
properties and have GBP 13.1 million of uncommitted cash still
available. Whilst we had originally expected to be fully deployed
by the end of the year, given the deterioration of market
conditions over the course of the year, we have retained a certain
amount of capital in order to give the Group optionality over the
coming year.
As the Chair has made clear, the Company is exploring making
accretive share buybacks and the potential sale of a portfolio of
the Group's properties. So, whilst the Group's pipeline of
strategically important opportunities remains strong, given the
Company's share price is at a significant discount to net asset
value, any decision to deploy capital into income producing
properties needs to be considered against the relative benefit of
returning capital to shareholders.
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. Properties are routinely
inspected by the Manager's in-house surveyors and this is
complemented by quarterly and bi-annual operational, financial and
compliance surveys as well as frequent engagement with senior
management teams. We have added to the asset management side of our
Housing Team at Triple Point with two new hires, both of whom have
strong direct Registered Provider or Local Authority experience.
The constant engagement between our asset management team and the
Group's lessees has helped to ensure that the vast majority have
performed in line with expectations over the last 12 months. Excess
demand for Specialised Supported Housing continues to underpin the
rental payments made to the Group by its lessees, and these
payments have generally remained consistent with the exception of
two Approved Providers, more information on which is provided in
the Approved Provider section below. If there are issues within the
portfolio at a granular level, for example a need to find a new
care provider for a property due to the exit of an incumbent, then
it is the job of the asset management team to work with the
relevant Approved Provider to ensure that a resolution that secures
the continued delivery of a good Specialised Supported Housing
service and the sustainability of the Group's rental income can be
found as quickly as possible, and in a way that benefits all
stakeholders. As always, the team's focus remains on ensuring that
the individuals living in properties owned by the Group have a good
home whilst receiving the care and support on which they rely.
Social Impact remains at the core of the Group's strategy. The
independent Impact Report prepared by The Good Economy for the
period ended 31 December 2022 sets out the Group's impact
objectives and target outcomes on which the Group's performance can
be measured against. The Impact Report prepared by the Good Economy
is available separately on the Group's website and we look forward
to continuing our work with the Good Economy, as well as our other
partners, to drive forward standardised reporting for equity
investors in the sector.
It is now recognised that climate change can impact the
long-term value of an asset and therefore developing robust climate
risk management is an important part of an Investment Manager's
responsibilities. The Task Force on Climate Related Financial
Disclosure has emerged as the industry-leading standard for
providing transparency on how investments are being protected
against possible risk from climate change, or conversely how
opportunities may be captured. The Group has chosen to make a
voluntary disclosure using this framework which can be found in the
Annual Report . The disclosure demonstrates how the Investment
Manager approaches this challenge for the Group, through four areas
(Governance, Strategy, Risk Management, Metrics & Targets) and
in doing so seeks to provide added reassurance to investors on how
risk as a result of climate change is understood and managed for
the Group's assets. The Investment Manager is committed to
continuing to develop and improve its approach to this challenge
and the scope of the disclosure details provided.
Our retrofit pilot project continues to progress well. Each
property in the pilot has been reviewed to assess the suitability
of the proposed upgrade works and costings. Our primary focus is on
a 'fabric first' approach, ensuring that properties are insulated
and airtight. This approach will enable us to minimise disruption
to residents whilst reducing energy consumption. The pilot project
will see a range of new technologies and systems installed into our
properties including air source heat pumps and solar PV panels as
well as 'fabric first' items such as additional insulation. We are
working with a single contractor and retrofit designer, and are in
the process of agreeing how to implement the proposed physical
works in the pilot projects.
At the start of the year, we were focused on amending the
Company's investment policy in order to ensure that we could agree
more flexible leases with Registered Providers. We are grateful for
the shareholder support regarding these changes which were agreed
in May. These amendments were required to ensure that the Group is
at the forefront of an evolving sector and able to engage with the
strongest counterparties on the best projects. They were also
reflective of our desire to alter the Group's investment structure
to help our Registered Provider partners address some of the
concerns that the Regulator has raised about the long-lease model
and promote their compliance with the Regulator's standards.
The changes to the Company's investment policy have also enabled
us, in the latter half of 2022, to begin work on a new clause that
we hope to include in all of our existing Registered Provider
leases following ongoing consultation with stakeholders, including
the Regulator. The aim of this clause is to address some of the
general risks raised by the Regulator in relation to long leases
and in so doing protect Registered Providers if factors beyond
their control, such as a change in government policy in relation to
Specialised Supported Housing rents, reduce the amount of rent they
are able to generate from a property or properties that they lease
from the Group. In some such circumstances, the clause allows for
the Registered Provider to agree a new rent level which is
reflective of the revised circumstances. Should the new rent level
not be acceptable to the Group, the Group has the ability to
re-assign or terminate the lease. This clause has been developed in
close consultation with the senior management teams of a selection
of the Group's Registered Providers and has been discussed with the
Regulator. The Group's valuers are supportive of the clause and
have opined that the roll-out of the clause would lead to no
negative impact on the value of the Group's portfolio. In addition
we have had initial conversations with Group's lenders about the
clause being included in leases over which they have security. Now
that the clause is in near agreed form, following the publication
of the A nnual R eport, it is our intention to engage with
shareholders to understand their feedback on the clause. Subject to
shareholder feedback, we will look to roll out the clause
methodically with all of the Group's Registered Provider lessees in
the second quarter of this year. In so doing, we hope to be enable
the Boards of the Registered Providers we work with to further
their compliance with the Regulator's standards.
In responding to the unforeseen challenges thrown up by 2022, we
feel that the Group has arguably proven its relative resilience.
Come what may politically in the UK, there will still be an
overwhelming need for more Specialised Supported Housing in this
country and its unlikely that political volatility is going to
change that. Similarly, with both main political parties seemingly
now wedded to fiscal prudence, private funding and privately owned
social housing properties are going to be a critical part of our
collective ability to respond meaningfully to the housing crisis.
As was demonstrated through COVID, the Group remains resilient to a
downturn in economic circumstances. The events of 2022 served to
accelerate such a downturn. Due to the ongoing strong demand for
more specialised supported homes and the Government support for the
individuals living in the properties owned by the Group, we expect
continued resilience to these external factors, as demonstrated by
the Group since inception.
Market
As ever, growing excess demand for more homes is one of the
defining characteristics of the Specialised Supported Housing
sector. Whether it be analysis undertaken by the National Audit
Office, the conclusions of the Government's social care white paper
or independently commissioned research there is strong consensus
that demand for social care will continue to grow due to better
diagnosis, higher survival rates for premature babies and longer
life expectancies and this will drive further demand for
Specialised Supported Housing. Put most succinctly, in its 2021
"People at the Heart of Care" white paper, the Government estimated
that by 2030 demand for supported housing will increase by 125,000
homes .
This growing demand is now set against a backdrop of a
challenging operating environment for Registered Providers. For
decades now this country has looked to Registered Providers to
deliver the affordable homes that local authorities rely on.
However, an ever-growing set of financial headwinds now face the
sector and is beginning to inhibit the ability of Registered
Providers to deliver their development pipelines. As well as the
ubiquitous concerns around rising costs and interest rates,
Registered Providers also need to accommodate within their business
plans the ability to meet the expenditure associated with ensuring
that their properties meet the latest fire safety standards and
energy efficiency targets and an increasing level of regulation,
particularly in relation to consumer standards. As a result,
Registered Providers are increasingly considering alternative
sources of capital in order to deliver on the potential of their
development pipeline. We are seeing a growing number of larger
Registered Providers interested in exploring working with providers
of private capital such as the Group, in order to develop new
homes.
Whilst the case for private capital remains strong and there is
a consensus around growing demand for social care and the efficacy
of Specialised Supported Housing, it is important not to focus
solely on meeting demand. The recent Levelling Up, Housing and
Communities Committee's report on Exempt Accommodation was an
important reminder of the need to focus on delivering services that
meet the needs of the individuals and which are appropriately
regulated. Amongst other things, the report recommended the
implementation of minimum standards for exempt accommodation,
including on referrals, care and support, and quality of housing
and a requirement for all exempt accommodation providers to be
registered.
The Group has leases with 27 Approved Providers, having entered
into leases with another three Approved Providers during the
period. The vast majority of these lessees have performed steadily
over the last 12 months, managing the challenges of inflation and
labour shortages well. However, , two of the Group's lessees
(Parasol and My Space) fell behind with their rental payments over
the course of 2022, which in turn has caused rent collection at the
portfolio level to slip below historical levels.
Since the latter half of 2022, whilst Parasol have continued to
make regular rental payments to the Group, these have not reflected
the full amount of rent due and so rental arrears have built up. We
have been engaging consistently with both the management team and
the Board of Parasol and understand they have taken meaningful
steps to address the underlying causes behind the build up of
arrears. Our expectation is that we will agree a plan with Parasol
in March that will see rent payments increase over the course of
the year, simultaneously we are working with Parasol to put in
place a repayment plan for the arrears that built up over the
course of 2022.
As noted in the Company's recent trading update, in January, the
Regulator published an Enforcement Notice about My Space Housing
Solutions in which it noted concerns around solvency. This followed
on from the Regulatory Judgement of My Space published in December
in which My Space was downgraded to the non-compliant rating of V4
for viability and G4 for governance (from a V3 G3 previously). My
Space currently have a number of actions prescribed by the
Regulator that they need to complete within a relatively short
timeframe. We have taken the decision to actively look to move the
Group's properties away from My Space. We have identified a
possible alternative Registered Provider and are in the process of
providing all of the information required for the Registered
Provider to determine whether they can provide the right level of
service to the individuals living in the properties. Protecting the
welfare of the residents of these properties is the Group's
principal concern and it should be noted that a transfer might
require lease terms to be amended. The Regulator has requested that
My Space consider, amongst other things, the option of a business
combination or merger, were a business combination or merger be
agreed then this could negate the need to move properties.
In order to establish the downside risk, the Board and the
Manager requested the Group'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 2.4
% of the value of the Group's total portfolio valuation as of 31
December 2022.
The performance of My Space is not reflective of the Group's
wider portfolio of lessees and whilst we are focused on finding a
resolution to the issues described above, the Group's other lessees
do not require the same level of engagement and are broadly
performing in line with expectations. Last year, the Regulator
issued two notices in relation to the Group's Registered Providers,
as noted above, one related to My Space and the other related to
Highstone Housing Association (3.5 % of the Group's rent roll).
Highstone has committed to work with the Regulator to address the
issues outlined in the regulatory notice and has already made
meaningful progress in that regard.
94.3% of the Group's portfolio by rent roll is leased to
Registered Providers that are subject to regulatory protections and
standards provided by the Regulator. Since IPO, of the Group's 27
lessees, 10 have had regulatory notices or judgements issued about
them by the Regulator highlighting issues that they need to
address. The Group's focus has always been on working with
Registered Providers, regulated by the Regulator, in order to
deliver Specialised Supported Housing to vulnerable individuals
throughout the UK (Specialised Supported Housing makes up 88.5% of
the Group's properties by rent roll). We believe in proportionate
specialist industry regulation and its ability to enhance
governance and service provision. We think this is important when
delivering homes to vulnerable adults as it brings additional
scrutiny, accountability, and higher standards all of which are
implemented by a Regulator that is focused on the delivery of
social housing.
88.5% of the Group's properties (by rent roll) 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
92.3% of the Group's properties have care and support provided by a
CQC registered care provider. Based on data received by the Manager
from lessees, the Group 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.
As described above, a lot of our focus this year has been on
working to ensure that the Group's Registered Provider partners are
able to address the points that are consistent across the range of
notices and judgements that the Regulator has put out about
Registered Providers that operate in the Specialised Supported
Housing sector. These principally concern the risks associated with
long leases and our ability to materially address these points has
been unlocked through the recent changes to the Company's
investment policy. We expect the Regulator to remain very active in
the sector and to hold Registered Providers to the highest
standards. We complement our work with our lessees by direct
engagement with the Regulator to keep the Regulator informed on our
areas of focus and as much as possible better understand their
concerns so they can be reflected in any changes we make to our
lease structures.
Financial Review
We are pleased to present another stable set of financial
results as highlighted earlier. The Group's financial performance
is underpinned by an increase in annualised rental income from
inflationary uplifts in the Group's predominantly uncapped leases
.
Touching on some of the key highlights:
The annualised rental income of the Group was GBP3 9 . 0 million
as at 31 December 202 2 compared to GBP3 5.8 million as at 31
December 202 1 . 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 GBP 8.3 million was recognised during the
year on the revaluation of the Group's properties.
