TIDMRESI
RNS Number : 2269I
Residential Secure Income PLC
01 December 2022
1 December 2022
Residential Secure Income plc
("ReSI" or the "Company")
Full Year Results to 30 September 2022
Growing, higher quality income drives increased dividend and
return to full coverage in Q4
Residential Secure Income plc (ReSI plc) (LSE: RESI), which
invests in independent retirement living and shared ownership to
deliver secure, inflation-linked returns, is pleased to announce
its Annual Results for the year ended 30 September 2022.
EPRA Net Tangible IFRS Net Asset
Assets (NTA) Value
------------------------------
GBP mn Pence GBPmn Pence
per share per share
-------- ------------ ------- ------------
Net Asset Value at 30 Sept
2021 184.7 107.9 182.4 106.6
-------- ------------ ------- ------------
Net income for period 8.9 5.0 8.9 5.0
-------- ------------ ------- ------------
Valuation change [i] 3.0 1.8 3.2 1.8
-------- ------------ ------- ------------
One- off costs & net share
issuance impact (1.0) (0.5) (1.0) (0.5)
-------- ------------ ------- ------------
Debt valuation / indexation
[ii] (5.2) (2.9) 1.8 1.1
-------- ------------ ------- ------------
Proceeds from additional
shares issued 15.2 N/A 15.2 N/A
-------- ------------ ------- ------------
Dividends paid (9.2) (5.2) (9.2) (5.2)
-------- ------------ ------- ------------
NAV at 30 Sept 2022 196.5 106.1 201.4 108.8
-------- ------------ ------- ------------
Total Return 5.8 3.4 13.0 7.3
-------- ------------ ------- ------------
Growing dividend, covered by rising higher quality income
-- EPRA Adjusted Earnings [iii] up 18% to 5.0 pence per share ("p")
(FY 2021: 4.2p)
-- Dividend up 3.20% to 5.16p
-- Dividend 97% covered by recurring income in the year, return to
full cover in Q4'22
-- Rental operating profit up 36% to GBP 8.4mn (FY 2021 : GBP6.2
mn )
-- GBP31mn of accretive shared ownership acquisitions, fully deploying
February 2022's GBP15mn capital raise
Strong rental growth with tight occupancy - solid rent
collection maintained
-- Like-for-like rental growth of 4.5% (FY 2021: 1.5%) with 3.7% in H1 and 5.1% in H2
-- 100% like-for-like shared ownership occupancy (99% including new homes acquired in September)
-- Retirement occupancy above pre-pandemic levels, at 94% in FY 2022 (FY 2021: 93%)
-- Rent collection remains at 99%
Valuations impacted by macro environment
-- Total return of 3.4p to give EPRA NTA 106.1p (FY 2021: 107.9p)
-- EPRA net recurring inflation growth in valuations of 9. 4p (11.4p
gain on property valuations less 2p debt indexation which related
to FY 2022)
-- Offset by 9.6p decline caused by 35bps discount rate increase
used in discounted cash flow property valuations resulting from
higher risk-free rates
-- One-offs of debt indexations catch-up from the prior year of 0.9p
and equity & debt issuance costs of 0.5p
Delivering high quality, energy efficient, well-managed
homes
-- ReSI remains focused on residents' wellbeing and improving portfolio
energy efficiency
-- 96% of directly rented properties now EPC rated A-C (FY 2021:
90%) following upgrades during the year
-- Almost 90% satisfaction levels with our in-house property management
team [iv]
-- 54% of retirement residents reported an improvement in their mental
health on moving in [v]
-- Shared owners better shielded from cost of living increases than
outright owners or private renters [vi]
Resilient balance sheet with long-term and low-cost debt
-- Diverse portfolio of 3,284 homes worth GBP383m [vii]
-- 22-year average debt maturity, 90% fixed or hedged with low 2.4%
weighted average coupon
-- 12% reversionary uplift in home values
Outlook: FY 2023 focus on maintaining dividend cover at 5.16p
[viii] . Well positioned for future growth.
-- 97% inflation linked rents provides strong basis for future growth
-- Accelerating tenanted shared ownership opportunities as housing
associations look to fund increasing costs of investing in their
existing stock whilst maintaining development programmes
-- Headwinds in FY 2023 from increasing interest rates on 10% of
debt that is floating and energy costs in our retirement communal
areas
-- Near-term downwards pressure on NTA from rising risk-free rates
used in discounted cash flow valuations
Commenting on ReSI's results, Robert Whiteman CBE, Chairman of
ReSI plc, said:
"We are pleased with ReSI's continued growth in FY 2022 driven
by improving retirement occupancy, strong like-for-like rental
growth, full occupation of our shared ownership portfolio, and
accretive acquisitions, all underpinned by consistent rent
collection - positioning ReSI well for next year.
"ReSI has built a platform of resilient cash-generative assets
and low-cost, long-term debt which, when paired with the robust
governance from its for-profit Registered Provider and Gresham
House's resources and partnerships, provides a strong basis for
future growth.
"The current high inflationary environment is raising the cost
of living for citizens across the country and at the same time the
UK is entering into a recession. Now, more than ever, ReSI's
investment thesis is supported by a growing need for affordable
housing in the UK, across the age spectrum. The country's
structural housing shortfall continues and most of the population
lives in areas where home purchase is unaffordable.
"The Board remains confident that ReSI is well positioned to
help address the growing unmet demand for affordable housing."
Ben Fry, Managing Director of Housing at Gresham House
added:
"The current cost of living crisis is having a huge impact
across the country and impacts both ReSI and the lives of our
residents. Through 2022 and beyond we continue to balance returns
and investing in our portfolio with ensuring the affordability of
our homes for our residents and the long-term resilience of our
income.
"The UK has a substantial shortage of affordable housing, which
is only getting worse as housing associations face unpresented
pressure on their own resources - making it harder for them to
deliver the new long-term investment that is desperately required
to deliver new affordable homes.
"This is leading to an increase in housing associations looking
to partner with long-term patient capital, such as ReSI, to
continue to deliver much needed new affordable homes whilst
continuing investment in their existing 2 million homes."
Analyst and Investor Presentation and Annual Report
ReSI will host an online webinar and Q&A session for
analysts and investors to discuss the results later today (1
December 2022) at 9:00am. Registration is available via
https://greshamhouse.zoom.us/webinar/register/WN_6SwbaRFkSaan3tXkdBc9iw
.
The accompanying presentation will be made available shortly
after the webinar on the Company's website at
https://www.resi-reit.com/company-documents .
A copy of the pdf Annual Report is available on the Company's
website at https://www.resi-reit.com/company-documents where
further information on the Company can also be found. The Annual
Report has also been submitted to the National Storage Mechanism
and will shortly be available at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism .
i For EPRA NTA, property valuation of GBP3.0mn, net of GBP0.2mn
revaluation of trading properties
ii For EPRA NTA movement reflects indexation of USS debt of
which GBP3.7mn / 2.0p related to FY 2022. The Company has elected
to carry this debt at fair value through profit and loss. In
accordance with the EPRA Best Practice Recommendations, EPRA NTA
should reflect the amortised cost of the debt rather than its fair
value. In the current period, an adjustment has been made for
GBP5.2mn which represents the difference between fair value and
what amortised cost would have been had the Company carried the
debt at amortised cost. No adjustment was made in the prior year as
it was immaterial. The charge would have been GBP1.5mn for the year
ended 30 September 2021.
iii EPRA adjusted earnings is EPRA earnings adjusted for income
and costs which are not recurring and is equivalent to IFRS profit
after tax before one-offs and valuation adjustments
iv Source: ReSI Housing Customer Survey
v Source: Retirement residents customer survey
vi Company internal calculation. Full calculation and
assumptions disclosed in cost of living section of the FY 2022
accounts
vii Including 40 homes that are committed acquisitions
viii The dividend target is a target only and not a profit
forecast. There can be no assurance that this target will be met
.
For further information, please contact:
ReSI Capital Management Limited / Gresham
House Housing
Ben Fry
Brandon Holloway +44 (0) 20 7382 0900
Peel Hunt LLP
Luke Simpson
Huw Jeremy +44 (0) 20 7418 8900
KL Communications gh@kl-communications.com
Charles Gorman +44 (0) 20 3995 6673
Charlotte Francis
Millie Steyn
About ReSI plc
Residential Secure Income plc ("ReSI plc" LSE: RESI) is a real
estate investment trust (REIT) focused on delivering secure,
inflation-linked returns with a focus on two resident sub-sectors
in UK residential - independent retirement rentals and shared
ownership - underpinned by an ageing demographic and untapped and
strong demand for affordable home ownership.
ReSI plc targets a secure, long-dated, inflation-linked dividend
of 5.16 pence per share p.a. (paid quarterly) in FY23 and a total
return in excess of 8.0% per annum [ix] . As at 30 September 2022,
including committed acquisitions, ReSI plc's portfolio comprises
3,284 properties, with an (unaudited) IFRS fair value of GBP383mn
[x] .
ReSI plc's purpose is to deliver affordable, high-quality, safe
homes with great customer service and long-term stability of tenure
for residents. We achieve this through meeting demand from housing
developers, housing associations, local authorities, and private
developers for long-term investment partners to accelerate the
development of socially and economically beneficial affordable
housing.
ReSI plc's subsidiary, ReSI Housing Limited, is registered as a
for-profit Registered Provider of social housing, and so provides a
unique proposition to its housing developer partners, being a
long-term private sector landlord within the social housing
regulatory environment. As a Registered Provider, ReSI Housing can
acquire affordable housing subject to s106 planning restrictions
and housing funded by government grant.
About Gresham House and Gresham House Real Estate
Gresham House is a London Stock Exchange quoted specialist
alternative asset manager committed to operating responsibly and
sustainably, taking the long view in delivering sustainable
investment solutions.
Gresham House Real Estate has an unparalleled track record in
the affordable housing sector over 20 years, with senior members
having an average of c.30 years' experience.
Gresham House Real Estate offers long term equity investments
into UK housing, through listed and unlisted housing investment
vehicles, each focused on addressing different areas of the
affordable housing problem. Each fund aims to deliver stable and
secure inflation-linked returns whilst providing social and
environmental benefits to its residents, the local community, and
the wider economy.
Further information on ReSI plc is available at
www.resi-reit.com, and further information on Gresham House is
available at www.greshamhouse.com
ix The dividend target and total return target are targets only
and are not profit forecasts. There can be no assurance that either
target will be met, and they should not be taken as an indication
of the Company's future results.
x Excluding the finance lease gross up and including GBP9mn of
committed acquisitions.
Annual Report & Accounts 2022
Residential Secure Income plc
30 September 2022
Strategy and Performance
Purpose
Residential Secure Income plc (LSE: RESI) is a real estate
investment trust (REIT) focused on delivering secure,
inflation-linked returns with a focus on two residential
sub-sectors in the UK - independent retirement rentals and shared
ownership - underpinned by an ageing demographic and untapped,
strong demand for affordable homeownership.
Our purpose is to deliver affordable, high quality, safe homes
with great customer service and long-term stability of tenure for
residents. We achieve this through meeting demand from housing
developers (housing associations, local authorities and private
developers) for long-term investment partners to accelerate the
development of socially and economically beneficial affordable
housing.
Portfolio Snapshot
We invest in UK affordable homes to deliver secure inflation
linked income
3,284 GBP383mn 926
Homes Value of Investment Unique UK property
Including 41 committed Property* locations
acquisitions including GBP9mn committed
acquisitions 30 September 2021:
30 September 2021: 793
3,051 30 September 2021:
GBP351mn
See note 17 on page
146
---------------------------- ----------------------------- ---------------------------
GBP16.0mn 5.0% 2,608
Net rental income for Annualised net rental Number of counterparties
the year to 30 September yield*
2022 30 September 2021:
30 September 2021: 2,356
Year to 30 September 4.9%
2021: GBP13.2mn See Supplementary
See note 6 on page Information on page
141 172
* Alternative performance
measure
---------------------------- ----------------------------- ---------------------------
Portfolio split by region
Region Count
East Midlands 74
East of England 835
Greater London 478
North East 19
North West 259
Scotland 5
South East 788
South West 590
Wales 53
West Midlands 90
Yorkshire and The Humber 93
Total 3284
Portfolio split
Our Portfolio Focus
ReSI has diversified secure inflation-linked income streams from
residential sub-sectors with strong supply and demand imbalances
and supportive property fundamentals
Independent Retirement Living Shared Ownership Housing
Housing (GBP137mn GAV [1] / 780
(GBP219mn GAV / 2,215 Homes Homes / 36% of portfolio)
/ 57% of portfolio)
Driver Booming and increasingly Huge untapped demand for
lonely older population affordable homeownership
-------------------- ----------------------------------------- ---------------------------------
Summary Let to elderly residents Homebuyers acquire a share
with affordable rents and in a residential property
assured tenancies and rent the remainder
Provides fit-for-purpose Helps house buyers acquire
homes for retirees, allowing homes they would otherwise
them to maintain their independence be unable to buy
without care provision Capital grant funding from
government allows total
shared ownership housing
costs to be c.40% below
the level expected for renting
an equivalent property in
the private rented sector
-------------------- ----------------------------------------- ---------------------------------
Rent growth Increase with RPI each year, Increase contractually by
capped at 6.0% RPI + 0.5% each year
-------------------- ----------------------------------------- ---------------------------------
Secure income Rental income paid from Subsidised rents c.30% below
pensions and welfare market
Homebuyer equity stake
-------------------- ----------------------------------------- ---------------------------------
ReSI origination Scale: UK's largest private ReSI Housing - for-profit
advantages independent retirement rentals Registered Provider of Social
business Housing
Specialist in-house 25-person Unique 45-year, 0.9% coupon,
investment team with over RPI linked USS debt facility
20-year track record
-------------------- ----------------------------------------- ---------------------------------
Average vacant c.GBP110,000 per home c.GBP328,000 per home
possession value
[2]
-------------------- ----------------------------------------- ---------------------------------
Net Yield on
Cost 5.2% 3.6%
-------------------- ----------------------------------------- ---------------------------------
Levered Yield
on Cost 6.7% 7.5%
-------------------- ----------------------------------------- ---------------------------------
Average customer 6 years 250 years
stay / length
of lease [3]
-------------------- ----------------------------------------- ---------------------------------
Annualised like
for like rental
growth 4.6% 5.4%
-------------------- ----------------------------------------- ---------------------------------
September 2022 94% 100% [4]
Occupancy
-------------------- ----------------------------------------- ---------------------------------
Financial Highlights
as at 30 September 2022
Income
5.0p / +19% 7.4p 4.5%
Adjusted Earnings Per IFRS Earnings Per Share Like-for-like rent
Share* growth*
Year ended 30 September
EPRA Adjusted Earnings 2021: 6.6p Year ended 30 September
Per Share Year ended See note 15 on page 2021: 1.5%
30 September 2021: 145
4.2p
See note 15 on page
145
--------------------------- -------------------------- --------------------------
5.16p / + 3.2% 97% GBP9.0mn / +26%
Dividend per share Dividend coverage* Recurring profit before
change in fair value
Year ended 30 September Year ended 30 September and property disposals*
2021: 5.0p 2021: 85%
See note 15 on page Year ended 30 September
145 2021: GBP7.1mn
See note 15 on page
145
--------------------------- -------------------------- --------------------------
3.3% 7.1%
Total Return (on Opening Total IFRS Return (on
NTA)* Opening NAV)
Year ended 30 September Year ended 30 September
2021: 7.5% 2021: 6.2%
See Supplementary See Supplementary
information on page information on page
-- --
--------------------------- --------------------------
* Alternative performance
measure
108.8p / +2.0% GBP383mn 3.4% (6.4mn shares
IFRS Net Asset Value Value of Investment )
per share Property [5] * Of the total number
of shares held by the
30 September 2021: 30 September 2021: Fund Manager, current
106.6p GBP351mn and founder directors
See Note 32 on page See Note 17 on page of the Fund Manager,
157 146 and directors of ReSI
plc as at the date
of this Annual Report
(30 September 2021:
2.4% or 4.1mn shares)
--------------------------- ----------------------------- --------------------------
47% 22 Years 106.1p / -1.7%
Loan to Value Ratio Weighted Average Remaining EPRA Net Tangible Asset
(LTV) Life of Debt Value (NTA) per share*
30 September 2021: 30 September 2021: 30 September 2021:
47% 22 years 107.9p
See Note 36on page See Note 32on page
159 157
--------------------------- ----------------------------- --------------------------
2.4%
Weighted Average Cost
of Debt
30 September 2021:
2.3%
--------------------------
Chairman's Statement
Rob Whiteman CBE
Chairman
"Reduction in retirement voids, strong like for like rental
growth, full occupation of our shared ownership portfolio as well
accretive acquisitions have driven the growth seen in ReSI's
underlying financial results for the year, all underpinned by
consistent rent collection - positioning ReSI well for next
year"
Summary
The past year has continued to demonstrate that despite
volatility in both the economic and political environment the need
for high-quality affordable housing continues to increase, a trend
we expect to continue through 2023.
I am pleased to report ReSI's portfolio continues to be
defensive and positioned to weather economic stress. Demand for our
high-quality affordable accommodation continues to be strong,
whether in our existing portfolio or our newly acquired homes. This
has been illustrated by ReSI delivering strong 4.5% like for like
rental growth whilst increasing occupancy in our retirement
portfolio to its highest ever level (averaging 94% for the year)
and fully occupying our shared ownership portfolio. All underpinned
by our consistent 99% rent collection. ReSI now owns a portfolio of
3,284 homes worth GBP383mn (including commitments to acquire 41
homes for GBP9mn) and we have grown our adjusted earnings by 26%
year on year to GBP9mn.
ReSI raised GBP15mn of equity in February to grow our shared
ownership portfolio, the proceeds of which are fully invested in
286 shared ownership homes, the full year impact of which will
continue to drive performance in FY 2023.
ReSI's social value is demonstrated by extending affordable
housing to under-served segments of the housing market: primarily
providing affordable housing to retirees to live with peers and
avoid loneliness; and providing high quality and spacious
affordable homeownership to lower and middle-income households
through shared ownership.
Importantly, the economic environment and cost of living crisis
impacts the lives of our residents, and we will continue to balance
rent increases and investing in our portfolio with ensuring the
affordability of our homes for our residents and the long-term
resilience of our income. For example, retirement rent increases
have been capped at 6.0% during the year, generating an annual
saving of GBP164k p.a. for retirees. We also offer further rent
caps and rent freezes to provide financial support to our
retirement residents most in need. This support has grown from
GBP32k in the six months to March to a total annualised amount for
the year of GBP86k.
Furthermore, we continue to aim to be a best-in-class provider
of affordable housing and drive an improvement in standards across
the sector. In shared ownership, ReSI Capital Management Limited
(the "Fund Manager") has unique Customer and Environmental Charters
setting out commitments to our residents and stakeholders, and we
continue to invest in improving the energy efficiency of our
retirement portfolio and investing in technology to make the lives
of our residents easier. During the current year, ReSI has focused
on the least energy efficient homes within its portfolio and has
upgraded 61% of our D rated directly-rented retirement homes to a
minimum EPC of C, marking great progress on our plan to achieve
this for all by 2025 - a key part of ReSI's ambition of reducing
the carbon footprint of our portfolio.
Net Asset Value and Results
ReSI's FY 2022 financial results build on the earnings growth
produced in FY 2021. This growth was driven by reducing retirement
voids throughout the year, rent increases across all three asset
classes, continued progress in occupying our shared ownership
portfolio and substantial shared ownership investments
acquisitions.
These factors and ReSI's disciplined approach to selecting and
managing investments helped deliver GBP9.0mn of EPRA adjusted
earnings, up 24% from GBP7.1mn last year. This is equivalent to
5.0p per share (FY 2021 4.2p) in line with EPRA adjusted earnings
of 5.0p (FY 2021 4.2p) (See Note 15).
The portfolio's valuation, assessed by Savills, rose GBP2mn, or
0.6% on a like-for-like fair value basis for year, to GBP383mn
(including GBP9mn committed acquisitions). This was driven by 4.5%
like-for-like rental growth, largely offset by year-over-year
increases of 35bps in the weighted average discount rates, caused
by increases in risks free rates over the year. This increase in
discount rates was the largest drag on ReSI's performance in the
year.
After accounting for debt indexation and one-offs, ReSI produced
a total EPRA NTA return of 3.4p per share (3.1%) during the
financial year, or 4.6p (4.3%) total return on a recurring basis
[6] . After paying a dividend of 5.16p per share, the EPRA NTA per
share decreased 2% to 106.1p during the year to 30 September 2022
(1% decline on a recurring basis).
IFRS earnings per share for the year were 7.4 pence per share
(6.8%), leading to an increase in the IFRS NAV by 2.0% to 108.8p
after paying out the 5.16p dividend. The difference to EPRA NTA
returns is primarily caused by an increase in the amortised cost
value of debt (EPRA) versus fair value of debt (IFRS) of 3.9p
(GBP7.0mn). A full summary of ReSI's performance and a breakdown of
our returns is included in the performance section of the Fund
Manager's Report.
Dividend Outlook
Dividends totalling 5.16p were declared for the year, matching
our target increase of 3.1% versus the prior year, in line with
September 2021 CPI, reflecting the inflation-linkage of the
portfolio. The dividend is paid in equal quarterly dividends of
1.29p.
Our dividend was 97% covered by recurring income in the year,
with the drop below 100% primarily reflecting the impact of ReSI's
capital raise in February, and the lag on dividend coverage whilst
this was deployed. Full dividend coverage returned in Q4 once these
new investments were onboard.
We anticipate that FY 2023 will see earnings growth from
inflation-linked rents, as well as shared ownership acquisitions
and leasing activity, but this could be offset by one-off operating
expenses increasing ahead of rent increases (driven by ReSI's
retirement rentals operations where we are responsible for energy
costs in communal areas) and increases in floating-rate interest
expenses.
In light of these headwinds, we are currently focused on
maintaining (and growing beyond) dividend coverage on a dividend in
line with FY 2022 at 5.16p per Ordinary Share. Any revision or
adjustment to the dividend target will require greater confidence
that interest rates have peaked, and energy costs stabilised. For
FY 2024 and beyond these one-offs could be static or potentially
reduce, allowing for higher dividends and supporting our goal over
the longer term delivering sustained dividend growth that broadly
tracks inflation.
This approach will allow ReSI to balance long-term inflation
linked returns whilst continuing to pay attractive dividends to
shareholders.
Continuation Vote
The Company's articles of association require the Board to
propose a continuation vote as an ordinary resolution at the Annual
General Meeting (AGM) following the fifth anniversary from the
initial public offering (IPO) of the Company and at every fifth AGM
thereafter. The first resolution is expected to be presented at the
AGM in January 2023. Following discussions with a number of
shareholders and on the basis of the growth seen since the IPO, the
long term nature of its assets with supporting debt funding and the
attractiveness of the Company's low risk inflation linked income,
the Directors are of the opinion that the continuation resolution
at the forthcoming AGM will be passed.
Outlook
The current high inflationary environment is raising the cost of
living for citizens across the country at the same time the UK is
entering into a recession. Now, more than ever, the Company's
investment thesis is supported by a growing need for affordable
housing in the UK, across the age spectrum. The country's
structural housing shortfall continues and most of the population
lives in areas where home purchase is unaffordable.
The British Property Federation estimates a need for an extra
GBP34bn per annum of investment into affordable housing over the
next decade to start to tackle the shortfall. Housing associations,
who have historically been the primary investors in affordable
housing, are now dealing with rent caps on their social and
affordable rent portfolios in addition to allocating c.GBP10bn for
fire safety and c.GBP25bn to upgrade the energy efficiency of their
stock 2030 [7](, [8]) . These financial pressures reduce their
ability to provide new affordable homes, and further support for
new long-term investment in the sector.
The Government continues to encourage new investment,
particularly through its Homes England's Affordable Homes
Programme, which provides total funding of GBP12.2bn to help
subsidise 180,000 new affordable homes by 2026. We remain excited
by the opportunity to help housing associations recycle their
capital with developers to deliver new affordable homes, helping to
meet the critical shortage of affordable homes for independent
retirement living and homeownership and in turn delivering
inflation-linked income to our investors.
ReSI has built a platform of resilient cash-generative assets
and low-cost, long-term debt which, when paired with the robust
governance from its for-profit Registered Provider and Gresham
House's resources and partnerships, provides a strong basis for
future growth. The Board remains confident that ReSI is well
positioned to help address the growing unmet demand for affordable
housing, and ReSI is also well positioned to deliver long-term
inflation-linked dividends and capital growth.
Promotion of Ben Fry and semi-retirement of Alex Pilato
The Board of ReSI supported the promotion of Ben Fry to lead the
housing division of Gresham House and would like to take the
opportunity to thank Alex Pilato for his contribution to ReSI to
date and continuing in his new role as Senior Adviser.
Annual General Meeting (AGM)
The AGM will be held on 31 January 2023. We hope you will join
us, raise any questions or provide any feedback - as valued
stakeholders (among others), your input is always welcome.
Shareholders are encouraged to make use of the proxy form provided
in order to register votes in advance of the AGM through ReSI's
Company Secretary, Computershare.
As always, the Board is grateful for the continued support of
ReSI's shareholders and the contribution of its advisers.
Rob Whiteman
Chairman
Residential Secure Income plc
1 December 2022
Investment Case
Why ReSI?
ReSI's portfolio delivers 97% inflation-linked income, which is
generated from affordable and secure rents and supported by strong
market drivers in shared ownership housing and independent
retirement living.
Secure long-term inflation-linked income
5.16p FY 2022 target, paid quarterly
ReSI's business model is:
Supported by: Creating: Executed by:
Strong market drivers Measurable impact Expert manager
Aging population, declining Providing affordable c.60-person housing team
home affordability, supportive high-quality, energy with over 20-year track
Government policy efficient homes for life, record in UK housing
and addressing elderly
loneliness
ReSI's income is:
Diverse Asset-backed Affordable
3,284 households diversified Underpinned by c.GBP454mn Low retirement rents
across ages and stages home value with 12% uplift [9] paid from pensions
of life from reversionary surplus and welfare
Subsidised shared ownership c.GBP14mn Government
rents secured by homebuyers' grant supports subsidised
stake rents
for shared ownership
Market Drivers
Supply / demand imbalance from historic undersupply
The UK has a systemic problem with undersupply of affordable
housing that dates back over 30 years. Housing deliveries across
the UK have continued to fall short of the government's target of
300,000 homes delivered annually, and the average UK home price
increased 9.5% year-over-year in September 2022 to GBP295,000.
([10]) Furthermore, homeownership rates have dramatically dropped
over the last 40 years, despite three-quarters of non-home owners
in Great Britain wanting to own their own home. ([11]) Those who
cannot afford to buy typically end up in private rented
accommodation, much of which is unfit for people to live in safely
with PAC finding that 13% of rented homes in England "pose a
serious threat to the health and safety of renters," despite record
rent increases.
The availability of affordable housing in the UK follows similar
trends: in 2021, over 1.1 million households were on local
authorities' housing waiting lists across England, ([12])
reflecting the fact that the annual delivery of affordable homes
(c.50,000) consistently falls well short of the estimated annual
need (c. 145,000). ([13]) Meanwhile housing associations, who are
typically the primary deliverers of affordable housing, are having
to shift investment capacity away from new development towards
portfolio investment costs associated with fire safety and energy
efficiency improvements.
The results of these trends can be seen in the following maps,
which show how median price-to-earnings ratios at the local
authority level have changed over recent decades. In most local
authorities across England, the median earner cannot afford to buy
the median-priced property, as shown in light blue on the map:
It is estimated that c.GBP34bn of additional capital funding is
needed to deliver 145,000 affordable homes annually [14] , and ReSI
aims to help bridge the funding gap.
Stable, long-term, inflation-linked rents
The affordable housing sector has long-term structural demand
drivers, liability matching return characteristics, potential for
growth and insulation from volatility, all resulting in stable
inflation-linked income. It offers a great opportunity for social
impact and, for long-term investors looking for responsible
investment opportunities.
ReSI's rental income streams are diverse and/or secure.
Retirement rental residents pay from pensions and savings, shared
owners have ownership stakes in their homes and the local authority
housing portfolio is leased to Luton Borough Council. ReSI has no
leases with weak credit charities or housing associations. ReSI's
rental income stream is therefore significantly more secure than
those of the supported housing sector, the private rental sector or
commercial real estate.
Rent payments rise each year, typically in line with inflation
for the retirement rental portfolio and contractually linked to
RPI+0.5% for the shared ownership portfolio, offering a secure
income stream and potential growth in asset values over time.
Reducing development appetite from peers
The UK has been delivering around 43,000 new affordable homes
annually over the last five years [15] but this falls significantly
short of need. Savills analysis suggests that a further 60,000 new
affordable homes are needed annually, and that the affordable
housing shortage is most severe in areas with the highest housing
costs, with London and the South East needing over 50% of new
affordable homes to meet demand [16] .
Meanwhile housing associations, who have historically been the
primary investors in affordable housing, are now dealing with rent
caps on their social and affordable rent portfolios in addition to
allocating c.GBP10bn for fire safety and c.GBP25bn to upgrade
energy efficiency of their stock by 2030 [17](, [18]) . These
financial pressures reduce their ability to provide new affordable
homes, and further support for new long-term investment in the
sector. The British Property Federation estimates a need for an
extra GBP34bn per annum investment in affordable housing over the
next decade to begin to address the shortfall in affordable housing
supply.
Investment Team
Gresham House has extensive experience and expertise in
affordable housing:
25-person investment team - senior members with average c.30
years' experience
With some individuals amassing over 40 years of experience,
ReSI's team has deep expertise in multiple residential sectors,
including shared ownership housing and independent retirement
living.
30+ person property management team
In-house property management team allows ReSI to benefit from
scale, and helps ensure a positive resident experience
Over 20-year track record in social housing, raising
>GBP11bn
The Fund Manager's direct parent company, TradeRisks Limited,
has been active within the social housing sector for over 20 years
as a funding arranger and advisor and, over the last five years, as
an investor through ReSI.
Manage GBP 800mn of long-term institutional capital invested
into almost 6,000 homes over last five years
Long-term capital sourced from a diversified pool of investor
types, including pension funds (primarily local government and
corporate) and wealth management companies channelling individual
SIPPS and ISAs.
Founder and manager of Registered Providers of Social
Housing
ReSI Housing Limited, ReSI's wholly-owned Registered Provider of
Social Housing, allows ReSI to invest in shared ownership housing
and receive capital grant funding from the Greater London Authority
and Homes England. Demonstrating strong expertise in the shared
ownership sector, Gresham House, the Fund Manager's parent, has
successfully set-up two Registered Providers of Social Housing
across its housing funds.
Greater London Authority Strategic Partner and Homes England
Investment Partner
Reflecting Gresham House's strong relationships with
government-regulated institutions, the Fund Manager's vehicles have
been awarded nearly GBP34mn in combined grant funding from both
institutions. Gresham House has worked with the government to
improve the shared ownership model in the 2021-2026 capital grant
funding programme, with our aim to continue lifting standards
across the shared ownership sector.
Investment Portfolio
Independent Retirement Rental Housing
GBP219mn GAV / 2,215 Homes / 57% of portfolio
[Map showing geographical Dispersion of retirement
portfolio]
Region Number of homes
==================== =================
East Midlands 25
East of England 331
London 190
North East 19
North West 231
Scotland 5
South East 695
South West 520
Wales 53
West Midlands 57
Yorkshire and The
Humber 89
Grand Total 2,215
Independent Living for retirees
Our portfolio provides an affordable rental independent living
solution for retirement with lifetime tenancies.
In summary, the portfolio:
1. is let to elderly residents with affordable rents and lifetime tenancies;
2. provides fit-for-purpose homes for retirees, allowing them to
maintain their independence without care provision;
3. frees up larger homes for families;
4. generates stable and secure rental income paid from pensions and welfare
5. rents increase with RPI (capped at 6%) each year and are
often set around Local Housing Allowance levels
6. is managed by our in-house 35-person property management and
lettings team, operating under the 'My Future Living' brand
An increasingly lonely and growing older population provides
huge and growing demand for independent retirement renting
There has been a steady upward trend in life expectancy in the
UK, and the average remaining life expectancy of a person reaching
retirement age exceeds 20 years [19] . As a result, 20% of the UK
population is expected to be over 65 by 2026 [20] .
In particular, the core market of over 75s is projected to
nearly double from 2020 to 2050 [21] .
Source: ONS
Just 1% of UK over 60s live in purpose-built retirement housing,
compared to 13% in Australia and 17% in the USA.
There is a very limited pipeline of retirement developments in
the UK, with only 3% of consented developments being designed
specifically for the elderly. Furthermore, t his construction
activity is primarily focused on the top end of the market and not
competitive with ReSI's relatively affordable price points.
Specialist retirement housing is accessible (e.g. with lifts)
and easy to manage, enabling people to live independently in their
own living space to a greater age, whilst still having access to
some level of day-to-day and emergency support.