IFRS Earnings per share was 6.18 pence for the year, compared to
7.05 pence in 202 1 .
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. 78 pence for the year compared
to 4. 82 pence in 202 1 .
The EPRA NTA per share as at 31 December 202 2 was 10 9 . 06
pence per share, the same as the IFRS NAV per share.
At the year end, the portfolio was independently valued at GBP6
69.1 million on an IFRS basis compared to GBP 642.0 million in 202
1 , reflecting a valuation increase of 11.1 % against the
portfolio's aggregate purchase price (including acquisition costs).
This reflects an EPRA net yield of 5. 46 %, against the portfolio's
blended net initial yield of 5.90% at the point of acquisition.
The EPRA ongoing charges ratio is calculated as a percentage of
the average net asset value throughout the year . The ongoing
charges ratio for the year was 1. 60 % compared to 1.5 4 % in 202 1
.
The Group held cash and cash equivalents of GBP 30.1 million at
31 December 202 2 compared to GBP52.5 million at 31 December 2021.
GBP13 .1 million of cash was available for further investment as at
31 December 2022. Cash generated from operating activities was
GBP25.7 million for the year, compared to GBP24.7 million for the
year ended 31 December 2021 .
Debt Financing
Following a refinancing in 2021, all of the Group's debt is
fixed-price and long-term with the earliest debt maturity occurring
in mid-2028, providing strong protection from rapidly increasing
interest rates.
Over the period, the Group fully cancelled the GBP160.0 million
revolving credit facility that had been provided by Lloyds and
NatWest. The undrawn facility had previously remained in place
following a reduction from GBP160.0 million to GBP50.0 million in
February 2022 to provide the Group with access to additional
capital for deployment. However, the recent increase in SONIA rates
have made this facility non-accretive to investor returns and the
remaining facility was cancelled in December 2022.
As at 31 December 2022, the Group's debt structure comprised two
facilities with a combined value of GBP263.5 million. Both
facilities are fixed-priced (with a weighted average coupon of
2.74%), long-term (with a weighted average maturity of 10.6 years)
and fully drawn. The Group continues to maintain significant
covenant headroom across both facilities while also having
additional liquidity in the form of GBP75.1 million unencumbered
properties.
In August 2021, the Group secured GBP195.0 million of long-term,
fixed-rate, interest only, sustainability linked loan notes through
a private placement with Barings and MetLife Investment Management
clients against a defined portfolio of the Group's properties at a
loan-to-value of 50% at the point at which the debt was put in
place. The loan notes are divided into two tranches of GBP77.5
million and GBP117.5 million with maturities in 2031 and 2036
respectively. Across both tranches the weighted average coupon is
2.634%.
In addition, the Group has a long-term, fixed-rate facility with
MetLife Investment Management providing GBP68.5 million of debt
secured against a defined portfolio of the Group's properties at a
loan-to-value of 40% at the point at which the debt was put in
place. The facility comprises two tranches of GBP41.5 million and
GBP27.0 million with maturities in 2028 and 2033, respectively.
Across both tranches the weighted average coupon is 3.039%.
In August 2022, the Group completed its first annual review with
Fitch Ratings, and we were pleased that the Group's existing rating
of 'A-' with a Stable Outlook and senior secured ratings of 'A'
were re-affirmed by Fitch Ratings in respect of both debt
facilities. This is a reflection of not only the Group's continued
financial resilience, but also the resilience of the sector in
spite of the broader economic and market conditions.
Further information on the Group's debt facilities is set out in
N ote 20 of the financial statements.
Property Portfolio Review
As at 31 December 2022, the portfolio comprised 497 properties
providing 3,456 homes, showing a broad geographic diversification
across the UK and reflecting our investment strategy of providing
additional homes to address the acute need for Specialised
Supported Housing.
The IFRS value of the portfolio as at 31 December 2022 was
GBP669.1 million, representing a 4.2% increase compared to GBP642.0
million in 2021. On a like for like basis there has been some
negative adjustment to the valuation yields of the Group's
properties reflecting a general trend in real estate, principally
driven by rising interest rates over the last 12 months. However,
at a range of between 10bps to 25bps this outward yield movement
for the Group's properties over the 12-month period has been
limited relative to commercial property sectors. This is reflective
of excess demand for Specialised Supported Housing and a continued
lack of supply, and the fact that, prior to this year, yields had
not tightened as much in the Specialised Supported Housing sector
as they had in some commercial property sectors. In addition to
this general outward movement in yields, in the latter half of 2022
further outward yield adjustments were applied to two of the
Group's Approved Providers, My Space and Parasol, to reflect rent
arrears that had buil t up over the course of the year.
During the period, the Group bought 14 properties for a total
investment cost of GBP20.3 million (including acquisition costs) as
we looked to deploy our remaining capital. As reported in the
interim report, in the first half of the year the Group disposed of
four properties and exchanged on the sale of two further
properties. The exchanges have now completed and so the Group has
sold 6 properties during the period. The decision to sell these
properties was taken due to changes in the underlying investment
cases and therefore, we believe this to have been in the best
interest of shareholders. Where occupied properties have been sold,
the Group's priority has been ensuring that the sale proceeded in a
way that ensured the continuous provision of the services at the
property and maintaining the well-being of its residents. Since
IPO, the Group has sold seven properties as a result of changes in
the underlying investment cases and its focus remains on securing
long-term, inflation-linked income to generate sustainable
financial returns.
Rental Income
The Group's 395 leases generated a total annualised rental
income of GBP39.0 million at the period end, an increase of GBP3.2
million since 2021 that was predominantly driven by the Group's
rental income increasing on average by 6.7% during the period.
All rents under the leases are currently indexed against either
CPI (92.6%) or RPI (7.4%). At the period end, the portfolio had a
WAULT of 25.3 years, which at present we anticipate continuing to
remain above 20 years, with 77.6% of the portfolio's rental income
showing a current unexpired lease term of 20 years or longer. As we
move into 2023, we expect to start entering into more flexible
lease terms as part of bringing new, larger Approved Providers into
the portfolio either through new investments or by taking over the
management of existing properties.
Prior to the decision to voluntarily implement the Government's
temporary 7% cap on social housing rent increases in the Group's
rent increases for 2023, the Group's leases have been predominantly
uncapped with only a small portion (5.1% of rental income)
containing a cap and collar structure. For the purposes of the
portfolio valuation, JLL have held their inflation assumption that
CPI and RPI increase at 2% and 2.5% per annum, respectively over
the term of the relevant leases.
Outlook
We will need to remain focused on helping our Approved Provider
and care provider partners navigate a high inflationary environment
and remain watchful of the impact that rising interest rates will
have on the value of the Group's portfolio. Our asset management
team will continue to engage actively with My Space and Parasol to
ensure that we preserve the long-term income generated by those
properties we have leased to these two organisations, but it is
important to note that we remain broadly confident about the
resilience of our other 25 lessees to the prevailing economic
conditions and this resilience is underpinned by growing demand for
Specialised Supported Housing.
Through our ongoing engagement with My Space and Parasol we will
look to increase dividend cover this year and preserve it over the
longer-term. We expect the Group to continue to offer investors
protection against rising inflation due to both the
inflation-linked nature of the Group's leases and the long-term
fixed price debt that the Group has secured. We have a number of
strategic objectives that we want to achieve over the course of the
year. As noted, the Board is currently considering making accretive
share buybacks and the potential sale of a portfolio, and so any
future deployment will need to be considered in this context. Were
capital to be deployed, the focus would be on opportunities that
bring new Registered Providers into the Group's portfolio on
flexible lease terms and which demonstrate how our recent change in
investment policy has enabled us to secure best in class
opportunities for the Group. We will continue to work with our
lessees in order to roll out a new lease clause that we hope will
help ensure a path to compliance for those Registered Providers who
are able to demonstrate to the Regulator that they have
meaningfully accommodated historic concerns. As always, we will
remain focused on ensuring that our
partners deliver good homes to our residents throughout the
UK.
Max Shenkman
Head of Investment
2 March 202 3
PORTFOLIO SUMMARY
Region Properties % of funds invested*
--------------- ----------- ---------------------
North West 99 19.8
West Midlands 84 16.3
Yorkshire 64 14.8
East Midlands 58 11.9
South East 62 9.4
London 27 8.5
North East 50 8.9
South West 29 4.7
East 20 4.1
Scotland 2 1.0
Wales 2 0.6
Total 497 100.0
--------------- ----------- ---------------------
* calculated excluding acquisition costs
SUSTAINABILITY REPORT
We aim to be one of the leading investors in UK Specialised
Supported Housing and this is reflected in our constantly evolving
and committed approach to embedding social outcomes through the
homes we create, alongside an understanding of the need to ensure
wider environmental, social and governance (ESG) factors in
decisions taken by the Group and our counterparties.
Our business model seeks to ensure that our properties are
suitable to meet residents' needs and assist local authorities in
responding to local demand 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
https://www.triplepointreit.com/ . We maintain a robust corporate
governance framework, and this is described in further detail
within our G overnance report in the Annual Report . We also
recognise the importance of a wide range of other social factors
alongside environmental considerations and in particular
environmental efficiency, which is becoming increasingly integral
to our investment strategy .
The Group's sustainability
The Group continues to provide homes to individuals with a
significant need for appropriate housing and support. These are
some of the most vulnerable members of society, with a range of
learning disabilities, physical disabilities and mental health
diagnoses. Conversations with housing providers, care providers and
local authority commissioners confirm that there is a high level of
underlying demand for Specialised Supported Housing. We also have a
responsibility to consider the wider risk, opportunities and
impacts of sustainability issues if the Group is to succeed in
providing high quality social housing for vulnerable people over
the long term.
We understand the importance of transparent reporting as a
requisite to accountability for strong sustainability performance.
During the last year, we have identified key environmental, social
and governance data points, each that play a role in influencing
the strateg y's sustainable future. These data points incorporate
areas where the Group has the ability to drive positive change
across its portfolio and the wider sector.
To demonstrate the commitment to sustainability progress, the
Group has opted to track and report on these ESG data points, noted
in table 1 below. In addition to reporting, we have set targets,
where appropriate and possible, for achievement during the 2023
financial year or beyond.
Sustainability Table 1. Portfolio sustainability performance for
the reporting year ended 31 December 2022
Metric Results (as at 31 December 2022)
Portfolio EPC ratings A: 0.4% A-C: 70.87%
B: 31.15%
C: 39.31%
D: 22.02%
E: 6.95%
F: 0.12%
------------------------- -----------------------------
Property emissions The average annual Co2 emissions from a
per m2 (portfolio Group property: 1.4 tonnes per annum
level carbon intensity)
Total portfolio Co2 emissions: 3,610 tonnes
The carbon emissions produced by the Group's
properties are categorised as Scope 3, generated
from the energy usage across the portfolio
properties.
The Group partnered with Kamma Data, an innovative
data provider in the sector, demonstrating
best practice in estimating property emissions
by utilising a variety of data sources. EPC
data is used as a baseline, with a proprietary
matching system indexing localised and more
frequently updated EPC databases to ensure
a high coverage rate. Emissions are recalculated
using primary data from the EPC reports to
better reflect the emissions associated with
new technologies, and utilise up-to-date
carbon intensity data from the National Grid.
The Investment Manager is in the process
of developing a net zero plan. The Group's
emissions data have been taken from the baseline
net zero calculations for the Group's portfolio,
as of November 2022.
We are committed to improving the accuracy
level of our environmental disclosures and
continue to work with highly rated data partners
to ensure best practice is followed.
--------------------------------------------------------
Metric
--------------------------------------------------------
Number of properties 497 properties and 3456 units. See breakdown
and location of these below: Region # of properties # of units
properties East 20 125
---------------- -----------
East Midlands 58 442
---------------- -----------
London 27 192
---------------- -----------
North East 50 377
---------------- -----------
North West 99 732
---------------- -----------
Scotland 2 29
---------------- -----------
South East 62 276
---------------- -----------
South West 29 167
---------------- -----------
Wales 2 20
---------------- -----------
West Midlands 84 554
---------------- -----------
Yorkshire 64 542
---------------- -----------
497 3,456
---------------- -----------
--------------------------------------------------------
Quality rating of 85% rated Good or Outstanding
care providers (CQC)
-----------------------------------------------------------
Governance of the Company
Governance
Metric Data
---------------------------------------------------
Investment Trust Governance: Gender split: See Governance report in
* Board diversity the Annual Report for gender disclosure
Ethnicity split: See Governance report
in the Annual Report for ethnicity disclosure
* Board experience Experience / education: See the Governance
report in the Annual Report for board member
biographies
* Board independence Average age: 68
Non-executives vs. directors: 100% non-executive
---------------------------------------------------
Board engagement with The Board receive specific sustainability
ESG: training from the Investment Manager's
Head of Sustainability at a minimum of
every 2 years.