According to Age UK, over 1 million older people say they always
or often feel lonely [22] . Boomer & Beyond estimates that
nearly one third of UK residents aged 70 and older identify as
modestly satisfied to not at all satisfied with life [23] . Nearly
half of older people in the UK (49% of "over 65s") say that
television or pets are their main form of company, with one
research report claiming that loneliness can be as harmful for our
health as smoking 15 cigarettes a day. Specialised retirement
accommodation helps to foster a sense of community by offering
shared spaces such as a residents' lounge and communal gardens.
Independent retirement rental housing (continued)
CASE STUDY
Everybody needs good neighbours
Interview with Jean - Homeshore House, Seaford
There are many things we can do to stay fit and healthy as we
get older including exercising regularly and eating a healthy diet
- but some experts now believe one of the best ways to age
gracefully is to be sociable.
One lady enjoying the social side of retirement living is Jean
(aged 77 years) who found her perfect apartment.
Last year, Jean sadly lost her husband John to Covid-19 - the
couple were married for over 40 years. Four years ago, they sold
their home in North London and downsized to rent an apartment in
Homeshore House retirement development in Seaford in East Sussex
for a quieter way of life and to be close to the sea.
"We found it was a great decision to move and renting in
retirement is a fantastic option... We used to own a lovely house
but maintaining it was getting harder. We also wanted to free up
some money so we could help our son with a deposit for his own
place."
"I am on an assured tenancy so I can remain here for as long as
I wish, and I really enjoy this stress-free living...
If something needs fixing its sorted very quickly by My Future
Living which is great."
During her career, Jean had been a legal secretary and is still
very active. She particularly enjoys helping organise social events
for residents in the development including bingo evenings, garden
centre visits, pub lunches and golden oldies film afternoons.
Jean loves to keep busy and in her spare time volunteers for two
charities helping people recovering from strokes and people with
sight problems.
Jean comments: "I love being part of the community and helping
get those who want to socialise to get out and about. We also have
a communal greenhouse where we grow and share all our produce with
each other. It's a lovely way to get out, keep busy and meet new
people."
"Homeshore House is the perfect place to live, not only because
the surroundings and gardens are immaculate with trees dotted
everywhere but I've got the beautiful South Downs on one side and
the sea on the other. Right outside the development is a bus stop
which means I can easily get into Brighton and Eastbourne."
She concludes, "When we started our search we looked around and
talked to many different companies but found My Future Living the
most helpful and the easiest to deal with. I would highly recommend
renting in retirement. It's a fantastic way of life without any
worries. What's not to love?"
Shared Ownership Housing
GBP137mn GAV [24] / 780 Homes [25] / 36% of portfolio
Data for map showing geographical dispersion of SO units across
the UK
Shared ownership
Region Count
East Midlands 49
East of England 215
Greater London 288
North East 0
North West 28
Scotland 0
South East 93
South West 70
Wales 0
West Midlands 33
Yorkshire and The
Humber 4
Total 780
Part-buy, part-rent model makes shared ownership the affordable
homeownership solution
Shared ownership provides the affordable route to homeownership
for middle- and lower-income households through a part buy, part
rent model with subsidised rents and low deposit requirements.
In summary, the shared owner:
1. purchases an equity stake in their new home at open market
value. This is known as the "first tranche sale" and is a minimum
of 25% of the value of the property;
2. pays a subsidised rent c.30% below market rent on the
remaining part of the home, which increases annually at
RPI+0.5%;
3. has the option to incrementally purchase additional shares in
their home at the prevailing open market value (known as
"staircasing");
4. typically finances their initial stake with a 90% mortgage; and
5. is responsible for maintenance, repair and insurance, creating strong alignment of interest.
Shared ownership is required to be affordable to incoming shared
owners, which typically means no more than 40% of post-tax income
of new shared owners can be spent on total housing costs (i.e.
mortgage, rent and any service charge).
There are 202,000 shared ownership homes across England, and
around 20,000 new shared ownership homes are delivered annually
(Ministry of Housing, Communities & Local Government, 2021),
making it one of the faster growing housing tenures.
Increased affordability provides huge demand for shared
ownership
Due to lower deposit requirements and discounted rental
payments, shared ownership addresses the affordability barrier that
forces people into a lifetime of private market-rented
accommodation with no certainty of tenure, which makes it more
difficult to feel a member of the community.
The graph below sets out the smallest amount of deposit required
and the minimum income requirement to purchase a home worth
GBP293,000 [26] under shared ownership and outright homeownership.
Compared to outright homeownership, shared ownership is an
affordable step onto the housing ladder that increases the pool of
potentially eligible homeowners by 4.4million people across the
country.
Rising interest rates have made the ambition of homeownership
more expensive for all first-time buyers, however the impact is
less severe on shared owners compared to those who own
outright.
This is because as shared owners only initially acquire a
portion of their home, the size of the mortgage required to
purchase their equity stake is typically much lower than someone
buying a property outright.
As a result, prospective shared owners are much less exposed to
an increase in interest rates compared to typical first time
buyers, with the cost increase for new shared owners, as a result
of a 3% interest rate increase, one quarter of the increase for a
first time buyer buying outright
[27]
The chart below illustrates how homeownership rates have
declined across age cohorts despite the fact that 76% of
non-homeowners in Great Britain want to own a home [28] . We expect
that declining homeownership rates and outright purchase
affordability worsening will continue to drive demand for shared
ownership in 2023.
Interview with Rachel*, a shared ownership resident:
As a single buyer in London, Rachel thought she would be renting
her old flat until she retired. She was then introduced to shared
ownership through a friend, and soon realised the smaller deposit
requirements of the tenure made her ambition of homeownership
possible. Rachel's monthly outgoings under shared ownership were
more or less the same as the rent on her old home, but now her
money is being invested back into her own property.
Rachel emphasised the following as
key benefits of her home:
- Private balcony - "it feels really spacious"
- Location - "I can walk to the station and the town centre is really close by"
- Opportunity to staircase - "I am absolutely planning to increase the share I own over time"
* Not her real name
Local Authority Housing
GBP28mn GAV / 289 Homes / 7% of portfolio
Local authority housing portfolio at a glance
Local authority housing provides homes within Luton for
households who are otherwise homeless, generally because they are
unable to afford private rented accommodation.
ReSI works as a partner with Luton Borough Council and Mears who
manage and maintain the portfolio, with the council taking void
risk.
Increasing housing unaffordability drives demand from local
authorities for partners to house those unable to afford their own
home
The UK is facing significant demand for short-term council
housing nationally - there were 96,060 households in temporary
accommodation as of 30 September 2021, an increase of 1.5% from 30
September 2020 [29] .
Legislation introduced under the Homelessness Reduction Act 2017
placed additional obligations on local authorities for housing
vulnerable/statutory homeless people, creating further pressures on
councils looking to increase their access to emergency and
temporary housing.
Local authorities are increasingly unable to meet demand for
temporary accommodation from their own housing stock, and some
authorities are seeking temporary accommodation outside their own
areas. At the end of September 2021, approximately 27% of
households in temporary accommodation (c.26,000) were in
accommodation in a different local authority district. London
authorities make up 83% of these placements. [30]
There is an increasing reliance on emergency bed &
breakfasts, which are more costly than leasing from the private
sector. Shelter estimate that councils in England spent GBP444mn on
this type of accommodation between April 2020 and March 2021, a
382% increase in the 10 years to 31 March 2021 [31] .
As a result, there is a shortfall between cost and support for
temporary housing in London, the South East and other metropolitan
areas. English local authorities spent at least GBP1.4bn on
temporary accommodation in 2020/21, a c.16% year-over-year
increase. [32]
Rents at ReSI's properties are set at close to long-term market
rent levels, provide a cost saving to local authorities, who often
have to rely on costly pay-nightly accommodation, and bed &
breakfasts.
ReSI serves as a long-term institutional landlord to replace the
numerous individual landlords that local authorities currently rely
upon, helping to address the difficulties that local authorities
have with ensuring adequate standards across their rented
estates.
Strategic Review
KPI Measures
Income Returns
ReSI's key performance indicators (KPIs) are aligned to our
business strategy. These measures are used by the Board and senior
management to actively monitor business performance.
Net property
Adjusted earnings* rental income Rental growth EPRA cost ratio Profit before
(GBPmn) (GBPmn) (%) (%)* tax (GBPmn)
2020 2021 2022 2020 2021 2022 2020 2021 2022 2020 2021 2022 2020 2021 2022
GBPmn GBPmn GBPmn GBPmn GBPmn GBPmn % % % % % % GBPmn GBPmn GBPmn
5.0 7.1 9.0 11.3 13.2 16.0 1.9% 1.5% 4.5% 33% 43% 36% 2.4 11.2 13.3
KPI definition
Adjusted EPRA Gross rental Like-for-like Administrative Profit before
earnings, excluding income after average growth and operating tax is a statutory
valuation movements deducting property on rent reviews costs (including IFRS measure
on investment operating expenses across the portfolio. costs of direct as presented
assets and debt, including ground vacancy) divided in the Group's
and other adjustments, rent paid. by gross rental Consolidated
that are one-off income. Statement of
in nature, which Comprehensive
do not form Income.
part of the
ongoing revenue
or costs of
the business.
Comment
Improved earnings Increase of Improvement in Improved profit
primarily driven 22% delivered cost ratio with before tax
by a reduction primarily from improving performance driven by EPRA
in retirement a 2. 2x increase in our retirement earnings and
voids, like-for-like in shared ownership occupancy and reduction in
rental growth, net rental further deployment value of debt
occupation of income during in shared ownership held at mark
the shared ownership the year, as to market,
portfolio and a result of partially offset
acquisitions. GBP60mn investments by diminished
made in FY year-over-year
2022 and FY growth in property
2021, growing valuation.
the portfolio
by 113%.
4.5% like-for-like
growth in rental
income achieved
during the year
ended September
2022, primarily
driven by
inflation-linked
rent increases
in the retirement
and shared ownership
portfolios.
Notes
See Glossary See Consolidated
See note on page 182 Statement of
See supplementary 6 to the for definition See supplementary Comprehensive
informationon financial and calculation informationon Income.on page
page 172 statements. basis. page 172 130
* Alternative performance measures
Capital Returns
The following KPIs focus on ReSI's strategic priority to
increase overall income returns and improve the resilience and
efficiency of the business model which will support increasing
dividend distributions.
EPRA NTA per IFRS NAV per Total Return Loan to Value Cost of debt
share* (pence) share (pence) on NTA (%)* (LTV) (%) (average) (%)
2020 2021 2022 2020 2021 2022 2020 2021 2022 2020 2021 2022 2020 2021 2022
(0.1)
105.1 107.9 106.1 105.0 106.6 108.8 % 7.5% 3.3% 42% 47% 47% 2.6% 2.3% 2.4%
KPI definition
EPRA NTA is the IFRS NAV per share Return on NTA Ratio of net Average debt
market value at the balance is total return debt to the coupon for
of property assets, sheet date. for the year, total assets the year including
after deducting prior to payment less finance costs and commitment
deferred tax of dividends lease and cash fees.
on trading assets, (excluding movements on a consolidated
and excluding in valuation Group basis.
intangible assets of debt and
and derivatives. derivatives),
expressed as
a percentage
of opening NTA.
Comment
1.7% decline 2.0% increase Returns of 3.3% LTV remained Overall low
in the year to in the year to in FY 2022 (4.3% stable at 47%, cost ultra-long-term
30 September 30 September 2022 recurring total slightly below funding through
2022 driven by primarily driven return) reflecting ReSI's 50% a secured facility,
a 35bps increase by 5.0p earnings 5.0p earnings leverage target. with average
in the weighted reflecting strong offset by a debt maturity
average property earnings results, 35bps increase now at 22 years.
valuation discount along with 2.6p in the weighted Reflecting
rate, which muted reduction in the average property ReSI's small
the uplift in mark-to-market valuation discount 10% exposure
investment property value of debt rate, which to floating-rate
valuations. and property valuation muted the uplift interest debt,
Recuring earnings uplifts. in investment average debt
of 5.0p covered property valuations. coupon increased
97% of dividends c. 10bps to
in the year. (Equivalent 2.4% following
to 7.1% returns increase in
on opening IFRS SONIA during
NAV) the year.
Notes
See supplementary See Consolidated See supplementary See supplementary See note 22
information on Statement of Financial information information for information
page 172for Position on page 172for on page 172for on the Group's
reconciliation calculation. calculation. Borrowings
from IFRS to on page 150
EPRA performance
measures
* Alternative performance measures
The European Public Real Estate Association (EPRA) is the body
that represents Europe's listed property companies. The association
sets out guidelines and recommendations to facilitate consistency
in listed real estate reporting, in turn allowing stakeholders to
compare companies on a like-for-like basis. As a member of EPRA,
the Company is supportive of EPRA's initiatives and discloses
measures in relation to the EPRA Best Practices Recommendations
(EPRA BPR) guidelines.
1. EPRA Earnings per
share
----------------------------------- ------------------------------- ------------------------------
Definition Purpose Result
----------------------------------- ------------------------------- ------------------------------
EPRA Earnings per share A key measure of a company's 4.4p per share for the
excludes gains from underlying operating period 30 September
fair value adjustment results and an indication 2022. (30 September
on investment property of the extent to which 2021: 3.0p)
that are included under current dividend payments
IFRS. are supported by earnings Adjusted EPRA Earnings
per share excluding
one off costs and including
first tranches sales
for the period were
5.0p (30 September 2021:
4.2p)
----------------------------------- ------------------------------- ------------------------------
2. EPRA Net Asset Value (NAV) Metrics
-------------------------------------------------------------------- ------------------------------
Definition Purpose Result
----------------------------------- ------------------------------- ------------------------------
EPRA Net Reinstatement The EPRA NAV set of EPRA NTA GBP196.5mn
Value (NRV): metrics make adjustments or 106.1p per share
Assumes that entities to the NAV per the IFRS at 30 September 2022
never sell assets and financial statements (GBP184.7mn or 107.9p
aims to represent the to provide stakeholders per share at 30 September
value required to rebuild with the most relevant 2021)
the entity. information on the fair
value of the assets
EPRA Net Tangible Assets and liabilities of a EPRA NRV GBP196.5mn
(NTA): real estate investment or 106.1p per share
Assumes that entities company, under different at 30 September 2022
buy and sell assets, scenarios. (GBP184.7mn or 107.9p
thereby crystallising per share at 30 September
certain levels of unavoidable 2021)
deferred tax.
EPRA Net Disposal Value EPRA NDV GBP225.5mn
(NDV): or 121.8p per share
Represents the shareholders' at 30 September 2022
value under a disposal (GBP178.2mn or 104.1p
scenario, where deferred per share at 30 September
tax, financial instruments 2021)
and certain other adjustments
are calculated to the
full extent of their
liability, net of any
resulting tax.
----------------------------------- ------------------------------- ------------------------------
3. EPRA Net Initial
Yield (NIY)
----------------------------------- ------------------------------- ------------------------------
Definition Purpose Result
----------------------------------- ------------------------------- ------------------------------
Annualised rental income A comparable measure 4.1% at 30 September
based on the cash rents for portfolio valuations. 2022
passing at the balance This measure should
sheet date, less non-recoverable make it easier for investors (3.6% at 30 September
property operating expenses, to judge for themselves 2021 Restated
divided by the market how the valuation of
value of the property, a portfolio compares
increased with (estimated) with others.
purchasers' costs.
----------------------------------- ------------------------------- ------------------------------
4. EPRA 'Topped-Up'
NIY
----------------------------------- ------------------------------- ------------------------------
Definition Purpose Result
----------------------------------- ------------------------------- ------------------------------
This measure incorporates The topped-up net initial 4.1% at 30 September
an adjustment to the yield is useful in that 2022
EPRA NIY in respect it allows investors
of the expiration of to see the yield based (3.6% at 30 September
rent-free periods (or on the full rent that 2021 Restated)
other unexpired lease is contracted at the
incentives such as discounted end of the period.
rent periods and step
rents).
----------------------------------- ------------------------------- ------------------------------
5. EPRA Vacancy Rate
----------------------------------- ------------------------------- ------------------------------
Definition Purpose Result
----------------------------------- ------------------------------- ------------------------------
Estimated Market Rental A 'pure' percentage 5% at 30 September 2022
Value (ERV) of vacant measure of investment
space divided by ERV property space that (6% at 30 September
of the whole portfolio. is vacant, based on 2021)
ERV.
----------------------------------- ------------------------------- ------------------------------
6. EPRA Cost Ratio
----------------------------------- ------------------------------- ------------------------------
Definition Purpose Result
----------------------------------- ------------------------------- ------------------------------
Administrative and operating A key measure to enable EPRA Cost Ratio (including
costs (including and meaningful measurement direct vacancy costs)
excluding costs of direct of the changes in a 36% at 30 September
vacancy) divided by Company's operating 2022 (43% at 30 September
gross rental income. costs. 2021 Restated)
EPRA Cost Ratio (excluding
direct vacancy costs)
was 34% at 30 September
2022 (39% at 30 September
2021 Restated)
----------------------------------- ------------------------------- ------------------------------
7. EPRA LTV
----------------------------------- ------------------------------- ------------------------------
Definition Purpose Result
----------------------------------- ------------------------------- ------------------------------
Net debt divided by A key (shareholder-gearing) 46% at 30 September
total property value. metric to determine 2022
the percentage of debt
comparing to the appraised (47% at 30 September
value of the properties. 2021)
----------------------------------- ------------------------------- ------------------------------
Fund Manager's Report
Ben Fry
Managing Director Housing
ReSI offers a unique opportunity for investment into a highly
resilient, inflation linked, scalable solution to the UK's acute
shortage of affordable housing.
Since I last wrote the Fund Manager's Report for ReSI's FY 2022
Interim Results, the wider UK macro environment has shifted
dramatically. The themes through the past twelve months have been
rising inflation and the cost-of-living crisis, rising interest
rates and political uncertainty. We expect that as with the impact
of the 2020 COVID-19 pandemic, the difficult economic environment
will further evidence the resilience of our portfolio of
high-quality affordable housing.
Importantly, these changes not only affect ReSI, but also the
lives of our residents (more on this below in the FY 2023 Outlook
section), and we will continue to balance rent increases and
investing in our portfolio with ensuring the affordability of our
homes for our residents and the long-term resilience of our
income.
Looking backwards, FY 2022 was a year of strong operational
performance and financial achievements for ReSI. During FY 2022, we
continued to invest in and grow our shared ownership portfolio and
raised a further GBP15mn of equity in February, which with
long-term debt from our facility with USS was invested into 286
shared ownership homes worth GBP37mn. ReSI's shared ownership
portfolio now comprises 780 homes (including 41 committed and
representing a 43% increase since 2021 year-end) and represents 36%
of the portfolio mix by valuation.
Among other driving factors, a full year of impact from FY 2021
shared ownership acquisitions helped to generate GBP17.0mn of net
rental income in FY 2022, representing 20% growth compared to the
previous year. Further investment completions and inflation-linked
rent increases should drive additional recurring income growth in
FY 2023.
We increased our FY 2022 dividend to 5.16p per share ("PPS") in
line with September 2021 CPI of 3.1%, reflecting the
inflation-linkage of the portfolio, as targeted twelve months ago.
19% year-over-year growth in EPRA Adjusted Earnings to 5.0p per
share translated to 97% dividend coverage, with ReSI re-achieving
100% dividend coverage in Q4 2022, as the capital from February's
fundraise was deployed.
We have continued to focus on addressing social and
environmental factors that impact our residents in the past year.
Several examples are covered in the Social and Environmental
section below, demonstrating our focus on providing security of
tenure to our residents in an affordable way.
We aim to be a best-in-class provider of affordable housing and
drive an improvement in standards across the sector. For example,
in 2020, ReSI developed a Shared Ownership Customer Charter and a
Shared Ownership Environmental Charter, which are unique in the
shared ownership sector and provide benefits to both shared owners
and our investors. Our aim is for these benefits to be shared by
not just our residents but those in the wider c.200,000 shared
ownership homes across the sector. Our next step towards being a
best-in-class provider involves exploring ways that we can achieve
net-zero-carbon without waiting until the national grid is fully
decarbonised.
ReSI's portfolio now consists of 3,284 homes worth GBP383mn
designed to help make people's housing aspirations achievable.
Whether a retired person looking to move to tailored accommodation
to combat loneliness, or someone who has dreamed of purchasing a
property for their family but has found it to be unaffordable,
ReSI's portfolio caters for residents poorly served by the
mainstream housing market. Our ability to meet these under-served
groups' needs is reflected in the resilience of our portfolio and
strengthens our confidence in the assets in which we invest.
Operational Performance
Net rental income before ground rents grew by 20% year-over-year
to GBP17.0mn, driven by four underlying factors:
reducing retirement voids;
strong like-for-like rent growth;
full occupancy and annualised income of our shared ownership
portfolio; and
accretive acquisitions
and underpinned by:
consistent rent collection
1) Retirement voids:
Income growth delivered [33] : GBP0.2mn / 0.1p per share
Bringing ReSI's property and lettings management in-house in
July 2021, with the formation of ReSI Property Management Limited.
(RPML), is a decision that continues to drive returns. RPML has
continued to focus on improving resident move-in times, which has
helped push retirement void losses to average 6.2% in FY 2022,
below pre-COVID-19 levels of c.7%.
The transfer of this property and lettings management function
now allows the team to work closely with the Fund Manager to
optimise customer service and maximise performance for ReSI.
The focus of this team and level of customer service provided is
evidenced through the results of our recent customer survey [34]
which show that:
84% would recommend renting in retirement
73% had made new friends
98% valued the assured lifetime tenancy as important
Retirement void losses trending below pre-COVID-19 average
2) Strong like-for-like rent growth
Income growth delivered [35] : GBP0.5mn / 0.3p per share
ReSI's rental income is 97% linked to inflation which has
delivered an average 4.5% like-for-like rent growth in the
year.
Shared ownership rents increase annually in April and in 2022,
like-for-like rents grew by 5.4% (excluding properties occupied in
the previous 12 months). This increase reflects September 2021 RPI
of 4.9% + 0.5%, which drives the vast majority of ReSI's shared
ownership rate increases.
Retirement rents increase across the year on the anniversary of
the resident move in date, with like-for-like rental growth of 4.6%
year-over-year (1.5% growth in FY 2021). Whilst the rental market
is very strong, we are very mindful of the financial challenges
facing many residents and are taking a responsible approach to
rental increases, capping all retirement rent increases at 6%
during the year. This represents an annual saving of GBP164k p.a.
for residents, and helps balance rent increases with retention and
long-term affordability.
The 4.6% like-for-like increase in retirement rental income was
partially offset by a c.3% increase in operating expenses, largely
driven by increases in repair and maintenance costs and service
charges.
3) Full occupancy and annualised impact of our shared ownership portfolio :
Income growth delivered [36] : GBP1.7mn / 0.9p per share
Demand for ReSI's shared ownership properties remained robust in
FY 2022 and the same-store portfolio owned by ReSI at September
2021 is fully leased. Furthermore, ReSI benefited from full year
income from acquisitions during FY 2021 of 351 homes from Orbit
Group and Metropolitan Thames Valley housing associations as well
as Brick by Brick.
4) Accretive transactions:
Income growth delivered: GBP0.4mn / 0.2p per share
During FY 2022, ReSI purchased 286 shared ownership homes for
net consideration of GBP37mn (including commitments for 41 homes
for GBP9mn). These acquisitions were funded by GBP15mn of equity
raised in February and debt drawn on the USS credit facility in
March, and are earnings-accretive to ReSI's financial performance.
The transactions with Orbit Group and Brick by Brick were repeat
transactions with counterparties transacted with during FY 2021 and
the deal with HSPG provides a forward pipeline of at least GBP50mn
- evidencing the growing strength of ReSI's relationship
network.
The 227 homes acquired from Orbit Group and HSPG were occupied
and immediately income generating, whilst those 59 (GBP11mn) homes
from Brick By Brick are delivered on a phased basis based on
construction completion beginning in September 2022. At the date of
this Annual Report, 8 of these homes from Brick By Brick were
acquired and occupied, with a further 32 reserved ahead of
completion and 19 available. We continue to see sustained demand
for shared ownership bear out with respect to the Brick by Brick
properties, particularly as increased interest rates mean some
people who could previously have afforded to buy outright or with
Help to Buy can now only afford their own home through shared
ownership. This demand emphasises the important role that shared
ownership housing continues to play in helping mid-to-low-income
earners onto a housing ladder which is otherwise increasingly out
of reach for most people across the country.
5) Consistent rent collection:
ReSI's cash flow is supported by a highly diversified set of
income streams from residents who pay affordable rents. Retirement
rentals residents typically pay their rent from pensions and
savings, and rents are often affordable enough to be materially or
entirely covered by welfare. On average, ReSI's shared ownership
residents own c.37% of their homes and generally pay below-market
rent. The remainder of ReSI's portfolio is local authority housing,
which is leased to Luton Borough Council. ReSI has no leases with
asset light, lease funded, housing associations or charities.
The strength of creditworthiness in ReSI's counterparties is
manifest in ReSI's rent collection rate, which remained at 99% in
FY 2022, consistent with historic performance.
Rent collection through COVID
Financial Performance
Total Return:
ReSI delivered a total EPRA NTA return of 3.4p per share (3.1%)
for the financial year, with growth driven by inflation-linked
increases across the shared ownership and retirement portfolios,
along with operational improvements in our retirement portfolio,
including further improvement in voids.
This 3.4 PPS EPRA return comprises:
-- 5.0p of Adjusted EPRA earnings (see note 15 of the financial
statements - adjusted earnings per share), with recurring income of
GBP8.9mn from regular recurring cash flows; plus
-- 1.8p gain on change in valuation on investment property as
assessed by Savills (GBP3mn) - a 0.6% increase on a like-for-like
fair value basis to a total of GBP383mn (including GBP9mn of
committed acquisitions) as of 30 September 2022. This was driven by
4.5% like-for-like rental growth, partially offset by c. 35 bps
year-over-year increase in the weighted average nominal discount
rates - with shared ownership increasing by c.10 bps to 6.4% and
retirement increasing by c.45 bps to 8.2%; less
-- 2.9p impact of USS debt indexation (GBP5.2mn) of which 0.9
pence related to prior periods (GBP1.6mn),* reflecting the index
linked nature of the debt which follows the increase in shared
ownership rental income; and
-- 0.5p one-off costs (c.GBP1.0mn), relating to the legal costs
of securing further drawdowns from the USS facility and net share
issuance costs.
Excluding the impact of the one-time USS debt indexation
adjustment and one-off costs, ReSI delivered a total recurring EPRA
NTA return of 4.6 PPS (4.3%) .
In line with the FY 2022 dividend target, ReSI paid dividends
during the financial year of 5.16p per share, resulting in an EPRA
NTA decrease of 1.8p for the year.
ReSI delivered a total IFRS return of 7.4p per share (6.8%) for
the year, with the difference to EPRA NTA returns caused by an
increase in the amortised cost value of debt (EPRA) vs fair value
of debt (IFRS) of 3.9p (GBP7.0mn), 0.9p (GBP1.5mn) of which related
to prior periods, and decrease in revaluation of trading properties
of 0.1p per share (GBP0.2mn). This is an IFRS improvement of 2.1p
per share after dividends paid.
Movement in NTA pence per share for the year
NTA at 30/09/21 107.9
Net Income 5.0
Valuation Change 1.8
One-off Costs & Impact of
Share Issuance -0.5
Debt Indexation* -2.9
Dividend Paid -5.2
NTA at 30/9/22 106.1
* The Group has elected to carry this debt at fair value through
profit and loss. In accordance with the EPRA Best Practice
Recommendations, EPRA NTA should reflect the amortised cost of the
debt rather than its fair value. In the current period, an
adjustment has been made for GBP5.2mn which represents the
difference between fair value and what amortised cost would have
been had the Group carried the debt at amortised cost. No
adjustment was made in the PY as it was immaterial. The charge
would have been GBP1.5mn for the year ended 30 September 2021.
Movement in IFRS NAV pence per share for the year
NAV at 30/09/21 106.6
Net Income 5.0
Valuation Change 1.8
Debt Valuation 1.1
One-off debt set
up costs -0.5
Dividend Paid -5.2
NAV at 30/09/22 108.8
Dividend Coverage
ReSI's dividend was 97% covered by recurring income during the
year, including a return to full dividend coverage in Q4 2022. The
drop below 100% primarily reflected the impact of February's
capital raise and the lag on dividend coverage whilst this was
deployed.
The quality of the dividend coverage continues to improve,
reflecting the lease-up of ReSI's shared ownership portfolio with
first tranche sales profits replaced by recurring rental income.
This trend is illustrated by the robust 36% year-over-year increase
in rental operating profit more than offsetting a 49% decrease in
first tranche sales profit to increase total operating profit by
24%. 95% of the H2 2022 dividend was covered by rental operating
profit, which we aim to further improve in FY 2023. We see the
potential for rental dividend coverage to further improve in FY
2023, driven by inflation-linked rent increases in the retirement
rental and shared ownership portfolios.
H1 FY 2021 H2 FY 2021 H1 FY 2022 H2 FY 2022
Rental
Income
Profit
(Excl.
FTS) 5.37 6.98 7.77 9.11
------------------------------ ------------------------------ ------------------------------ ------------------------------
First
Tranche
Sale 0.78 1.23 0.67 0.35
------------------------------ ------------------------------ ------------------------------ ------------------------------
Dividend 8.55 8.55 8.83 9.55
------------------------------ ------------------------------ ------------------------------ ------------------------------
Statement of Comprehensive Income
FY 2022 FY 2021 Variance
------------------------------ -------------
(GBP'000) (GBP'000)
------------------------------ ------------ ------------ -------------
Net rental income 17,016 14,165 20%
First tranche sales profits 510 1,008 -49%
Net Finance Costs (5,588) (5,221) 7%
Management fees (1,867) (1,802) 4%
Overheads (1,119) (1,046) 7%
Adjusted Earnings 8,952 7,104 26%
Adjusted EPS 5.0p 4.2p 20%
------------------------------ ------------ ------------ -------------
IFRS Earnings 13,334 11,221 19%
IFRS EPS 7.4p 6.6p 12%
------------------------------ ------------ ------------ -------------
Adjusted Earnings increased by 24% (GBP1.7mn) on FY 2021 to
GBP9.0mn, driven by the 20% (GBP2.8mn) increase in net rental
income to GBP17.0mn with the deployment of capital;
inflation-linked increases across ReSIs three asset types; and
occupancy gains in both shared ownership and retirement.
This earnings growth comes despite a 49% decrease (GBP0.5mn) in
first tranche sales profits, which reflects the gain on cost we
recognise by selling a portion of a shared ownership home to the
occupiers and is thereafter replaced by ongoing net rental income
from the shared owner. The reduction in this line reflects the
ongoing maturity of ReSI's business and increased quality of income
streams.
The 9% increase in net finance costs to GBP5.6mn reflects a
GBP21mn increase to GBP190mn in notional debt since September 2021,
including GBP20mn debt drawn from USS and GBP5mn increase in
Santander revolver facility to finance shared ownership
acquisitions use during the year partially offset by a GBP3mn
reduction in shorter term floating rate debt and GBP1mn reduction
in fixed rate debt.
Balance Sheet
30 Sep 30 Sep 2021 Variance
2022
(GBP'000) (GBP'000)
Total Investments 374,785 341,128 10%
-------------------------------------------- ----------- ------------- -------------
Inventories - First tranche shared
ownership properties available for
sale 1,203 3,800 -68%
-------------------------------------------- ----------- -------------
Cash and cash equivalents 15,984 8,370 91%
-------------------------------------------- ----------- -------------
Borrowings amortised cost -194,701 -168,339 16%
-------------------------------------------- ----------- -------------
Other -787 -278 182%
EPRA Net Tangible Assets (NTA) 196,484 184,682 6%
EPRA NTA per share (pence) 106.1 107.9 -2%
-------------------------------------------- ----------- -------------
EPRA Net Disposal Value (NDV) 225,455 178,157 27%
EPRA NDV per share (pence) 121.8 104.1 17%
-------------------------------------------- ----------- -------------
IFRS NAV 201,388 182,392 10%
IFRS NAV per share (pence) 108.8 106.6 2%
-------------------------------------------- ----------- -------------
Book Value of Debt 189,705 168,339 13%
Reversionary Surplus (excluded from
NTA) 47,971 40,026 20%
Reversionary Surplus per share (pence) 25.9 23.4 11%
-------------------------------------------- ----------- -------------
Despite recent market turmoil, ReSI's property valuation, as
assessed by Savills, grew during the year by GBP2mn - a 0.6%
increase on a like-for-like fair value basis to a total of GBP383mn
(including GBP9mn committed acquisitions) as of 30 September 2022.
This was driven by 4.5% like-for-like rental growth, partially
offset by c.35 bps year-over-year increase in the weighted average
nominal discount rates applied to shared ownership and retirement
portfolios of c.10 bps to 6.4% and c.45 bps to 8.2% respectively
.
Inventories reflect the amount of unoccupied shared ownership
properties that are expected to be sold to shared owners and are
held at cost. The 68% reduction reflects the full occupation of the
opening shared ownership portfolio made by April 2022 . ReSI
acquired 18 additional untenanted shared ownership properties in
September 2022, of which 8 have since been occupied. As a result,
GBP1.2mn of inventories remain as at 30 September 2022.
Total borrowings increased by GBP21mn over the twelve-month
period to GBP190mn as of 30 September 2022, GBP20mn debt drawn from
USS and GBP5mn increase in Santander revolver facility to finance
shared ownership acquisitions use during the year partially offset
by a GBP3mn reduction in shorter term floating rate debt and GBP1mn
reduction in fixed rate debt.
The EPRA NTA and IFRS NAV measures exclude the reversionary
surplus in our portfolio which stands at GBP48mn. This represents
the difference between the market value of our assets used in our
balance sheet and the value we could realise if they became vacant.
Overall, our portfolio is valued at a 12% discount1, on average, to
its reversionary value.
Financing and Capital Structure
ReSI now has in place GBP189mn (notional value) of fixed rate
and inflation linked debt, with a weighted average coupon of 2.4%,
the vast majority of which is long-term partially or fully
amortising debt at an average maturity of 22 years.
These debt financings form part of ReSI's strategy to target an
overall level of indebtedness of 50% loan to gross asset value and
a low cost of very long-term funding, which together enhance the
returns to equity available to shareholders and minimise exposure
to refinancing, interest rate and covenant risks.
This strategy leaves ReSI's well positioned to withstand today's
rising interest rate environment. With only c.10% floating-rate
debt exposure and a weighted average maturity of 22 years, the 2.4%
weighted average coupon of our existing debt balances should remain
fairly stable for the near-to-mid-term future.
As at 30 September 2022, ReSI has c.GBP31mn of liquidity,
including c. GBP18mn of revolving credit facility capacity. ReSI's
47% leverage remains slightly below our 50% target, with headroom
across debt covenants to withstand moves in income, interest rates
and valuation headwinds that may arise in the future, as shown
below. [37]
Each asset type is secured separately and individually and there
is no cross-collateralization between them. ReSI could sustain a
fall in net operating income by c.30% and remain in compliance with
interest cover covenants. ReSI's investment portfolio is valued on
a discounted cash flow basis on the value of its rental stream
(rather than at vacant possession / retail value) and so has
limited exposure in its valuations to house prices. Sensitivity
analysis shows that investment values could fall by c.13% before
loan to value covenants breaches would arise. ReSI is also able to
cash cure any loan to value covenants using liquidity across the
Group. ReSI's debt on its shared ownership portfolio is fully
amortising and so does not have a loan to value covenant.
During the year, ReSI extended its revolving credit facility
from Santander by GBP15mn to GBP25mn, whilst reducing the interest
rate margin by 55 bps to 2.25% and agreeing a one-year extension of
the facility termination date to March 2025. The expanded GBP25.0mn
facility capacity and reduced interest rate margin allow for more
efficient management of ReSI's working capital and provide
lower-cost bridge financing for future investments.
FY 2022 FY 2021
============================ ========== ==========
Total debt GBP190mn GBP166mn
---------- ----------
LTV (target 50%) 47% 46%
---------- ----------
Leverage on reversion
value 42% 43%
---------- ----------
Weighted average cost 2.4% 2.3%
---------- ----------
Weighted average maturity 22 years 22 years
---------- ----------
Proportion of Floating
Rate debt 10% 9%
---------- ----------
Portfolio Notional
held against value
of debt
drawn Maturity Annual interest
Lender less amortisation date rate
%
Universities Shared ownership
Superannuation 0.9% fixed* (inflation
Scheme GBP77.7mn May 2065 linked)
Scottish Widows Retirement GBP92.5mn June 2043 3.5% fixed
National Westminster Local authority 1.5% + 1 month
Bank GBP12.7mn April 2023 SONIA
All assets 2.25% + 3 month
Santander Bank GBP6.8mn March 2025 SONIA
Total borrowings GBP189.7mn
--------------------
Capital Stack
FY 2022
Debt GBP190mn
Equity GBP201mn
Grant Funding GBP14mn
Reversionary GBP48mn
Surplus
Total GBP453mn
Social and Environmental
We remain committed to delivering measurable social and
environmental impact for the benefit of our residents and the
UK.
Our retirees have benefitted from the rent increase cap of 6%
being applied to all directly-rented retirement properties,
generating a total annual saving of GBP164k. In addition, further
rent caps and rent freezes have been provided to residents who are
most in need, with this support having grown from GBP32k in the six
months to March to a total annualised amount for the year of
GBP86k.
For our shared owners, we offer several services designed to
financially benefit residents, such as providing assignments and
consent for improvements free of charge and offering reverse
staircasing to residents who encounter financial difficulties. Our
commitments to our shared ownership residents are laid out in our
proprietary Shared Ownership Customer and Environmental Charters,
which are available on ReSI's website.
During 2022 we expanded our annual retirement customer survey to
shared owners as well. The survey results help to confirm that the
positive outcomes that ReSI intends to deliver are being
experienced by residents.
Shared ownership
87% of RPML residents are happy or not dissatisfied with their
property management service
80% of residents are satisfied that their home is the same or
better value for money than their previous residence
86% of residents are satisfied that their home is as or more
energy efficient than their previous residence
Retirement
90% of retirement residents are happy or not dissatisfied with
their property management service
73% of residents have made new friends since moving in
54% of residents have experienced improvement in their mental
health since moving in
ReSI continued to invest in improving the energy efficiency of
its retirement portfolio in FY 2022. After upgrading 100% of the
EPC E rated directly-rented properties to at least a D in FY 2021,
FY 2022 saw ReSI embark on its target to upgrade all
directly-rented D rated properties to at least a C by 2025, three
years ahead of the Government target. During the year 61% of the
directly-rented D rated properties have been upgraded to at least a
C, progress that is well ahead of the project timetable. As a
result of this progress, 96% of our directly-rented properties now
have EPC ratings of C or higher. For the whole portfolio, 85% of
the properties are rated C or higher, leaving ReSI well ahead of
the average for the social sector and the overall UK housing market
[38] .
(1) English Housing Survey, 2020-2021
The cost of energy has risen drastically in 2022, and with
further increases scheduled for 2023, the energy efficiency
improvements we are investing in generate real cost saving benefits
to our residents.
Tenure Saving compared to average UK property
(EPC D) [39]
GBP %
------------------------- ---------------
Property with efficiency
of average for ReSI shared
ownership portfolio (EPC
B) 1,213 40%
------------------------- ---------------
Property with efficiency
of average for ReSI retirement
portfolio (EPC C) 456 15%
------------------------- ---------------
Investing in the energy efficiency of our properties is one
important step in our broader net zero plan for ReSI. This year, we
have been engaged with the consultancy Kamma Data, who take an
innovative data-focused approach towards assessing the retrofitting
works that are required to upgrade the energy efficiency of ReSI's
properties to their full potential.
Kamma's report will form part of ReSI's net zero strategy, which
is intended to be announced in 2023. The strategy will include a
pathway to reach operational net zero, including scope 3
operational emissions, followed by a pathway to reach complete net
zero, including operational and embodied scope 3 emissions, with
complete net zero being reached by 2050 at the latest in line with
Government targets.
Whilst improving property energy efficiency will drive a
significant reduction in carbon emissions produced by the
portfolio, it is not possible to reach operational net zero through
retrofitting alone. As a result, to reach operational net zero,
ReSI will either have to wait until the national grid is fully
decarbonised, which is expected to be in 2035, or it will have to
directly procure / invest in its own renewable energy sources. This
is an option that we are currently exploring, with further
information to follow in 2023.
Management Team Transition
On 6 March 2022, Alex Pilato moved to a Senior Advisor role as
part of his transition to retirement . Simultaneously, I was
promoted to be Managing Director of the Housing division of Gresham
House.
In order to support this transition, Brandon Holloway joined in
November 2021 as Deputy Fund Manager, following continued Gresham
House investment in growing the team with Narvinder Khossa as
Director of New Business and Hannah Howard-Jones as Director of
Property also joining in 2021, and Dominic Stead joining in 2022 to
head up our in-house property management team. The Gresham House
housing investment team now comprises 25 people, with senior
members having an average of c.30 years' experience.
Alex remains a member of all boards and committees of the
division and fund vehicles. This change has been planned since the
acquisition of TradeRisks by Gresham House. Alex continues to have
a very strong interest in the success of ReSI with significant
shareholdings.
Outlook
The themes through the past twelve months have been rising
inflation and the cost-of-living crisis, rising interest rates and
political uncertainty. We expect that as with the impact of the
2020 COVID-19 pandemic, the difficult economic environment will
further evidence the resilience of our portfolio of high-quality
affordable housing.
Importantly, these challenges not only affect ReSI, but also the
lives of our residents. Between the underlying strength of credit
for our shared owners, the affordability of the shared ownership
compared to renting on the open market, the financial backstop of
housing benefit and pension funds available to our retirement
residents, and the energy efficiency of ReSI's portfolio compared
to the broader UK, ReSI's residents are relatively well positioned
to weather the current financial environment. For those residents
who fall into acute financial hardship, ReSI offers a range of
financial resources to help mitigate the situation as outlined in
the Social and Evironmental section above.
In addition to potential challenges, the current financial
volatility could also present opportunities in FY 2023. We are
seeing that the number of tenanted shared ownership that will be
available to acquire in FY 2023 will be substantially higher as
housing associations (who hold almost 200,000 shared ownership
homes) look to bring in partners to acquire this stock in order to
continue to fund their 43,000 homes per annum development
programmes whilst also investing GBP25bn by 2030 in the energy
efficiency of their homes [40] .
ReSI's business model is well positioned to thrive in a
high-inflationary environment. More importantly, ReSI has a highly
experienced, capable and cohesive management team, as well as a
dedicated in-house property management team, who are focused on
navigating these uncertain times.
ReSI's long-term amortising debt, with only c.8% floating-rate
debt exposure and a weighted average maturity of 22 years, leaves
ReSI well positioned to withstand today's rising interest rate
environment. The 2.4% weighted average coupon of our existing debt
balances should remain relatively stable for the near-to-mid-term
future, and ReSI has ample headroom across debt covenants.
In the short term, we anticipate that FY 2023 will see earnings
growth from inflation-linked rents, as well as shared ownership
acquisitions and leasing activity, but this could be offset by
one-off operating expenses increasing ahead of rent increases
(driven by ReSI's retirement rentals operations where we are
responsible for energy costs in communal areas) and increases in
floating-rate interest expenses.
These headwinds could make it difficult to increase Adjusted
EPRA Earnings during FY 2023, and so the dividend target for FY
2023 is being kept constant at 5.16p per Ordinary Share. Any
revision or adjustment to the dividend target will require greater
confidence that interest rates have peaked, and energy costs
stabilised.
For FY 2024 and beyond these one-offs could be static or
potentially invert, allowing for higher earnings and dividend
increase.
If FY 2022 was a year of profound change, two themes that remain
unchanged are the UK's worsening shortage of affordable housing,
and how well-positioned ReSI is to meet the two biggest problems in
the housing market:
inability to access homeownership, which has been made worse by
recent strong house price growth; and
growing elderly population requiring suitable accommodation for
independent later living.
What also remains the same is our aim to deliver secure,
inflation-linked returns over the long term to investors, while
providing measurable social and environmental impact to our
residents and the UK.
Ben Fry
Managing Director, Housing
1 December 2022
Environmental and Social Impact
ReSI's approach to Environmental and Social Impact
This section covers some of the key areas of implementation and
other ongoing social impact and environmental initiatives during
the year. There is also further detail relating to the impact of
the Company on its major stakeholders in the Section 172 statement
on page x.
The Board and the Fund Manager believe that sustainable
investment involves the integration of Environmental, Social and
Governance (ESG) factors through all stages of the investment
process and that these factors should be considered alongside
financial and strategic issues during the initial assessment and at
all stages of the investment process.
The Board and the Fund Manager recognise their responsibility to
manage and conduct business in a socially responsible way and many
of the Company's investors, residents and other counterparties have
the same values. Good governance and social responsibility require
that the Company seeks to implement a collaborative approach to
understanding and improving environmental and social performance.
The Fund Manager is responsible for engagement on ESG matters and
dedicates a significant amount of time and resource to focusing on
the ESG characteristics of the properties in which it invests.
Such ESG factors, which were traditionally not part of financial
analysis, are incorporated and prioritised as part of the
investment and due diligence process through the ESG decision tool,
which has been developed by Gresham House's dedicated Sustainable
Investment Team (see ESG Decision Tool section). Ongoing monitoring
of ESG related risks is carried out through investment reviews.
The Fund Manager also gives appropriate consideration to
corporate governance and the representation of shareholder
interests. This is applied both as a positive consideration, and
also to exclude certain investments where the Fund Manager does not
believe the interests of shareholders will be prioritised.
The Fund Manager's parent, Gresham House has a clear commitment
to sustainable investment as part of its business mission. Based on
its Sustainable Investment Framework, it has developed a range of
policies and processes for all asset classes which the Fund Manager
uses to integrate sustainability into its investment approach. More
details can be found in the Housing Sustainable Investment Policy
here:
https://greshamhouse.com/wp-content/uploads/2022/04/Real-Estate-UK-Housing-Sustainable-Investment-Policy-April-22.pdf
Sustainable Investment Framework
The Gresham House Sustainable Investment Framework shown below
is used to structure analysis, monitoring and reporting of ESG
issues and opportunities within the lifecycle of our
investments.
ESG Housing Wheel
To determine the most material themes within the broader
framework when profiling our prospective investments, the ESG
Housing Wheel ("the Wheel") has been developed.
The Wheel sets out the six social and environmental factors that
are most crucial to the Company's sustainable investment strategy,
with measurable objectives identified for each factor.
ESG Decision Tool
The Fund Manager has developed the ESG Decision Tool ("the
Tool"), which is used by the investment team to assess the
performance of prospective investments against six core themes in
the Wheel and to identify potential ESG risks. The Tool contains
two core sections:
Initial Evaluation - An initial assessment of the investment's
performance against the six core social and environmental factors
in the Wheel. The investment will be assessed against measures of
success which have been developed for the six core social and
environmental factors, ensuring that outcomes can be measured and
compared to other investments.
Detailed Questionnaire - This assesses ESG risks in more detail
by guiding the Investment team through a series of potential ESG
risks. The completed questionnaire highlights specific ESG risks
that are the most relevant to the asset.
The investment team are required to mitigate the ESG risks
identified by the Tool as part of the due diligence process for the
investment to be approved.
The Tool helps to ensure that ESG risks and opportunities are
considered from the beginning of the investment process. These
risks and opportunities are then continuously tracked, monitored
and managed after the acquisition phase.
ESG KPIs
To record the social and environmental impact that ReSI
generates through its investments, the Fund Manager has created a
KPI Bank to help drive investment decision making, engagement
planning and enhance stakeholder reporting.
The KPI Bank draws on elements of existing sustainability
frameworks, such as SFDR, while also supplementing these with KPIs
that expand upon the core measures of success contained within the
Wheel and the Tool.
The KPI Bank is designed to improve sustainability practices
within our investments and ensure sufficient progress is being made
against stated ESG ambitions. KPIs are to be monitored to
understand the strengths and weaknesses of an investment and to
subsequently identify any actions for improvement. ReSI intends to
report against its ESG KPI Bank for the first time in the new
year.
Gresham House Sustainable Investment
The Fund Manager's parent, Gresham House, has achieved top
scores in the 2020 PRI (Principles for Responsible Investment)
assessment report, the Group's first assessment since becoming a
PRI signatory in 2018. For its 2021 PRI Report, Gresham House was
awarded 4 and 5 stars, out of a maximum of 5 stars, for all modules
relevant to Gresham House plc. For Real Estate specifically,
Gresham House scored 78% versus a median for the sector of 69%.
Gresham House became a signatory to the UK Stewardship Code in
2021. In September 2022, it was announced that Gresham House had
met the expected standard of reporting for 2021 and will remain a
signatory to the UK Stewardship Code for the second year in a row.
Gresham House has also been awarded the Green Economy Mark from the
London Stock Exchange.
More information on Gresham House's approach to sustainable
investment can be found in its Sustainable Investment Report .
Alignment with UN Sustainable Development Goals (SDGs)
We believe that ReSI's investments support the following UN SDGs
by providing more affordable access to safe, healthy, quality and
energy efficient homes that contribute to local sustainable
communities and support their occupants to enjoy economic and
social inclusion.
Environmental Impact
Measuring and reducing the environmental impact of ReSI's
operations, whilst addressing the risks posed by climate change, is
essential in enabling ReSI to reach its long-term financial
objectives.
It is estimated that carbon emissions produced by residential
buildings account for 20% [41] of all carbon emissions in the UK
and as a result, decarbonisation of the housing sector is a key
focus of the government's net zero strategy. ReSI recognises that
as a responsible landlord, it has a role to play in reducing the
emissions produced by its portfolio and ultimately the wider
housing sector.
This year, ReSI has partnered with the consultancy, Kamma Data
(Kamma), to report on the carbon emissions generated by its
property portfolio. Kamma have produced a report that includes an
assessment of ReSI's Scope 1 and Scope 2 emissions, the Scope 3
operational emissions of ReSI's property portfolio and for the
first time, an assessment of the Scope 3 embodied carbon emissions
produced in developing ReSI's properties.
In addition, Kamma are producing a report on the retrofitting
procedures that are required to improve the energy efficiency of
ReSI's property portfolio further. The report sets out a choice of
fully costed retrofitting pathways that ReSI can take. The full
report will be published during 2023.
Kamma's retrofitting report will form part of ReSI's net zero
strategy, which is intended to be announced in 2023. The strategy
will include a pathway to reach operational net zero, including
Scope 3 operational emissions, followed by a pathway to reach
complete net zero, including operational and embodied Scope 3
emissions, with complete net zero being reached by 2050 at the
latest in line with Government targets .
Whilst improving property energy efficiency will drive a
significant reduction in carbon emissions produced by the
portfolio, it is not possible to reach operational net zero through
retrofitting alone. As a result, to reach operational net zero,
ReSI will either have to wait until the national grid is fully
decarbonised, which is expected to be in 2035, or it will have to
directly procure / invest in its own renewable energy sources. This
is an option that the Fund Manager is currently exploring, with
further information to follow in 2023.
Assessing the energy efficiency of ReSI's portfolio
Currently the most effective method of measuring and reporting a
property's environmental impact is using information gathered from
property level Energy Performance Certificates (EPC). EPC ratings
are a measure of a property's energy efficiency, assigning a
Standard Assessment Procedure (SAP) rating of 1 to 100 (higher
indicates a more environmentally friendly building) and a
corresponding letter grade between A and G. EPC assessments are
performed by third party assessors and therefore provide an
externally-verified method of quantifying the energy efficiency of
each home. EPC ratings are obtained on a property-by-property basis
upon acquisition and are refreshed at set intervals.
EPC Rating SAP Score
A 92 to 100 points
------------------
B 81 to 91 points
------------------
C 69 to 80 points
------------------
D 55 to 68 points
------------------
E (current minimum requirement 39 to 54 points
for rental property)
------------------
F 21 to 38 points
------------------
G 1 to 20 points
------------------
Example Energy Performance Certificate [42]
Government requirements and proposals
In the UK it is a legal requirement that unless exempt, all
directly-rented residential properties must have an EPC rating of
at least E. Examples of exemptions include where it is not possible
to upgrade the property to an E due to the type of walls, the
building is listed, or it costs more than GBP3,500 to upgrade a
home to EPC E.
The Government's energy white paper [43] , which is not yet law
and still in consultation, proposes a minimum EPC of C for new
rental tenancies from 2025 and all rental tenancies from 2028. This
will continue to have exemptions for certain types of property,
including if it costs more than GBP10,000 to upgrade a home to EPC
C and thus the Government's expectation is that only 70% of private
rented homes will reach the new proposed minimum within the
timeframe. Currently only 46% [44] of UK homes meet the target
minimum EPC of C, with 43% D rated and 10% rated E and below.
This consultation does not apply to shared ownership which is
classified as owner-occupied rather than rented accommodation.
ReSI is aware of the regulatory risk posed by the Energy White
Paper and has taken action to position its portfolio to be ahead of
Government legislation through the implementation of Project D, as
described in the targets and progress section of this Annual
Report.
The potential impact of climate change on ReSI and mitigation
methods
In addition to the regulatory risk described above, the Board is
mindful of further risks posed by climate change, notably in the
following areas:
- Overheating risk : rising average temperatures combined with a
greater quantity and quality of property insulation could result in
homes becoming too hot in the summer months. ReSI is aware of this
risk and will balance the need to insulate its homes with the risk
of 'over-insulating' them by making property-by-property
assessments as required.
- Flood risk : rising sea levels could increase the chance of
flooding in homes built near rivers and other bodies of water.
ReSI's investment criteria for new build homes requires that
acquisitions are not developed in medium / high risk flood areas
without appropriate mitigants in place. 100% of the properties
acquired during the year met this standard.
- Demand : Following the rise in energy costs over 2022, sales
teams have advised anecdotally that they are starting to see higher
levels of demand for more energy efficient homes, with this trend
expected to increase further over time. To mitigate against this
risk, ReSI plans to upgrade the energy efficiency of its portfolio
such that it is ahead of its competitors and proposed Government
legislation, as outlined in the Our Targets and Progress
section.
Calculating ReSI's environmental impact: energy efficiency
ratings (EPCs)
At the year end date, 85% of ReSI's portfolio was EPC rated C or
higher, up from 81% last year. This rises to 96% for ReSI's
directly-rented homes.
Just 1% of ReSI's properties are E rated, with 100% of
directly-rented properties rated at D or above. The remaining E
rated properties are primarily shared ownership houses that were
acquired as part of the acquisition of older, tenanted properties
from Orbit, and Housing Manager Flats within the retirement
portfolio that are on license to a third party.
(1) English Housing Survey, 2020-2021
Average EPC Score
EPC rating of ReSI's Homes* C
-------------------
Average UK rating [45] D
-------------------
Minimum rating legally required E
to let out property
-------------------
* Representative sample of all properties assessed - 96%.
The table above evidences that the efficiency of ReSI's
portfolio is well above the UK average, however whilst we are
pleased with progress in this area, we recognise that there is more
work to be done.
Total properties 3,284, representative sample of 96%
assessed
Total directly -rented properties 1,887, 100% of properties
assessed
Our targets and progress
ReSI is committed to positioning its portfolio ahead of the
government's legislation to prevent homes with poor energy
efficiency ratings from being rented. This is because improving the
energy efficiency of our homes will not only reduce risk exposure
to the new proposed legislation, but we believe it will also make
the properties more attractive to potential residents. To this end,
the following steps have been taken in FY 2022
Project D: After successfully ensuring that 100% of
directly-rented E rated properties were upgraded to at least a D in
FY 2021, FY 2022 saw ReSI embark on its target to upgrade all
directly-rented D rated properties to at least a C by 2025, three
years ahead of the Government's proposal for all non-exempt rental
tenancies to be upgraded to C by 2028. This workstream is known as
Project D. During the year, 113 directly-rented properties have
been upgraded to at least a C, representing 61% of the total. The
progress made this year means that we are ahead of schedule for
completing the project. Properties have been upgraded through a
combination of retesting and retrofitting works, such as replacing
older heating systems and fitting insulating heat jackets on water
heaters.
Housing Manager Flats (HMFs): The Housing Manager Flats in
ReSI's retirement portfolio are on licence to a third-party, who is
responsible for the maintenance of the properties. Nevertheless,
ReSI has worked with the counterparty to improve the efficiency of
the portfolio, evidenced by the percentage of HMFs with an EPC
rating below D dropping from 34% in FY 2021 to 25% in FY 2022. The
properties have been upgraded using the same approach as the
directly-rented units, with ReSI funding the works despite not
being responsible for the maintenance of the properties, evidencing
our commitment to reducing carbon emissions across the
portfolio.
Orbit Portfolio: During the year, ReSI acquired a portfolio of
older, tenanted shared ownership properties from the Housing
Association group, Orbit. At the time of acquisition in April, 138
of the properties did not have an EPC rating. Shared owners are not
legally required to agree to an EPC assessment being performed on
their property, so ReSI wrote to residents explaining the benefits
of getting their property EPC rated and offering them a GBP50
voucher to allow the assessment to be carried out. Since ReSI
acquired the portfolio in April, 66 (48%) of the properties with no
rating have been tested. ReSI hopes to continue to test the
remaining properties with no EPC in FY 2023.
ReSI's approach to sustainable investing
ReSI's policy for acquiring new build homes is that they must
have a minimum EPC rating of a B. During FY 2022, 100% of the new
build homes acquired met this standard. Going forward, ReSI aims to
increase the proportion of new build homes that meet the Future
Homes Standard, which is expected to be implemented by the
government for all new homes by 2025.
ReSI's preference is to acquire properties developed on
brownfield sites in order to provide affordable housing while
preserving biodiversity and enhancing green spaces. 65% of the new
build properties acquired during the year were redevelopments of
brownfield sites.
Case Study: 2022 shared ownership acquisition - Brick by Brick,
Malling Close
In 2022, 15 homes on Malling Close, Croydon, were purchased
through ReSI's registered provider of social housing, ReSI Housing,
adding to ReSI's existing portfolio of shared ownership homes.
Social Impact
- Price to earnings ratio of 11.4x [46] : providing local
residents with an affordable route onto the housing ladder, in an
area where outright ownership is unaffordable for many
- Rentals charged at a discount of 38% [47] to market rate:
making monthly payments affordable to mid to low earners
- Private outdoor balconies: increasing quality of life for
residents, with sufficient space for a table and chair
- Local green spaces: l ess than a five minute walk from South Norwood Country Park
- Cycle storage provided for residents: enabling and encouraging
shared owners to switch from motor vehicles to cycling - a low
environmental impact method of transport
Environmental impact
- EPC ratings of B or above: efficient homes reduce carbon
emissions and resident's energy bills
- Mechanical Ventilation and Heat Recovery units: provide fresh, filtered air into resident's
- Apartments fitted with "green roofs": improves air quality and reduces carbon emissions
- Solar panels installed on the roofs: panels convert the sun's
energy into electricity which is used to power the communal areas
of the building.
- Electric vehicle charging points available on site: promotes
alternative, green, methods of transport
Calculating ReSI's environmental impact: carbon emissions
FY 2022 was the first year of a long term partnership between
ReSI and Kamma, with Kamma calculating the Scope 1, 2 and 3 carbon
emissions generated by ReSI, as well as producing the forthcoming
road to net zero report which is expected to be published in 2023.
Using one consultant across all of ReSI's carbon reporting
streamlines the process and ensures that a consistent methodology
is used across all carbon disclosures. The more involved approach
used by Kamma to determine ReSI's emissions in FY 2022 has led to
some differences when comparing to the prior year numbers. ReSI
intends to continue to use Kamma to calculate its carbon emissions
going forward, allowing more accurate year-on-year comparisons in
future years.
Emissions are broken down into three categories by the
Greenhouse Gas Protocol:
Scope 1 - All direct emissions from the activities of the
Company or under its control. This includes fuel combustion on site
such as gas boilers and air-conditioning leaks.
Scope 2 - Indirect emissions from electricity purchased and used
by the Company. Emissions are created during the production of the
energy and eventually used by the Company.
Scope 3 - All other indirect emissions from activities of the
Company, occurring from sources that it does not own or
control.
Scope 1 and 2 emissions
ReSI doesn't have any office premises of its own and its
operations are performed by the Fund Manager, which is part of
Gresham House, and other third parties as necessary. Where ReSI is
financially responsible for the energy consumption of communal
areas and vacant properties within its property portfolio, the
emissions generated by these activities fall under Scope 1 and 2.
Where gas is the heating source for these emissions, they are
classified as Scope 1. This is the case for a small number of
properties acquired vacant to be let as shard ownership before the
resident moves in. Where the heating source is electricity, they
are classified as Scope 2. Individual property energy usage is the
responsibility of the tenants however and therefore not considered
under Scope 2.
Kamma has calculated ReSI's Scope 1 and Scope 2 emissions using
utility bills and actual kWh consumption data for a representative
sample of communal areas and vacant properties within its
portfolio. This data has been extrapolated across 100% of the
vacant properties and communal areas in the portfolio where
emissions fall under the definition of Scope 1 and 2.
Portfolio Total energy consumption Tonnes CO(2) Emissions
(GWh)
FY 2021 FY 2022 FY 2021 FY 2022
------------- ------------- ------------ ------------
Retirement: communal
areas [48] 0.11 0.13 23.1 22.8
------------- ------------- ------------ ------------
Retirement: vacant
properties [49] 0.13 0.32 26.8 52.4
------------- ------------- ------------ ------------
Shared ownership:
vacant properties 0.02 0.01 3.6 0.5
------------- ------------- ------------ ------------
Total 0.26 0.46 53.5 75.7
------------- ------------- ------------ ------------
The work performed by Kamma evidences that the Scope 1 and 2
emissions generated by ReSI are very small compared to the Scope 3
emissions generated by its properties. Nonetheless, ReSI will
continue to explore methods of reducing its Scope 1 and 2 emissions
going forward.
Scope 3 emissions - third party providers
ReSI is responsible for indirect emissions through its service
contracts with third party providers. The emissions of the Fund
Manager will be reported as part of Gresham House's 2022 annual
reporting.
In FY 2022, ReSI has assessed the embodied carbon emissions
produced by its counterparties in developing the new build units
that were acquired during the year. It is estimated that as much as
50% [50] of the whole lifecycle carbon emissions produced by
buildings come from embodied carbon emitted in the development
process. As a result, calculating the embodied carbon emissions
produced by the Company is a crucial part of assessing ReSI's
carbon footprint.
Scope 3 Carbon Emissions
(Tonnes CO2)
Embodied carbon emissions
- 2022 1,172
--------------------------
Kamma's assessment evidences that for FY 2022, embodied carbon
emissions formed a small portion of ReSI's total carbon emissions.
This is due to ReSI committing to acquire a relatively small number
of properties that had been under construction for a portion of FY
2022.
Scope 3 emissions - residents and shared owners
The carbon emissions produced by ReSI's properties are
classified as Scope 3, as they are generated and paid for by
residents.
Kamma has estimated the Scope 3 operational carbon emissions
generated by ReSI's property portfolio using data extracted from
Energy Performance Certificates.
Carbon emissions from ReSI's housing portfolio have been
calculated in line with best practice standards. Where electricity
is the source of emissions, regional conversion factors based on
the Distribution Network Operator (DNO) that the property falls
within have been used to convert energy usage into carbon
emissions. These conversion factors represent a rolling 12-month
average for each regional DNO. Where gas is the source of the
emissions, the most recent Department for Environment, Food and
Rural Affairs ("DEFRA") emissions factors are used.
The conversion factors used in the FY 2022 assessment produce a
more accurate figure for ReSI's carbon emissions than the FY 2021
assessment, which used the DEFRA 2021 conversion factor for all
sources of carbon emissions. In addition, the DEFRA 2021 conversion
factor is calculated annually and therefore lags behind more recent
conversion factors. Using a more up to date conversion factor that
accurately represents the decarbonising of the National Grid has
resulted in reduced carbon emissions for ReSI in FY 2022.
In addition, the prior year energy consumption figures contained
"unregulated emissions" from residents, such as usage of
electronics. These have not been included in the FY 2022 analysis
on the advice of Kamma, as they cannot be controlled by ReSI.
These values are presented for 3,243 properties that ReSI had
acquired at 30 September 2022 on an annualised basis, regardless of
whether ReSI owned the home for the entire period, and no
adjustment is made for property void periods.