The Board received regular updates on the
Eco-Retrofit Project throughout the year.
Specifically, this is an ongoing programme
to fund the upgrade of properties owned
by the Group.
Consideration and approval for the implementation
of a 7% rent increase cap, in line with
the Department for Levelling Up, Housing,
and Communities (DLUHC) social housing
rent cap. Specialised Supporting Housing
was excluded from the cap, but the Company
still took the decision to apply the 7%
cap. In making this decision, the Board
wanted to support the Group's lessees and
ensure that the Group's rent increases
remained consistent with the wider social
housing sector, and also wanted to do the
right thing in the midst of the cost-of-living
crisis.
In order to address Regulator concerns
regarding risks that long leases can pose
on Registered Providers (such as risk of
changes to government policy impacting
the amount of housing benefit available
to individuals living in Specialised Supported
Housing and therefore RP's ability to pay
lease rent), the Board agreed to engaging
with the boards and senior management teams
of some of its lessees to agree a new lease
clause that aims to re-apportion some of
this risk. The clause will ensure that
where there are risks that are beyond the
control of the Group's lessees such as
changes in government policy or regulation,
then, subject to a materiality threshold
being breached, these risks will sit with
the Group. The Board intends to engage
with shareholders on implementation of
the lease clause.
The Board and the Nomination Committee
both considered the FCA's new Diversity
Listing Rules and the targets these set
out.
---------------------------------------------------
Initiative-taking improvements
The Investment Manager's Property Asset Management team have
developed a comprehensive retrofit program, to improve the energy
efficiency of properties, seeking to meet EPC regulation changes,
reduce tenant costs and reduce portfolio-wide emissions.
To conduct retrofit work on Specialised Supported Housing
requires careful and considerate planning, especially regarding the
impact of construction during retrofit work, and the ease of
functionality for all technology that is used, including heating
controls and ventilation systems. To this end, where possible, the
team will conduct as many upgrades as possible in one go in order
to minimise disruption to tenants, considering tenant needs and
ability to benefit from proposed upgrades. All retrofit works will
closely follow sustainability best practices.
See retrofit section in the Investment Manager's Report for
further details regarding the retrofit plans and
implementation.
Sustainability approaches: Impact and ESG integration
The Group's approach to sustainability is to create social
impact by delivering homes for vulnerable individuals supported
through the additional management of wider risks and opportunities
which may impact the quality of those homes or the long-term value
of the assets through the integration of ESG factors in the
investment decision making process.
Impact creation : The Group's social impact goal is to increase
the provision of Specialised Supported Housing that delivers
positive outcomes for people with care and support needs. Under
this overall impact goal, the Group has established the following
set of impact objectives and identified the target outcomes to
which the Fund aims to contribute:
Impact objectives Target outcomes
The areas under the The outcomes for people
Group's direct control and planet; these depend
or influence: on many factors, one
of which may be the
Group's activities
Social Need; Improve wellbeing
Fund sustainable developments; Contribute Value for money
towards
--------------------------
increase supply;
quality services and
partnerships
The Good Economy conduct an independent assessment of the impact
objectives and target outcomes. Full details regarding the impact
results can be found at The Good Economy's website.
ESG integration : In conjunction with the Board's endorsement,
and in line with the Principles of Responsible Investment (PRI),
the Investment Manager has an ESG integration policy in place,
directly relating to the Group's investments with the aim of
ensuring value for investors, coupled with respecting society and
the environment. Within this integration policy, the Investment
Manager has set out principles which it incorporates throughout its
business, for example, to consider the impact of operations on
local communities and to uphold high standards of business
integrity and honesty.
An overview of how ESG is integrated throughout the investment
process is outlined in table 2, whilst further details of this
process, including examples, can be found within the ESG
integration policy (available on request).
Sustainability Table 2. The Group integrates ESG throughout all
stages of the investment process.
Investment stage Sustainability activities
Origination Key ESG and impact factors are summarised within
and initial due the team's internal pipeline tracker. An opportunity
diligence will only progress to incurring costs once the senior
investment team members believe that ESG conditions
are being met or managed and the opportunity does
not present a material ESG risk.
----------------------------------------------------------
Cost incurring Key ESG considerations are assessed on a deal-by-deal
due diligence basis within the due diligence trackers. A new due
diligence tracker is completed for new transactions,
the tracker also assesses transactions against six
impact objectives.
The due diligence tracker is designed to capture
all the ESG metrics collated throughout the origination
and due diligence phase.
----------------------------------------------------------
Property Investment ESG factors are presented and considered by members
Committee of the investment committee within a paper which
is accompanied by the due diligence tracker for
all supporting ESG data.
The meeting minutes will record any ESG issues raised,
with confirmation that ESG factors have been considered,
and the committee believes that once any ESG conditions
are met, the deal does not present a material ESG
risk. The final due diligence Tracker will record
any investment committee comments or actions on
ESG.
----------------------------------------------------------
Ownership and On-going conversations with partners to discuss
asset management and gather insight and share good practice as well
as identifying early any future challenges. Property
performance is monitored to ensure that social needs
continue to be met.
The governance of existing counterparties is monitored
through regular meetings and inspections.
We consider how to optimise ESG performance across
the portfolio - for example, upgrading the EPC ratings
of existing properties through comprehensive retrofit
programs.
We engage in sector-wide discussions (including
with government) about ESG performance and best
practices
----------------------------------------------------------
Exit If properties are sold, we will disclose ESG improvements
during the period of ownership.
----------------------------------------------------------
When considering ESG within the investment process, a
materiality approach is taken to ensure focus is given to those
issues most likely to negatively impact or positively strengthen
the homes we are investing in. The details below summarise the
areas of interrogation.
Environment
When acquiring assets, we look closely at their environmental
impact, and encourage a sustainable approach for new development.
We also look to ensure the environmental impact is considered in
relation to the maintenance and upgrading of existing
properties.
We now 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 also commenced in 2021 to increase all
our properties EPC ratings to a minimum of C.
Through our rigorous and evolving due diligence process, the
high standards we expect from developers and significant investment
in the Specialised Supported Housing sector, we have been able to
provide capital and expertise that has enabled our counterparties
to progress alongside us. We focus on offering residents
resource-efficient and adapted living areas which help 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, and
increase resident well-being. Considering these issues helps to
increase the security of income and preserve the long-term value of
investments.
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.
Whilst the Group is not currently required to disclose against
the TCFD framework, it seeks to demonstrate best practice in
transparency and therefore has included a disclosure within this
report. Further details are found in the Climate Risk analysis
section below, and the full report is set out in the Annual Report
.
Social and Social Impact
Our properties aim to provide multiple benefits to local
communities. We want to provide residents with safe and secure
accommodation, which meet their individual care needs. We work with
Approved Provider lessees to enable them to grow the portfolio of
properties they are responsible for managing, allowing them to
expand the number of individuals they support whilst providing
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.
Governance
The Group looks to encourage 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. Details on the Group's
corporate governance practices are set out in the Annual
Report.
Future sustainability innovations
Net Zero Roadmap Exercise
The Investment Manager has started the process of aligning all
of its financed emissions to Net Zero pathways. The Investment
Manager is a signatory of the Partnership for Carbon Accounting
Fundamentals and discloses its financed emissions as part of this
commitment. The Investment Manager intends to set near-term
Science-Based Targets for 2030 across all of its eligible assets as
a first step towards reaching Net Zero emissions by 2050, and as
part of our obligations as signatories of the Net Zero Asset
Managers initiative .
Climate risk analysis
Climate-related risks and appropriate mitigation is a growing
area of focus for the Group. The team are seeking to roll out
comprehensive climate analysis initiatives to support risk
mitigation and forward planning. This will encompass both existing
portfolio properties as well as becoming incorporated into the
selection process for new properties.
The Group is considering the climate change strategy of its
portfolio including a review of its climate risks and
opportunities, and has committed to disclose these in line with The
Task Force for Climate-Related Financial Disclosures (TCFD)
recommendations. These are designed to provide a framework to take
account of climate-related risks and opportunities and ensure that
corporate reporting is consistent and comparable.
The Group is pleased to voluntarily report its progress to date
in line with the eleven disclosures set out in the TCFD
recommendations.
Please refer to the Annual Report for the full TCFD disclosure
.
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 are listed in the Annual Report , 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. Each
of these relationships is important to the long-term success of the
business. 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. Day-to-day responsibility for health and safety
in our properties is shared by the Approved Providers and care
providers who manage the housing and provide care. Our Investment
Manager requests confirmation from Approved Providers that all
properties remain compliant and visit properties, following an
agreed visiting schedule, are undertaken to verify this. Every
quarter the Board is provided with updates on the health and safety
of our residents.
Diversity
We are an externally managed business and do not have any
employees or office space. As such the Group does not operate a
diversity policy with regards to any administrative, management and
supervisory functions. A description of the Board's policy on
diversity can be found in the Annual Report .
Human Rights
The Group is not within the scope of the Modern Slavery Act 2015
because it has not exceeded the turnover threshold and is therefore
not obliged to make a slavery and human trafficking statement.
The Board are satisfied that, to the best of their knowledge,
the Company's principal advisers, which are listed in the
Shareholder Information section in the Annual Report comply with
the provisions of the UK Modern Slavery Act 2015.
The Investment Manager takes the risk of Modern Slavery
extremely seriously. The Investment 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 websit
e.
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 How have the What were What was the
important to Investment the key topics feedback obtained
engage? Manager/Directors of engagement? and the outcome
engaged? of the engagement?
Shareholders Investment The way in Financial and The Board and
from our shareholders which we engage operational the Investment
plays an important with our shareholders performance. Manager are
role by providing is set out considering
capital to in our Governance Share price share buybacks
ensure we can Report. discount to and a portfolio
deliver additional NAV and potential sale to address
housing into rectification investor feedback
the Supported action. about the Company's
Housing market. share price.
Through the The share price
investment and possible The Board and
of private share buybacks Investment
capital into or the sale Manager consider
an under-funded of a portfolio. shareholder
sector, we concerns when
can achieve The regulatory speaking to
a positive environment the Regulator
social impact of the Supported and agreed
whilst ensuring Housing sector. to keep shareholders
our shareholders updated of
receive a long-term Environmental, any developments.
inflation-linked social and We understand
return. governance the importance
considerations. of, and are
committed to,
The Company's working with
key service Registered
provider appointments, Providers to
including the address the
AIFM and broker concerns of
arrangements. the Regulator.
Refer to the
Market review
in the Investment
Manager's Report.
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 Resident issues
is centred Manager monitors oversight of raised as a
on providing resident welfare resident welfare result of engagement
Supported Housing through engagement by ensuring through care
for our residents. with Approved properties providers were
We remain focused Providers. are safe and addressed.
on providing The Investment secure before
homes to our Manager receives residents move Any compliance
residents which quarterly reports in by: monitoring issues are
offer them from Approved compliance remedied with
greater independence Providers to with health any associated
than institutional ensure compliance and safety works undertaken.
accommodation, with health standards;
as well as and safety ensuring residents The Group's
meeting their standards. are looked investment
specialist Any concerns after by competent decisions are
care needs. are raised counterparties; informed by
to the Board. and requesting the long-term
We do not generally updates on needs of our
engage with any health residents.
residents directly. and safety
Instead, day-to-day issues every
engagement quarter.
is done by
care providers
and, to a lesser
extent, Approved
Providers.
----------------------- ----------------------- ----------------------- -----------------------
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.
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 looks Manager discussed Investment
Providers is to maintain a number of Manager's Report.
integral to good relationships topics with
ensuring rent with Approved Approved Providers
received from Providers, including that
the Local Authority having formal properties
is paid to meetings with are managed
the Group and senior management in accordance
that properties at least every with their
are managed six months leases; financial
appropriately as well as reporting and
to safeguard engaging more governance;
tenants. frequently and specific
The Group's on an ad hoc property-related
leases with basis on a issues such
Approved Providers variety of as occupancy,
are fully repairing matters. Quarterly health and
and insuring operational safety issues,
- meaning that surveys and rent levels,
Approved Providers biannual compliance management
are responsible surveys are accounts and
for management, provided to governance.
repair and the Investment
maintenance, Manager.
in addition
to tenanting
the properties.