Total Scope 3 operational portfolio emissions
Total energy consumption Tonnes CO(2) emissions
(GWh)
Emissions per annum 2020 2021 2022 2020 2021 2022
--------- --------- -------- ----------- ---------------- -------------
ReSI's portfolio 34.7 39.9 40.2 8,699 9,067 3,472
Emissions per property
Emissions per Total energy consumption Emissions per property
annum per property per property (kWh) (tonnes CO(2) )
2020 2021 2022 2020 2021 2022
----------- ----------- ------------------ -------- -------- --------
SO 6,860 10,371 10,383 1.5 2.2 1.6
----------- ----------- ------------------ -------- -------- --------
RHP 14,041 14,646 13,060 3.5 3.4 0.9
----------- ----------- ------------------ -------- -------- --------
11,585
LA 7,440 7,465 [51] 1.9 1.7 1.9
----------- ----------- ------------------ -------- -------- --------
Total 12,832 13,248 12,402 3.2 3.0 1.1
----------- ----------- ------------------ -------- -------- --------
Energy consumption by energy source [52]
Energy Electricity Gas LPG Renewable Total
usage consumption consumption consumption energy consumption
per consumption
property
2021 2022 2021 2022 2021 2022 2021 2022 2021 2022
----------------- ---------- -------------- ------- ------------- --------- ----------------- ------------- ---------- -----------------
All
properties
(GWh) 36.7 32.5 3.1 7.6 0.1 0.2 0.0 0.0 39.9 40.2
----------------- ---------- -------------- ------- ------------- --------- ----------------- ------------- ---------- ---------------
Per
property
(kWh) 12,213 10,011 1,032 2,341 33 45 0.0 0.0 13,248 12,402
----------------- ---------- -------------- ------- ------------- --------- ----------------- ------------- ---------- ---------------
Emissions intensity
CO(2) emissions of
property
port-folio per GBP
of
Energy consumption of property Gross Rental
portfolio per GBP of Gross In-come (tCO(2)
Rental In-come (GWh / GBPmn) / GBPmn)
Emissions
intensity
[53] 2021 2022 2021 2022
----------------------------------------------------- ------------------------------ ------ ------------
ReSI's
portfolio
[54] 1.76 1.58 400 138
----------------------------------------------------- ------------------------------ ------ ------------
Total carbon emissions summary
Carbon emissions (Tonnes CO(2) )
Total carbon
emissions 2020 2021 2022
----------------------------------------------------------- ---------------------------- -----------
Scope 1 Not reported 0 2
----------------------------------------------------------- ---------------------------- -----------
Scope 2 Not reported 53 76
----------------------------------------------------------- ---------------------------- -----------
Scope 3 8,699 9,067 4,644
----------------------------------------------------------- ---------------------------- -----------
Total carbon
emissions 8,699 9,120 4,722
----------------------------------------------------------- ---------------------------- -----------
Overall, ReSI's estimated CO(2) emissions per property has
significantly reduced from FY 2021. This is due to the more
accurate methodology used by Kamma, the continued decarbonisation
of grid and work performed to improve the efficiency of the
retirement portfolio through Project D.
Despite these strong results, ReSI will continue to push forward
with its sustainable investment targets in FY 2023.
Social Impact
ReSI seeks to provide long-term solutions to the UK's lack of
affordable housing through a focus on independent living with
retirement rentals and affordable homeownership.
Our purpose is to deliver affordable, high quality, safe homes
with great customer service and long-term stability of tenure for
residents. We achieve this through meeting demand from housing
developers (housing associations, local authorities and private
developers) for long-term investment partners to accelerate the
development of socially and economically beneficial affordable
housing.
To confirm that our intended social impact outcomes are being
experienced by residents, ReSI conducted its annual survey of its
shared ownership and retirement rental residents, the results of
which are referenced in this Annual Report.
The Good Economy report
100% of ReSI's properties have been included in an impact
assessment performed by The Good Economy ('TGE'), which aims to
quantify ReSI's social impact.
The key findings from the report are summarised below; the
entire report is available on ReSI's website
(https://greshamhouse.com/real-assets/real-estate-investment/residential-secure-income-plc/).
The report includes TGE's assessment of ReSI against its new
framework, the Equity Impact Project ('EIP'), for the first time.
The EIP is helping to develop a set of globally aligned standards
for equity investments in social and affordable housing. ReSI is
one of the first funds to report against the standard, having
contributed to the framework's development through participating in
workshops with TGE.
Social Outcomes
By raising capital to invest in new and existing social and
affordable housing, ReSI makes homes available to people who might
otherwise be excluded by open market mechanisms. The Good Economy's
analysis focused on five areas under the direct control or
influence of ReSI. These are:
The diagram below summarises how ReSI's activities contribute to
social outcomes.
RPs - Registered Providers
Source: The Good Economy
Shared Ownership
ReSI acquires shared ownership homes from developers and housing
associations. Shared ownership aims to improve access to
homeownership for households that cannot afford to purchase a home
outright through its part-buy, part-rent model, with subsidised
rents and lower deposit requirements.
As part of ReSI's aim to be a best-in-class provider of shared
ownership housing and drive best practice across the sector, its
Shared Ownership Customer Charter and a Shared Ownership
Environmental Charter have been developed. The charters are unique
in the shared ownership space and provide benefits to both
residents and investors.
Our aim is for these benefits to be shared by not just our
residents but those in the wider c.200,000 shared ownership homes
across the sector, and we have been pleased to see that many of the
measures in the Charters have been incorporated by Homes England
into the new form of shared ownership lease.
How has ReSI performed against TGE's impact objectives?
Objective: Making homeownership Addressing Providing quality homes Bringing more
accessible barriers to and management homes into
in areas with homeownership the affordable
low affordability for low- and housing sector
ratios middle-income
households
----------------------- --------------------------- ------------------------- ------------------
ReSI 2022 100% of properties 96% of properties Increased the number 34% of FY 2022
Results: in local authorities affordable of properties managed investment
where the average to local households by ReSI's in house was into new
worker cannot when assessed property manager, RPML build shared
afford the through a person-centred ownership homes
average home affordability
test
----------------------- --------------------------- ------------------------- ------------------
Address social need
House prices in England are on average nine times greater than
the average person's earnings [55] , making the average home
unaffordable to the average worker. TGE has found that 68% of
ReSI's shared ownership homes are located in local authorities with
house price to earnings ratios above this average, demonstrating
ReSI's commitment to delivering affordable homes to the areas that
need them most.
Whilst affordability is most constrained in areas with an above
average price to income ratio, the average worker is unable to
afford the average property in regions where the ratio is above
five times. Any local authority with a ratio above this level has a
need for affordable housing, and 100% of ReSI's properties are
located in such locations.
In addition, 78% of residents said that they would have been
unable to buy a property had it not been for shared ownership,
evidencing the social need for ReSI's properties.
"It gives you the opportunity to own your own home or part of
your own home, giving you security and peace of mind."
Provide affordability and value for money
When assessed through TGE's person centred affordability
calculator, 96% of ReSI's shared ownership properties were found to
be affordable to local residents at the green and amber level.
Under TGE's definition, green affordability and amber affordability
is where the resident is spending less than 33% and 40%
respectively of their net income on housing costs. This level of
affordability is achieved as shared ownership rents are charged on
residual equity at 2.75%, representing a typical saving compared to
market rent of c.30% [56] .
ReSI demonstrated its commitment to improving affordability for
residents in its acquisition of tenanted shared ownership homes
from Orbit Group, where 32 of the residents were initially on
leases with a contractual rent increase of RPI +2.0%, however ReSI
took the decision to cap the rent increase at RPI + 0.5%. This
helps to ensure that rents remain affordable for residents and
brings the properties in line with the rest of the portfolio.
In addition, the average remaining lease term for Orbit's
residents at the point of acquisition was 95 years. Short lease
terms can negatively impact the value of a shared owner's home, and
it can become difficult to mortgage properties on lease terms of
less than 75 years. As a result, ReSI offered all residents the
opportunity to extend their lease term to a minimum of 125 years,
for a nominal fee of GBP1.
"[Shared ownership is] a great way to get onto the housing
ladder one step at a time, while paying a fair rent"
Build quality partnerships
ReSI has increased the proportion of properties that are managed
by our in-house property manager, ReSI Property Management Limited
(RPML). Having control over the property management services
provided has improved the experience for residents, with 87% of
residents in a property managed by RPML saying they are happy or
not dissatisfied with their property management service.
Increase supply
ReSI continued to increase the supply of affordable housing,
with 34% of capital spend in the year used to fund new build
affordable housing.
ReSI invested the majority of its remaining capital spend for
the year into acquiring a portfolio of tenanted shared ownership
homes from the not-for-profit Housing Association group, Orbit.
ReSI's investment provided Orbit with a long-term equity
injection, which not only allows the not-for-profit to meet rising
demand for additional affordable homes, but also to upgrade its
existing housing stock. The proposed legal requirement for
landlords to ensure that newly let rented homes have an EPC rating
of C or better by 2025 has resulted in an elevated level of demand
from Housing Associations for the long-term equity provided through
acquisitions of this type.
Retirement
ReSI acquires homes which provide rented accommodation for
retired residents who do not require significant on-site care. This
tenure mainly provides benefits for people over 55. It allows them
to maintain their independence and avoid care homes, frees up
equity from the sale of previous homes, and fosters a sense of
community by offering shared spaces and communal activities among
residents.
While residents do not require care services, they benefit from
having an on-site development manager who can be contacted via an
electronic emergency pull cord in each apartment, as well as an
offsite tenancy welfare team provided by ReSI Property Management
Ltd.
How has ReSI performed against TGE's impact objectives?
Objective: Providing accommodation Providing rental Supporting residents Offering homes
tailored to the homes that with a high quality to meet the
over 55s to allow are affordable property management needs of the
independent living to the over service tailored demographic
55s to the over 55s
---------------------------- ------------------- ------------------------- --------------------
ReSI 2022 Retirement rentals Approximately When asked on a scale ReSI primarily
Results: survey analysis: 27% of residents of 1-10 how likely acquired its
75% said their retirement making rental they would be to retirement
home is as good payments using recommend ReSI's portfolio
or better than their Housing Benefit in house retirement from other
previous residence property manager, investors
Rent increases My Future Living, between 2017-2019
73% had made new for retirees to a friend, 79%
friends since moving capped below of residents responded
in inflation at with 7 or higher
88% said that their 6%
retirement home
is at least as stable
as their previous
residence
---------------------------- ------------------- ------------------------- --------------------
Address social need
Providing specialist retirement accommodation where residents
can live amongst their peers may have contributed to reduced levels
of loneliness being experienced by residents, demonstrated by 73%
of survey respondents saying they had made new friends since they
moved into their retirement property. The reduced levels of
loneliness, combined with stability provided by the assured
tenancies that 85% of residents benefit from, has contributed to a
reduced mental health burden for some residents, with 54% of
residents saying their mental health has improved since moving
in.
Providing affordability and value for money
The rents charged on ReSI's retirement properties are, on
average, between the lower quartile and the median of market rents
when compared to equivalent properties in the same local authority.
Rents paid by ReSI's retirement residents include service charge,
providing residents with an onsite warden, garden maintenance and a
communal living area. When the cost of the service charge is
removed from the rent level, the rents on ReSI's retirement
properties are, on average, less than the lower quartile market
rents when compared to equivalent properties in the same local
authority.
Rents set at this level ensure that a portion of the properties
are accessible to residents on lower incomes, with 27% of residents
funding rent payments through housing benefit and 60% funding
payments through their pension income.
Contractually, retirement rents increase at RPI, with a cap at
6.0%. ReSI has chosen to apply this cap to all retirement
properties, despite residents not on Assured Tenancies being
eligible for higher increases. This evidences ReSI's commitment to
ensuring the properties remain affordable to residents.
This rent cap has generated a total annualised saving of GBP164k
to ReSI's retirement residents this financial year. In addition to
capping all rent increases at 6.0%, where residents are in
financial difficulty, ReSI will offer them rent freezes or reduced
rent increases where possible. The rent freezes and reduced rent
increases offered by ReSI have generated a total annualised saving
of GBP86k, taking the total annualised saving from ReSI capping
rents to GBP250k.
Where residents approach My Future Living with affordability
concerns, their dedicated welfare team will work with them to find
a bespoke affordability solution. This approach includes checking
residents' eligibility for welfare, helping residents cut their
spending, capping rent increases and offering residents cheaper
properties within the development.
Build quality partnerships
ReSI's retirement portfolio is managed in house by ReSI Property
Management Limited (trading as My Future Living), a Gresham House
owned provider. My Future Living has continued to provide a high
quality service to residents. When asked to rate the likelihood of
recommending My Future Living to a friend, 79% said 7 or higher
(with 10 being the highest), and 90% of residents said they were
happy or not dissatisfied with the property management services
provided by My Future Living
My Future Living has its own in-house Tenancy Welfare Team that
has continued to delivery positive outcomes for residents this
year. It is the team's responsibility to make note of any potential
personal issues (such as early signs of dementia) and to
communicate with families about the residents' welfare.
My Future Living has continued the roll out of its new system,
Fixflo, which allows residents to report maintenance requirement
electronically, with the aim of improving efficiency and response
times.
Increasing supply
ReSI primarily acquired its retirement portfolio from other
investors between 2017-2019. This investment kept the homes in the
retirement sector, however as ReSI has not acquired a significant
number of new homes in the year, TGE considers that ReSI is
bringing a low level of additionality to the sector through this
tenure
Local Authority
ReSI owns two sites of temporary accommodation at Eaton Green
Court and Wesley House, which are leased to the local authority,
Luton Borough Council. Luton Borough Council uses these homes to
house individuals and families who are at risk of homelessness.
Local authorities in England have a duty to secure accommodation
for unintentionally homeless households and provide support which
facilitates them securing long-term stable accommodation.
Luton has one of the highest levels of homelessness in the UK,
with one in every 66 people experiencing homelessness according to
a report by the charity Shelter. As a result, Luton Borough Council
is under continual pressure to meet the housing needs of homeless
people.
Temporary accommodation is a crucial component of Luton Borough
Council's homelessness strategy, and the homes leased to them by
ReSI form a significant proportion of their available housing stock
under this tenure.
By providing Luton Borough Council with finance to offer 289
temporary accommodation homes, ReSI has helped the local authority
to eliminate the use of bed and breakfast accommodation for
homeless households.
Temporary accommodation is not only less expensive than bed and
breakfast accommodation for local authorities, but it also more
stable for residents. Luton Borough Council offers residents
additional services such as help with CV writing and mental health
support, with the aim of helping residents escaping the viscous
cycle of homelessness.
The nature of leases on the temporary accommodation buildings
owned by ReSI are such that the management of the building is the
lessee's responsibility. As freeholder, ReSI's responsibilities are
restricted to insuring the buildings and repairs and maintenance of
some communal services, such as the lifts, common areas and smoke
detectors. ReSI's representatives visit the buildings at least once
a month, to check on the upkeep of the areas for which it is
responsible.
Although safeguarding is the responsibility of the lessee, ReSI
ensures that any safeguarding issues picked up during site visits
are reported to the relevant property manager.
Cost of living
The increases in the cost of the energy, interest rates and
inflation over that past year has resulted in an increase to the
cost of living for everyone. Whilst it has not been possible to
insulate our residents from all cost increases, the steps ReSI has
taken alongside the protection offered by the shared ownership
model have ensured that residents are protected from some of the
cost increases that someone renting or owning the average UK
property on the open market may have experienced.
Energy Bills
For many residents, the most significant cost increase this year
has been rising energy bills, with the cost of energy having
increased by 64% in the 12 months to October 2022 [57] and a
further increase in the price cap coming into force in April 2023,
taking the annual cost of energy to GBP3,000. However, ReSI's
properties are considerably more energy efficient than the UK
average, with the average shared ownership property rated EPC B and
the average retirement property rated EPC C. This energy efficiency
means that whilst the increase in energy bills has been significant
for our residents, it has been considerably less than for someone
living in the average UK property, which has an EPC rating of D
[58] .
TGE found that a resident living in a property with an EPC
rating of B would save GBP460 p.a. on their energy bills compared
to an EPC D rated property in March 2021, with this saving reducing
to GBP173 p.a. for a C rated property. When this saving is scaled
up by the increase in the energy price cap coming into force in
April 2023, it increases to GBP1,213 p.a. for the B rated
properties and GBP456 p.a. for the C rated properties. [59]
Tenure Annual cost of energy Increase
(GBP)
-------------------------- ----------------
March 2022 April 2023 GBP %
------------ ------------ -------- ------
Property with efficiency of
average for ReSI shared ownership
portfolio - EPC B 761 1,787 1,027 135%
------------ ------------ -------- ------
Property with efficiency of
average for ReSI retirement
rental portfolio - EPC C 1,083 2,544 1,461 135%
------------ ------------ -------- ------
Equivalent property with UK
average efficiency -
EPC D 1,277 3,000 1,723 135%
------------ ------------ -------- ------
Tenure Saving compared to average UK
property- (EPC D) at the energy
price cap as of April 2023
GBP %
--------------------- -------------
Property with efficiency of average
for ReSI shared ownership portfolio
- EPC B 1,213 40%
--------------------- -------------
Property with efficiency of average
for ReSI retirement portfolio - EPC
C 456 15%
--------------------- -------------
Rent increases
Retirement rents increase contractually with RPI, with a cap at
6.0%. ReSI has chosen to apply this cap to all retirement
properties, and with RPI reaching 12.6% in September [60] ,
residents have benefited significantly from this. The total
annualised saving generated by ReSI capping retirement rent
increase in the year was GBP250k.
Shared ownership rents increased contractually by 5.4% (RPI +
0.5%) in April of this year. Rents will not increase again until
April 2023, where contractually, they will increase by September's
RPI + 0.5%.
The government announced as part of the 2022 Autumn Statement
that it will apply a 7% cap to social housing rent increases for
2023/24. Whilst there is no requirement to cap shared ownership
rents, both the National Housing Federation (NHF) and G15, the
group of London's largest Housing Associations, have stated that
that they expect the majority of Housing Associations and all G15
members to be applying the 7% rent cap to their shared ownership
portfolios in 2023/24.
Mortgage costs
2022 has seen interest rates rise significantly in the UK, with
the average cost of a two-year fixed rate mortgage to surpassing 6%
[61] in October. Interest rates have come down since then, with the
best widely available rate on an 80% LTV 2-year fixed rate mortgage
currently at 5.3% [62] . The majority of our shared ownership
residents are on fixed rate mortgages and will therefore be
protected from rate rises until their fixed term expires. For
residents who's fixed term has expired, as shared owners only own a
portion of their home, the impact of increased mortgage costs is
significantly reduced compared to someone who owns outright.
Cost-of-living: Financial impact on our residents
Shared owners
To assess the financial impact of these market forces on our
shared ownership residents, we have quantified the cost increases
experienced by an average shared ownership resident. The table
below shows average shared ownership residents who are refinancing
their mortgage at today's rates can expect to see an increase in
their housing costs and energy bills of 21% compared to April 2022,
whilst residents with mortgage rates that are fixed will see their
costs increase by 13%. ReSI acknowledges that whilst a rise of up
to 21% in housing costs and energy bills represents a significant
financial challenge for many of our residents, this increase is
below the increase that an average renter / outright owner can
expect to experience.
We will work with residents who are struggling to afford their
housing costs and can offer them the option to reverse staircase.
In addition, we will encourage residents to reach out to their
mortgage broker to ensure they get the most appropriate mortgage
terms for their financial circumstances.
2022 2023 Increase %
Rent and service
charge 7,543 8,071 528 7%
--------------------------------------------- --------- --------- ---------- ----------
Mortgage Costs 3,786 4,819 1,033 27%
--------------------------------------------- --------- --------- ---------- ----------
Energy Bills
[64] 761 1,787 1,027 135%
--------------------------------------------- --------- --------- ---------- ----------
Typical ReSI
Shared Ownership
Resident refinancing
their mortgage
at today's rates
[63] Total 12,090 14,678 2,588 21%
-------------------- --------- --------- ---------- ----------
Rent and service
charge 7,543 8,071 528 7% [65]
--------------------------------------------- --------- --------- ---------- ----------
Mortgage Costs 3,786 3,786 0 0%
--------------------------------------------- --------- --------- ---------- ----------
Energy Bills 761 1,787 1,027 135%
--------------------------------------------- --------- --------- ---------- ----------
Typical ReSI
Shared Ownership
Resident with
fixed rate mortgage Total 12,090 13,644 1,555 13%
-------------------- --------- --------- ---------- ----------
Mortgage Costs 15,144 19,277 4,133 27%
--------------------------------------------- --------- --------- ---------- ----------
Energy Bills 1,277 3,000 1,723 135%
--------------------------------------------- --------- --------- ---------- ----------
Average UK outright
owner [66] Total 16,421 22,277 5,856 36%
-------------------- --------- --------- ---------- ----------
Housing Costs 11,720 13,126 1,406 12% [68]
--------------------------------------------- --------- --------- ---------- ----------
Energy Bills 1,277 3,000 1,723 135%
--------------------------------------------- --------- --------- ---------- ----------
Average UK rental
accommodation
[67] Total 12,997 16,126 3,129 24%
-------------------- --------- --------- ---------- ----------
Retirement residents
For our retirement residents, capping rent increases at 6.0% and
living in a property that is more efficient than the UK average
means that cost increases for residents is lower than if they were
renting on the open market.
2022 2023 Increase %
ReSI Retirement
resident [69] Rent 9,600 10,176 576 6%
---------------- -------- -------- ---------- ----------
Energy Bills
[70] 1,083 2,544 1,461 135%
-------------------------------------- -------- -------- ---------- ----------
Total 10,683 12,720 2,037 19%
-------------------------------------- -------- -------- ---------- ----------
Equivalent average
private rental
property [71] Rent 9,600 10,752 1,152 12% [72]
---------------- -------- -------- ---------- ----------
Energy Bills 1,277 3,000 1,723 135%
-------------------------------------- -------- -------- ---------- ----------
Total 10,877 13,752 2,875 26%
-------------------------------------- -------- -------- ---------- ----------
The assessment shows that although retirement residents can
expect to see their costs increase significantly in 2023, the
increase will be 29% less than the increase that they would
experience if they were renting the equivalent property (with an
EPC rating of D, the UK average) on the open market.
In addition, the Government announced as part of the 2022 Autumn
statement that the state pension and all HMRC and Department for
Work and Pensions benefits will rise with CPI at 10.1%, a rise well
above the capped rent increase of 6.0%
Demand for shared ownership in the current economic climate
Rising Interest rates across the world have made the ambition of
homeownership more expensive for all first-time buyers, however the
impact is less severe on shared owners compared to those who own
outright.
This is because as shared owners only own a portion of their
home, the size of the mortgage required to purchase their equity
stake is typically much lower than someone buying a property
outright.
Whilst the rent paid by shared owners on the portion of the
property that they do not own will increase significantly in 2023,
even if the full inflationary increase of September RPI + 0.5%
(13.1%) is applied, this increase is considerably lower than the
40% increase [73] in monthly payments that will be felt by outright
owners as a result of a 3.0% increase in mortgage rates. The higher
interest rates go, the more pronounced this saving under shared
ownership becomes.
With outright sale affordability worsening, and with help to buy
coming to an end in 2022, it is expected that shared ownership will
become the only affordable route onto the housing ladder for many
higher income residents.
In addition, demand for shared ownership housing far outstrips
supply, with the tenure currently accounting for 20,000 of the
400,000 annual first time buyer sales in the UK, despite the tenure
having the potential to help 4.4 million households [74] onto the
housing ladder. This supply and demand imbalance means that the
tenure is likely to be able to withstand an overall reduction in
the number of first time buyers in the UK.
There will be some residents who are no longer able to afford
shared ownership in the current economic climate, however it is
expected that the new market of higher income residents, and the
extent to which demand for shared ownership housing outstrips
supply, will keep demand for the tenure strong, despite a worsening
affordability outlook.
Governance
Governance and ethics
The Directors and Fund Manager (and the broader Gresham House
group) seek to embed effective corporate governance and a focus on
ethics in all of the Company's operations.
The Board conducts an annual evaluation of its governance and
ethics operations, covering board effectiveness, audit committee
effectiveness, effectiveness of the Chairman and review of director
self-appraisals. Alongside this annual evaluation, ReSI's
governance and ethics policies are reviewed and renewed; these
policies cover anti-money laundering, anti-bribery, conflicts of
interest, diversity, inside information, disclosure, non-audit
services, third party benefits, share dealing and whistleblowing.
Many of these policies cover, not only the Board, but also ReSI's
suppliers and contractors.
ReSI's Board is entirely independent board and is tasked with
monitoring the Fund Manager's performance as an AIFM. The Board of
ReSI comprises four non-executive directors, each appointed for the
skillsets and experience they could bring to ReSI. Each director is
entitled to compensation that is linked to ReSI's net asset value,
ensuring a long-term alignment of interests and in accordance with
REIT best practice.
By way of additional governance and ethics oversight, for
acquisitions of regulated housing tenures, such as shared
ownership, which are completed through ReSI's wholly owned
subsidiary, ReSI Housing, which is registered with the Regulator of
Social Housing (RSH) as a for-profit Registered Provider, ReSI's
activities are subject to the oversight of the RSH and the
oversight of the independent non-executive directors on the Board
of ReSI Housing.
The RSH regulatory framework is designed to ensure good
governance, financial viability, minimum maintenance and
environmental standards, and protection of residents' welfare, thus
supporting ReSI's goal of maximising social benefit.
ReSI Housing has a suite of governance policies that are
independently reviewed annually to keep ReSI Housing abreast of
regulatory developments and changes in best practice. These
policies cover structural governance items such as conflicts of
interest, succession and independence governance, fraud, anti-money
laundering, risk management and also asset management items such as
tenancies, affordability and anti-social behaviour.
Importantly, ReSI Housing's governance policies embed a
regulatory protection that affords non-executive directors enhanced
voting powers and a veto over any action that threatens ReSI
Housing's compliance with the RSH's regulatory standards. As at the
date of this Annual Report, ReSI Housing's non-executive directors
are:
-- David Orr CBE, former Chief Executive of the National Housing
Federation, and
-- Gillian Rowley, former Head of Private Finance at the Homes
& Communities Agency.
More information on the ReSI Housing board can be found on page
92.
Conflicts of interest
Each of ReSI, ReSI Housing and the Fund Manager has a conflicts
of interest in policy maintained in accordance with the applicable
best practice.
All of the Directors of the Company are independent of the Fund
Manager and the enhanced voting powers of ReSI Housing
non-executive directors are noted above, both of which are designed
to enhance good governance and mitigate conflicts of intertest.
The Company's conflicts of interest policy reinforces the
obligation on each Director to avoid a situation in which he or she
has, or can have, a direct or indirect interest that conflicts, or
may conflict, with the interests of the Company and to exercise
independent judgement.
Each Director has a duty to declare an interest in a proposed
transaction and an obligation to declare an interest in an existing
transaction.
If a Director has a potential conflict of interest between his
duties to the Company and his private interests or other
obligations owed to third parties on any matter, the relevant
Director will disclose his conflict of interest to the rest of the
Board, not participate in any discussion by the Board in relation
to such matter and not vote on any resolution in respect of such
matter.
Board culture
Each year the Board conducts an annual evaluation of its
governance and ethics operations. This evaluation covers board
effectiveness, audit committee effectiveness, effectiveness of the
chairman and director self-appraisals, with the aim of setting
focus areas and key priorities for the year coming.
This discussion of board effectiveness prioritises a discussion
of the Board's role, dynamics and culture, ensuring these develop
as the Company matures.
It is the responsibility of the Chairman to set the tone and
culture of meetings of Directors. At Board meetings, ReSI promotes
a collegiate discussion involving all non-executive directors and
the Fund Manager, ensuring the skills and experience of all Board
attendees are leveraged.
This leveraging of skills and experience is also a key focus of
the ReSI Housing Board.
Board diversity
Diversity is an important consideration in ensuring that the
Board and its committees have the right balance of skills,
experience, independence and knowledge necessary to discharge their
responsibilities. The ReSI plc Board is composed solely of
non-executive Directors and has 25% female representation (three
male directors and one female director).
The ReSI Housing Board contains two non-executive directors that
are independent of the Fund Manager, (with 50% female
representation), with remaining directors being Fund Manager
personnel.
The Board's approach to the appointment of non-executive
Directors is based on its belief in the benefits of having a
diverse range of experience, skills, length of service and
backgrounds. The Board therefore continues to consider that it
would be inappropriate to set a target and will always appoint the
best person for the job based on merit, and will not discriminate
on the grounds of gender, race, ethnicity, religion, sexual
orientation, age, physical ability or social background. The right
blend of perspective is critical to ensuring an effective Board and
successful company.
Board information
It is the responsibility of Company Secretary and the Fund
Manager to ensure that the Board of ReSI is kept abreast of
developments with respect to the Company's operations and business
and receives timely, entire board packs for review at each meeting
of Directors.
Standing items at each meeting of ReSI's Directors include the
following: strategic update, review of risk register, portfolio
performance, pipeline report, management and year-end accounts,
debt covenant reporting, governance and approved minutes of ReSI's
registered provider subsidiary, ReSI Housing. In addition, reports
of the Company Secretary, Depositary and Registrar are also tabled
for discussion. Extraordinary items will include review of service
providers, updates to governance and other company policies and
such other ad hoc matters as arise from time to time.
Such materials, together with a free, open discussion with the
Fund Manager and Company Secretary, facilitate an environment in
which the directors can fulfil their duties in a manner fitting for
ReSI's governance and ethics environment.
The Fund Manager has agreed a similar approach with the
directors of ReSI Housing. Standing agenda items include the
following: strategic update, pipeline report, property performance
and compliance, management and year-end accounts, review of
business plan and stress testing, review of risk register and a
regulatory update, Extraordinary items arise for ReSI Housing too
and include review of property managers, review of customer
satisfaction surveys, updates to governance and other company
policies and such other ad hoc matters as arise from time to
time.
Risk and compliance
ReSI has robust risk and compliance management policies and
procedures, as outlined in the risk management and governance
sections on pages 77 to 110.
In addition, for acquisitions of regulated housing tenures, ReSI
Housing has its own risk management framework, risk appetite and
set of governance policies.
Commitment to sustainability
ReSI is committed to investing in a sustainable manner in order
to generate long-term returns. We have this year worked with The
Good Economy, and Kamma Data to quantify our impact (see pages 55
to 68).
In addition, the Fund Manager adheres to Gresham House's
sustainability investment framework and shared ownership
investments, through ReSI Housing, benefit from the Fund Manager's
proprietary shared ownership customer charter and environmental
charter, under which the Group seeks to offer leases of 250+ years
and not charge event fees. The Fund Manager created these charters
in 2020 to formalise its existing process and practices that go
above and beyond the requirements of the model for shared ownership
lease, ultimately benefitting the Group's shared owners and
comprising part of the Company's social impact. These charters are
updated annually to enable the Fund Manager to remain abreast of
social housing developments. The Fund Manager seeks to be a market
leader in creating a new era of aspirational shared ownership, and
in turn help expand homeownership
Section 172 Statement and Stakeholder Engagement
This section of the Annual Report covers the Board's
considerations and activities in discharging their duties under
s.172(1) of the Companies Act 2006 to promote the success of the
Company for the benefit of members as a whole.
This statement includes consideration of the likely consequences
of the decisions of the Board in the longer term and how the Board
has taken wider stakeholders' needs into account.
The Board is ultimately responsible for all stakeholder
engagement. However, as an externally managed investment company,
ReSI does not have any employees and engages third party providers
as required including for fund management, secretarial,
administration, broking, depositary and banking services. All these
service providers help the Board fulfil its responsibility to
engage with stakeholders and it should be noted are also, in-turn,
stakeholders themselves.
In addition to promoting the success of the Company for the
benefit of members as a whole, section 172 of the Companies Act
2006 requires the Board to have regard to the following:
Section 172 element ReSI comment
the long term (s.172(1)(a)) ReSI's investment objective
is to establish a residential
portfolio benefitting from inflation-linked
income for the long term. Alongside
this intention to hold for the
long-term, ReSI has used leverage
on a long-term basis across
the Group, ReSI has an average
debt maturity of 2 2 years.
----------------------------------------------
the interests of ReSI's employees As an externally managed AIF,
(s.172(1)(b)) this is not applicable to ReSI.
----------------------------------------------
relationships with suppliers, See the discussion regarding
customers and others (s.172(1)(c)) the following major stakeholders
- "Fund Manager", "Property
Managers & Developers", ""Key
Service Providers", "Grant providers"
and "Residents".
----------------------------------------------
the community and the environment All investment decisions taken
(s.172(1)(d)) by the Fund Manager on behalf
of ReSI are taken in accordance
with its sustainable investment
framework.
Moreover, shared ownership investments,
through ReSI Housing, benefit
from the Fund Manager's proprietary
shared ownership customer charter
and environmental charter, under
which the Group seeks to offer
leases of 250+ years and not
charge event fees.
The Fund Manager created these
charters in 2020 to formalise
its existing process and practices
that go above and beyond the
requirements of the model for
shared ownership lease, ultimately
benefitting the Group's shared
owners and comprising part of
the Company's social impact.
----------------------------------------------
high standards of business conduct See the section titled "Governance
(s.172(1)(e)) and ethics".
----------------------------------------------
the need to act fairly between See the discussion regarding
members (s.172(1)(f)) "Shareholders" as a major stakeholder.
----------------------------------------------
The Board has identified the following major stakeholders in the
Company's business.
On an ongoing basis the Board and Fund Manager monitor both the
potential and actual impacts of decisions made upon these major
stakeholders.
Major Stakeholder Why is it important to engage? How have the Directors and Fund
Manager engaged?
Shareholders As a public company listed The Fund Manager along with ReSI's
on the London Stock Exchange, corporate broker regularly meets
ReSI is subject to the Listing with ReSI's shareholders to provide
Rules and the Disclosure corporate updates and to foster
Guidance and Transparency regular dialogue.