----------------------- ----------------------- ----------------------- -----------------------
Care Providers Our residents The Investment The Investment The Investment
receive care Manager engages Manager engages Manager rejected
from care providers. with care providers with care providers deals where
It is important as part of on: the specific care providers
to ensure that its due diligence care and support did not meet
our vulnerable process and requirements the care or
residents receive regularly meets of residents governance
the best possible and engages including health standards expected
care. In addition, with our provider and safety or where care
the care providers representatives compliance providers were
share the cost when inspecting (refer to Investment unable to demonstrate
of voids with the Group's Manager's Report); the financial
Approved Providers portfolio, property management strength to
so we engage when reviewing by Approved meet its obligations
with care providers quarterly data Providers; under a service
to ensure our and on an ad financial and level agreement.
Approved Providers hoc basis. operational Following engagement,
are able to capacity for scope of works
pay our rent new schemes; were agreed
in the event occupancy levels; with care providers
of empty units. and financial to produce
Therefore, performance. properties
care providers that meet the
play an essential specific care
role in the needs of residents.
occupancy levels Whilst done
of our properties at the relevant
and strong local authorities'
engagement discretion
with the Group care providers
ensures the have been changed
best possible where expectations
care for our around the
residents. standard of
care were not
met or where
engagement
identified
care providers
in financial
difficulties
.
----------------------- ----------------------- ----------------------- -----------------------
Local authorities Local authorities When looking The aim of The Investment
are responsible at a new acquisition the engagement Manager will
for identifying the Investment is, as much listen to feedback
appropriate Manager engages as possible, from local
housing and with, or receives to ensure that authorities
care for the feedback from, the properties and where possible
individuals various departments acquired by will work with
who live in within local the Group are Approved Providers
the Group's authorities consistent to improve
properties. including with the requirements and upgrade
New acquisitions Commissioners of the relevant properties
are assessed and Housing local authority. to ensure that
to ensure that Benefit officers. they meet ongoing
they meet the The Investment Where necessary commissioning
expectations Manager will local authorities requirements.
of the relevant look to engage will be engaged
local authority with a local with directly An initial
in order to authority in post the acquisition pilot programme
ensure that relation to of a property to implement
referrals are an existing to access ongoing energy efficiency
made as efficiently scheme if required demand levels upgrades across
and safely (for example and any changes 12 initial
as possible. if a new care in commissioning properties
provider is strategy. has commenced.
needed). Refer to the
Investment
Manager's Report
for more detail.
----------------------- ----------------------- ----------------------- -----------------------
The Regulator The Regulator The Investment Discussions The Investment
regulates Registered Manager is with the Regulator Manager continues
Providers of in contact are focused to work with
social housing with the Regulator on ensuring the Boards
to ensure providers in order to the market of its Registered
are financially understand evolves in Provider lessees
viable and the key concerns line with its to understand
properly governed. and priorities observations, how best we
It is important of the Regulator and Registered can help them
to ensure that, in the Specialised Providers can meet the standards
as much as Supported Housing best focus of the Regulator.
possible, the Sector. on addressing Refer to the
Group reflects the Regulator's Investment
observations observations. Manager's Report
made by the for more detail.
Regulator in
its investment
structures
and its engagement
with its Registered
Provider lessees.
----------------------- ----------------------- ----------------------- -----------------------
Lenders The Group's The Investment The Group engaged The Group is
investments Manager engages on the following fully compliant
in social housing with its lenders topics: financial with its debt
assets are mainly via and information covenants.
partly funded 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 required covenants under activities with the Group's
to achieve the existing undertaken lenders is
the Group's loan agreements by the Group welcome by
return targets. on a quarterly e.g. any other its lenders
All of our basis. asset management and to date
debt is long-term In addition, activity that no concerns
and so it is there are regular requires lenders' in relation
important for ad-hoc engagements consent . to the performance
the Group and in relation of its loans
the Investment to general have been raised
Manager to topics relating by the lenders.
form a good to the social The Board continues
relationship housing sector to monitor
with our debt as well as compliance
provider partners specific topics with debt covenants
and provide arising from and keeps liquidity
them with all the financial under constant
information and operational review to make
and commentary performance certain the
required . of the Group's Group has sufficient
activities headroom in
and future its debt facilities.
opportunities, The Group cancelled
and any other the undrawn
general matters GBP160.0 million
affecting the Revolving Credit
relationship Facility jointly
between the provided by
Group and the Lloyds and
lenders . NatWest across
two separate
reductions
occurring in
February 2022
(a part-cancellation
of GBP110.0
million) and
December 2022
(a cancellation
of the remaining
GBP50.0 million).
In August 2022,
Fitch Ratings
affirmed the
Group's existing
Investment
Grade, long-term
Issuer Default
Rating (IDR)
of 'A-' with
a stable outlook
and a senior
secured rating
of 'A' for
the Group's
existing 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.
Increase in target dividend
During the year, the Board increased the Company's target
dividend by 5%. The decision was supported by underlying rental
growth in the Group's leases and represented strong dividend growth
in a high inflationary environment. Further detail can be found in
the Investment Manager's Report. The Board believed that the
decision was in the best interests of the Company's shareholders
and feel confident that the decision will not impact the Company's
ability to pay future dividends.
Rent increase cap of 7%
The Board voluntarily took the decision to apply a 7% rent
increase cap to the Group's leases and agreed a temporary one-year
cap with most of the Group's lessees.
This cap is in line with the Government's cap on social housing
rent increases. Specialised Supported Housing was excluded from
this cap, however, the Board believed that applying the cap was in
the best interests of the shareholders, Approved Providers,
residents, and the l ocal a uthorities. The Board believed that 7%
would still represent further significant rental growth for the
Group's portfolio and also provide a greater degree of certainty
for investors.
Cancellation of GBP160 million Revolving Credit Facility
The Board decided to cancel the undrawn GBP160 million Revolving
Credit Facility with Lloyds and Natwest across two separate
reductions occurring in February 2022 and December 2022.
In making this decision, the Board considered the Group's
liquidity position and the Investment Manager's engagement with the
relevant lenders, and determined that the decision was in the best
interests of the Group's investors, taking into account the Group's
gearing level and facility fees .
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.
In the Company's 2022 Interim Report we noted that events that
emerged in the first half of 2022 could adversely impact on three
of the Group's principal risks outlined in the 2021 Annual Report.
These events principally related to rising interest rates and
inflation in the United Kingdom, and the UK government's
consultation on a possible rent cap to be applied to increases to
social housing rents for the year starting in April 2023. In
addition, at the Company's annual general meeting in May,
shareholders approved changes to the Company's Investment Policy
and Investment Restrictions. These changes allow 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. Given the approved
changes to the Company's Investment Policy and Investment
Restrictions, and now that the outcome of the government's rent cap
consultation is known (as noted in both the Chair's Statement and
the Investment Manager's Report) and the Company has a better
understanding of the impact of both rising inflation and interest
rates on the Group's portfolio and performance, the Company has
taken the opportunity to refresh the Group's principal risks and
uncertainties, as set out herein.
By way of background, the Group focuses on a single sub-sector
of the UK real estate market with the aim of delivering an
attractive, growing and secure income for shareholders. The Company
has a specific investment policy, as outlined above , which is
adhered to and for which the Board has overall responsibility. The
Group does not undertake speculative development. Furthermore, the
Group looks to work with experienced lessees and has assembled a
granular portfolio with a relatively high WAULT.
As an externally managed investment company, the Company
outsources key services to the Investment Manager and other service
providers and relies 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 the Company's risk management and internal control systems. The
Board regularly reviews the control reports of the key service
providers and the external auditors note any deficiencies in
internal controls and processes that have been identified during
the course of the audit. A description of the key internal controls
of the Group can be found in the Annual Report .
The Investment Manager has responsibility for identifying
potential risks at an early stage, escalating risks or changes to
risk, and relevant considerations and implementing appropriate
mitigations which are recorded in the Group's risk register. Where
relevant the financial model is stress tested to assess the
potential impact of certain risks against the likelihood of
occurrence. The Board regularly reviews the risk register to ensure
gradings and mitigating actions remain appropriate.
The Group's risk management process is designed to identify,
evaluate and mitigate (rather than eliminate) the significant and
emerging risks the Group faces and continues to evolve to reflect
changes in the Group's 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.
During the year, the Board has not identified or been advised of
any failings or weaknesses in the Group's risk management and
internal control systems .
Principal risks and uncertainties
The table below sets out what we the Company believes to be the
principal risks and uncertainties facing the Group. As noted above
the table has been updated to reflect changes to the Company's
Investment Policy and Investment Restrictions and any risks
emerging as a result of the events and trends of 2022. 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.
In the 2021 Annual Report two emerging risks were reported:
"change in social housing legislation" and the "Ukraine-Russia
conflict". The risk of "change in social housing legislation" has
been incorporated into the risk of "changes to the social housing
regulatory regime and changes to government policy in relation to
social housing and housing benefit" in the table below. The Group
has no direct exposure to Russia or Eastern European territories
and so the principle impact of the Ukraine-Russia conflict has been
regarding inflation. As such we consider this risk to be covered in
the "higher than projected levels of inflation may impact Approved
Providers' ability to pay rent due under the Group's leases" risk
detailed in the table below .
Risk Category Risk Description Risk Impact Risk Impact Likelihood Change in
Mitigation year
Property Default of one or more The default of Under the Moderate Moderate to Increased
Approved Provider one or more of terms of the High
lessees the Group's Company's
lessees could investment
impact the policy and
rental income restrictions,
received no more than
from the 30% of the
relevant assets. Group's Gross
If the lessee Asset Value
cannot remedy may be exposed
the default, the to one lessee.
Group may have This
to terminate, restriction is
re-assign or in place to
re-negotiate the mitigate
relevant lease. against the
This could lead risk of
to a sustained significant
reduction in rent loss in
rental income. the event of
an Approved
Additionally, Provider
were a care default.
provider not to
renew the Were a lessee
service level to default or
agreement with a were the Group
lessee, to believe it
this may result likely that a
in a lessee lessee would
having to cover default,
rental payment the Group
on void units could look to
without move the
receiving affected
the properties to
corresponding another
housing benefit Approved
payment from the Provider with
care provider. whom
the Group has
a good
relationship.
The intention
would be to
ensure both
the ongoing
provision
of housing to
the residents,
and, as much
as possible,
the
preservation
of the income
stream
associated
with the
relevant
properties.
----------------------- ----------------- --------------- ---------- ------------- --------------
Regulatory Risk of an Approved Should an The Investment Moderate Moderate to Increased
Provider being deemed Approved Manager has High
non-compliant with the Provider with established
Governance and which the Group relationships
Viability has one or more with the
Standard by the leases in place Approved
Regulator be deemed Providers with
non-compliant by whom
the Regulator, it works. The
in particular in Approved
relation to Providers keep
viability, the Investment
depending on the Manager
further informed of
actions of the developments
Regulator, it is surrounding
possible that regulatory
there may be a notices.
negative impact
on the market As at 31
value of the December 2022,
relevant the Group has
properties which assembled a
are the subject diversified
of such portfolio with
lease(s). leases to 27
Depending on the Approved
exposure of the Providers. The
Group to such Group has
Approved leases in
Provider, this place with 10
in turn may have Registered
a material Providers that
adverse have been
effect on the deemed
Group's Net non-compliant
Asset Value by the
unless the Regulator.
matter is
resolved through Where
an improvement Registered
in the relevant Providers have
Approved been deemed
Provider's non-compliant
rating or the the Group has
transfer of looked to work
leases to an with
alternative them in order
Approved to help
Provider. address the
issues
identified by
the Regulator.
The Group's
commitment
to this
approach can
be seen
through the
Group's
proposed new
lease clause
described in
both
the Chair's
Statement and
the Investment
Manager's
Report.
In all but two
cases there
has been no
subsequent
reduction in
value in the
properties we
lease to the
Registered
Providers that
have been
deemed
non-compliant
by the
Regulator.
----------------------- ----------------- --------------- ---------- ------------- --------------
Regulatory Risk of changes to the The Social It is High Low to Stable
social housing Housing important that Moderate
regulatory regime and Regulation Bill the Group
changes to government is in the works with the
policy in process of being Group's
relation to social passed by the UK Approved
housing and housing government Provider
benefit. which is lessees to
reflective of help ensure
The previously noted the government's that they
emerging risk ability, and respond
concerning changes in desire, to proactively to
social housing change and any changes in
legislation has now update regulation or
been incorporated into regulation policy and the
this risk and policy Group
relating to understands
social housing. what, if any,
impact it will
In addition have on their
future organisation
governments may and the
take a different properties
approach to the that the Group
social housing leases to
regulatory them.
regime,
resulting in As demand for
significant social housing
changes to the remains high
law and other relative to
regulation or supply, the
practices of the Board and the
Government with Investment
regard to social Manager are
housing. confident
there will
continue to be
a viable
market within
which to
operate and
a need for
private
investment to
deliver more
homes
In addition,
the social
housing
regulatory
regime in
which most of
the Group's
lessees
operate
provides a
high degree of
accountability
and
transparency.
----------------------- ----------------- --------------- ---------- ------------- --------------
Financial Non-payment of voids If a care The Investment Moderate Moderate Stable
Risk cover by care provider gets Manager
providers into financial closely
difficulty and monitors the
is unable to pay performance of
contracted voids the care
cover providers to
to an Approved ensure, so
Provider, this far as
could have a reasonably
negative impact possible, that
on the financial they are
performance of financially
the Approved viable and
Provider which performing
ultimately could well. Should a
impact its care provider
ability to pay get into
the Group its financial
rent. difficulty,
This risk is the Group
compounded if works with a
there is low wide range of
occupancy in a alternative
property. care providers
who could step
in to provide
care services
and therefore
cover the
voids payment.
Occupancy is
also closely
monitored and
the Investment
Manager works
with Approved
Providers
and care
providers to
optimise
occupancy.
----------------------- ----------------- --------------- ---------- ------------- --------------
Financial Property valuations Property All of the Moderate Moderate Stable
may be subject to valuations are Group's
change over time inherently property
subjective and assets are
uncertain. independently
Market valued
conditions, quarterly by
which may Jones Lang
impact the LaSalle,
creditworthiness a specialist
of lessees, may property
adversely affect valuation
valuations. This firm, who are
is particularly provided with
relevant at the regular
moment given updates on
rising interest portfolio
rates and the activity
resultant by the
negative impact Investment
on property Manager. The
valuations. Investment
Manager meets
The portfolio is with the
valued on a external
Market Value valuers to
basis, which discuss
takes into the basis of
account the their
expected rental valuations and
income to be their quality
received under control
the leases in processes.
the future. This Default risk
valuation of lessees
methodology is mitigated
provides in accordance
a significantly with the
higher valuation lessee default
than the Vacant principal risk
Possession value explanation
of a property. provided
In the event above.
of an unremedied In order to
default of an protect
Approved against loss
Provider lessee, in value, the
the value of Investment
those assets in Manager's
the property
portfolio may be management
negatively team
affected. seeks
routinely to
Any changes visit each
could affect the property in
Group's net the portfolio,
asset value and and works
the share price closely with
of the Group. the Group's
lessees to
ensure, to the
extent
reasonably
possible,
their ongoing
financial
strength
viability,
and that
governance
procedures
remain robust
through the
duration of
the relevant
lease.
----------------------- ----------------- --------------- ---------- ------------- --------------
Property Risk of poor or Approved The Investment Moderate Moderate New
inadequate housing Providers and Manager
(New) management (including care providers undertakes
compliance) or poor face a number of strategic
provision of operational property
care services by the challenges (e.g. inspections in
Group's Approved rising order to
Providers lessees and costs and labour review the
care providers shortages) which physical
respectively have heightened condition of
the risk of poor the Group's
or inadequate properties as
housing well as the
management quality of
or poor care services being
being provided provided to
in relation to the
the Group's Group's
properties. residents. In
addition,
Poor services there is
being provided frequent
to the engagement
individuals in with the
the Group's Group's
properties could Approved
undermine Providers
the benefits of and Care
Specialised Providers as
Supported well as
Housing and quarterly
cause operational
reputational and compliance
damage to the surveys which
Group which provide data
could negatively on the
impact the performance of
Group's the Group's
performance properties .
and/or the price
of the Company's
shares.
----------------------- ----------------- --------------- ---------- ------------- --------------
Financial Higher than projected The Group's Whilst the Moderate Moderate Increased
Risk levels of inflation leases contain social housing
may impact Approved upward only rent rent increase
Providers' ability to reviews, cap of 7% will
pay rent generally linked not apply to
due under the Group's to inflation Specialised
leases (typically Supported
CPI), with the Housing, the
majority being Group has
uncapped. decided to
apply a
Annual rental temporary 7%
uplifts have cap to the
been, and will rent increases
continue to be, it agrees
higher than with its
projected as a Registered
result Provider
of increased lessees for
inflation in the calendar
2022 and 2023. year 2023.
This should
help to ensure
that the
Group's
lessees are
able to agree
rent increases
with
Local
Authorities,
in relation to
the Group's
residents,
that are
in-line with
the rent
increases
in the Group's
leases.
----------------------- ----------------- --------------- ---------- ------------- --------------
Climate Risk The potential impact Changing weather The Investment Moderate Low to New
of climate change on patterns under Manager's Moderate
(New) the valuation of the projected sustainability
Group's properties climate change team has been
scenarios could working with
physically the housing
damage team to assess
the Group's the risk that
properties and climate change
reduce their poses to the
value. New Group's
minimum properties.
efficiency The key
standards could transition
require risks to
retrofitting of the portfolio
efficiency have been
measures, or identified and
result in a qualitatively
reduction in assessed.
valuations. The Physical risks
impact of to the
the most portfolio
prominent have been
climate-related assessed using
risks to the a new piece of
portfolio is analytical
assessed in software and
detail in the the outputs of
Group's this analysis
TCFD reporting are
in the Annual demonstrated
Report. in the Group's
TCFD reporting
in the Annual
Report. The
Investment
Manager
will work to
ensure
protections
are put in
place for any
properties
that are
deemed to be
at high risk
to the
negative
impact of
climate
change. The
Group believes
that the
Group's
reporting on
climate change
is ahead of
regulatory
requirements.
----------------------- ----------------- --------------- ---------- ------------- --------------
Financial Unable to operate The borrowings The Investment High Low Stable
within debt covenants the Group Manager
currently has monitors loan
and which the to value and
Group uses in interest
the future may covenants
contain ratios on an
loan to value ongoing
and interest basis. In the
covenants unlikely event
ratios. If that an event
property of default
valuations and occurs under
rental income these
significantly covenants the
decrease, such Group
covenants could has a remedy
be breached. The period during
impact of such which it can
an event could potentially
include (among cure the
other things): covenant
an increase in breach by
borrowing costs; either
a requirement injecting
for additional cash
cash or property collateral or
collateral; unencumbered
payment of a fee property
to the lender; a assets in
sale of an asset order to
or assets, or a restore
forfeit of covenant
an asset or any compliance.
assets to a
lender. During the
year to 31
Any of the above December 2022,
could result in no debt
a material covenants have
decrease to the been breached.
Group's Net
Asset Value.
----------------------- ----------------- --------------- ---------- ------------- --------------
Corporate Reliance on the The Company Unless there High Low Stable
Investment Manager continues to is a default,
rely on the either party
Investment may terminate
Manager's the Investment
services and its Management
reputation in Agreement
the by giving not
social housing less than 12
market. As a months'
result, the written
Group's notice. The
performance Board
will, to a large regularly
extent, depend reviews and
on the monitors
Investment the Investment
Manager's asset Manager's
management performance.
abilities in the In addition,
property market. the Board
Termination meets
of the regularly with
Investment the Investment
Management Manager to
Agreement would ensure that
severely affect the Company
the Investment and the
Manager's Investment
ability Manager
to effectively maintain a
manage the positive
Group's working
operations and relationship.
may have a
negative impact
on the Group's
performance
and/or the price
of the Company's
shares.
----------------------- ----------------- --------------- ---------- ------------- --------------
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 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. 91.8% of rental income
due and payable for the period ended 31 December 2022 has been
collected, rent arrears are predominantly attributable to two
Approved Providers, My Space Housing Solutions and Parasol
Homes.
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 Long-Term Issuer Default Rating of 'A-'
with a stable outlook.
The Directors have performed an assessment of the ability of the
Group to continue as a going concern, 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.
The Directors have also considered the financing provided to the
Group. Norland Estates Limited and TP REIT Propco 2 Limited have
bank facilities with MetLife and Metlife and Barings respectively.
TP REIT Propco 5 Ltd's Revolving Credit Facility (RCF) with Lloyds
and Natwest cancelled in December 2022. Prior to cancellation the
facility was undrawn.
The loans secured by Norland Estates Limited and TP REIT Propco
2 Limited are subject to asset cover ratio covenants and interest
cover ratio covenants which can be found in the table below. The
Directors have also considered reverse stress testing and the
circumstances that would lead to a covenant breach. 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 is remote.
Norland Estates TP REIT Propco
Limited 2 Limited
Asset Cover (ACR)
---------------- ---------------
Asset Cover Ratio Covenant x2.00 x1.67
---------------- ---------------
Asset Cover Ratio 31 December x2.77 x2.10
2022
---------------- ---------------
Blended Net initial yield 5.55% 5.34%
---------------- ---------------
Headroom (yield movement) 196bps 130bps
---------------- ---------------
Interest Cover (ICR)
---------------- ---------------
Interest Cover Ratio Covenant 1.75x 1.75x
---------------- ---------------
Interest Cover Ratio 31 December
2022 5.02x 4.41x
---------------- ---------------
Headroom (rental income movement) 65% 60%
---------------- ---------------
The loan secured by Norland Estates Limited asset cover ratio
was 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 and Barings.
Under the downside model the forecasts have been stressed to
show the effect of some Care Providers ceasing to pay their voids
liability, and as a result this causes Approved Providers to
default under some of the Group leases. Under the downside model
the Group 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
10.6 year average maturity of its long term debt facilities with
MetLife 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 Group 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.
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 2027, 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 25.3 years to
expiry, representing a secure income stream for the period under
consideration
-- The Group's Loan Notes have a weighted average term of 10.6 years
In assessing the Company's viability, the Board has carried out
a robust assessment of the emerging risks and principal risks
facing the Group, including those that would threaten its business
model, future performance, solvency, liquidity and dividend cover
for a five-year period.
The Directors' assessment has been made with reference to the
principal risks and uncertainties and emerging risks summarised
above and how they could impact the prospects of the Group and
Company both individually and in aggregate. The following risks in
particular have been addressed in the assessment:
1. Default of one or more Approved Provider lessees (taking into
account that two of the Group's lessees have built up arrears
during 2022)
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 : It is assumed that some care providers do not
meet their void payment obligations and this causes Approved
Providers to default under 7% of the Group's leases .
-- Property valuations : It is assumed that where there are void
units, Approved Providers will default on their leases, resulting
in those units being valued significantly below their vacant
possession value. We believe this represents a severe reduction in
value.
-- Inflation : No inflation uplift on rental income but costs
and dividends increase in line with inflation.
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
2 March 202 3
GROUP FINANCIAL STATEMENTS
GROUP STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2022
Year ended Year ended
31 December 31 December
2022 2021
Note GBP'000 GBP'000
------------------------------------- ----- ------------- -------------
Income
Rental income 5 37,300 33,117
Expected credit loss 5 (2,073) -
Other Income 110 -
------------- -------------
Total income 35,337 33,117
Expenses
Directors' remuneration 6 (308) (307)
General and administrative expenses 9 (2,854) (2,067)
Management fees 8 (4,704) (4,552)
------------- -------------
Total expenses (7,866) (6,926)
Gain from fair value adjustment
on investment property 14 8,264 8,998
Operating profit 35,735 35,189
------------- -------------
Finance income 11 56 44
Finance costs 12 (10,889) (6,823)
------------- -------------
Profit for the year before tax 24,902 28,410
------------- -------------
Taxation 13 - -
Profit and total comprehensive
income
for the year 24,902 28,410
============= =============
IFRS Earnings per share - basic
and diluted 3 6 6.18p 7.05p
The accompanying notes form an integral part of these Group
Financial Statements.