Rules.
The Board encourages shareholders
The Listing Rules include to attend and participate in ReSI's
a listing principle that Annual General Meeting (AGM).
a listed company must ensure ReSI values any feedback and questions
that it treats all holders it may receive from shareholders
of the same class of shares ahead of and during the AGM.
that are in the same position
equally in respect of the ReSI's Annual and Interim reports
rights attaching to such are made available on ReSI's website
shares. With the assistance and then are circulated to shareholders
of regular discussions with as requested, providing shareholders
and the formal advice of with an in depth understanding
ReSI's legal advisors, company of the Company's financial position
secretary and corporate broker, and portfolio.
the Board abides by the Listing
Rules at all times. For information ReSI also make available RNS and
on shareholder engagement other business and market updates
please see the Governance on ReSI's website.
section of this Annual Report
which contains further information
on shareholder engagement.
-------------------------------------- ---------------------------------------------
Residents ReSI's residents are integral ReSI works with trusted partners
to the business model. The to manage its relationships with
importance of engaging with all residents on all tenures.
residents cannot be understated; ReSI's property managers are in
strong relationships have regular contact with residents,
been shown to improve tenant and residents are also provided
retention, rent collection with contact details and are able
rates, overall tenant satisfaction to contact dedicated teams to
and ReSI's impact on the discuss any problem that they
community. might have.
ReSI is committed to accelerating The Fund Manager reviews detailed
the development of socially affordability assessments before
and economically beneficial a resident is selected, and throughout
new housing to make a meaningful the lease term a close relationship
contribution to the UK housing is maintained through ongoing
shortage. ReSI's homes deliver engagement. The Fund Manager expects,
a social benefit through and monitors, the property managers
providing wellbeing improvements to encourage feedback from residents
to residents (e.g. by providing including suggestions for service
the security of a home for improvement and to learn from
life), fiscal savings (e.g. any complaints about service delivery.
lower costs for housing those The safety and wellbeing of residents
at risk of homelessness and is of the highest priority and
savings to the NHS), and when making an investment the
wider economic benefits (e.g. Fund Manager is rigorous in using
by enabling people to live the skills and expertise of its
and find work in otherwise property team to provide high
unaffordable parts of the quality homes and identify and
country). The social impact mitigate all risks to residents.
delivered by ReSI is reported
on page 46 In addition, the Fund Manager
conducts an annual satisfaction
survey for its retirement and
shared ownership residents, affording
these residents an opportunity
to comment on the services received.
The Fund Manager considers residents'
changing needs and uses their
expertise to assist them. ReSI's
lifecycle plans for accommodation
includes a conservative approach
to the long-term costs of ownership
to ensure that the standard of
quality is maintained or improved
throughout the life of the property.
At the same time, the Fund Manager
only works with well-regarded
and established partners to ensure
all routine and other maintenance
is undertaken promptly and properly.
-------------------------------------- ---------------------------------------------
Fund Manager The most significant service The Board regularly monitors the
provider for ReSI's long-term Company's investment performance
success is the Fund Manager, in relation to its objectives
who has been engaged as ReSI's and investment policy and strategy.
alternative investment fund
manager since ReSI's initial The Board receives and reviews
public offer. regular reports and presentations
from the Fund Manager and seeks
The Fund Manager performs to maintain regular contact to
investment management services maintain a constructive working
to ReSI in accordance with relationship.
the Alternative Investment
Fund Managers Directive 2011/61/EU
as implemented into UK law
by the Alternative Investment
Fund Managers Regulations
2013 and the F und chapter
of the FCA Handbook
-------------------------------------- ---------------------------------------------
Property ReSI's property managers ReSI always seeks to work with
Managers are experienced in managing well-regarded partners to ensure
& Developers tenants' needs to ensure that its homes are fit for purpose
a good quality of service and maintained at a high standard
and to ensure that the regulatory in order to meet the needs of
risk is minimised. lessees and occupiers, as well
as sustaining value over the long-term.
In addition, strong developer
relationships enable ReSI The Fund Manager has regular contact
to secure a pipeline of assets with property managers, estate
for investment. Experienced managers and developers and takes
development partners ensure a proactive approach to working
that ReSI acquires high quality with third parties.
homes to lease to its residents,
improving quality of life Before an acquisition, detailed
for residents. property due diligence is performed
by the Fund Manager on all acquisitions
By supporting development to minimise fire and other risks
partners, ReSI aims to benefit to residents and provide safe
local communities by increasing and secure accommodation.
the provision of affordable
housing. Through ReSI Housing, After acquisition, the Fund Manager
ReSI is able to acquire assets (with input from property managers)
within the social housing regularly reports to the Board
regulatory environment, which on ReSI's property performance
emphasises good governance and compliance with property obligations.
and financial viability.
-------------------------------------- ---------------------------------------------
Key Service A list of the Company's key Before the engagement of a service
Providers service providers can be provider, the Board ensures that
found on page 139 of this the service provider's services
Annual Report. are appropriate and values are
aligned.
As an externally managed
real estate investment trust, On an annual basis the Board reviews
the Company conducts all the continuing appointment of
its business through third-party each service provider to ensure
service providers. re-appointment is in the best
interests of the Company's shareholders.
The Board has strong working relationships
with the Fund Manager, broker,
company secretary, administrator
and depositary and receives reports
on the performance of the key
service providers by the Fund
Manager and company secretary.
Separately, the Auditor is invited
to attend the Audit Committee
meeting at least once per year.
The Audit Committee Chair maintains
regular contact with the audit
partner to ensure the audit process
is undertaken effectively.
-------------------------------------- ---------------------------------------------
Regulator ReSI Housing is a wholly-owned The Fund Manager and ReSI Housing's
of Social subsidiary of ReSI and is board each maintains strong lines
Housing registered with, and regulated of communication with the Regulator
by, the Regulator of Social and is transparent in all dealings.
Housing (the RSH) as a for-profit
registered provider. The Fund Manager, in conjunction
with the board of ReSI Housing,
As a regulated entity, ReSI keeps ReSI Housing's compliance
Housing is able to offer with its regulatory obligations
shared ownership properties, under constant review, with input
which are central to its from such external advisers as
future investment strategy may be necessary.
and other regulated tenures.
The board of ReSI Housing contains
independent non-executive directors
with enhanced responsibilities
for ReSI Housing's compliance
with the RSH's regulatory regime.
-------------------------------------- ---------------------------------------------
Grant Providers To enable delivery of shared The Company engages the Fund Manager
ownership homes, ReSI Housing and third-party service providers
is an investment partner to assist with compliance o f
of multiple grant providers, grant requirements. Any correspondence
including the Greater London from a grant provider is responded
Authority (GLA) and Homes to promptly.
England, and has accessed
grant funding under their In t he financial year 2022, ReSI
standard form grant agreements. Housing's compliance with grant
requirements on Auckland Rise
Each of these grant providers with GLA has been audited by Trimmer
is a long-term investment CS Ltd and we are awaiting final
partner in ReSI Housing. audit results from the GLA.
-------------------------------------- ---------------------------------------------
HMRC If ReSI fails to remain qualified ReSI corresponds with its contacts
as a REIT, its rental income at HMRC regularly and is transparent
and gains will be subject in all dealings.
to UK corporation tax.
The Directors and the Fund Manager
at all times conduct the affairs
of ReSI so as to enable it to
remain qualified as a REIT for
the purposes of Part 12 of the
CTA 2010.
-------------------------------------- ---------------------------------------------
Lenders Members of the Group have ReSI's subsidiaries report to
raised secured debt and entered their respective lenders in line
into a working capital facility. with the covenants entered into.
As is customary, each facility Proactive correspondence helps
contains representations develop the relationship and aides
and warranties the Company's ability to raise
further debt in the future.
-------------------------------------- ---------------------------------------------
Principal Decisions
ReSI's Directors are cognisant of their duties under Section 172
and decisions made by and discussions of the Board take into
account the interests of all the Company's key stakeholders.
The following are examples of how the Board managed their
Section 172 obligations in the context of decisions that were
anticipated to have a material impact on ReSI and its key
stakeholders
Discussion item Stakeholders Decision and rationale
Equity raise in Shareholders The Board approved of the allotment
February 2022 Residents of new ordinary shares, raising
Property Managers GBP15mn (gross proceeds).
& Developers
Fund Manager This was considered in the best
interests of stakeholders collectively
for it would allow ReSI to continue
deploying into its shared ownership
pipeline, through ReSI Housing,
increase Group AUM and revenues,
expand the Groups' investor base,
further diversify its exposure to
inflation-linked receivables and
strengthen its pipeline relationships.
-------------------- ------------------------------------------
Amendments to the Shareholders The Board approved of the Fund Manager's
Group working capital Residents proposal to extend and upsize the
facility Property Managers Group's working capital facility,
& Developers reducing the margin and securing
Fund Manager additional bridging and working
capital financing.
-------------------- ------------------------------------------
Appointment of Shareholders The Board approved the appointment
Peel Hunt LLP Fund Manager of Peel Hunt LLP as corporate broker
and financial adviser, after a broker
review and tender process.
-------------------- ------------------------------------------
Risk Management
Risk Management Measures
Risk management is the continual building of a framework and
culture to promote a thoughtful and systematic methodology for
identifying, analysing, evaluating, treating, monitoring, and
communicating risks related with any activity that we employ to
optimise gains and control potential losses.
ReSI has delegated risk management responsibility to the Fund
Manager, for whom risk management is an integral part of the Fund
Manager's culture. Risk management is also an integral part of the
broader Gresham House group.
The Fund Manager has embedded risk management from the top down
into its philosophy, practices and business processes - risk
management is not to be viewed or practiced as a separate activity.
All Fund Manager personnel and ReSI directors are involved to some
extent in the management of risk on a daily basis as part of their
usual business activities.
The Fund Manager proactively manages risk (rather than
responding reactively to it) and the Fund Manager's activities are
also subject to scrutiny by the Gresham House risk management
framework.
On behalf of ReSI, the Fund Managers maintains the following
under regular review:
Measure Explanation Relevance to Strategy Result
============================ =============================== =================================
Percentage ReSI measures the Unsold shared ownership 723 of ReSI's 739
of shared number of empty homes that do no generate completed shared ownership
ownership shared ownership rental income or staircasing homes were sold, reserved
homes properties in its proceeds, and carry or moving to completion
occupied shared ownership operating expenses, to shared owners as
portfolio. adversely impact ReSI's of 30 September 2022,
dividend coverage. equivalent to 98%
For each empty (30 September 2021:
shared ownership 495 of 498 (99%).
property, ReSI Those that are vacant
is unable to collect are part of the 18
rent, must pay homes acquired 8in
service charge September 2022 and
and council tax, are being let up through
and is exposed established partners,
to maintenance SO ReSI. A further
costs. 10 homes have been
reserved since 30
September and are
moving to completion.
================== ============================ =============================== =================================
Void loss ReSI measures the Void retirement units The void loss was
from retirement number of empty impact ReSI's dividend 6.2% for the year
properties retirement properties coverage. (7.6% in FY 2021).
in its retirement
portfolio.
For each empty
retirement property,
ReSI is unable
to collect rent.
================== ============================ =============================== =================================
Capital ReSI measures the ReSI's strategy prioritises Since 30 September
deployed rate at which it investing in high quality 2021, ReSI completed
has deployed capital retirement and social an equity capital
since IPO as this housing assets; hence raise of GBP15mn in
drives the timing the total capital deployed February 2022 and
of income production. into such assets reflects committed (net of
ReSI's ability to source first tranche sale
suitable investments. receipts) cash consideration
of GBP28mn into 246
additional high-quality
shared ownership homes.
ReSI's capital is
therefore again fully
deployed, with GBP383mn
deployed (including
GBP9mn committed acquisitions)
by 30 September 2022
(30 September 2021:
GBP351mn).
================== ============================ =============================== =================================
EPRA NTA ReSI measures its A higher EPRA NTA per
per share EPRA NTA per share, share compared to ReSI's EPRA NTA of 106.1p
consistent with NTA of 98p per share per share (30 September
its financial statements, immediately following 2021: 107.9p), shows
with a target to IPO, reflects capital growth of over 8%
achieve capital appreciation on its since IPO whilst paying
appreciation in portfolio. out c. 23p of dividends
line with inflation of dividends over
without reliance the same period.
on gains from asset
sales.
================== ============================ =============================== =================================
Dividend ReSI is targeting ReSI seeks to provide ReSI increased its
per share 5.16p per share stable rental income dividend target for
in respect of the to its investors through FY 2022 to 5.16p in
annual period to regular consistent line its target to
30 September 2022, dividend payments in increase versus FY
growing in line line with its dividend 2021 with annual inflation
with inflation. target. to September 2021
of 3.1%.
Measuring dividend
payments per share Performance has been
reflects ReSI's ability in line with target:
to meet this target, four equal dividends
with performance reflecting were paid of 1.29p
available cash and per share during the
the income generated period under review
from ReSI's assets. (declared in December
2021 and January,
May and July 2022)
totalling 5.16p per
Ordinary Share (FY
2021: 5.0p).
================== ============================ =============================== =================================
Dividend Dividend cover Dividend coverage of ReSI raised GBP15mn
cover expresses the ratio at least 100% is required of equity during the
of annualised recurring to pay the dividend year which led total
profits (ie excluding over the long term. dividend coverage
asset or liability to drop to 97% over
valuation movements) the year whilst this
to dividends paid. was deployed. Full
dividend coverage
returned in Q4 once
these new investments
were onboard.
================== ============================ =============================== =================================
Ongoing Ongoing charges ReSI measures the ongoing ReSI's ongoing charges
charges ratio compares charges ratio to demonstrate ratio was 1.40% (FY
ratio annualised ongoing that the running costs 2021: 1.60%) for the
expenses to average of the Company are period, 1 October
Net Asset Value. kept to a minimum without 2021 to 30 September
impacting performance. 2022, of which 1.0%
relates to the Fund
A lower ongoing charges Management fee and
ratio is indicative the remainder being
of improved financial general and administrative
performance. expenses.
(See supplementary
information on page
172)
================== ============================ =============================== =================================
Loan covenant ReSI measures the ReSI's borrowing strategy The Fund Managers
stress headroom in group is predicated on long-term analyses financial
testing financial covenants. project finance to covenant headroom
match the cash flows at quarterly meetings
of the scheme in question. and, in addition,
when submitting compliance
ReSI monitors the asset certificates to funders.
and liability matches Given the headroom
to make sure ReSI remains the Group has in each
within its leverage of its covenants,
targets and limits, no action has to date
and as part of prudent been necessary.
treasury management.
================== ============================ =============================== =================================
Bad debts ReSI uses professional Bad debt write offs Write off of rent
on rental management companies impact ReSI dividend arrears was only GBP2,900
receipts to collect rent coverage in the year, representing
and invests in 0.02% of annual rental
SO schemes where income.
rent arrears are
covered by ownership
stakes and retirement
schemes where rent
arrears are traditionally
very low.
================== ============================ =============================== =================================
In addition, for all acquisitions of regulated housing tenures
(such as shared ownership), which are effected through ReSI
Housing, ReSI has an added layer of risk management embedded into
its procedures. As a registered provider registered with the RSH,
the Board of ReSI Housing has established its own risk management
framework, risk management policy and risk appetite, one of the
outcomes of which is the Key Risk Map, which is discussed by the
board of ReSI Housing at every quarterly meeting as a standing
item.
The following is a hypothetical Key Risk Map, illustrating the
ongoing risk management conducted by the board of ReSI Housing:
Principal Risks and Uncertainties
The Board recognises the importance of risk management in
achieving ReSI's strategic aims.
The Fund Manager, whose services are overseen by the Board, has
responsibility for identifying potential risks at an early stage,
escalating risks (and changes to risks) and implementing
appropriate mitigations, all of which are recorded in ReSI's risk
register. Where relevant, the Company's financial model is
stress-tested to assess the potential impact of a potential risk
taking into account the likelihood of occurrence.
Risk is a standing agenda item at all meetings of the Audit
Committee and all meetings of the Board. The Board takes a
proactive view when assessing and mitigating risks. The Board
regularly reviews the risk register to ensure that identified risks
and mitigating actions remain appropriate.
ReSI's risk management process is designed to identify, evaluate
and mitigate (rather than eliminate) the significant and emerging
risks that it faces and that evolve as the business and operating
environment changes. The risk management process ensures a defined
approach to decision-making but can only provide reasonable, and
not absolute, assurances.
The Board considers the following to be the principal risks and
uncertainties:
Risk Risk mitigation Party responsible Party Change in
responsible risk over
for monitoring last financial
year
Company, Investment Strategy and Operations
ReSI may not -- Due diligence performed Fund Manager Board No change
meet its investment by the Fund Manager prior
objective or to each acquisition
return objective -- On-going information on
investment activities
provided
by the Fund Manager to the
Board
-- Regular review of
investment
and return objectives
---------------------------- ------------------- ----------------- -------------------
ReSI may be unable -- ReSI has a detailed Fund Manager Board No change
to make acquisitions Investment
within its targeted Policy that describes
timeline target
assets and the process for
acquiring such assets
-- The Fund Manager has
long-term
relationships with leading
housing associations,
local
authorities and private
developers
-- ReSI Housing, as a
for-profit
Registered Provider,
expands
the origination universe
available
to ReSI to include
acquiring
newly developed properties
that are designated as
affordable
accommodation under
planning
requirements and
unrestricted
stock where ReSI can apply
for Government grant to
convert
into shared ownership
-- The Fund Manager has
extended
its origination and
relationship
network by bringing in
additional
experienced professionals
with backgrounds working
for
housing associations,
local
authorities and private
developers
---------------------------- ------------------- ----------------- -------------------
ReSI's due diligence -- Legal DD is carried out Fund Manager Board No change
("DD") may not by established law firms
identify all and
risks and liabilities is managed by in-house
in respect of counsel
an acquisition and housing specialists
-- Property DD is carried
out by reputable real
estate
surveyors and is managed
by
in-house property experts
-- Financial DD is carried
out by major accounting
firms
and is managed by in-house
experienced accountants
-- The Fund Manager
performs
shadow credit ratings
utilising
published credit rating
methodologies
---------------------------- ------------------- ----------------- -------------------
Failure of ReSI -- Specialist ReSI Housing Board New
Housing to continue non-executive and Fund
to meet the Regulatory directors have been Manager
Standards appointed
and tasked with reviewing
activities from the
perspective
of the Regulatory
Standards
-- ReSI Housing board has
specialist sector
experience
and a risk-based
governance
structure, and activities
are monitored by the Board
-- ReSI Housing performs
ongoing
compliance monitoring and
annual self-assessments
-- Regular support and /or
compliance assurance
procured
from third parties
---------------------------- ------------------- ----------------- -----------------
ReSI has insufficient -- The Fund Manager Fund Manager Board Increased
liquidity available regularly
to meet obligations reviews the Group's
as they fall Business
due (including Plan against the Group's
any debt repayment recent
obligations) and anticipated activities
or liquidity to assess future liquidity
is available requirements
on more expensive -- The Group typically
terms uses
long-term amortising debt,
reducing refinancing risk
-- The Group has access to
a working capital facility
with Santander, which
gives
access to GBP25mn
liquidity,
and the Fund Manager
actively
reviews Group liquidity to
manage cost of carry and
mitigate
the impact of rising
interest
rates
---------------------------- ------------------- ----------------- -----------------
Political and Event risk
Change in Government -- The current high ReSI, ReSI Board Increased
rent policy or inflationary Housing
ability to pass environment combined is and Fund
through inflation causing Manager
linked rent increases, a cost of living crisis
as RPI increases which
to highest level has the greatest impact on
in 30 years, low and middle income
limiting level earners.
of rent increases Significant RPI increases
over the past 12 months to
the highest level in the
last
30 years, may result in
changes
to Government policy on
rent
increases across
residential
sectors
-- ReSI's shared ownership
leases are contracted to
increase
annually at RPI +0.5%.
ReSI
performs stress testing
and
profitability analyses
regularly
-- Rent reviews on the
retirement
portfolio performed
annually
at RPI (capped at 6%),
with
affordability taken into
consideration.
The majority of retirement
residents have
inflation-protected
pensions
-- The Fund Manager
engages
in sector-wide
consultations
to be familiar with trend
within social housing
providers
practices
-- The Fund Manager
regularly
reviews market forecasts
to
stay abreast of potential
developments, including
possible
government interventions
-- The embedded collar in
the Group's shared
ownership
financing restricting
inflationary
uplifts
---------------------------- ------------------- ----------------- -------------------
Impact of Energy -- ReSI Property ReSI, ReSI Board No change
Efficiency upgrades Management Housing
on rental properties Limited, as property and Fund
- All properties manager, Manager
cannot be upgraded is working on updating EPC
to energy rating ratings on a number of
of EPC C or higher retirement
by 2025 properties
-- The majority of shared
ownership properties have
an EPC rating of B or
higher,
with a few properties at
lower
ratings or no ratings. The
Fund Manager is working
towards
obtaining ratings for all
properties which do not
have
a rating at present
(noting
that this is ultimately a
responsibility of the
shared
ownership customer)
-- Government policy
updates
and their impacts are
constantly
reviewed by the Fund
Manager,
with appropriate
management
action pursued via third
party
managers
---------------------------- ------------------- ----------------- -------------------
Environmental
Risk of long-term -- Environmental concerns Fund Manager Board No change
impact on the are integral to the Fund
portfolio from Manager's
climate change investment analysis
process,
and are considered before
investment in each scheme
-- The Fund Manager has a
sustainable investment
policy,
which is used to inform
investment
decisions
-- The Fund Manager has
have
partnered with The Good
Economy,
Kamma Data and other
knowledgeable
third parties to
understand
ReSI's impact on the
environment
and enhance our reporting
- please see the
Environmental,
Social and Governance
section
of this Annual Report
-- ReSI is investing in
improving
the environmental
efficiency
of its portfolio
---------------------------- ------------------- ----------------- -------------------
Real estate
Significant or -- ReSI's aim is to hold N/A Board Increased
material fall the
in the value assets for the long term
of the property and
market generate inflation-linked
income
-- Although the risk of
volatility
in valuations has
increased,
the risk to ReSI is
mitigated
by the fact that ReSI is
fully
deployed into investments
which are primarily income
generating, and therefore
the Company does not
heavily
rely on realised
revaluation
gains to cover dividend
payments.
Additionally, ReSI has
significant
headroom of at least 13%
in
its loan-to-value
covenants,
and significant headroom
in
its income cover covenants
(e.g. 31 % for the
retirement
portfolio) .
-- The Board will assess
market
forecasts on a quarterly
basis
to put in place
mitigations
in the event of a material
fall in the value of the
property
market
-- The Group will enter
into
long-term management
agreements
-- The Fund Manager stays
abreast of market
developments
and forecasts, and, where
necessary, seeks to adjust
offer terms accordingly
-- ReSI focuses on areas
of
the market with limited
and
ideally countercyclical
exposure
to the wider property
market
---------------------------- ------------------- ----------------- -------------------
Inability to -- ReSI actively manages Property Fund No change
secure residents its managers Manager
void risk, looking for / estate
opportunities agents
to acquire pre-tenanted
homes
where possible
-- ReSI engages
established
property managers to
provide
the day-to-day management
of home lettings and
collection
of underlying rent from
residents
or shared owners
-- ReSI only accepts void
risk where there is a
demonstrable
strong demand or where the
residents are part owners
of the properties (as
exhibited
by retirement, sub-market
rental assets or shared
ownership
properties)
-- The like-for-like
shared
ownership portfolio is now
fully occupied, with the
retirement
portfolio now averaging
6.2%
void loss in FY 2022,
below
pre-COVID-19 levels of c.
7%.
-- ReSI is investing in
improving
the environmental
efficiency
of its portfolio to save
residents
on their heating bills and
meet increased Government
requirements on the
minimum
energy efficiency of
rented
homes
---------------------------- ------------------- ----------------- -------------------
Service providers
ReSI is dependent -- ReSI's Board of Fund Manager Board No change
on the expertise Directors
of the Fund Manager and the board of ReSI
and its key personnel Housing
to evaluate investment have strong relevant
opportunities experience
and to assist and introduce independent
in the implementation scrutiny
of ReSI's investment -- The Fund Manager's
objective and interests
investment policy are aligned to those of
ReSI's
shareholders through a fee
structure which pays 25%
of
Fund Manager fees in
equity
and provides for no
transaction-specific
fees
-- As of the date of this
Annual Report, the current
and founder directors of
the
Fund Manager (or persons
connected
to them) hold (in
aggregate)
2,359,115 Ordinary Shares
in ReSI and the Fund
Manager
holds 3,647,399 Ordinary
Shares
totalling 3.3% of shares
in
issue
-- The Fund Manager
follows
strict selection processes
in recruiting personnel
including
psychometric testing,
external
verification of
qualifications
and experience and KYC and
security checks
-- The Board formally
reviews
the Fund Manager's
performance
annually
---------------------------- ------------------- ----------------- -------------------
Poor performance Service providers Fund Manager Board New
by service providers are either
leading to reputational recommended to or
loss or loss known to
of shareholders' the Fund Manager in
assets advance
of engaging
Board agrees
contractual
arrangements with
all key
service providers
Board considers
regular reporting
from key service
providers
Board monitors
quality of
services provided by
key service
providers and
conducts an
annual review of
such service
providers
Details of disaster
recovery
arrangements are
obtained
from key service
providers
---------------------------- ------------------- ----------------- -------------------
Taxation
If ReSI fails -- ReSI has operated and Fund Manager Board No change
to meet the requirements intends
of the REIT regime to remain within the UK
and remain qualified REIT
as a REIT, its regime and work within its
rental income investment objective and
and gains will policy
be subject to -- The Fund Manager
UK corporation receives
tax advice from professional
advisors
on an on-going basis the
UK
REIT regime and reports
any
relevant changes to the
Directors;
such advice covers the UK
REIT regime, legal
developments,
accounting standards and
investment
companies in general
-- The Fund Manager will
at
all times conduct the
affairs
of ReSI so as to enable it
to become and remain
qualified
as a REIT for the purposes
of Part 12 of the CTA 2010
-- The Board would have
oversight
on any action that would
result
in ReSI failing to adhere
to the UK REIT regime, and
ReSI receives tax advice
from
professional advisers who
review REIT status
quarterly
and submit annual tax
returns
in line with HMRC
requirements.
-- The Fund Manager
monitors
the government and HMRC,
FCA
and other public
announcements
for any relevant release
affecting
the Company
---------------------------- ------------------- ----------------- -------------------
Investment Management
Market and individual -- The Fund Manager Fund Manager Board No change
investment risks rigorously
not analysed analyses investment
or detected in opportunities
a timely fashion and undertakes
leading to deteriorating comprehensive
investment performance due diligence before
or a higher risk acquisition
profile than -- The Fund Manager does
anticipated not
receive a
performance-based
fee and as such is not
financially
incentivised to target
riskier
higher yielding assets
-- The Fund Manager
receives
a management fee prior to
deployment and so is not
financially
incentivised to purchase
assets
quickly regardless of the
performance of such assets
---------------------------- ------------------- ----------------- -------------------
Information Systems and Cyber security
IT systems are The Fund Manager Fund Manager Board No change
compromised / is part
unavailable, leading of the Gresham
to financial loss House group,
/ data breach who have a
specialist third
party IT team
that are
responsible
for systems
maintenance and
has increased its
capacity
and capability
with an
outsourced
IT function, and
the appointment
of a dedicated
Information
Technology
Manager
The Fund Manager
has made
significant
investment in
new technology
that incorporates
a greater level
of data security
in building a
secure and
resilient
platform which
is GDPR compliant
Company Secretary
evaluates
third party
service providers
to the Company to
ensures
that providers
have a similar
level of robust
processes
and controls
around
information
security and
systems.
Regular systems
penetration
testing and
vulnerability
assessments are
conducted
by multiple
independent
specialists
to ensure our
systems are
robust.
Regular Staff
training which
includes
awareness of IT
policies, cyber
threats,
data protection
and GDPR
requirements
-------------------------- ------------------- ----------------- -------------------
Going Concern and Viability Statement
Going Concern
The Board monitors the Company's ability to continue as a going
concern. The following is a summary of the Directors' assessment of
the going concern status of the Company and its Group, which should
be read in conjunction with the viability statement.
The Directors have considered the Group's cash position, income
and expense flows. As at 30 September 2022 the Group's net assets
were GBP201.4mn and the Group held cash and cash equivalents of
GBP16.0mn. Net rental income for the year ended 30 September 2022
was GBP16.0mn, which is expected to increase to reflect the Group's
recently occupied and committed shared ownership investments. The
total ongoing operating expenses (excluding finance costs, taxation
and aborted acquisition costs) for the period ended 30 September
2022 were GBP3.2mn, showing the Group had substantial operating
expenses cover.
ReSI's portfolio provides a very secure long term income stream.
This is due to the defensive nature of ReSI's portfolio, the
diversity of ReSI's counterparties and the resilience of ReSI's
tenants' incomes. Tenants' incomes are predominantly from pensions
/ savings or paid by local authorities and are checked for
affordability and to rents below market value. The secure long-term
nature of the income is further evidenced by:
the Company's shared ownership portfolio is 99% occupied;
the Company's stabilised retirement portfolio occupancy rates
are typically in excess of 94%. with the empty time primarily
reflecting time to refurbish properties when a tenant vacates;
a rent collection level for the year of 99%;
the average residency period of a retirement portfolio tenant is
six years;
Shared Ownership customer leases ranging from between 130 and
999 years with annual increases generally at RPI +0.5%; and
Local authority assets are ultimately leased to Luton Borough
Council, which is an area with one of the highest rates of housing
need in the country, to house those in the Borough who would be
otherwise homeless or threatened with homelessness.
ReSI has high-quality cash flows that are resilient to economic
downturns. ReSI also has a great deal of headroom in its financial
covenants and, after conducting various stress tests and
sensitivity analyses, could withstand a prolonged drop in net
income without breaching any loan covenant.
As the property investment values of ReSI's retirement and local
authority portfolios are primarily calculated with reference to
future cash flows, not house prices, volatility in house prices
does not have a substantial impact on the value of its property
assets. Sensitivity analysis shows that a 13% fall in the value of
ReSI's assets would not result in a loan covenant breach.
Based on the above information, the Board has made its
assessment and remains satisfied that there are no material
uncertainties affecting the Group's and/or Company's ability to
continue in business for the foreseeable future, being at least 12
months from the date of approval of the financial statements.
Accordingly, the Company has adopted the going concern basis in the
preparation of these financial statements.
Assessment of Viability
The principal risks and uncertainties section on pages 60 to 63
of this Annual Report summarises those principal matters that the
Directors consider could prevent ReSI the Group from delivering on
its strategy and is derived from a robust assessment of the
principal risks to our business model, future performance,
liquidity, and solvency, which is supplemented by financial
modelling and stress testing conducted by the Fund Manager. A
number of these principal risks, because of their nature or
potential impact, could also threaten the Group's ability to
continue in business in its current form if they were to occur.
The assumptions underpinning our cash flow forecasts and
covenant compliance sensitivity analysis have been tested to
explore the resilience of the Group's cash flows and profitability
to the potential impact of the Group's significant risks, or a
combination of those risks.
Considerations applied to going concern and viability
All of the sensitivity scenarios modelled use a base case
scenario comprising of the consummating of no acquisitions other
than those already committed, no further capital deployed to
support the underlying costs of the business, and no significant
changes to Governmental, regulatory or taxation policies.
The remaining principal risks, while having an impact on the
Group's business model, are not considered by the directors to have
a reasonable likelihood of impacting the Group's viability over the
next five years to 30 September 2027.
Sensitivities and mitigating actions
The sensitivity analyses performed were designed to be severe
but plausible, and to take full account of the availability of
mitigating actions that could be taken to avoid, or reduce, the
impact or occurrence of the underlying risks. Mitigating actions
that could be taken at the Group's discretion include use of funds
available under the revolving credit facility to reduce debt and
the reduction or suspension of dividend payments.
Stress tests
The Directors have considered the level of the fall in property
values that could be sustained without an impact on financial
covenants and acquisitions that have exchanged but not completed.
The Discounted Cash Flow valuation of the Group's Investment
Properties could fall by over 13% from the valuation at 30
September 2022 before any loan to value covenant breaches would
arise.
Additionally, in considering the effect of a reduction in rent
on interest cover covenants, the Group could sustain a fall in net
operating income by over 30% and remain in compliance with these
covenants.
Availability of funding
The Santander revolving credit facility of GBP10mn was increased
to GBP25mn of which GBP3.9mn is currently drawn and extended to
March 2025 in September 2022. This provides ReSI with increased
access to working capital and bridge finance. Repayment of the
entire GBP12.2mn NatWest loan is due in April 2023. However,
repayment of the NatWest loan could be funded from the Santander
facility if necessary and the forecasts have been prepared on this
assumption. Generally, the Fund Manager arranges finance in advance
of expected requirements and has reasonable confidence that
replacement debt facilities will be in place as required.