GROUP STATEMENT OF FINANCIAL POSITION
As at 31 December 2022
31 December 31 December
2022 2021
Note GBP'000 GBP'000
--------------------------------------- ----- ------------ ------------
Assets
Non-current assets
Investment properties 14 667,713 641,293
Trade and other receivables 15 2,889 2,311
------------ ------------
Total non-current
assets 670,602 643,604
Current assets
Assets held for sale - 480
Trade and other receivables 16 4,272 3,435
Cash, cash equivalents and restricted
cash 17 30,139 52,470
------------ ------------
Total current assets 34,411 57, 385
Total assets 705,013 6 99,989
============ ============
Liabilities
Current liabilities
Trade and other payables 18 3,120 3,651
------------ ------------
Total current liabilities 3,120 3,651
Non-current liabilities
Other payables 19 1,520 1,523
Bank and other Borrowings 20 261,088 258,702
------------ ------------
Total non-current liabilities 262,608 260,225
------------ ------------
Total liabilities 265,728 263,876
============ ============
Total net assets 439,285 436,113
============ ============
Equity
Share capital 22 4,033 4,033
Share premium reserve 23 203,753 203,753
Treasury shares
reserve 24 (378) (378)
Capital reduction
reserve 25 160,394 160,394
Retained earnings 26 71,483 68,311
------------ ------------
Total Equity 439,285 4 36,113
============ ============
IFRS Net asset value per share
- basic and diluted 37 109.06p 10 8.27 p
The Group Financial Statements were approved and authorised for
issue by the Board on 2 March 202 3 and signed on its behalf
by:
Chris Phillips
Chair
2 March 202 3
The accompanying notes form an integral part of these Group
Financial Statements.
GROUP STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2022
Share Treasury Capital
Share premium shares reduction Retained Total
capital reserve reserve reserve earnings equity
Year ended
31 December 2022 Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------ ----- --------- --------- ---------- ----------- ---------- ---------
Balance at 1 January
2022 4,033 203,753 (378) 160,394 68,311 436,113
Profit and total
comprehensive income
for the year - - - - 24,902 24,902
Transactions with
owners
2
Dividends paid 7 - - - - (21,730) (21,730)
Balance at 31 December
2022 4,033 203,753 (378) 160,394 71,483 439,285
========= ========= ========== =========== ========== =========
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
Share issue costs
capitalised 23 - (23) - - - (23)
(20,92
Dividends paid 27 - - - (5,760) (15,165) 5 )
Balance at 31 December
2021 4,033 203,753 (378) 160,394 68,311 436,113
========= ========= ========== =========== ========== ========
The accompanying notes form an integral part of these Group
Financial Statements.
GROUP STATEMENT OF CASH FLOWS
For the year ended 31 December 2022
Year ended Year ended
31 December 31 December
2022 2021
Note GBP'000 GBP'000
---------------------------------------- ----- ------------- -------------
Cash flows from operating activities
Profit before income tax 24,902 28,410
Adjustments for:
Expected credit loss 2,073 -
Gain from fair value adjustment
on investment property (8,264) (8,998)
Finance income (56) (44)
Finance costs 10,889 6,823
Operating results before working
capital changes 29,544 26,191
(Increase)/Decrease in trade and
other receivables (4,127) (1,237)
(Decrease) / Increase in trade and
other payables 280 (242)
------------- -------------
Net cash flow generated from operating
activities 25,697 24,712
------------- -------------
Cash flows from investing activities
Purchase of investment properties (20,611) (61,350)
Prepaid acquisition costs paid - (18)
Disposal proceeds from sale of assets 2,120 125
Restricted cash - paid (5) (410)
Restricted cash - released 133 279
Interest received 18 -
------------- -------------
Net cash flow used in investing
activities (18,345) (61,374)
------------- -------------
Cash flows from financing activities
Proceeds from issue of Ordinary
Shares at a premium - -
Ordinary Share issue costs capitalised - (23)
Interest paid (7,226) (5,615)
Bank borrowings drawn 20 - 195,000
Bank borrowings repaid 20 - (130,000)
Loan arrangement fees paid 21 (599) (2,728)
Dividends paid 27 (21,730) (20,925)
------------- -------------
Net cash flow generated from financing
activities (29,555) 35,709
------------- -------------
Net decrease in Cash, cash equivalents
and restricted cash (22,203) (953)
Cash and cash equivalents at the
beginning of the year 51,899 52,852
Cash and cash equivalents at the
end of the year 17 29,696 51,899
============= =============
The accompanying notes form an integral part of these Group
Financial Statements.
NOTES TO THE GROUP FINANCIAL STATEMENTS
For the ended 31 December 2022
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 202 2 which are consistent with policies those adopted in
the year ended 31 December 202 1 . 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 202 2 or 31
December 202 1 , but is derived from those financial statements.
Financial statements for the year ended 31 December 202 1 have been
delivered to the Registrar of Companies and those for the year
ended 31 December 202 2 will be delivered following the Company's
Annual General Meeting. The auditors' reports on both the 31
December 202 2 and 31 December 202 1 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 and method of
computation in these Financial Statements as in its 2021 annual
financial statements. At the date of authorisation of these
financial statements, there were a number of standards and
interpretations which were effective, however none of which have an
impact on these financial statements .
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. 91.8% of rental income
due and payable for the period ended 31 December 2022 has been
collected, rent arrears are predominantly attributable to two
Approved Providers, My Space Housing Solutions and Parasol
Homes.
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 Long-Term Issuer Default Rating of 'A-'
with a stable outlook.
The Directors have performed an assessment of the ability of the
Group to continue as a going concern, 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.
The Directors have also considered the financing provided to the
Group. Norland Estates Limited and TP REIT Propco 2 Limited have
bank facilities with MetLife and Metlife and Barings respectively.
TP REIT Propco 5 Ltd's Revolving Credit Facility (RCF) with Lloyds
and Natwest cancelled in December 2022. Prior to cancellation the
facility was undrawn.
The loans secured by Norland Estates Limited and TP REIT Propco
2 Limited are subject to asset cover ratio covenants and interest
cover ratio covenants which can be found in the table below. The
Directors have also considered reverse stress testing and the
circumstances that would lead to a covenant breach. 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 is remote.
Norland Estates TP REIT Propco
Limited 2 Limited
Asset Cover
---------------- ---------------
Asset Cover Ratio Covenant x2.00 x1.67
---------------- ---------------
Asset Cover Ratio 31 December
2022 x2.77 x2.10
---------------- ---------------
Blended Net initial yield 5.55% 5.34%
---------------- ---------------
Headroom (yield movement) 196bps 130bps
---------------- ---------------
Interest Cover
---------------- ---------------
Interest Cover Ratio Covenant 1.75x 1.75x
---------------- ---------------
Interest Cover Ratio 31 December
2022 5.02x 4.41x
---------------- ---------------
Headroom (rental income movement) 65% 60%
---------------- ---------------
The loan secured by Norland Estates Limited asset cover ratio
was 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 and Barings.
Under the downside model the forecasts have been stressed to
show the effect of some Care Providers ceasing to pay their voids
liability , and as a result this causes Approved Providers to
default under some of the Group leases. Under the downside model
the Group 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
10.6 year average maturity of its long term debt facilities with
MetLife 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 Group 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 refer 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
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.
3.2. Expected Credit Losses
The total ECL provision is GBP2.1 million and relates to rental
arrears for two of the Group's Approved Providers. A default
probability for each of the two Approved Providers, representing
the estimated percentage likelihood of them paying any outstanding
rent due at 31 December 2022, was determined based on their latest
known financial position and any repayments plans that had been
agreed or discussed. For each provider the estimated percentage
probability of receiving unpaid rent has been multiplied by the
rental arrears for the year. These two figures have then been
aggregated to arrive at the ECL provision.
Judgements:
3.3. 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.
3.4. 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.
3.5. Lease term
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 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 can 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 Group.
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 typically 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 at inception of the
lease or on initial recognition. 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, considering 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. 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
2022 2021
GBP'000 GBP'000
Rental income - freehold assets 35,087 31,071
Rental income - leasehold assets 2,213 2,046
------------
37,300 33,117
------------ ------------
Expected credit loss 2,073 -
============ ============
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 the United Kingdom.
The expected loss rates are based on the Group's credit losses
which occurred in the year under review for the first time since
IPO. The loss rates are then adjusted for current and
forward-looking information affecting the Group's tenants. The
total ECL provision is GBP2.1 million and relates to rental arrears
for two of the Group's Approved Providers. For each provider the
estimated percentage probability of receiving unpaid rent has been
multiplied by the rental arrears for the period. These two figures
have then been aggregated to arrive at the ECL provision. The
residual balance not provided through the statement of
comprehensive income is GBP1.0 million.
6. DIRECTORS' REMUNERATION
Year ended Year ended
31 December 31 December
2022 2021
GBP'000 GBP'000
Directors' fees 275 275
Employer's National Insurance
Contributions 3 3 32
30 8 307
Additional fees paid - capitalised - -
as share issue costs
30 8 307
============ ============
The Directors are remunerated for their services at such rate as
the Directors shall from time to time determine. The Chairman
receives a Director's fee of GBP75,000 per annum (2021: GBP75,000),
and the other Directors of the Board receive a fee of GBP50,000 per
annum (2021: 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. Each Director was paid this
additional fee in 2020 following the publication of the prospectus,
but no additional fees were received during 2022 or 2021. 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 Governance Report in the Annual 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 (202 1 : none).
8. MANAGEMENT FEES
Year ended Year ended
31 December 31 December
2022 2021
GBP'000 GBP'000
Management fees 4, 704 4,552
4, 704 4,552
============ ============
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; and
-- 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 GBP4,704,000 (2021: GBP4,552,000) were
chargeable by TPIM during the year. At the year end GBP1,159,000
(2021: GBP1,146,000) 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
2022 2021
GBP'000 GBP'000
Legal and professional fees 829 673
Audit fees 371 256
Administration fees 324 336
Lease transfer costs 151 40
Other administrative expenses 1,179 762
2,854 2,067
============ ============
On 1 October 2019 Hanway Advisory Limited, who are associated
with Triple Point Investment Management LLP the delegated
investment manager, were appointed to provide Administration and
Company Secretarial Services to the Group. Within Administration
Fees is an amount of GBP324,000 (2021: GBP326,000) 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 GBP192,000 (2021: GBP175,000) were chargeable by TPIM.
At the year end GBP48,000 (2021: GBP44,000) was due to TPIM.
Lease transfer costs represent repairs 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
2022 2021
GBP'000 GBP'000
Group audit fees - current year 242 189
Subsidiary audit fees 31 24
273 213
============ ============
Non audit fees paid to BDO LLP included GBP36,000 (2021:
GBP29,000) in relation to the half year interim review.
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
2022 2021
GBP'000 GBP'000
Other interest income 56 44
56 44
============ ============
12. FINANCE COSTS
Year ended Year ended
31 December 31 December
2022 2021
GBP'000 GBP'000
Interest payable on bank borrowings 7,217 5,492
Amortisation of loan arrangement
fees 1,006 1,279
Written off loan arrangement 2,619 -
fees
Head lease interest expense 37 44
Bank charges 9 8
10,889 6,823
------------ ------------
Total finance cost for financial
liabilities not at fair value
through profit or loss 10,880 6,815
============ ============
Written off loan arrangement fees relate to the Lloyds and
NatWest loan facility that was reduced and subsequently cancelled
during the year, all remaining unamortised loan arrangement fees
were written off .
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
2022 2021
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% (202 1 :19%). The differences are
explained below.
Year ended Year ended
31 December 31 December
2022 2021
GBP'000 GBP'000
Profit for the year before tax 24,902 28,410
------------ ------------
Tax at UK corporation tax standard
rate of 19% 4,731 5,398
Change in value of investment
properties (2,727) (1,710)
Disposal of investment property 1,157 -
Exempt REIT income (3,768) (4,202)
Amounts not deductible for tax
purposes 27 22
Unutilised residual current period
tax losses 580 492
- -
============ ============
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 2022 641,293 - 641,293
------------ ------------------- ---------
Acquisitions and additions 19,752 - 19,752
Fair value adjustment* 15,239 - 15,239
Movement in head lease
ground rent liability (2) - (2)
Disposals (8,569) - (8,569)
As at 31 December
2022 667,713 - 667,713
------------ ------------------- ---------
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
------------ ------------------- ---------
*Additions in the table above differs to the total investment
cost of new properties in the period in the front end due to
retentions no longer payable which were credited to Investment
Property additions.
* Gain from fair value adjustment on investment properties in
the condensed Group statement of comprehensive income is net of the
loss from fair value adjustments on assets held for sale of
GBP0.88m (31 December 2021 - GBP0.51m) and loss on disposal of
three assets of GBP6.1m (31 December 2021 - GBPnil).
Reconciliation to independent 31 December 31 December
valuation: 2022 2021
GBP'000 GBP'000
Investment property valuation 669,077 642,018
Fair value adjustment - headlease
ground rent 1,460 1,462
Fair value adjustment - lease
incentive debtor (2,824) (2,187)
------------ ------------
667,713 641,293
------------ ------------
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 2021. There are no properties under
development as at 31 December 2021 or 2022.
The carrying value of leasehold properties at 31 December 2022
was GBP40.1 million (2021: GBP39.36 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 2022.
31 December 31 December
Portfolio metrics 2022 2021
Capital Deployed (GBP'000)
* 581,647 569,991
Number of Properties 497 488
Number of Tenancies*** 39 5 382
Number of Registered Providers*** 2 7 24
Number of Local Authorities*** 15 3 156
Number of Care Providers*** 123 115
Valuation Net Initial Yield** 5.49% 5.25%
*calculated excluding acquisition costs
**calculated using IAS 40 valuations (excluding forward funding
acquisitions)
*** calculated excluding forward funding acquisitions
31 December 2022 31 December 2021
% of funds % of funds
Region *Cost GBP'000 invested *Cost GBP'000 invested
--------------- -------------- ----------- -------------- -----------
North West 115,042 19.8 122,622 21.5
West Midlands 94,790 16.3 92,794 16.3
East Midlands 69,429 11.9 64,595 11.3
London 49,579 8.5 49,526 8.7
North East 51,986 8.9 47,061 8.3
Yorkshire 86,293 14.8 81,034 14.2
South East 54,799 9.4 52,196 9.2
South West 27,466 4.7 27,900 4.9
East 23,703 4.1 23,703 4.2
Scotland 5,900 1.0 5,900 1.0
Wales 2,660 0. 6 2,660 0.4
Total 581,647 100 569,991 100
--------------- -------------- ----------- -------------- -----------
*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 2022 667,713 - - 667,713
------------------------ ------------------- -------- ----------- ------------ --------------
31 December
Investment properties 2021 641,293 - - 641,293
------------------------ ------------------- -------- ----------- ------------ --------------
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
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 Registered Provider itself
regulated by the Regulator.
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 2021. There were no forward funded assets in the portfolio as at
31 December 2022.
Descriptions and definitions relating to valuation techniques
and key unobservable inputs made in determining fair values are as
follows :
Valuation techniques: Discounted cash flows
The discounted cash flows model considers the present value of
net cash flows to be generated from the property, taking into
account the expected rental growth rate and lease incentive costs
such as rent-free periods. The expected net cash flows are then
discounted using risk-adjusted discount rates.
There are two main unobservable inputs that determine the fair
value of the Group's investment property:
1. the rate of inflation as measured by CPI; it should be noted
that all leases benefit from either CPI or RPI indexation; and
2. the discount rate applied to the rental flows.
K ey 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 Specialised
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 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 6.82% (2021: 6.63%).
The range of discount rates used in the Group's property
portfolio valuation is from 6.2% to 8.6% (2021: 6.21% to 8%).
-0.5% change +0.5% change +0.25% -0.25%
in in change in change 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
2022 40,552 (36,941) 21,037 (20,207)
Changes as at 31 December
2021 26,922 (24,663) 21,190 (20,238)
Given that the factors on which the valuations are based have
not been adversely affected by COVID , there has been no direct
impact to the investment property valuation at 31 December 2022.
The valuations have also not been influenced by climate related
factors due to there being little measurable impact on inputs at
present .
15. TRADE AND OTHER RECEIVABLES (non-current)
31 December 31 December
2022 2021
GBP'000 GBP'000
Other receivables 172 183
Lease incentive debtor 2,717 2,128
2,889 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
2022 2021
GBP'000 GBP'000
Rent receivable 3,209 1 , 971
Prepayments 174 796
Other receivables 782 608
Lease incentive debtor 107 60
4,272 3,435
============ ============
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 general approach to providing for expected
credit losses under IFRS 9 for other receivables. Where the credit
loss relates to revenue already recognised in the Income Statement,
the expected credit loss allowance is recognised in the Statement
of Comprehensive Income . Expected credit losses totalling
GBP2,073,000 (2021: nil) were charged to the Statement of
Comprehensive Income in the period .
17. CASH, CASH EQUIVALENTS AND RESTRICTED CASH
31 December 31 December
2022 2021
GBP'000 GBP'000
Cash held by lawyers 544 8,459
Restricted cash 443 571
Ring-fenced cash - 4,451
Cash at bank 29,152 38,989
------------ ------------
30,139 52,470
============ ============
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
.
31 December 31 December
2022 2021
GBP'000 GBP'000
Total Cash, cash equivalents and
restricted cash 30,139 52,470
Restricted cash (4 43 ) (571)
------------ ------------
Cash reported on Statement of Cash
Flows 29,696 51,899
============ ============
18. TRADE AND OTHER PAYABLES
Current liabilities
31 December 31 December
2022 2021
GBP'000 GBP'000
Accruals 2,014 2,373
Trade payables 37 48
Head lease ground rent (note 2 8
) 40 39
Other creditors 1,029 1,191
3,120 3,651
============ ============
The Other Creditors balance consists of retentions due on
completion of outstanding works and on the rebate of SDLT refunds.
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
2022 2021
GBP'000 GBP'000
Head lease ground rent (note 28) 1,42 0 1,423
Rent deposit 100 100
1,52 0 1,523
============ ============
20. BANK AND OTHER BORROWINGS
Non-current liabilities
31 December 31 December
2022 2021
GBP'000 GBP'000
Bank and other borrowings drawn at
year end 263,500 263,500
------------ ------------
Unamortised costs at beginning of
period (4,798) (3,573)
Less: loan issue costs incurred (131) (2,390)
Add: loan issue costs amortised 433 1,165
Add: loan issue costs written off 2,085 -
------------ ------------
Unamortised costs at end of the year (2,412) (4,798)
------------ ------------
Balance at year end 261,088 258,702
============ ============
The amount of loan arrangement fees written off and amortised in
note 12, and loan issue costs in the Statement of cash flows
differs to the amounts in the table above as this excludes amounts
in relation to the undrawn cancelled RCF which amount to GBP534k,
GBP573k and GBP468k respectively.
At 31 December 2022 there were undrawn bank borrowings of GBPNIL
(2021: GBP160 million).
As at 31 December 2022, 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) ; and
-- 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 had access to GBP160m Revolving Credit Facility
(RCF) with Lloyds and NatWest during the year which was cancelled
in December 2022. Prior to being cancelled, the facility was
undrawn .
Loan Notes
The Loan Notes of GBP68.5 million are secured against a
portfolio of Specialised Supported Housing assets throughout the
UK, worth approximately GBP189 million (31 December 2021 - GBP188
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
2.94% pa; and Tranche-B, is an amount of GBP27 million, has a term
of 15 years from utilisation and is priced at an all-in coupon of
3.215% pa. On a blended basis, the weighted average term is 12
years carrying a weighted average fixed rate coupon of 3.04% pa. At
31 December 2022, the Loan Notes have been independently valued at
GBP55.8 million which has been used to calculate the Group's EPRA
Net Disposal Value in note 36 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 3.687% 2028 Gilt (Tranche A) and Treasury 3.665% 2033 Gilt
(Tranche B), with an implied margin that is unchanged since the
date of fixing.
In August 2021, 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 Natwest. The Loan Notes are secured against a portfolio of
Specialised Supported Housing assets throughout the UK, worth
approximately GBP410 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% pa. On a blended basis, the
weighted average term is 13 years carrying a weighted average fixed
rate coupon of 2.634% pa. At 31 December 2022, the Loan Notes have
been independently valued at GBP134.6 million which has been used
to calculate the Group's EPRA Net Disposal Value in note 36 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 3.598% 2031 Gilt (Tranche A)
and Treasury 3.929% 2036 Gilt (Tranche B), with an implied margin
that is unchanged since the date of fixing.
The loans are considered a Level 2 fair value measurement.
The Group has met all compliance with its financial covenants on
the above loans throughout the year.
Undrawn committed bank facilities - maturity profile
1 to 3 to
2 5 > 5
31 December 2022 Total < 1 year years years years
--------------------- -------- --------- -------- -------- --------
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 31 December 2022 - - - - -
-------- --------- -------- -------- --------
At 31 December 2021 160,000 - 160,000 - -
-------- --------- -------- -------- --------
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 2022 258,702 1,463 260,165
Cashflows:
Repayment of principal
on head lease liabilities - (40) (40)
Loan arrangement fees
paid (131) - (131)
Non-cash flows:
-Amortisation of loan
arrangement fees 433 - 433
-Loan arrangement fees
written off 2,084 - 2,084
-Head lease additions - - -
-Accrued interest on
head lease liabilities - 37 37
---------------- ------------- --------
At 31 December 2022 261,088 1,460 262,548
================ ============= ========
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
================ ============= ==========
22. SHARE CAPITAL
Issued and Issued and
fully paid fully paid
Number GBP'000
At 1 January 2022 403,239,002 4,033
------------- -------------
At 31 December 2022 403,239,002 4,033
============= =============
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
============= =============
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
2022 2021
GBP'000 GBP'000
Balance at beginning of year 203,7 53 203,776
Share premium arising on Ordinary - -
Shares issue
Share issue costs capitalised - (23)
Balance at end of year 203,753 203,753
============ ============
24. TREASURY SHARES RESERVE
31 December 31 December
2022 2021
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 or prior 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 2022 and 31 December 2021, 450,000 1p Ordinary Shares were
held by the Company.
25. CAPITAL REDUCTION RESERVE
31 December 31 December
2022 2021
GBP'000 GBP'000
Balance at beginning of year 160,394 166,154
Dividends paid - (5,760)
Balance at end of year 160,394 160,394
============ ============
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 and the
Capital Reduction Reserve in the year ended 31 December 2022.
26. RETAINED EARNINGS
31 December 31 December
2022 2021
GBP'000 GBP'000
Balance at beginning of year 68,311 55,066
Total comprehensive income for the
year 24,902 28,410
Dividends paid (21,730) (15,165)
Balance at end of year 71,483 68,311
============ ============
27. DIVIDS
Year ended Year ended
31 December 31 December
2022 2021
GBP'000 GBP'000
1.295p for the 3 months to 31 December
2020 paid on 26 March 2021 - 5,217
1.3p for the 3 months to 31 March
2021 paid on 25 June 2021 - 5,236
1.3p for the 3 months to 30 June 2021
paid on 30 September 2021 - 5,236
1.3p for the 3 months to 30 September
2021 paid on 17 December 2021 - 5,236
1.3p for the 3 months to 31 December 5,236 -
2021 paid on 25 March 2022
1.365p for the 3 months to 31 March 5,498 -
2022 paid on 24 June 2022
1.365p for the 3 months to 30 June 5,498 -
2022 paid on 30 September 2022
1.365p for the 3 months to 30 September 5,498 -
2022 paid on 16 December 2022
21,730 20,925
------------- -------------
On 2 March 2023, the Company declared an interim dividend of
1.365 pence per Ordinary Share for the period 1 October 2022 to 31
December 2022. The total dividend of GBP5,498,070 will be paid on
31 March 2023 to Ordinary shareholders on the register on 17 March
2023.
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 -2 2-3
< 1 year year 3-4 4- 5 > 5
year s s years years years Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Lease payables
-------- -------- -------- -------- -------- -------- --------
31 December
2022 40 40 40 40 40 13,024 13,224
-------- -------- -------- -------- -------- -------- --------
31 December
2021 40 40 40 40 40 13,126 13,326
-------- -------- -------- -------- -------- -------- --------
31 December 31 December
2022 2021
GBP'000 GBP'000
Current liabilities (note 18) 40 40
Non-current liabilities (note 19) 1,42 0 1,423
Balance at end of year 1,46 0 1,463
============ ============
The above is in respect of properties held by the Group under
leasehold. There are 23 properties (2021: 24) 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 -2 2-3
< 1 year year 3-4 4- 5 > 5
year s s years years years Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Lease receivables
-------- -------- -------- -------- -------- -------- --------
31 December
2022 38,975 38,975 38,975 38,975 38,975 462,374 657,248
-------- -------- -------- -------- -------- -------- --------
31 December
2021 35,771 35,800 35,800 35,800 35,800 461,561 640,532
-------- -------- -------- -------- -------- -------- --------
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 10% or more than
10%share in any year presented:
31 December 31 December
2022 2021
% of total annual % of total annual
Registered Provider rent rent
Inclusion Housing CIC 29 30
Falcon Housing Association
CIC 8 10
Parasol Homes (previously 28A
Supported Living) 10 10
Other disclosures about leases are provided in notes 5, 14, 18,
21 and 33.