Financial models have been prepared for the going concern period
which consider liquidity at the start of the period and key
financial assumptions at the Company level as well as at Group
level. These financial assumptions include expected cash generated
and distributed by the portfolio companies, which is then available
to be distributed to the Company. The assumptions include inflows
and outflows in relation to external debt, interest payments,
expected dividends and the ongoing administrative costs of the
Company. These models assume that the Continuation Resolution is
passed 2023.
Continuation Vote
The Company's articles of association include a requirement for
the Board to propose an ordinary resolution at the annual general
meeting following the fifth anniversary from the initial public
offering of the Company for the Company to continue in its current
form (the Continuation Resolution). This is the first continuation
vote since the Company was established.
If the Continuation Resolution is passed, the Company will
continue its business as presently constituted and propose the same
resolution at every fifth annual general meeting thereafter. If the
Continuation Resolution is not passed, the Directors will be
required, within six months after the date of the annual general
meeting, to formulate proposals for consideration by the
shareholders for the voluntary liquidation, unitisation,
reorganisation, or reconstruction of the Company.
After making appropriate enquiries of the Company's brokers and
Investment Adviser, pursuant to their recent discussions with a
number of the Company's shareholders, the Directors are of the view
that the Continuation Resolution will be passed at the forthcoming
annual general meeting.
This reflects the long-term nature of the Company's assets with
supporting debt funding and the attractiveness of the Company's low
risk inflation-linked income strength in the Company's portfolio.
Accordingly, the Directors expect that the Continuation Resolution
will be passed. If the Continuation Resolution is not passed, an
event which the Directors consider to be highly remote, formulating
and implementing any such proposals would require the Company to
continue operations for a period of at least 12 months from the
date of approval of the Company's financial statements.
Viability Statement
In accordance with the UK Corporate Governance Code the Board
has assessed the viability of the Group over a longer period than
the 12 months required by the 'Going Concern' provision. The Board
has conducted this review for the five years to 30 September 2027.
The Board considers that five years is the maximum period for which
the degree of uncertainty relating to factors outside of the
Board's control is low enough to make a reasonable expectation in
respect of the Group's longer-term viability.
Five years was also considered appropriate given the Company's
long-term investment objective. The Board has considered each of
the principal risks and uncertainties set out above together with
the liquidity and solvency of the Company.
Having considered the matters above, the Board has a reasonable
expectation that the Group will be able to continue in operation
and meet its liabilities as they fall due over the five-year period
of its assessment.
The Chairman's Statement and Fund Manager's Report present the
positive long-term investment case for acquiring high quality
residential assets which also underpins the Group's viability for
the 5-year period.
Approval
The Strategic report was approved by the Board of Directors on 1
December 2022.
Rob Whiteman
Chairman of the Board of Directors
1 December 2022
Governance
Board of Directors
Rob Whiteman CBE
Non-executive Chairman
Appointed
9 June 2017
Skills, competence and experience:
Significant knowledge of public service finances and reform and
a strong background in public financial management and
governance.
Presently Chief Executive of the Chartered Institute of Public
Finance & Accountancy (CIPFA) and previously Chief Executive of
UK Border Agency (UKBA), Improvement and Development Agency (IDeA),
and London Borough of Barking and Dagenham. He previously held
various positions in the London Borough of Lewisham from 1996-2005,
latterly as Director of Resources and Deputy Chief Executive.
He has been a technical adviser to the board of the
International Federation of Accountants (IFAC) in New York since
2013.
Educated at the University of Essex where he gained a BA (Hons)
in Economics and Government and is a qualified Chartered Public
Finance Accountant (CPFA).
Other roles:
Director of CCAB Limited
Director of the Koru Project CIC F
Director of Eagles Crest (Poole) Limited
Director of CIPFA C.Co Limited
Director of CIPFA Business Limited
Director of Lilliput Advisory Ltd
Robert Gray
Senior Independent Director and Chairman of the Audit
Committee
Appointed
9 June 2017
Skills, competence and experience:
Extensive business experience, including experience in debt
finance and capital markets.
Robert has held roles at J.P. Morgan, and later at HSBC Markets
Limited and HSBC Investment Bank in London working initially as
Managing Director in Global Capital Markets and subsequently as
Vice Chairman for Client Development. Robert was also Chairman,
Debt Finance & Advisory at HSBC Bank plc. As Director and Chair
of the Overseas Promotion Committee of TheCityUK Robert served as
financial services sector adviser to the UK Minister for Trade
& Investment.
Robert was Chairman of the International Primary Market
Association and Vice Chairman and Chairman of the Regulatory Policy
Committee of the International Capital Market Association.
Robert was educated at Sherborne School and St. John's College,
Cambridge University where he gained a MA (Hons) in History.
Other roles:
Director and Chair of the Audit Committee of the Arab British
Chamber of Commerce
Trustee of Allia Limited
Director and Company Secretary of Prospekt Medical Limited
Elaine Bailey
Non-executive Director
Appointed
9 June 2017
Skills, competence and experience:
Previously the Chief Executive of Hyde Group, the G15 Housing
Association with over 50,000 properties providing housing to
100,000 residents, a position she held for five years until 2019.
During this time Elaine oversaw the establishment of a five-year
development pipeline of 11,000 homes and the launch of several
innovative partnerships with housebuilders, contractors, local
authorities and other housing associations. Elaine also previously
worked in the construction and Government services sectors; and
worked for some years at Serco.
Actively involved in the Government's Building Safety Programme,
including as a member of the Industry Safety Standards Steering
Group, and a former Non-Executive Director of the Health and Safety
Executive Board.
Elaine was educated at Southampton University, where she gained
a civil engineering degree and holds an MBA from Imperial
College.
Other roles:
Director of Andium Housing Association
Director of McCarthy & Stone Shared Ownership Division
Director of CHAS (Construction Health and Safety)
Director of MJ Gleeson plc
Trustee of Greenslade Family Foundation
John Carleton
Non-executive Director
Appointed
9 June 2017
Skills, competence and experience:
A strong operational leader with management experience and a
track record in social infrastructure and housing.
Previously John was a Partner and Head of Housing, Regeneration
and Growth at Arcadis LLP, was an Executive Director for Markets
& Portfolio at Genesis Housing Association and Managing
Director for Genesis Homes Ltd. In addition, John has held various
other roles including Executive Director of Property Investment at
Orbit Group, Director of Places for People Leisure Partnerships,
Director of Social Infrastructure and Housing at
PricewaterhouseCoopers, Director of the Housing Corporation (now
the Homes and Communities Agency), Property Director at Barclays
Bank, Managing Director of HRC Ltd / Lehman Brothers and Head of
the Specialist Property Division at the Bank of Ireland.
John was educated at the University of Liverpool and holds a MBA
in Finance from Manchester Business School. He is a fellow of the
R.I.C.S and also holds an IPF Investment Property Forum Diploma
from the Cambridge University Land Institute.
Other roles:
Director of Helping Change Limited
ReSI Housing Non-Executive Directors
ReSI owns ReSI Housing Limited, a for-profit registered provider
of social housing. The ReSI Housing Board contains independent
directors (who are independent of the Fund Manager and ReSI) and
Fund Manager directors. The board of ReSI Housing is comprised of
Ben Fry, David Orr, Alex Pilato, Pete Redman, Mark Rogers, and
Gilian Rowley. The independent Directors control the Board on
matters that they consider may affect ReSI Housing's compliance
with the regulatory standards of the Regulator of Social Housing.
ReSI Housing's non-executive directors are:
David Orr, CBE
Non-executive Director
Appointed
2 October 2018
Skills, competence and experience:
David is an experienced leader in both executive and
non-executive roles. He has over 30 years' experience in Chief
Executive roles, most recently at the National Housing Federation.
He is Chair of Clarion Housing Association, Chair of the Canal
& River Trust, is a previous President of Housing Europe and
previous Chair of Reall, an international development housing
charity. He is also chair of The Good Home Inquiry, co-chair of
#Housing 2030, a joint project for Housing Europe and UNECE, and a
member of the Archbishop of Canterbury's Housing, Church and
Community Commission. David frequently speaks on the challenge of
optimistic leadership and the critical importance of governance. He
has wide ranging media experience, is a well-regarded commentator
and blogger and has extensive expertise navigating the world of
politics and government. In June 2018 David was awarded a CBE.
Other roles:
Chair of Clarion Housing Association
Chair of The Canal & River Trust
Chair of The Good Home Inquiry
Co-chair of #Housing 2030
Board member of Clanmil Housing Association Trustee National
Communities Resource Centre
Gillian Rowley
Non-executive Director
Appointed
11 March 2019
Skills, competence and experience:
Gillian brings to ReSI Housing over 30 years of housing and
housing finance expertise, with a focus on policy development
within the framework of regulatory standards.
She served as the Non-Executive Director for The Housing Finance
Corporation from 2006 - 2012, where she was heavily involved in
business strategy, financial policy and governance. This overlapped
with her role as the Head of Private Finance at the former social
housing regulator, the Homes & Communities Agency, where for 13
years she was responsible for relationships with lenders,
investors, advisers, and credit rating agencies operating in the
social housing sector. She has also been an authority on all
aspects of social housing finance policy, including advising
Government departments, focusing on areas of regulatory standards,
and being responsible for social housing sector guidance on
treasury management.
Ben Fry - Managing Director, Housing & Investment Committee
Member, ReSI plc
Ben Fry is Managing Director of the Housing division at Gresham
House. He has led investment management for Residential Secure
Income since IPO in July 2017, prior to which he led TradeRisks'
debt advisory services for housing associations, local authorities,
and social infrastructure.
Ben has almost 20 years of industry experience, with eleven
years social housing experience since joining TradeRisks in 2011.
He has extensive experience across social housing and social
infrastructure. Ben qualified as a chartered accountant with
Deloitte and is a fellow of the Institute of Chartered Accountants
of England and Wales. He holds a BSc in Mathematics from Imperial
College London.
Brandon Holloway - Deputy Fund Manager, Housing
Brandon joined Gresham House as Deputy Fund Manager, Housing in
November 2021.
Prior to joining Gresham House, Brandon worked at real estate
private equity firm Singerman Real Estate, focusing primarily on
seniors housing acquisitions and asset management and investor
relations. Prior to Singerman Real Estate, he worked as a corporate
finance analyst at Ventas, Inc., a market listed healthcare REIT
based in Chicago, IL (USA).
Brandon has 11 years of experience in real estate investing and
corporate finance, and holds a BA in economics from Williams
College.
Alex Pilato - Senior Advisor, Housing & Investment Committee
Member, ReSI plc
Alex is Senior Adviser to the Housing and Capital Markets
divisions at Gresham House, following the acquisition of TradeRisks
and ReSI Capital Management in March 2020 and his subsequent
transition to retirement. Alex remains a member of all the boards
and committees of the housing division and the Group SPVs. This
transition has been planned since the acquisition of TradeRisks by
Gresham House.
Alex founded the TradeRisks group in 2000 where he was the
Chairman & Chief Executive until the sale to Gresham House on 5
March 2020 when he became Managing Director and head of the housing
division. Alex has worked in financial services throughout his
career, including 7 years at JP Morgan. He has 35 years of
investment banking and fund management experience, with the last 22
years' focused on the social housing and infrastructure
sectors.
Alex has a first-class honours degree in Theoretical Physics
from the University of London and a DPhil in Mathematics from the
University of Oxford.
Mark Rogers - Executive Director, ReSI Housing & Investment
Committee Member, ReSI plc
Mark is an Executive Director of ReSI Housing and part of the
team at Gresham House, having joined TradeRisks and ReSI Capital
Management in 2018 to lead the acquisitions function. Before
joining, Mark spent 12 years as a Chief Executive of Circle Housing
Group, a 65,000 unit housing association, before merging it into
the Clarion Group, the largest housing association in the UK. Prior
to that, Mark held Chief Executive roles at Anglia Housing Group
and Nene Housing Society. He has been a member of the Chartered
Institute of Housing since 1986 and has 39 years of social housing
experience.
Pete Redman - Executive Director, ReSI Housing & Investment
Committee Member, ReSI plc
Pete is an Executive Director of ReSI Housing, joining Gresham
House as part of the acquisition of TradeRisks in March 2020. He
has responsibility for due diligence on residential acquisitions
and operational performance by ReSI's property managers and
leaseholders. He joined TradeRisks in 2013 and has 47 years of
experience in residential portfolio management, having been Chief
Executive of Notting Hill Housing Group and Housing Director of two
London Boroughs.
Pete has been advisor to the Greater London Authority, to the
Scottish Government, and was a member of the team that won the
Wolfson Economics Prize in 2014 on housing supply.
Pete studied Engineering and then Philosophy at the University
of Cambridge, is an Alumnus of London Business School, and is an
Honorary Fellow of the Royal Institute of British Architects.
Directors' Report
The Directors are pleased to present their report and accounts,
together with the audited financial statements of the Company, for
the year ended 30 September 2022.
Residential Secure Income plc, company number: 10683026, (the
Company) is a Real Estate Investment Trust (REIT) listed on the
premium segment of the Main Market of the London Stock Exchange.
The Company's investment strategy focuses on, delivering secure
inflation linked returns from investing in affordable shared
ownership, retirement and local authority housing throughout the
UK.
The Board is ultimately responsible for all aspects of the
Company's affairs, including setting the parameters for monitoring
the investment strategy and the review of investment performance
and policy. The Board also has ultimate responsibility for all
strategic policy issues, the timing, price and volume of any
buybacks of Ordinary Shares, corporate governance matters and
dividends.
Further information on the Board's role is provided in the
Corporate Governance Statementbeginning on page 69, which forms
part of the Directors' Report.
Powers of the Board
The general powers of the Directors are set out in Article 99 of
the Company's Articles of Association. This Article provides that
the business of the Company shall be managed by the Board, which
may exercise all the powers of the Company, subject to any
limitations imposed by applicable legislation, the Articles and any
directions given by special resolution of the shareholders of the
Company.
Results
The Group's IFRS profit for the year was GBP13.3mn and the IFRS
earnings per share were 7.4p. The results for the year are shown in
the financial statements. Commentary on the results, future
developments and post balance sheet events can be found in the
Strategic Report, Chairman's Statement and Fund Manager's
Report.
Investment property
A summary of the Group's investment property portfolio is
included on page 2. A full portfolio listing can be made available
on request.
Dividend policy
The Company is targeting, on a fully invested and geared basis,
a dividend yield of c.5% per annum based on the issue price of GBP1
per Ordinary Share, which the Company then expects to increase
broadly in line with inflation. It is the Company's intention to
pay dividends to shareholders on a quarterly basis and in
accordance with the REIT Regime.
Over time, the Company expects its dividends to increase broadly
in line with inflation, targeting a total return in excess of 8%
per annum. As a REIT, the Company is required to meet a minimum
distribution test for each accounting period through which it is a
REIT. This minimum distribution test requires the Company to
distribute a minimum of 90% of its Property Rental Business income
profits for each accounting period, as adjusted for tax
purposes.
When the Company pays a dividend, that dividend is a Property
Income Distribution (PID) to the extent necessary to satisfy the
90% distribution condition. If the dividend exceeds the amount
required to satisfy that test, then depending on the circumstances
the REIT may determine that all or part of the balance is a non-PID
dividend. Subject to certain exceptions, PIDs will be subject to
withholding tax at the basic rate of income tax (currently
20%).
If the Company ceases to be a REIT, dividends paid by the
Company may nevertheless be PIDs to the extent they are paid in
respect of profits and gains of the Property Rental Business whilst
the Company was within the REIT Regime.
Dividends paid in the year ended 30 September 2022
In line with the Company's dividend policy and target, four
equal dividends of 1.29p per Ordinary Share were paid during the
year, totalling 5.16p per Ordinary Share, of which 4.08p was paid
as PID and 1.08p was paid as non-PID. These were declared in
December 2021 and January, May and July 2022 with the first being
the fourth interim dividend for the year ended 30 September
2021.
The Board declared a fourth interim dividend in respect of the
quarter to 30 September 2022 of 1.29p per Ordinary Share, which
will be payable on 18 January 2023 to shareholders on the register
at the close of business on 9 December 2022. The ex-dividend date
is 8 December 2022 and the full amount will be paid as PID.
Management - Fund Manager
ReSI Capital Management Limited (part of the Gresham House
group) has been engaged as the Company's alternative investment
fund manager (the Fund Manager), pursuant to a Fund Management
Agreement originally dated 16 June 2017 (as amended), to advise the
Company and provide certain investment and risk management
services.
ReSI Capital Management Limited is authorised and regulated by
the Financial Conduct Authority (FCA)") as a 'full scope' UK
alternative investment fund manager for the purposes of the UK AIFM
Regime.
The Fund Manager is appointed under a contract subject to twelve
months' written notice with such notice not to expire prior to the
fifth anniversary of first admission of the Ordinary Shares to
trading on the London Stock Exchange, which was in July 2022.
The Fund Manager is entitled to remuneration calculated in
respect of each quarter, based upon the Net Asset Value, at a rate
equivalent to 1% (if under GBP250mn), 0.9% (if over GBP250mn), 0.8%
(if over GBP500mn) or 0.7% (if over GBP1bn).
The Fund Management Fee shall be paid quarterly in advance, with
75% of the total Fund Management Fee payable in cash and 25% of the
total Fund Management Fee (net of any applicable tax) payable in
the form of Ordinary Shares. During the period, 444,717 ordinary
shares were awarded to the Fund Manager as part of the Fund
Management Fee, of which 212,153 ordinary shares were purchased
from Treasury at an average price of 106.57p per share (the
prevailing Net Asset Value at the time of issue).
Since year end, as per the announcement on 3 October 2022,
130,650 Ordinary Shares were purchased in the secondary market at
an average price of 105.5p per share and awarded to the Fund
Manager as part of the Fund Management Fee.
The Fund Manager is also entitled to a debt arrangement fee in
respect of debt arranged by the Fund Manager for ReSI or its
subsidiaries. The debt arrangement fee is equal to 0.04% p.a.
levied on the notional amount outstanding of any bond or private
placement financing. There is no debt arrangement fee payable in
respect of any bank debt financing the Fund Manager may arrange for
the Group.
Related to the Fund Manager is ReSI Property Management Limited
('RPML'), a wholly owned subsidiary of the Fund Manager that
provides property management services to parts of the Group on a
cost pass through basis with no profit margin. During the year,
RPML charged fees of GBP1,738,000 (2021: GBP408,000) in respect of
costs incurred in providing property management services and
GBP166,000 (2021: GBP317,000) in respect of non-recurring
costs.
Continuing appointment of the Fund Manager
The Board has discretion to monitor the performance of the Fund
Manager and, to appoint a replacement Fund Manager. The continuing
appointment of the Fund Manager is considered by the Board to be in
the best interests of shareholders as a whole. The reason for this
view is that the performance is satisfactory and the Fund Manager
is well placed to continue to manage the assets of the Company
according to the Company's strategy.
During the period, the Board, either directly or via its
advisors, engaged with shareholders carefully considering all
feedback. The Board explored all potential outcomes which may be in
the interest of the Company and its members as a whole.
Depositary
Thompson Taraz Depositary Limited has been appointed as
depositary to provide cash monitoring, safekeeping and asset
verification and oversight functions as prescribed by the UK AIFM
Regime.
Company Secretary
Computershare Company Secretarial Services Limited has been
appointed as the Company Secretary of the Company and provides
company secretarial services and a registered office to the
Company.
Administrator
MGR Weston Kay LLP has been appointed as administrator to the
Company. The administration of the Company is delegated and
performed in consultation with the AIFM and the Fund Manager.
Financial information of the Company is prepared by the
administrator and is reported to the Board.
Share capital and shareholders
As at 30 September 2022 the Company's issued share capital
comprised 194,149,261 Ordinary Shares, each of 1p nominal value,
including 8,985,980 Ordinary Shares held in Treasury. Treasury
shares do not hold any voting rights. As at 30 September 2022, the
Company's total shares in issue with voting rights, excluding
treasury shares, were 185,163,281. As at the date of this Annual
Report, there has been no change to the Company's issued share
capital, total voting rights or Ordinary Shares held in
Treasury.
During the period, 212,153 Ordinary Shares were issued from
Treasury to satisfy the Fund Management Fee at an average price of
106.57p per share. The average price was the prevailing Net Asset
Value per share at the time of issuance.
On 7 February 2022, the Company issued a total of 13,824,884 new
ordinary shares of 1p nominal value each in the capital of the
Company, at an issue price of 108.5p per share. This resulted in
gross proceeds of GBP15mn.
Each Ordinary Share held entitles the holder to one vote.
Treasury shares do not hold any voting rights. All shares,
excluding those held in Treasury, carry equal voting rights and
there are no restrictions on those voting rights.
There are no restrictions on the transfer of Ordinary Shares,
nor are there any limitations or special rights associated with the
Ordinary Shares. All shareholders have the opportunity to attend
and vote, in person or by proxy, at the AGM. For further
information on the details of the forthcoming AGM and ways to
engage with the Board, and the Fund Manager, please refer to page
186. Voting deadlines are stated in the notice of meeting and form
of proxy and are in accordance with the Companies Act 2006.
Authority of Directors to allotted shares
The authority to issue new shares granted at the Annual General
Meeting (AGM) held on 14 January 2022 will expire at the conclusion
of the forthcoming AGM. The forthcoming AGM will consider the
authority for Directors to allot further shares in the capital of
the Company under section 551 of the Companies Act 2006 up to
37,032,656 Ordinary Shares (excluding shares held in Treasury) in
the capital of the Company (equivalent to approximately 20% of the
Ordinary Shares in issue at the date of the notice of this
meeting).
If the Directors wish to offer shares (or sell treasury shares
which the Company may purchase and elect to hold as treasury
shares) for cash, company law requires that unless shareholders
have given specific authority for the waiver of their statutory
pre-emption rights, the new shares must be first offered to
existing shareholders in proportion to their existing holdings.
There may be occasions, however, when the Directors will need the
flexibility to allot new shares (or to grant rights over shares)
for cash or to sell treasury shares for cash without first offering
them to existing shareholders in proportion of their holdings in
order to make investments in line with the Company's investment
policies. This cannot be done unless the shareholders have first
waived their pre-emption rights.
Accordingly, the AGM will consider two separate resolutions
relating to the Director's ability to allot shares for cash or sell
treasury shares for cash up to an aggregate nominal value of GBP
37,032,656 which is equivalent to approximately 20% of the
Company's issued Ordinary Share capital (excluding shares held in
Treasury) as at the date of the notice of this meeting. This will
allow the Company to carry out one or more tap issues, in
aggregate, up to 20% of the number of Ordinary Shares in issue at
the AGM and thus to pursue specific investment opportunities in a
timely manner in the future and without the requirement to publish
a prospectus and incur the associated costs.
The Directors are aware that the combined authority to dis-apply
pre-emption rights in respect of up to 20% of the Company's issued
Ordinary Share capital sought under resolutions 12 and 13 is higher
than the 10% typically sought by investment companies. However, the
Directors believe that a higher authority is justified to enable
the Company to fund future acquisitions in line with the Company's
investment policy and strategy for growth.
In accordance with UK Listing Rules, the Company will only issue
Ordinary Shares pursuant to this authority at a price that is not
less than the prevailing net asset value per share of the Company
calculated in accordance with its IFRS accounting policies at the
time of issue. In addition, the Directors will not sell treasury
shares at less than such net asset value per share.
Discount management
The Board makes use of its share buyback powers as a means of
correcting any imbalance between supply of and demand for the
Ordinary Shares. In deciding whether to make any such repurchases,
including the timing, volume and price of such repurchases of
Ordinary Shares, the Directors have regard to the Company's REIT
status and what they believe to be in the best interests of
shareholders as a whole and in compliance with the Articles, the
Listing Rules, Companies Act 2006 and all other applicable legal
and regulatory requirements. During the year ended 30 September
2022, the Company did not purchase any of its own Ordinary Shares
for holding in treasury.
The timing, price and volume of any buybacks of Ordinary Shares
will be at the discretion of the Directors and is subject to the
working capital requirements of the Company and the Company having
sufficient surplus cash resources available. Directors will only
buyback shares at a discount to the then prevailing net asset value
of the shares. Under the Listing Rules, the maximum price
(exclusive of expenses) which may be paid for an Ordinary Share
must not be more than the higher of: (i) 5% above the average of
the mid-market values of the Ordinary Shares for the five Business
Days before the repurchase is made; or (ii) the higher of the price
of the last independent trade and the highest current independent
bid for Ordinary Shares.
The authority for the Company to purchase its own shares granted
by the AGM held on 14 January 2022 will expire at the conclusion of
the forthcoming AGM. The Directors recommend that a new authority
to purchase up to 14.99% of the Ordinary Shares in issue (subject
to the condition that not more than 14.99% of the Ordinary Shares
in issue, excluding treasury shares, at the date of the AGM are
purchased) is granted and a resolution to that effect will be put
to the AGM to be held on 31 January 2023. Any Ordinary Shares
purchased will either be cancelled or, if the Directors so
determine, held in Treasury.
Treasury shares
The Company is permitted to hold Ordinary Shares acquired by way
of market purchase in treasury, rather than having to cancel them.
Such Ordinary Shares may be subsequently cancelled or sold for
cash. Holding Ordinary Shares in treasury enables the Company to
sell Ordinary Shares from treasury quickly and in a cost efficient
manner and provides the Company with additional flexibility in the
management of its capital base.
Unless authorised by shareholders, Ordinary Shares held in
treasury will not be sold at less than Net Asset Value per Share
unless they are first offered pro rata to existing shareholders.
The Company will not hold treasury shares in excess of 10% of the
Ordinary Share capital of the Company from time to time.
Appointment and replacement of directors
In accordance with the Company's Articles of Association,
Directors may be appointed by the Board to fill a vacancy following
which they will be elected by shareholders by ordinary resolution
at an Annual General Meeting or General Meeting of the Company.
Articles of Association
The Company's Articles of Association can only be amended by
Special Resolution at a shareholders meeting.
Financial Instruments
The Company's financial instruments comprise its share
portfolio, cash balances, borrowings, debtors and creditors that
arise directly from its operations, profit or loss balances on
derivative instruments and accrued income and expenses. The
financial risk management objectives and policies arising from its
financial instruments and exposure of the Company to risk are
disclosed in note 36 to the financial statements.
Going Concern
The Directors' assessment of the longer-term viability of the
Company is set out on page 87.
Continuation vote
Under the Articles of Association of the Company, the Directors
are required to propose an ordinary resolution at the Annual
General Meeting following the fifth anniversary from its initial
public offering that the Company should continue as presently
constituted and at every fifth AGM thereafter.
Accordingly, the first continuation resolution will be presented
to shareholders at the AGM on 31 January 2023.
In the event that a continuation resolution is not passed, the
Directors would be required to formulate proposals for the
voluntary liquidation, unitisation, reorganisation or
reconstruction of the Company for consideration by shareholders at
a general meeting. The Directors expect that if the Continuation
Resolution is not passed, an event which the Directors consider to
be highly remote, formulating and implementing any such proposals
would require the Company to continue operations for a period of at
least 12 months from the date of approval of the Company's
financial statements.
The Directors do not believe that there is a material
uncertainty as to whether the Company will continue as a going
concern from the continuation vote, taking into account the growth
seen since IPO, the successful equity fund raise in February 2022,
the long-term nature of the Company's assets with supporting debt
funding and the attractiveness of the Company's low risk inflation
linked income.
Financial models have been prepared for the going concern period
which consider liquidity at the start of the period and key
financial assumptions at the Company level as well as at Group
level. These financial assumptions include expected cash generated
and distributed by the portfolio companies, which is then available
to be distributed to the Company. The assumptions include inflows
and outflows in relation to external debt, interest payments,
expected dividends and the ongoing administrative costs of the
Company. These models assume that there is no vote to terminate the
Company in 2023.
Significant shareholdings
As at 30 September 2022, the Directors have been notified of the
following shareholdings comprising 3% or more of the issued share
capital (excluding treasury shares) of the Company:
Percentage
of voting
Shareholders Holding rights
------------------------------------ ------------ ------------
Close Asset Management Limited 18,818,332 11.00%
Schroders plc 16,648,405 9.73%
CG Asset Management Ltd 13,206,949 7.72%
Halb Nominees Limited 11,560,797 6.76%
VT Gravis Funds ICVC 9,049,470 5.29%
Premier Miton Group plc 7,699,945 4.50%
City Asset Management plc 7,394,138 4.32%
abrdn plc 6,975,722 3.77%
City of Bradford - West Yorkshire
Pension Fund 9,750,000 5.27%
Since 30 September 2022 and the date of this Annual Report, the
Company has been notified of the following changes to the
significant shareholdings:
Percentage
of voting
Shareholders Holding rights
--------------------------------- ------------ ------------
Close Asset Management Limited 20,231,855 10.93%
Settlement of ordinary share transactions
Ordinary share transactions in the Company are settled by the
CREST share settlement system.
Anti-bribery and corruption
It is the Company's policy to conduct all of its business in an
honest and ethical manner (see page 90 for a discussion on the
Governance of the company). The Company takes a zero-tolerance
approach to bribery and corruption and is committed to acting
professionally, fairly and with integrity in all its business
dealings and relationships. The Company's policy and the procedures
that implement it are designed to support that commitment.
As a result, the Company can confirm that there were no legal
actions, fines or sanctions relating to anti-corruption,
anti-bribery, anti-competitive behaviour or anti-trust or monopoly
laws or regulations in the year to 30 September 2022.
Environmental, Social and Governance (ESG) matters
The Company, the Fund Manager and the broader Gresham House
group believe that it is essential to incorporate environmental and
social considerations into the Company's business model and
decision-making processes.
Gresham House has a clear commitment to sustainable investment
as part of its business mission and has achieved a score of 4 out
of 5 stars in its most recent PRI (Principles for Responsible
Investment) assessment report.
The Company always seeks to work with well-regarded partners to
ensure that its investments are fit for purpose and maintained at a
high standard in order to meet the needs of lessees and occupiers
as well as sustaining their value over the long term.
As a result, the Company can confirm that there were no legal
actions, fines or sanctions relating to environmental, social or
governance matters in the year to 30 September 2022.
Through ReSI Housing, the Company is able to acquire and hold
assets within the social housing regulatory environment, which
focusses on good governance and financial viability.
All of the Group's day to day operations and activities are
outsourced to third-parties. As such the Group does not have any
employees or operations of its own and does not generate any direct
greenhouse gas or other emissions or consume any energy reportable
under the Companies Act 2006 (Strategic Report and Directors'
Report) Regulations 2013 or the Companies (Directors' Report) and
Limited Liability Partnerships (Energy and Carbon Report)
Regulations 2018, implementing the UK Government's policy on
Streamlined Energy and Carbon Reporting. Information regarding the
portfolio's carbon emissions can be found on page 43.
Under Listing Rule 15.4.29(R), the Company, as a closed ended
investment fund, is currently exempt from complying with the Task
Force on Climate related Financial Disclosures.
For more information on the Company's environmental and social
impact, please see pages 39 to 52.
Employees
The Company has no employees and no share schemes. The Company
does not therefore calculate or disclose employee turnover rates,
its share of temporary staff or employee training hours. The
Board's policy on Diversity is contained in the Corporate
Governance Statement on page 78.
The Board is also not entitled to participate in any bonus
scheme, with Directors compensated according to the Company's Net
Asset Value, ensuring a long-term alignment of interests.
Modern Slavery Act 2015, Bribery Act 2010 and Criminal Finances
Act 2017
The Company is not within the scope of the UK Modern Slavery Act
2015 because it does not have employees, customers or meet the
turnover threshold, the Company is therefore not obliged to make a
slavery and human trafficking statement.
However, the Directors and Fund Manager are satisfied that, to
the best of their knowledge, the Company's principal suppliers, as
listed in the Directors' report on pages 72 to 73, comply with the
provisions of the Modern Slavery Act 2015 and maintain adequate
safeguards in keeping with the provisions of the Bribery Act 2010
and Criminal Finances Act 2017.
Annual General Meeting
The AGM of the Company will be held on 31 January 2023 at
12:45pm. The Notice convening the AGM is contained in this Annual
Report and can be found on the Company's website at
https://greshamhouse.com/real-assets/real-estate-investment/residential-secure-income-plc/
The Board is of the opinion that the passing of all resolutions
being put to the AGM would be in the best interests of the Company
and its shareholders. The Directors therefore recommend that
shareholders vote in favour of resolutions 1 to 15, as set out in
the Notice of Meeting, as they intend to do in respect of their own
shareholdings.
Political donations
The Company's policy is not to make any direct or indirect
political donations. No political donations were made during the
year under review and no political donations will be paid during
the forthcoming year (2021: nil).
Future developments
The outlook for the Company is discussed in the Chairman's
Statement on page 5.