29. CONTROLLING PARTIES
As at 31 December 202 2 there is no ultimate controlling party
of the Company.
30. SEGMENTAL INFORMATION
IFRS 8 Operating Segments requires operating segments to be
identified based on 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 497 (2021: 488) Social
Housing properties as at 31 December 2022 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 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 Chairman receives
a Director's fee of GBP75,000 per annum (2021: GBP75,000), and the
other directors of the Board receive a fee of GBP50,000 per annum
(2021: 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: GBP2,960 (2021: GBP2,850)
Peter Coward: GBP4,266 (2021: GBP4,031)
Paul Oliver: GBP4,206 (2021: GBP4,050)
Tracey Fletcher-Ray: GBP2,036 (2021: GBP1,960)
No shares were held by Ian Reeves as at 31 December 2022 (31
December 2021: 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. 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
2022:
Name of Entity Registered Office Country Ownership
of 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%
1 King William Street, London,
Henderson Court 1 Limited EC4N 7AF UK 100%
1 King William Street, London,
Lawrence Hotel 1 Ltd EC4N 7AF UK 100%
1 King William Street, London,
The Glebe 1 Limited EC4N 7AF UK 100%
1 King William Street, London,
Sunny Retford 1 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
2022:
Name of Entity Registered Office Country Ownership
of Incorporation %
1 King William Street, London,
New Road 1 Limited EC4N 7AF UK 100%
1 King William Street, London,
My House 1 Limited EC4N 7AF UK 100%
1 King William Street, London,
Henderson Court 1 Limited EC4N 7AF UK 100%
1 King William Street, London,
Lawrence Hotel 1 Ltd EC4N 7AF UK 100%
1 King William Street, London,
The Glebe 1 Limited EC4N 7AF UK 100%
1 King William Street, London,
Sunny Retford 1 Ltd EC4N 7AF UK 100%
The subsidiaries listed below have been struck off since 31 December
2022:
1 King William Street, London,
My House 1 Ltd 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 2022,
and are not expected to in the immediate future, but will continue
to be monitored closely.
Please refer to the Corporate Social Responsibility Report on
pages 42 to 43 for further information on Environmental Policy
which may affect the investment property valuations going forward.
There was no impact on the valuations in the year ended 31 December
2022 from climate change factors, given that there is little
measurable impact on inputs at present .
33.2. Interest rate risk
The G roup's debt at 31 December 2022 does not have any exposure
to interest rate risk .
33.3 Credit risk
Credit risk is the risk that a counterparty will not meet its
obligations under a financial instrument or customer contract,
leading to a financial loss. The Group is exposed to credit risks
from both its leasing activities and financing activities,
including deposits with banks and other institutions as detailed in
notes 16 and 19.
Credit risk related to financial instruments and cash
deposits
One of the principal credit risks facing the Group arises with
the funds it holds with banks and other institutions. The Board
believes that the credit risk on short-term deposits and current
account cash balances is limited because the counterparties are
banks and institutions with high credit ratings.
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 ten Registered Providers that
have been deemed non-compliant by the Regulator. We continue to
conduct ongoing due diligence on all Registered Providers and all
rents payable under these leases have been paid. 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. The Board believes that the credit risk
associated with the non-compliant rating is limited.
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 on a weekly
basis. Upcoming cash requirements are compared to existing cash
reserves available, followed by discussions around optimal cash
management opportunities in order to best manage liquidity
risk.
The following table details the Group's liquidity analysis:
3-12 1-5 > 5
31 December 2022 < 3 months months Years years
------------------------------- ---------- ----------- -------- -------- --------
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Headleases (note
2 8 ) 13,223 10 30 159 13,024
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 76,609 1,804 5,413 28,869 40,523
* Variable interest rate - - - - -
353,332 1,814 5,443 29,028 317,047
========== =========== ======== ======== ========
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
======== =============== ======== ======== =============
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
2022 2022 2021 2021
GBP'000 GBP'000 GBP'000 GBP'000
Financial assets:
Trade and other
receivables 6,804 6,804 4,739 4,739
Cash , cash equivalents
and restricted cash 30,139 30,139 52,470 52,470
------------- ------------- ------------- -------------
Financial liabilities:
Trade and other payables 3,080 3,080 3,606 3,606
Borrowings 261,088 190,314 258,702 260,761
------------- ------------- ------------- -------------
34. POST BALANCE SHEET EVENTS
There were no post balance sheet events subsequent to the end of
the period.
35. CAPITAL COMMITMENTS
The Group had capital commitments of GBPNIL million (2021:
GBP4.2 million) in relation to the assets exchanged but not
completed at 31 December 2022.
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
2022 2021
Calculation of Basic Earnings per
share
Net profit attributable to Ordinary
Shareholders (GBP'000) 24,902 28,410
Weighted average number of Ordinary
Shares (excluding treasury shares) 402,789,002 402,789,002
IFRS Earnings per share - basic and
diluted 6.18p 7.05p
------------ ------------
Calculation of EPRA Earnings per
share
Net profit attributable to Ordinary
Shareholders (GBP'000) 24,902 28,410
Changes in value of fair value of
investment property (GBP'000) (8,264) (8,998)
One-off amortisation of arrangement 2,619 -
fees on the cancelled RCF
EPRA earnings (GBP'000) 19,257 19,412
Non cash adjustments to include:
Amortisation of loan arrangement fees 1,006 1,279
------------ ------------
Adjusted earnings (GBP'000) 20,263 20,691
------------ ------------
Weighted average number of Ordinary
Shares (excluding treasury shares) 402,789,002 402,789,002
------------ ------------
EPRA earnings per share - basic and
diluted 4.78p 4.82p
Adjusted earnings per share - basic
and diluted 5.03p 5.14p
------------ ------------
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 ongoing 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
2022 2021
GBP'000 GBP'000
Net assets at end of the year 439,285 436,113
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 10 9.06 p 108.27p
------------ ------------
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 initial fixed rate facility with MetLife 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 and Barings) and an interest
cover ratio of x1.75. At 31 December 2022, the Group was fully
compliant with both covenants with an asset cover ratio of x2.77
(2021: x2.75) and an interest cover ratio of x5.02 (2021: x4.90). T
he subsequent facility with Metlife and Barings requires an asset
cover ratio of x1.67 and an interest cover ratio of x1.75. At 31
December 2022, the Group was fully compliant with both covenants
with an asset cover ratio of x2.10 and an interest cover ratio of
x4.41.
UNAUDITED PERFORMANCE MEASURES
1. PORTFOLIO NET ASSET VALUE
The objective of the Portfolio Net Asset Value "Portfolio NAV"
measure is to highlight the fair value of the net assets on an
ongoing, long-term basis, which aligns with the Group's business
strategy as an ongoing REIT with a long-term investment outlook.
This Portfolio NAV is made available on a quarterly basis on the
Company's website and announced via RNS.
In order to arrive at Portfolio NAV, two adjustments are made to
the IFRS Net Asset Value ("IFRS NAV") reported in the consolidated
financial statements such that:
i. The hypothetical sale of properties will take place based on
a sale of a corporate vehicle rather than a sale of underlying
property assets. This assumption reflects the basis upon which the
Company's assets have been assembled within specific SPVs.
ii. The hypothetical sale will take place in the form of a single portfolio disposal.
31 December 31 December
2022 2021
GBP'000 GBP'000
Net asset value per the consolidated
financial statements 439,285 436,113
Value of Asset pools 439,285 436,113
Effects of the adoption to the
assumed, hypothetical sale of
properties as a portfolio and
based on sale of a corporate vehicle 62,682 49,975
Portfolio Net Asset Value 501,967 486,088
------------ ------------
After reflecting these amendments, the movement in net assets is
as follows:
31 December 31 December
2022 2021
GBP'000 GBP'000
Opening reserves 486,088 468,788
Net issue proceeds - (23)
Operating profits 27,471 26,192
Capital appreciation 21,856 19,350
Loss on fair value adjustment
on assets held for sale (885) (515)
Finance income 56 44
Finance costs (10,889) (6,823)
Dividends paid (21,730) (20,925)
------------ ------------
Portfolio Net Assets 501,967 486,088
------------ ------------
Number of shares in issue at
the year end (excluding treasury
shares) 402,789,002 402,789,002
Portfolio net asset value per
share 124.62p 120.68p
2. ADJUSTED EARNINGS PER SHARE - PORTFOLIO NAV BASIS
Summary Consolidated Statement 31 December 31 December
of Comprehensive Income 2022 2021
GBP'000 GBP'000
Net rental income 35,227 33,117
Other income 110 -
Expenses (7,866) (6,926)
Fair value gains on investment
property 71,830 58,973
Loss on fair value adjustment
on assets held for sale (885) (515)
Finance income 56 44
Finance costs (10,889) (6,823)
Value of each pool 87,583 77,870
------------- -------------
Weighted average number of shares
(excluding treasury shares) 402,789,002 402,789,002
Adjusted earnings per share -
basic 21.74p 19.46p
3. EPRA Net Reinstatement Value
31 December 31 December
2022 2021
GBP'000 GBP'000
IFRS NAV/EPRA NAV (GBP'000) 439,285 436,113
Include:
Real Estate Transfer Tax* (GBP'000) 41,283 39,492
------------- -------------
EPRA Net Reinstatement Value
(GBP'000) 480,568 475,605
------------- -------------
Fully diluted number of shares 402,789,002 402,789,002
------------- -------------
EPRA Net Reinstatement value
per share 119.31p 118.07p
------------- -------------
* Purchaser's costs
4. EPRA Net Disposal Value
31 December 31 December
2022 2021
GBP'000 GBP'000
IFRS NAV/EPRA NAV (GBP'000) 439,285 436,113
Include:
Fair value of debt* (GBP'000) 70,774 (2,059)
------------ -----------------------
EPRA Net Disposal Value (GBP'000) 510,059 434,054
------------ -----------------------
Fully diluted number of shares 402,789,002 402,789,002
------------ -----------------------
EPRA Net Disposal Value** 126.63p 107.76p
------------ -----------------------
* Difference between interest-bearing loans and borrowings
included in balance sheet at amortised cost, and the fair value of
interest-bearing loans and borrowings.
**Equal to the EPRA NNNAV disclosed in previous reporting
periods .
5. EPRA Net Tangible Assets
31 December 31 December
2022 2021
GBP'000 GBP'000
IFRS NAV/EPRA NAV (GBP'000) 439,285 436,113
EPRA Net Tangible Assets (GBP'000) 439,285 436,113
------------ ------------
Fully diluted number of shares 402,789,002 402,789,002
------------ ------------
EPRA Net Tangible Assets * 109.06p 108.27p
------------ ------------
*Equal to IFRS NAV and previous EPRA NAV metric as none of the
EPRA Net Tangible Asset adjustments are applicable as at 31
December 2022 or 31 December 2021.
6. EPRA net initial yield (NIY) and EPRA "topped up" NIY
31 December 31 December
2022 2021
GBP'000 GBP'000
Investment Property - wholly-owned
(excluding head lease ground rents) 666,253 639,831
Less: development properties - -
------------ ------------
Completed property portfolio 666,253 639,831
Allowance for estimated purchasers'
costs 41,283 39,492
------------ ------------
Gross up completed property portfolio
valuation 707,536 679,322
------------ ------------
Annualised passing rental income 38,626 35,343
Property outgoings - -
------------ ------------
Annualised net rents 38,626 35,343
------------ ------------
Contractual increases for lease
incentives 349 443
------------ ------------
Topped up annualised net rents 38,975 35,785
------------ ------------
EPRA NIY 5.46% 5.20%
EPRA Topped Up NIY 5.51% 5.27%
7. ONGOING CHARGES RATIO
31 December 31 December
2022 2021
GBP'000 GBP'000
Annualised ongoing charges 7,018 6,671
Average undiluted net assets 437,699 432,382
Ongoing charges 1.60% 1.54%
8. EPRA VACANCY RATE
31 December 31 December
2022 2021
GBP'000 GBP'000
Estimated Market Rental Value
(ERV) of vacant spaces - 93
Estimated Market Rental Value
(ERV) of whole portfolio 38,975 35,785
------------ ------------
EPRA Vacancy Rate - 0.26%
9. EPRA COST RATIO
31 December 31 December
2022 2021
GBP'000 GBP'000
Total administrative and operating
costs 7,866 6,926
Gross rental income 37,300 33,117
------------ ------------
EPRA cost ratio 21.09% 20.91%
------------ ------------
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