Independent Auditor
BDO LLP have expressed their willingness to continue in office
as Independent Auditor and a resolution to re-appoint them will be
put to shareholders at the AGM.
Disclosure of information to the Independent Auditor
Each of the Directors at the date of the approval of this Annual
Report confirms that:
i. so far as the Directors are aware, there is no relevant audit
information of which the Company's independent Auditor is unaware;
and
ii. the Directors have taken all steps that ought to have been
taken as Directors to make themselves aware of any relevant
information and to establish that the Company's Independent Auditor
is aware of that information.
This confirmation is given and should be interpreted in
accordance with the provisions of Section 418 of the Companies Act
2006. In accordance with Section 489 of the Companies Act 2006, a
resolution to re-appoint BDO LLP as the Company's Independent
Auditor will be put forward at the forthcoming AGM.
Regulatory disclosures - information to be disclosed in
accordance with Listing Rule 9.8.4:
The following table provides references to where the information
required by Listing Rule 9.8.4 is disclosed:
Listing Rule
9.8.4 (1) - Capitalised The Company has not capitalised any
Interest interest in the year under review.
-----------------------------------------------
9.8.4 (2) - Unaudited The Company publishes a quarterly NAV
Financial Information statement. The Company published its
interim report and unaudited financial
statements for the period from 1 October
2021 to 31 March 2022.
-----------------------------------------------
9.8.4 (4) - Incentive The Company has no incentive schemes
Schemes in operation.
-----------------------------------------------
9.8.4 (5) and (6) No Director of the Company has waved
- Emolument Waivers or agreed to waive any current or future
emoluments from the Company.
-----------------------------------------------
9.8.4 (7), (8) and Included in the Director's report.
(9) - Share Issuance
-----------------------------------------------
9.8.4 (8) and (9) Not applicable.
- Companies Part of
the Group
-----------------------------------------------
9.8.4 (10) - Significant During the period under review, there
Contracts were no contracts of significance subsisting
to which the Company is a party and
in which a Director of the Group is
or was materially interested or between
the Company and a controlling shareholder.
-----------------------------------------------
9.8.4 (11) - Controlling The Company is not party to any contracts
Shareholders for the provision of services to the
Company by a controlling shareholder.
-----------------------------------------------
9.8.4 (12) and (13) During the period under review, there
- Waiving Dividends were no arrangements under which a
shareholder has waived or agreed to
waive any dividends or future dividends.
-----------------------------------------------
9.8.4 (14) - Board Not applicable.
Statement re Significant
Shareholders
-----------------------------------------------
There are no other disclosures to be made under LR 9.8.4
By order of the Board
For and on behalf of
Computershare Company Secretarial Services Limited
Company Secretary
1 December 2022
Corporate Governance Statement
Introduction
In this statement, the Company reports on its compliance with
the principles and provisions of the Association of Investment
Companies Code of Corporate Governance (the AIC Code), as published
in February 2019 which provides a framework of best practice for
investment companies. The Board is committed to high standards of
corporate governance and the Directors are accountable to
shareholders for the governance of the Company's affairs.
Statement of Compliance
The AIC Code addresses the principles and provisions set out in
the UK Corporate Governance Code (the UK Code), as well as setting
out additional provisions on issues that are of specific relevance
to the Company.
The Board considers that reporting against the principles and
provisions of the AIC Code, which has been endorsed by the
Financial Reporting Council (FRC), provides more relevant
information to its shareholders. The FRC has confirmed that AIC
member companies, such as ReSI plc, who report against the AIC Code
will be meeting their obligations in relation to the UK Code and
the associated disclosure requirements under paragraph 9.8.6 of the
Listing Rules.
The UK Code is available on the FRC website ( www.frc.org.uk ).
The AIC Code is available on the AIC website ( www.theaic.co.uk ),
which includes an explanation of how the AIC Code adapts the
principles and provisions set out in the UK Code to make them
relevant for investment companies.
Throughout the year ended 30 September 2022, the Company has
complied with the principles of the AIC Code which incorporates the
UK Code, except as set out below:
Executive Directors - The UK Code includes provisions relating
to the role of the chief executive and executive directors'
remuneration. For the reasons as set out in the AIC Guidance, the
Board considers these provisions are not relevant to the Company.
ReSI plc is an externally managed company with a Board comprising
entirely of Non-Executive Directors and it does not have any
employees, therefore it does not have any executive board members
or a chief executive.
Internal audit function - The UK Code includes provisions for an
internal audit function. For reasons set out in the AIC Code, the
Board considers that these provisions are not relevant to the
Company as it is an externally managed investment company. In
particular, all of the Company's day-to-day management and
administrative functions are outsourced to third-party service
providers, all of which have their own internal audit function. As
a result, the Company has no internal operations. The Board has
therefore determined that it is not necessary for the Company to
have its own internal audit function, although this is reviewed on
an annual basis.
The Company has therefore not reported further, in respect of
these provisions.
The Board of Directors
The Company has a robust corporate governance framework with
oversight provided by a highly experienced, fully independent
board. The Board consists of four Non-Executive Directors including
the Chairman. All of the Directors have served during the entire
year. The Directors are collectively responsible for determining
the investment policy and strategy, and have overall responsibility
for the Company's activities. The names and biographical details of
the Directors, including a list of their other directorships and
significant commitments is shown on pages 92 to 94.
The Board believes that during the year ended 30 September 2022
its composition was appropriate for a REIT of the Company's nature
and size. The Directors have a broad range of relevant business and
financial knowledge, skills and experience to meet the Company's
requirements and all of the Directors are able to allocate
sufficient time to the Company to discharge their responsibilities
effectively.
In accordance with the Listing Rules that apply to closed-ended
investment entities, and taking into consideration the AIC Code,
the Board has reviewed the status of its individual Directors and
the Board as a whole. No Director of the Company has served for
nine years or more and all Directors remain independent of the
Company's Fund Manager. Accordingly, all Directors are considered
to be independent in both character and judgement.
The Board leads the appointment process of new Directors, as and
when vacancies arise in accordance with the Directors' ongoing
succession planning. A formal process for the selection and
appointment of new Directors to the Company is followed by the
Board. New Director appointments shall be made on the basis of
merit against objective criteria as identified by the Board as
being desirable to complement the skills and experience of the
existing Directors whilst having regard for all diversity
factors.
Succession planning and Board composition has been a focus
during the year, particularly in the context of Board tenure and
diversity policies. On 21 September 2022, the Board approved and
adopted a Board tenure and re-appointment policy (Board Tenure
Policy). The Board considers it to be inappropriate to set a
specific tenure limit for any individual Director or the Chairman
of the Board. Instead, as set out in the Board Tenure Policy, the
Board will seek to recruit a new Director on average every 2-4
years to regularly bring the challenge of fresh thinking into the
Board's discussions. The Board recognises the benefits of regular
refreshment and diversity which brings new perspectives and
challenge, whilst also maintaining stability and continuity of
corporate memory through longer serving Directors. Through the
Board Tenure Policy the Board seeks to achieve a range of skills,
experience, backgrounds and lengths of services among its members.
This approach will likely result in an average tenure of 3-5 years.
The Board does not believe that length of service in itself
necessarily disqualifies a Director from seeking reappointment but,
when making a recommendation, the Board will take into account the
requirements of the AIC Code. Information in respect of the
Company's Board Diversity Policy can be found on page 106 of this
Annual Report.
In accordance with the Company's Articles of Association,
Directors may be appointed by the Company by ordinary resolution or
by the Board. If appointed by the Board, a Director shall hold
office only until the next AGM and shall not be taken into account
in determining the number of Directors who are to retire by
rotation. In line with best practice and the Board Tenure Policy,
all the Directors will stand for annual re-election and the
performance of each Director will be appraised by the Board
annually, prior to the AGM. Accordingly, resolutions to re-elect
all applicable Directors are contained within the AGM Notice of
Meeting. The Directors have appointment letters which do not
provide for any specific term. Copies of the Directors' appointment
letters are available for inspection on request at the registered
office of the Company and will be available at the AGM. Upon
joining the Board, new Directors receive a formal induction and
relevant training is available to Directors on an ongoing
basis.
Insurance and indemnity provisions
A policy of insurance against Directors' and Officers'
liabilities is maintained by the Company.
Responsibilities of the Chairman and Senior Independent
Director
The Board appointed Robert Whiteman as Chairman of the Company,
in March 2018. The Chairman is responsible for leading the Board
and for its overall effectiveness in directing the affairs of the
Company. The Chairman ensures that all Directors receive accurate,
timely and clear information and help promote a culture of openness
and debate in Board meetings by facilitating the effective
contribution of other Directors. The Chairman also takes a leading
role in ensuring effective communications with shareholders and
other stakeholders.
Robert Gray was appointed Senior Independent Director of the
Company on 16 September 2021. The Senior Independent Director
provides a channel of communication for any shareholder concerns
regarding the Chairman and leads the Chairman's annual performance
evaluation.
In accordance with the AIC Code, the Board has reviewed and
approved a policy setting out the responsibilities of the Chairman
and the Senior Independent Director.
Audit Committee
The Board delegates certain responsibilities and functions to
the Audit Committee as is clearly set out and defined in its terms
of reference, which can be inspected at the registered office of
the Company and viewed on the Company's website (
https://greshamhouse.com/real-assets/real-estate-investment/residential-secure-income-plc/).
The Audit Committee comprises the whole Board, all of whom are
independent and have relevant financial expertise. Robert Gray who
is the Chairman of the Audit Committee has relevant financial
experience and holds similar roles at other organisations. The
Committee as a whole has competence relevant to the sector in which
the Company operates. The Committee meets at least twice a year to
review the integrity and content of the interim and annual
financial statements, including the ongoing viability of the
Company. The Committee also reviews the scope and results of the
external audit, its cost effectiveness, quality and the
independence and objectivity of the external Auditors, including
the provision of non-audit services. A report of the Audit
Committee is included in this Annual Report as set out on page
111.
Other Committees
The fully independent Board additionally fulfils the
responsibilities of a nomination committee and remuneration
committee. Given the size of the Board and the size and nature of
the Company, which has no employees or executive directors, it has
not been considered necessary by the Board to establish separate
nomination or remuneration committees at this time.
It is the responsibility of the Board as a whole to determine
and approve the Directors' fees, following proper consideration and
having regard to the industry generally, the role that individual
Directors fulfil in respect of Board and committee
responsibilities, the time committed to the Company's affairs and
the remuneration levels generally within the sector. Detailed
information on the remuneration arrangements for the Directors can
be found in the Directors Remuneration Report on pages 86 to
87.
It is the responsibility of the Board as a whole to undertake a
formal review of the balance, effectiveness and diversity of the
Board and consider succession planning, identifying the skills and
expertise needed to meet the Companies strategic objectives. The
Board is also responsible for reviewing the appointment of a Senior
Independent Director, membership of the Board's Committees, and the
re-appointment of those Directors standing for re-election at
AGMs.
In addition, the Board as a whole fulfils the functions of a
management engagement committee to review the actions and
judgements of management in relation to the interim and annual
financial statements and the Company's compliance with statutory
and regulatory matters. Furthermore, in this capacity, the Board
reviews the terms of the Fund Management Agreement and examines the
effectiveness of the Company's internal control systems and the
performance of the Fund Manager, depositary, administrator, company
secretary and the registrar.
Board and Audit Committee meeting attendance
Directors Board Meeting Audit Committee
(7 meetings held) (3 meetings held)
Rob Whiteman 7 3
-------------------- --------------------
Robert Gray 7 3
-------------------- --------------------
John Carleton 6 2
-------------------- --------------------
Elaine Bailey 7 3
-------------------- --------------------
There were seven board meetings and three Audit Committees
during the year to 30 September 2022. Additional sub-committee
meetings of the Board were also held during the year in respect of
the Company's share issuance, payment of dividends, approval of
NAV, approval of financial statements and results, and other
administrative matters and approval of documentation.
Due to an unforeseen natural event, and despite his best
efforts, John Carleton was unfortunately unable to attend, either
in person or virtually, the Audit Committee and Board meetings held
in November 2021. John had access to all relevant Board and Audit
Committee meeting materials prior to the meetings and provided
comments and questions prior to and after the meetings.
Board diversity
During the period, the Board approved and adopted a new Board
Diversity Policy, which was updated in line with the FCA Policy
Statement 22/3 on diversity and inclusion published 1 April 2022.
The board Diversity Policy sets out the approach to diversity on
the Board and the process which the Board will follow when making
new appointments. All Board appointments will be made on merit and
against objective criteria, having due regard to the benefits of
diversity on the Board including of gender, ethnicity, sexual
orientation, disability or educational, professional and
socio-economic backgrounds and cognitive and personal strengths and
taking care that appointees have enough time available to devote to
the position, in the context of the overall balance of skills and
backgrounds that the Board needs to maintain in order to remain
effective.
It is the Board's ongoing intention that, to the extent that
there are any changes to the current composition of the Board, it
shall take into account the recommendations of the
Hampton-Alexander Review on gender diversity (published 2016) and
the Parker Review on ethnic diversity (published 2017).
Whilst recognising the importance and benefits of diversity in
the boardroom, the Board does not consider it to be in the interest
of the Company and its shareholders to set prescriptive diversity
criteria or targets as all appointments must be made on merit.
However, diversity generally, including gender and ethnicity, will
be taken into consideration with evaluating the skills, knowledge,
and experience desirable to fill each Board vacancy. The objective
of the Board Diversity Policy is to ensure that all Board
appointments will be made on merit, in the context of the skills,
knowledge and experience that are needed for the Board to be
effective.
The Board appraises its collective set of cognitive and personal
strengths, independence and diversity on an annual basis, and
especially during the recruitment process, so as to ensure
alignment with the Company's strategic priorities and aims. The
Board is satisfied with its current composition. One Director (25%)
of the ReSI plc Board, Elaine Bailey, is female.
The below tables set out the directors' gender or sex and ethnic
background:
Board gender identity or sex
Number of board members Percentage of the Number of senior
board positions on the
board
Men 3 75% Not applicable*
------------------------- ------------------- -------------------
Women 1 25%
------------------------- ------------------- -------------------
Board ethnic background
Number of board members Percentage of the Number of senior
board positions on the
board
White British
or other White
(including minority
white groups) 4 100% Not applicable*
------------------------- ------------------- -------------------
* This column is not applicable as the Company is an externally
managed real estate investment trust and does not have executive
management functions, including the roles of a chief executive
officer or chief financial officer.
The Company is voluntarily reporting on the diversity targets
set out in Listing Rule 9.8.6R(9). As at 30 September 2022, the
Company has not met the following targets on board diversity:
a. At least 40% of individuals on its board are women
b. At least one of the senior board positions is held by a women
c. At least one individual on its board is from a minority ethnic background
As at the publication of this Annual Report, there have been no
changes to the Board that have impacted the Company's ability to
meet these targets.
As a Board of four Directors, the size of the Board provides a
challenge to achieving the diversity targets and it is recognised
that any change of the membership of the Board will have a
significant impact on the representation of any particular group of
people.
Succession planning and review of the composition of the Board
has been a key focus during the year as can be seen though the
adoption of the new Board Diversity Policy and the Board Tenure
Policy. In order to take steps towards embedding the Board
Diversity Policy and the Board Tenure Policy, encouraging
diversity, and achieving the diversity targets stated above, the
Board aims to start implementing its succession plans during the
year ending 30 September 2023. The centrepiece of which will be the
gender and ethnic diversity of the Board. In accordance with the
new Board Diversity Policy, an objective of the Company when
appointing new Directors to the Board shall be to have a long list
of potential non-executive directors including diverse candidates
of appropriate merit.
Performance evaluation
On an annual basis, the Board evaluates its own performance and
the performance of the Audit Committee, the Chairman and individual
Directors. For the period under review the evaluation was
facilitated by the Company Secretary and was carried out by way of
a detailed questionnaire.
The Chairman led the evaluation, which covered the functioning
and dynamics of the Board as a whole, composition and diversity of
the Board, the effectiveness of the Audit Committee and the
contribution made by each Director. Each Director completed a
self-evaluation questionnaire in order to reflect on their personal
commitment and contributions during the period. The results were
reviewed by the Chairman and discussed with the Board. The Board
confirmed that the results of the performance evaluation were
positive, and it was concluded that the Board continued to function
effectively and there are no significant concerns among the
Directors about the Board's effectiveness. The resulting actions
agreed by the Directors will be monitored during the year ending 30
September 2023. The Board is satisfied that all current Directors
continue to contribute effectively and have the skills and
experience relevant to the leadership and direction of the
Company.
A separate evaluation of the Chairman was led by the Senior
Independent Director, Robert Gray. Directors completed a Chairman
evaluation questionnaire, the responses of which were reviewed by
the Senior Independent Director who then met with the Chairman to
discuss and address any points of action.
The Board monitors the performance of the Fund Manager and
believes the continuing appointment of the Fund Manager to be in
the best interests of shareholders as a whole. For further
information see page 97.
During the period, the Board reviewed and re-evaluated the need
for an externally facilitated board evaluation. Taking into
consideration the current activities of the Company, it was agreed
that undertaking an external board evaluation in the period was
not, at this time, appropriate or in the best interest of the
Company. The Board recognise the benefits of an external evaluation
and will continue to consider whether an external evaluation would
be beneficial and in the interests of the Company as a whole.
Internal control review and assessment process
The AIC Code requires the Board to review the effectiveness of
the Company's system of internal controls. The Board recognises it
has ultimate responsibility for the Company's risk management and
system of internal controls, and for reviewing and monitoring their
effectiveness. The risk management process and system of internal
controls are designed to manage, rather than eliminate, the risk of
failure to achieve the Company's objectives. It should be
recognised that such systems can only provide reasonable, rather
than absolute, internal assurance against material misstatement or
loss.
The Board has undertaken a risk assessment and review of the
Company's internal controls framework and the Company's risk
appetite in the context of the Company's overall investment
objective. The Board, through delegation to the Audit Committee,
has undertaken a robust assessment and review of the emerging and
principal risks facing the Company. A statement of the principal
risks and uncertainties faced by the Company can be found on pages
80 to 86.
The Board believes that the existing arrangements represent an
appropriate framework to meet the control requirements. By these
procedures the Directors have kept under review the effectiveness
of the internal control system throughout the year and up to the
date of this Annual Report. The monitoring and review includes all
material controls, covering financial, operational and compliance.
Given the nature of the Company's activities and the fact that most
functions are sub-contracted, the Directors have obtained
information from key third-party service providers regarding the
controls operated by them. The Board has concluded that the
Company's risk management and internal control system, and those of
the key third-party service providers, are adequate to meet the
needs of the Company.
Financial aspects of internal control
The Directors are responsible for the internal financial control
systems of the Company and for reviewing their effectiveness. These
aim to ensure the maintenance of proper accounting records, the
reliability of the financial information upon which business
decisions are made and which is used for publication and that the
assets of the Company are safeguarded. As stated above, the Board
has contractually delegated to external agencies the services the
Company requires, but it is fully informed of the internal control
framework established by the AIFM, the Fund Manager, Company
Secretary, Corporate Broker, Tax Adviser, Depositary, Public
Relations Adviser and Registrar to provide reasonable assurance on
the effectiveness of internal financial controls. The key
procedures include review of management accounts, monitoring of
performance at quarterly Board meetings, segregation of the
administrative function from investment management, maintenance of
appropriate insurance and adherence to physical and computer
security procedures.
The Statement of Directors' Responsibilities in respect of the
accounts is on page 118 and the Going Concern and Viability
Statement is on page 87 . The Independent Auditor's Report is on
pages 120 to 126.
Other aspects of internal control
The Board holds quarterly meetings, plus additional meetings as
required. Between these meetings there is regular contact with the
Fund Manager and other key service providers. The Board has agreed
policies on key operational issues. The Company's key service
providers report to the Board on operational and compliance issues.
The Fund Manager, Corporate Broker, Company Secretary and the
Depositary provide reports, which are reviewed by the Board. The
Administrator prepares management accounts, which enable the Board
to assess the financial position of the Company. Additional ad hoc
reports are received as required and Directors have access at all
times to the advice and services of the corporate Company
Secretary, which is responsible for ensuring that Board and
Committee procedures are followed and that applicable regulation
are complied with. The Company Secretary is also responsible for
ensuring the timely delivery of information and reports and for
ensuring that statutory obligations of the Company are met.
This contact with the key service providers enables the Board to
monitor the Company's progress towards its objectives and
encompasses an analysis of the risks involved. The effectiveness of
the Company's risk management and internal controls systems is
monitored and a formal review has been completed. There are no
significant findings to report from the review. A typical agenda of
a formal Board meeting includes a review of the financial and
portfolio performance in that period, distributable income and
dividend yield compared to forecast, an update regarding the
investment pipeline, statutory and regulatory matters and
governance obligations. The Directors are independent of the Fund
Manager. The Board review investment activity and performance and
exercise appropriate control and supervision to ensure acquisitions
are made in accordance with agreed investment parameters. The Fund
Manager has been given responsibility for the day-to-day management
of the Company's assets in accordance with the investment policy
subject to the control and directions of the Board.
Matters reserved for the Board and delegated authorities
There is a clear division of responsibilities between the
Chairman, the Directors, the Fund Manager and the Company's
third-party service providers. To retain control of key decisions
and ensure there is a clear division of responsibilities between
the running of the Board and the running of the business, the Board
has identified 'reserved matters' that only it can approve. The
Board has delegated a number of responsibilities and authorities to
the Fund Manager. In accordance with the Fund Management Agreement,
which has been reviewed during the period and the Board has agreed
that it remains appropriate. These responsibilities include the
level of borrowing, which is based on the characteristics of the
relevant property and asset class and identifying new investment
opportunities for the Company, performing due diligence in relation
to potential investments, approving and executing such investments
and monitoring existing investments. The Fund Manager presents
potential transactions to the Board at regular Board meetings. The
Board and the Committee receive sufficient, reliable and timely
information in advance of meetings and are provided with or given
access to all necessary resources and expertise to enable them to
fulfil their responsibilities and undertake their duties in an
effective manner.
Principal risks
The Directors confirm that they have carried out a robust
assessment of the principal and emerging risks facing the Company,
including those that would threaten its position, business model,
future performance, solvency or liquidity. The principal risks and
how they are being managed is set out in the Strategic Report on
pages 80 to 86. As part of its risk process, the Board seeks to
identify emerging risks to ensure that they are effectively managed
as they develop and recorded in the risk matrix.
Annual General Meeting
At least twenty-one days' notice shall be given to all the
members and to the Auditors of an AGM. All other general meetings
shall also be convened by not less than twenty-one days' notice to
all those members and to the Auditors unless the Company offers
members an electronic voting facility and a special resolution
reducing the period of notice to not less than fourteen days prior
to the general meeting, in which case a general meeting may be
convened by not less than fourteen days' notice in writing. A
special resolution will be proposed at the AGM to reduce the period
of notice for general meetings, other than the AGM, to not less
than fourteen days.
Shareholder relations
The Company encourages all shareholders to attend and vote at
the AGM and seeks to provide a minimum of twenty one working days'
notice of that meeting. The Notice of Meeting sets out the business
of the AGM and any item not of an entirely routine nature is
explained in the Directors' Report. Separate resolutions are
proposed for each substantive issue. The Board and the Fund Manager
are available to discuss issues affecting the Company, and
shareholders have the opportunity to address questions to the Fund
Manager, the Board including the Chairman and the Chairman of the
Audit Committee.
The Fund Manager has a structured programme of meetings with key
shareholders and reports back to the Board on its findings. A
detailed list of the Company's shareholders is reviewed at each
Board meeting.
The Half-Yearly and Annual reports of the Company are prepared
by the Board and its advisers to present a full and readily
understandable review of the Company's performance. Copies of which
are dispatched to shareholders by post or electronically as
requested and are also on the Company's website (
https://greshamhouse.com/real-assets/real-estate-investment/residential-secure-income-plc/).
Half year and annual investor presentations, as well has
factsheets, reports and policies are also made available on the
Company's website.
The Chairman and the Board welcome direct feedback from
shareholders.
Further details of the Company's engagement with stakeholders
and how the Board has regard to those stakeholders in the Board's
decision-making processes are set out in the Strategic Report on
pages 1 to 89.
Exercise of voting powers and stewardship code
The principles of best practice of the Stewardship Code are not
applicable to the Company's operations, being a REIT that does not
hold the shares of other companies.
Social and environmental policy
Please see the Environmental and Social Impact report on pages
46 to 68 for details.
For and on behalf of
Computershare Company Secretarial Services Limited
Company Secretary
1 December 2022
Report of the Audit Committee
Role of the Audit Committee
The AIC Code of Corporate Governance (the UK Code) recommends
that boards should establish an audit committee consisting of at
least three, or in the case of smaller companies, two independent
non-executive directors. The Board is required to satisfy itself
that the Audit Committee has recent and relevant experience. The
main role and responsibilities of the Audit Committee should be set
out in written terms of reference covering certain matters
described in the UK Code. The terms of reference of the Audit
Committee can be found on the Company's website at
https://greshamhouse.com/real-assets/real-estate-investment/residential-secure-income-plc/.
The Audit Committee meets formally at least twice a year for the
purpose, amongst other things, of:
considering the appointment, independence and objectivity, and
remuneration of the Company's external Auditor, BDO LLP (the
Auditor);
to review the annual accounts and half-yearly financial
report;
to review the day-to-day management of the Company by the Fund
Manager and its adherence to agreed investment parameters; and
assessment of the Company's internal financial controls and risk
management systems.
Composition
All of the independent Directors of the Company are members of
the Audit Committee. The Audit Committee as a whole has recent and
relevant financial experience. The Chairman of the Company is a
member of the Audit Committee. The Board and the Audit Committee
believe that the Chairman of the Company being a member of the
Audit Committee is appropriate and beneficial to the Company due to
his contributions as a result of his recent and relevant financial
experience and as a result of him being independent on appointment.
Details of the Committee members' experience can be found on page
67 to 68.
Meetings
There have been three Audit Committee meetings during the year
ended 30 September 2022. These meetings were aligned with key dates
for financial reporting and the audit cycle of the Company.
Attendance is included in the Corporate Governance Statement page
106.
During these meetings the Audit Committee has:
reviewed the Company's financial statements for the half year
and year end and made formal recommendations to the Board;
reviewed the Company's going concern and viability
statements;
reviewed the internal controls and risk management systems of
the Company and its third-party service providers including
cyber-security;
reviewed the Company's risk register reflecting the current and
emerging risks faced by the Company;
agreed the audit plan and fees with the Auditor, including the
principal areas of focus;
reviewed its own performance; and
Reviewed its Terms of Reference.
Financial statements and significant accounting matters
The Audit Committee considered the following significant
accounting issues in relation to the Company's Financial Statements
for the year ended 30 September 2022:
A. Investment property valuation
The valuation of investment property is the most material matter
in the production of the financial statements. Savills Advisory
Services Limited has been appointed to value the Company's property
investments, in accordance with the Regulated Investment Company
requirements, on a quarterly basis. The Audit Committee reviewed a
copy of the valuation report once it had been completed and has
received a presentation from the valuer. Investment properties are
valued at their fair value in accordance with IFRS 13 and IAS 40,
which recognises a variety of fair value inputs depending upon the
nature of the investment. The Audit Committee has reviewed the
assumptions underlying the property valuations and concluded that
the valuation as at 30 September 2022 is appropriate.
B. Fair value of debt (debt held at fair value through profit
and loss)
The Group's debt held at fair value through profit or loss is
fair-valued as of the year-end and based on the relevant gilt rate
and discounted cash flows. The Audit Committee has reviewed the
assumptions underlying the debt valuations and concluded that the
valuation at the Company's year-end is appropriate.
C. Revenue recognition
Ensuring that the Group's rental income is accounted for in
accordance with accounting standards presents an inherent risk. The
Audit Committee has reviewed the Company's procedures in place for
revenue recognition and has concluded that revenue has been
appropriately recognised.
D. Shared ownership
Shared ownership is a form of tenure in which a long lease is
granted in respect of a property alongside payment of an initial
stake in that property (the First Tranche). Proceeds of First
Tranche sales are included within turnover and the related
proportion of the cost of the asset recognised within cost of
sales. Shared ownership properties are split proportionately
between Inventories and Investment properties based on the current
element relating to First Tranche sales. The valuations for the
investment property element are valued by Savills as part of the
investment property valuation process and the inventory element is
held at cost (defined as the lower of net realisable value or
cost). The Audit Committee has reviewed the Savills valuation
report for the relevant period, the Company's assessment of the
split of investment property and inventory, and the Company's
procedures in place for the valuation of shared ownership and has
concluded that it has been appropriately recognised.
E. Internal Controls and Risk Management
Through the powers conferred upon the Audit Committee by the
Board, the Audit Committee is responsible for ensuring that
suitable internal controls systems are implemented by the Fund
Manager and other third-party service providers, and further
ensuring that those control systems are continuously reviewed and
remain effective. The Audit Committee has reviewed the internal
controls of third-party service providers and the Fund Manager
during the period.
In addition, with the assistance of the Fund Manager and
third-party services providers, the Audit Committee identifies the
principal risks and uncertainties faced by the Company and
determines strategies to ensure that they are mitigated. Further
details on the principal risks and uncertainties that face the
Company can be found on pages 80 to 86.
External Audit
The Audit Committee monitors and reviews the effectiveness of
the external audit process for the publication of the Annual Report
and makes recommendations to the Board on the re-appointment,
remuneration and terms of engagement of the Auditor.
Audit Fees
The audit fee incurred for the review of the 2022 Annual Report
and Accounts was GBP178,000 (30 September 2021: GBP145,000). The
Audit Committee continues to monitor the level of audit fees
carefully.
Provision of non-audit services
The Audit Committee has a Non-Audit Services Policy to govern
the supply of any non-audit services provided by the Auditor. Such
services are considered on a case-by-case basis and may only be
provided to the Company if the provision of such services is at a
reasonable and competitive cost and does not constitute a conflict
of interest or potential conflict of interest which would prevent
the Auditor from remaining objective and independent. On 21
September 2022, the Board reviewed and approved the Non-Audit
Services Policy following a review of its ongoing effectiveness and
adequacy.
BDO LLP were paid fees of GBP61,000 in respect of non-audit
services in the year to 30 September 2022 (2021: GBP34,000). These
services were in respect of the interim review of the Interim
Report for the period ended 31 March 2022 (GBP34,000) and reporting
accountant services (GBP37,000). When reviewing the suitability of
BDO LLP to carry out this service the Audit Committee assesses a
number of factors, including but not limited to: assessing whether
there are any threats to independence and objectivity resulting
from the provision of such services, the nature of the service
provided and whether the skills and experience of BDO LLP make it
the most suitable supplier. The Audit Committee has considered the
non-audit work of the Auditor during the year ended 30 September
2022 and does not consider that this compromises its independence.
In addition, the Audit Committee has received assurances from the
Auditor that its independence is not compromised by the supply of
these services and appropriate safeguards have been implemented
where required including a separate team undertaking the work of
the reporting accountant.
Audit tenure
BDO LLP has been appointed as the Company's Auditor since the
Company's incorporation in 2017, following a competitive process
and review of the Auditor's credentials. The appointment of the
external Auditor is reviewed annually by the Audit Committee and
the Board and is subject to approval by shareholders. Following a
review of the service provided by the Company's Auditor and
consideration of conducting an audit tender, the Audit Committee
were satisfied with the Auditors performance and have decided that
no further action would be taken. The current appointment of BDO
LLP is compliant with all existing regulations and the Board and
the Audit Committee agree that the Auditor remains independent. In
accordance with the requirements relating to the appointment of
audit firms, the Company will be required to conduct an audit
tender no later than for the financial year beginning 1 October
2027. In addition, in line with the requirement for the audit
partner to be rotated at least every five years, a new lead audit
partner, Richard Levy, was appointed for the audit for the
financial year beginning 1 October 2021.
Effectiveness of external audit and continuing appointment of
the Auditor
The Audit Committee is responsible for reviewing the
effectiveness of the external audit process. The Audit Committee
received a presentation of the audit plan from the Auditor and a
presentation of the results of the audit following completion of
the main audit testing. Following the presentation of the results
of the audit, the Audit Committee conducted a review of the Auditor
which included a discussion of the audit process and the ability of
the Auditor to fulfil its role. The feedback provided by the Fund
Manager regarding the audit team's performance on the audit was
positive. The Auditor demonstrated a good understanding of the
Group and had identified and focused on the areas of increased
financial reporting risk. Its reporting to the Audit Committee
during the period was clear and thorough. The Audit Committee is
satisfied that the Auditor has appropriately challenged the Fund
Manager's judgements.
The Audit Committee acknowledged that the audit team during the
period, including the new lead audit partner, comprised of staff
with appropriate levels of knowledge and experience of the sector
in which the Company operates. Following the above review, the
Audit Committee concluded that the external audit process has been
effective. Taking into consideration the performance and
effectiveness of the Auditor and the confirmation of their
independence, the Audit Committee has agreed that the
re-appointment of BDO LLP should be recommended to the Board and
the shareholders of the Company at the forthcoming AGM. BDO LLP has
confirmed its willingness to continue in office.
Internal audit function
The Audit Committee has considered the need for an internal
audit function and considers that this is not appropriate given the
size, nature and circumstances of the Company. The Audit Committee
keeps the needs for an internal audit function under periodic
review.
Conclusion with respect to the Annual Report and financial
statements - fair, balanced and understandable financial
statements
The Audit Committee has concluded that the Annual Report for the
year ended 30 September 2022, taken as a whole, is fair, balanced
and understandable and provides the information necessary for
shareholders to assess the Company's position, performance,
business model and strategy. The Audit Committee has reported its
conclusions to the Board of Directors. The Audit Committee reached
this conclusion through a process of review of the document and
enquiries to the various parties involved in the production of the
Annual Report.
Robert Gray
Chairman of the Audit Committee
1 December 2022
Directors' Remuneration Implementation Report
The Board has prepared this report in accordance with the
requirements of the Large and Medium Sized Companies and Groups
(Accounts and Reports) (Amendment) Regulations 2013.
The law requires the Company's Auditor to audit certain
disclosures provided. Where disclosures have been audited, they are
indicated as such. The Auditor's opinion is included in the
Independent Auditor's Report on pages 120 to 126.
The Board consists entirely of Non-Executive Directors and the
Company has no employees therefore the Company has not reported on
those aspects of remuneration that relate to Executive Directors.
As detailed on page 106. it is not considered appropriate for the
Company to establish a separate Remuneration Committee.
Accordingly, the Board as a whole considers and approves the
Directors' remuneration.
Remuneration Policy
The Company is required to ask shareholders to formally approve
the Directors' Remuneration Policy, on a three-yearly basis. Any
change to the Directors' Remuneration Policy requires shareholder
approval. A binding ordinary resolution to approve the Directors'
Remuneration Policy was last proposed and approved by shareholders
at the AGM of the Company held on 14 January 2022.
There are no proposed changes to the policy, and therefore it is
intended that the provisions of this policy continue for the year
ended September 2023 and subsequent years. A copy of the policy is
included in the Company's Annual Report for the year ended 30
September 2022. The Directors' Remuneration Policy will next be put
forward for approval at the AGM to be held in 2025.
Directors' Remuneration Implementation Report
The Directors' Remuneration Implementation Report is presented
for approval by shareholders on an annual basis and will be put
forward as an ordinary resolution at the forthcoming AGM. The
result of the shareholder resolution on the Implementation Report
is non-binding on the Company, although it gives shareholders an
opportunity to express their views, which will be taken into
account by the Board.
The law requires the Company's Auditor to audit certain
disclosures provided in the Directors' Remuneration Implementation
Report. Where disclosures are audited, they are indicated as such.
The Auditor's opinion is on page 120.91.
A non-binding ordinary resolution to approve the Directors'
Remuneration Implementation Report contained in the Annual Report
for the period ended 30 September 2021 was put forward and passed
at the AGM held on 14 January 2022.
The votes cast by proxy were as follows:
Directors' Remuneration Policy
Number of votes Percentage of votes
cast
For 95,493,606 99.16%
----------------- ---------------------
Against 809,958 0.84%
----------------- ---------------------
Votes Withheld 3
----------------- ---------------------
Directors' Remuneration Report
Number of votes Percentage of votes
cast
For 95,492,606 99.17%
----------------- ---------------------
Against 800,731 0.83%
----------------- ---------------------
Votes Withheld 3
----------------- ---------------------
Remuneration
The Company currently has four Non-Executive Directors.
Directors are entitled to receive a fee linked to the Net Asset
Value of the Company in respect of their position as a Director of
the Company. Fees are currently payable at the rates set out in the
Remuneration Policy and below
The Chairman, will be entitled to receive a fee linked to the
Net Asset Value of the Company as follows:
Net Asset Value Annual Fee
---------------------------------- ------------
Up to GBP100,000,000 GBP40,000
---------------------------------- ------------
GBP100,000,001 to GBP200,000,000 GBP50,000
---------------------------------- ------------
GBP200,000,001 to GBP350,000,000 GBP60,000
---------------------------------- ------------
thereafter GBP70,000
---------------------------------- ------------
Each of the Directors, save for the Chairman, will be entitled
to receive a fee linked to the Net Asset Value of the Company as
follows:
Net Asset Value Annual Fee
---------------------------------- ------------
Up to GBP100,000,000 GBP30,000
---------------------------------- ------------
GBP100,000,001 to GBP200,000,000 GBP35,000
---------------------------------- ------------
thereafter GBP40,000
---------------------------------- ------------
The Board believes that these fees set out in the Remuneration
Policy appropriately reflect prevailing market rates for the
Company's complexity and size, and will also enable the Company to
attract appropriately experienced additional Directors in the
future.
The Board reviews the fees payable to the Directors on an annual
basis. During the year, the Net Asset Value of the Company
increased to such that the Directors became eligible for a fee
increase under the Remuneration Policy. However, taking into
consideration current ongoing activities within the Company, the
Board agreed to waive an increase of fees for the year ended 30
September 2022. The Board will meet to review the Directors'
Remuneration during the course of the year ending 30 September 2023
and consider a potential increase per the Remuneration Policy.
Directors' service contracts
The Directors do not have service contracts with the Company.
The Directors are not entitled to compensation on loss of office.
The Directors have appointment letters which do not provide for any
specific term but are subject to re-election by shareholders at a
maximum interval of three years. However, in line with best
practice and the Company's Tenure and Re-appointment Policy all
Directors have agreed to retire and stand for re-election on a
voluntary basis at the AGM in January 2023.
There are no restrictions on transfers of the Company's shares
held by the Directors, or any special rights attached to such
shares.
Director search and selection fees
No Director search and selection fees were incurred during the
year ended 30 September 2022.
Directors' emoluments for the year ended 30 September 2022
(audited)
The Directors who served during the year received the following
remuneration for qualifying services.
Fees from 1 October Fees from 1 October Annual percentage
2021 to 30 September 2020 to 30 September change in fees
2022 2021
GBP'000 GBP'000 %
Robert Whiteman 50 50 0
Robert Blackburn
Gray 35 35 0
John Carleton 35 35 0
Elaine Bailey 35 35 0
155 155
When reviewing any change in Directors' fees from previous
financial periods, it is important to note that the remuneration of
the Directors is linked to the Net Asset Value of the Company.
There are no other taxable benefits payable by the Company which
may be deemed to be taxable. None of the above fees were paid to
third parties.
The Directors do not receive pension benefits, long-term
incentive schemes or share options.
Performance
The following chart shows the performance of the Company's share
price by comparison to the principal relevant indices. The Board
believes that these indices are the most representative comparator
for the Company, given the Company's investment objective.
ReSI plc share price indexed performance vs. peers (4)
Relative importance of spend on pay
The following table sets out the total level of Directors'
remuneration compared to Net Operating Income, Directors' fees,
Operating expenses, and Dividends paid and payable to
shareholders.
2022 2021 Change
GBP'000 GBP'000 GBP'000
Net Property Income 17,526 15,173 2,354
Directors' fees 155 155 0
Operating expenses 3,221 3,217 5
Dividends paid and payable to
shareholders 9,194 8,552 642
The management fee and expenses have been included to give
Shareholders a greater understanding of the relative importance of
spend on pay. It also provides Directors Fees as % age of Divis and
Exps
Directors' holdings (audited)
There are no requirements pursuant to the Company's Articles of
Association for the Directors to own shares in the Company. As at
30 September 2022, the Directors' beneficial shareholdings were as
follows:
30 September 30 September
2022 2021
------------------------ -------------- --------------
Robert Whiteman 80,000 80,000
Robert Blackburn Gray 207,148 157,148
John Carleton 4,850 4,850
Elaine Bailey 5,000 5,000
------------------------ -------------- --------------
The changes in the Director's beneficial shareholdings between
30 September 2022 and the date of this report were as follows:
30 November 30 September
2022 2022
------------------------ ------------- --------------
Robert Whiteman 100,000 80,000
Robert Blackburn Gray 262,315 207,148
John Carleton 4,850 4,850
Elaine Bailey 5,000 5,000
------------------------ ------------- --------------
The shareholdings of the Directors are not significant and
therefore do not compromise their independence as Non-Executive
Directors.
Statement
On behalf of the Board and in accordance with Part 2 of Schedule
8 of the Large and Medium-sized Companies and Groups (Accounts and
Reports) (Amendment) Regulations 2013, I confirm that the above
Report on Remuneration Policy and Remuneration Implementation
summarises, as applicable, for the financial year ended 30
September 2022:
(a) the major decisions on Directors' remuneration;
(b) any substantial changes relating to Directors' remuneration
made during the financial year ended 30 September 2022; and
(c) the context in which the changes occurred and decisions have
been taken.
Rob Whiteman
Chairman of the Board of Directors
1 December 2022
Directors' Responsibilities
The Directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law and
regulation.
Company law requires the Directors to prepare Group and parent
Company financial statements for each financial year. The Group
financial statements have been prepared in accordance with UK
adopted international accounting standards and the Company
financial statements have been prepared in accordance with
Financial Reporting Standard 100 Application of Financial Reporting
Requirements ("FRS 100") and Financial Reporting Standard 101
Reduced Disclosure Framework ("FRS 101"), subject to any material
departures disclosed and explained in the Company financial
statements; and United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards and applicable
law).
Under company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Group and Company and of the
Group's and Company's profit or loss for that period.
In preparing the financial statements, the Directors are
required to:
select suitable accounting policies and then apply them
consistently;
make judgements and estimates that are reasonable, relevant,
reliable and prudent;
for the Group financial statements, state whether they have been
prepared in accordance with UK adopted international accounting
standards, subject to any material departures disclosed and
explained in the financial statements;
for the parent Company financial statements, state whether
applicable UK accounting standards have been followed, subject to
any material departures disclosed and explained in the parent
company financial statements; and
prepare the financial statements on a going concern basis unless
it is inappropriate to presume that the Group and the Company will
continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group and
Company's transactions and disclose with reasonable accuracy at any
time the financial position of the Group and Company and enable
them to ensure that its financial statements comply with the
Companies Act 2006.
They are responsible for such internal control as they determine
necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error,
and have general responsibility for taking such steps as are
reasonably open to them to safeguard the assets of the Group and to
prevent and detect fraud and other irregularities. Under applicable
law and regulations, the Directors are also responsible for
preparing a Strategic Report, Directors' Report, Directors'
Remuneration Implementation Report and Corporate Governance
Statement that complies with that law and those regulations. These
can be found on pages 1 to 89, 96 to 103, 104 to 110 and 114 to 117
respectively. The Directors are responsible for the maintenance and
integrity of the corporate and financial information included on
the Company's website. Legislation in the UK governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
The Directors are responsible for ensuring that the Annual
Report and accounts, taken as a whole, are fair, balanced and
understandable and provide the information necessary for
shareholders to assess the Group and Company's performance,
business model and strategy.
Website publication: The Directors are responsible for ensuring
the Annual Report and the financial statements are made available
on a website
(https://greshamhouse.com/real-assets/real-estate-investment/residential-secure-income-plc/).
Financial statements are published on the Company's website in
accordance with legislation in the United Kingdom governing the
preparation and dissemination of financial statements, which may
vary from legislation in other jurisdictions. The maintenance and
integrity of the Company's website is the responsibility of the
Directors. The Directors' responsibility also extends to the
ongoing integrity of the financial statements contained
therein.
Directors' responsibility statement
Each of the Directors, whose names and titles are listed on
pages 92 to 94, confirms that to the best of their knowledge:
the financial statements have been prepared in accordance with
UK adopted international accounting standards and, give a true and
fair view of the assets, liabilities, financial position and profit
or loss of the Company and the undertakings included in the
consolidation as a whole;
the Strategic Report includes a fair review of the development
and performance of the business and the financial position of the
Company and the undertakings included in the consolidation taken as
a whole, together with a description of the principal risks and
uncertainties that they face; and
the Annual Report and accounts taken as a whole is fair,
balanced and understandable and provides the information necessary
for shareholders to assess the Company's performance, business
model and strategy.
For and on behalf of the Board
Rob Whiteman
Chairman
1 December 2022
Financials
Note 2022 2021
GBP'000 GBP'000
Income 6 31,785 39,596
Cost of sales 6 (14,259) (24,423)
----------
Net income 17,526 15,173
Administrative expenses
Fund management fee 7 (1,867) (1,802)
General and administrative expenses 8 (1,128) (1,047)
Non-recurring operating costs 9 (225) (368)
Total Administrative expenses (3,220) (3,217)
Operating profit before property disposals
and change in fair value 14,306 11,956
Loss on disposal of investment properties (24) (12)
Change in fair value of investment
properties 13 3,200 7,731
Change in fair value of borrowings 13 1,809 (2,731)
Debt set up costs 12 (369) (606)
Operating profit 18,922 16,338
Finance income 12 67 -
Finance costs 12 (5,655) (5,221)
Change in fair value of interest rate
swap derivative contracts 12 - 104
Profit for the year before taxation 13,334 11,221
---------- ----------
Taxation 14 - -
Profit for the year after taxation 13,334 11,221
---------- ----------
Other comprehensive income: - -
---------- ----------
Total comprehensive income for the
period attributable to the shareholders
of the Company 13,334 11,221
---------- ----------
Earnings per share - basic and diluted
- pence 15 7.4 6.6
All of the activities of the Group are classified as
continuing.
The notes on pages 134 to 162 form part of these financial
statements.
Note 2022 2021
GBP'000 GBP'000
Non-current assets
Investment properties 17 406,127 372,335
Total non-current assets 406,127 372,335
Current assets
Inventories shared ownership properties 16 1,203 3,800
Trade and other receivables 18 3,390 4,051
Deposits paid for property purchases 19 827 1,158
Cash and cash equivalents 20 15,984 8,370
---------
Total current assets 21,404 17,379
Total assets 427,531 389,714
---------- ---------
Current liabilities
Trade and other payables 21 4,891 7,738
Borrowings 22 14,285 2,984
Lease liabilities 31 994 989
Total current liabilities 20,170 11,711
Non-current Liabilities
Borrowings 22 175,420 165,355
Recycled Capital Grant Fund 23 205 38
Lease liabilities 31 30,348 30,218
Total non-current liabilities 205,973 195,611
Total liabilities 226,143 207,322
---------- ---------
Net assets 201,388 182,392
---------- ---------
Equity
Share capital 24 1,941 1,803
Share premium 25 14,605 108
Treasury shares reserve 26 (8,293) (8,515)
Retained earnings 27 193,135 188,996
Total interests 201,388 182,392
Total equity 201,388 182,392
---------- ---------
Net asset value per share - basic
and diluted (pence) 32 108.8 106.6
The financial statements were approved and authorised for issue
by the Board of Directors on and signed on its behalf by:
Rob Whiteman
Chairman
1 December 2022
The notes on pages 134 to 162 form part of these financial
statements.
Note 2022 2021
GBP'000 GBP'000
Cash flows from operating activities
Profit for the year 13,334 11,221
Adjustments for non-cash items:
(Gain) in fair value of investment
properties 13 (3,200) (7,731)
Movement in rent smoothing adjustment 13 (1,148) (650)
(Gain) in fair value of interest rate
swap 12 - (104)
Loss/(profit) in fair value of borrowings 13 (1,809) 2,731
Loss on disposal of investment properties 24 12
Shares issued in lieu of management
fees 7 467 449
Finance income 12 (67) -
Finance costs 12 5,655 5,221
Debt set up costs 12 369 606
Cash generated from operations before
working capital changes 13,625 11,755
Changes in working capital
Decrease/(Increase) in trade and other
receivables 659 (288)
Decrease in inventories 2,597 6,621
(Decrease)/increase in trade and other
payables (2,754) 1,876
Net cash flow generated from operating
activities 14,127 19,964
---------- ----------
Cash flow from investing activities
Purchase of investment properties 17 (30,635) (33,526)
Grant received 17 672 1,204
Disposal of investment properties 1,475 1,719
Deposits paid for acquisitions 19 (513) (1,158)
Interest received 12 67 -
Amounts transferred into restricted
cash
deposits 20 - (851)
Net cash flow used in investing activities (28,934) (32,612)
---------- ----------
Cash flow from financing activities
Share issue (net of issue costs) 24 14,635 -
Purchase of own shares 26 (245) (338)
New borrowings raised 22 28,100 25,128
New borrowing costs 22 (215) (275)
Bank loans repaid (4,978) (605)
Finance costs 12 (5,681) (5,556)
Dividend paid 30 (9,195) (8,552)
Net cash flow generated from financing
activities 22,421 9,802
---------- ----------
Net increase/(decrease) in cash and
cash equivalents 7,614 (2,846)
Reclassification of restricted cash
balances 20 2,684 -
Cash and cash equivalents at the beginning
of the year 20 5,686 8,532
Cash and cash equivalents at the end
of the year 20 15,984 5,686
---------- ----------
The notes on pages 134 to 162 form part of these financial
statements.
Treasury
Share Share shares Retained
Total
capital premium reserve earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 30 September 2020 1,803 108 (8,626) 186,327 179,612
--------- --------- ---------- ---------- ---------
Profit for the year - - - 11,221 11,221
Other comprehensive income - - - - -
Total comprehensive income - - - 11,221 11,221
Contributions by and distributions
to shareholders
Issue of management shares - - 449 (449) -
Share based payment charge - - - 449 449
Purchase of own shares - - (338) - (338)
Dividends paid - - - (8,552) (8,552)
Balance at 30 September 2021 1,803 108 (8,515) 188,996 182,392
--------- --------- ---------- ---------- ---------
Profit for the year - - - 13,334 13,334
Other comprehensive income - - - - -
Total comprehensive income - - - 13,334 13,334
Contributions by and distributions
to shareholders
Issue of shares 138 14,862 - - 15,000
Share issue costs (365) (365)
Issue of management shares - - 467 (467) -
Share based payment charge - - - 467 467
Purchase of own shares - - (245) - (245)
Dividends paid - - - (9,195) (9,195)
Balance at 30 September 2022 1,941 14,605 (8,293) 193,135 201,388
--------- --------- ---------- ---------- ---------
The notes on pages 134 to 162 form part of these financial
statement
1. General information
Residential Secure Income plc ("the Company") was incorporated
in England and Wales under the Companies Act 2006 as a public
company limited by shares on 21 March 2017. The Company's
registration number is 10683026. The registered office of the
Company is located at The Pavilions, Bridgwater Road, Bristol, BS13
8FD.
The Company achieved admission to the premium listing segment of
the main market of the London Stock Exchange on 12 July 2017.
The Company and its subsidiaries (the "Group") invests in
residential asset classes that comprise the stock of registered UK
social housing providers, Housing Associations and Local
Authorities.
2. Basis of preparation
The financial information does not constitute the Group's
financial statements for the periods ended 30 September 2022 or 30
September 2021, but is derived from those financial statements.
Financial statements for the year ended 30 September 2021 have been
delivered to the Registrar of Companies and those for the year
ended 30 September 2022 will be delivered following the Company's
Annual General Meeting. The auditors' reports on both the 30
September 2021 and 30 September 2022 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.
These financial statements for the year ended 30 September 2022
have been prepared in accordance with UK adopted international
accounting standards.
The financial statements have been prepared on a historical cost
basis, except for investment properties, derivative financial
instruments and certain borrowings which have been measured at fair
value.
The comparatives presented are for the year ended 30 September
2021.
The financial statements have been rounded to the nearest
thousand and are presented in Sterling, except when otherwise
indicated.
a) Going concern
The Directors have made an assessment of the Group's ability to
continue as a going concern and are satisfied that the Group and
the Company have the resources to continue in business for the
foreseeable future, as set out in the going concern statement on
page 87 to 89. The Group expects to refinance the NatWest facility
which is due to expire in April 2023. The Group has access to a
revolving credit facility of GBP25mn with Santander which could be
used if necessary. Furthermore, the Directors are not aware of any
material uncertainties that may cast significant doubt upon the
Group and the Company's ability to continue as a going concern.
Therefore, the financial statements have been prepared on the going
concern basis.
ReSI is subject to covenants on debt secured on its shared
ownership, retirement and Local Authority portfolios (which are
ringfenced to that particular portfolio) and on its holding company
working capital facility with Santander (see note 22 on page 150).
Sensitivity analysis has been performed, showing a large amount of
headroom on all covenants (see Fund Manager Report on page 32),
including all debt servicing and valuation metrics. Due to the
long-term nature of the company's assets and strong cash flow, the
Directors do not forecast a breach of any debt covenants.
Financial models have been prepared for the going concern period
which consider liquidity at the start of the period and key
financial assumptions at the Company level as well as at the level
of the subsidiaries of the ReSI plc. These financial assumptions
include expected cash generated and distributed by the portfolio
companies available to be distributed to the Company. This includes
inflows and outflows in relation to the external debt and interest
payments expected within the subsidiaries, the availability of new
external debt facilities, committed expenditure for investments and
expected dividends as well as the ongoing administrative costs of
the Company.
Continuation vote
Under the Articles of Association of the Company the Directors
are required to propose an ordinary resolution at the Annual
General Meeting following the fifth anniversary from its initial
public offering that the Group and the Company should continue as
presently constituted and at every fifth AGM thereafter. The first
resolution is expected to be presented at the AGM in January 2023
at which the continuation vote will be proposed.
If the Continuation Resolution is passed, the Group and the
Company will continue its business as presently constituted and
propose the same resolution at every fifth annual general meeting
thereafter.
After making appropriate enquiries of the Group and the
Company's brokers and Investment Adviser, pursuant to their recent
discussions with a number of the Group and the Company's
shareholders, the Directors are of the view that the Continuation
Resolution will be passed at the forthcoming annual general
meeting. This reflects the long-term nature of the Group and the
Company's assets with supporting debt funding and the
attractiveness of the Group and the Company's low risk inflation
linked Income strength in the portfolio.
The Board is, therefore, of the opinion that the going concern
basis adopted in the preparation of the consolidated financial
statements is appropriate having reviewed the next 12 month
period.
b) Changes to accounting standards and interpretations
Amendments to standards adopted during the year
The IASB and IFRIC have revised a number of standards. None of
these amendments have led to any material changes in the Group's
accounting policies or disclosures during the year.
Standards in issue but not yet effective
Certain new standards, amendments and interpretations to
existing standards have been published that are mandatory for the
Group's accounting periods beginning on or after 1 October 2022 and
whilst the Directors are considering these, initial indications are
that these changes, will have no material impact on the Group's
financial statements.
3. Significant accounting policies
The accounting policies applied in the preparation of the
financial statements are set out below. On 31 December 2020, IFRS
as adopted by the European Union at that date was brought into the
UK law and became UK-adopted international accounting standards,
with future changes being subject to endorsement by the UK
Endorsement Board. Residential Secure Income Plc transitioned to
UK-adopted international accounting standards in its consolidated
financial statements on 1 October 2021. There was no impact or
changes in accounting policies from the transition.
a) Basis of consolidation
The consolidated financial statements incorporate the financial
statements of the Company and the entities controlled by the
Company (its subsidiaries) at the period end date.
Subsidiaries are all entities over which the Group has control.
The Group controls an entity when the Group:
is exposed to, or has rights to, variable returns from its
involvement with the entity and;
has the ability to affect those returns through its power to
direct the activities of the entity.
All intra-group transactions, balances, income and expenses are
eliminated on consolidation. The financial information of the
subsidiaries is included in the financial statements from the date
that control commences until the date that control ceases.
If an equity interest in a subsidiary is transferred but a
controlling interest continues to be held after the transfer then
the change in ownership interest is accounted for as an equity
transaction.
Accounting policies of the subsidiaries are consistent with the
policies adopted by the Company.
b) Acquisitions and business combinations
The Directors assess whether each acquisition is a business or
asset acquisition. Under IFRS 3, a business is defined as an
integrated set of activities and assets that is capable of being
conducted and managed for the purpose of providing a return in the
form of dividends, lower costs or other economic benefits directly
to investors or other owners, members or participants. A business
will usually consist of inputs, processes and outputs.
Business acquisitions are accounted for using the acquisition
method. To date the group has not acquired any businesses.
Acquisitions that do not meet the definition of a business are
accounted for as asset acquisition. Asset acquisitions are
accounted for by applying the Group's relevant accounting policy
relating to the assets being acquired.
c) Investment properties
Investment properties, which are properties held to earn rentals
and/or for capital appreciation, are 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. After initial recognition, investment property
is stated at its fair value at the Statement of Financial Position
date adjusted for the carrying value of leasehold interests. 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.
Investment property is recognised as an asset when it is
probable that the economic benefits that are associated with the
property will flow to the Group and it can measure the cost of the
investment reliably. This is usually on legal completion.
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 asset. 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.
Significant accounting judgements, estimates and assumptions
made for the valuation of investment properties are discussed in
note 4.
d) Inventories
Inventories relate to properties held for delivery as shared
ownership which provides an affordable homes ownership through a
part-buy, part-rent model where Shared Owners buy a stake in the
home (with a lower deposit requirement as it is only required as a
percentage of this stake) and pay a discounted rent on the portion
of the property that the Shared Owner(s) does not own. In
accordance with IAS 2 Inventories, the part that is expected to be
sold to the Shared owner under the First Tranche Sale are held at
the lower of cost and net realisable value.
e) Shared ownership
Shared ownership is where initially a long lease on a property
is granted through a sale to the occupier, in return for an initial
payment (the First Tranche).
First Tranche sales are included within turnover and the related
proportion of the cost of the asset recognised as cost of
sales.
Shared ownership properties are split proportionately between
Inventories and Investment properties based on the current element
relating to First Tranche sales. The assumptions on which the First
Tranche proportion has been based include, but are not limited to,
matters such as the affordability of the shared ownership
properties, local demand for shared ownership properties, and
general experience of First Tranche shared ownership sales within
ReSI Housing and the wider the social housing sector.
Shared Owners have the right to acquire further tranches
('staircasing') and any surplus or deficit on such subsequent sales
are recognised in the Statement of Comprehensive Income as a part
disposal of Investment properties.
Where a grant is receivable from Government and other bodies as
a contribution towards the capital cost of shared ownership
investment property, it is recognised as a deduction in arriving at
the cost of the property. Prior to satisfying any performance
obligations related to grant, such grants are held as a liability
on the Statement of Financial Position.
In some circumstances, typically when a shared owner staircases,
there arises an obligation to recycle the grant into the purchase
of new affordable properties within three years or to repay the
grant to the relevant grant provider. Where such an obligation
exists the grant will be held as a liability on the Statement of
Financial Position.
f) Share issue costs
The costs of issuing or reacquiring equity instruments (other
than in a business combination) are accounted for as a reduction to
share premium to the extent that share premium has arisen on the
related share issue.
g) Revenue
The Group recognises revenue on an accruals basis, and when the
amount of revenue can be reliably measured and it is probable that
future economic benefits will flow to the Group. Revenue comprises
rental income and First Tranche sales of shared ownership
properties.
Gross rental income - Gross rental income is non-contingent
rental income, recognised on a straight-line basis over the term of
the underlying lease and is included in the Group Statement of
Comprehensive Income. Any contingent element of rental income is
recognised on an as-received basis. Lease incentives granted are
recognised as an integral part of the net consideration for the use
of the property and are therefore recognised on the same,
straight-line basis over the term of the lease. Contractual fixed
annual rent increases and lease incentives are recognised on a
straight-line basis over the term of the lease.
Amounts received from tenants to terminate leases or to
compensate for dilapidations are recognised in the Group Statement
of Comprehensive Income when the right to receive them arises.
Gross ground rental income - Gross ground rental income is
recognised on a straight-line basis over the term of the underlying
lease.
Income from property sales is recognised when performance
conditions are fulfilled which is usually at the point of legal
completion.
Property sales consist of one performance obligation - the
transfer of the property to the shared owner. The transaction price
is fixed and specific in the sales contract. Revenue is recognised
at a point in time, when control of the property passes. Control is
considered to pass on legal completion of the property sale.
h) Cost of sales
Included within First Tranches cost of sales are costs relating
to the first tranche sale portion of newly acquired shared
ownership properties. These costs include a share of expenditure
incurred for acquisition of those properties in proportion to the
First Tranche percentage sold, direct overheads and other
incidental costs incurred during the course of the sale of those
properties.
i) Expenses
The Group recognises all expenses on an accruals basis.
j) Finance income and expense
Finance income comprises interest receivable on funds invested.
Financing expenses comprise interest payable, interest charged on
head lease liabilities and amortisation of loan fees.
Interest income and interest payable are recognised in profit
and loss as they accrue, using the effective interest method.
k) Taxation
Taxation on the profit or loss for the period not exempt under
UK REIT regulations comprises 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 would be recognised as a direct movement
in equity. Current tax is expected tax payable on any non-REIT
taxable income for the period, using tax rates enacted or
substantively enacted at the balance sheet date.
Deferred tax is provided in full using the balance sheet
liability method on timing differences between the carrying amounts
of assets and liabilities for financial reporting purposes and the
amounts used for taxation purposes. Deferred tax is determined
using tax rates that have been enacted or substantively enacted by
the reporting date and are expected to apply when the asset is
realised or the liability is settled.
No provision is made for timing differences (i) arising on the
initial recognition of assets or liabilities, other than on a
business combination, that affect neither accounting nor taxable
profit and (ii) relating to investments in subsidiaries to the
extent that they will not reverse in the foreseeable future.
l) Dividend payable to shareholders
Equity dividends are recognised when they become legally payable
which for the final dividends is the date of approval by the
members. Interim dividends are recognised when paid.
m) Financial instruments
Financial assets
Recognition of financial assets
All fi nancial assets are recognised on a trade date which is
the date when the Group becomes a party to the contractual
provisions of the instrument.
Initial measurement and classification of financial assets
Financial assets are classified into the following categories:
'financial assets at fair value through profit or loss' and
'financial assets at amortised cost'. The classification depends on
the business model in which the asset is managed and on the cash
flows associated with that asset.
Financial assets are initially measured at fair value, plus
transaction costs, except for those fi nancial assets classified as
at fair value through profit or loss, which are initially measured
at fair value.
At 30 September 2022, the Group had the following non-derivative
financial assets which are held at amortised cost:
Cash and cash equivalents
Cash and short-term deposits in the balance sheet comprise cash
at bank (including investments in money-market funds) and
short-term deposits with an original maturity of three months or
less.
Trade and other receivables
Trade and other receivables are recognised at their original
invoiced value. Where the time value of money is material,
receivables are discounted and then held at amortised cost, less
provision for expected credit loss.
Impairment of financial assets
The Group applies the IFRS 9 simplified approach to measuring
the expected credit losses for trade and other receivables whereby
the allowance or provision for all trade receivables are based on
the lifetime expected credit losses ("ECLs").
The Group applies the general approach for initial recognition
and subsequent measurement of expected credit loss provisions for
the loan receivable and other receivables which have maturities of
12 months or more and have a significant finance component.
This approach comprises of a three-stage approach to evaluation
of expected credit losses. These stages are classified as
follows:
Stage 1
Twelve-month expected credit losses are recognised in profit or
loss at initial recognition and a loss allowance is established.
For financial instruments that have not deteriorated significantly
in credit quality since initial recognition or that have low credit
risk at the reporting date, the loss allowance for 12-month
expected credit losses is maintained and updated for changes in
amount. Interest revenue is calculated on the gross carrying amount
of the asset (i.e. without reduction for expected credit
losses).
Stage 2
If the credit risk increases significantly and the resulting
credit quality is not considered to be low credit risk, full
lifetime expected losses are recognised and includes those
financial instruments that do not have objective evidence of a
credit loss event. Interest revenue is still calculated on the
gross carrying amount of the asset.
Stage 3
If the credit risk of a financial asset increases to the point
that it is considered credit impaired (there is objective evidence
of impairment at the reporting date), lifetime expected credit
losses continue to be recognised. For financial assets in this
stage, lifetime expected credit losses will generally be
individually assessed. Interest revenue is calculated on the
amortised cost net carrying amount (amortised cost less
impairment).
De-recognition of financial assets
The Group derecognises a financial asset when the contractual
rights to the cash flows from the asset expire, or it transfers the
financial asset and substantially all the risks and rewards of
ownership to another entity. If any interest in a transferred asset
is retained, then the Group recognises its retained interest in the
asset and associated liabilities.
Financial liabilities
Recognition of financial liabilities
All fi nancial liabilities are recognised on the date when the
Group becomes a party to the contractual provisions of the
instrument.
Initial measurement and classification of financial
liabilities
Financial liabilities are classified into the following
categories: 'financial liabilities at fair value through profit or
loss' and 'other financial liabilities'. The classification depends
on the nature and purpose of the fi nancial liabilities and is
determined at the time of initial recognition.
Financial liabilities are initially measured at fair value, net
of transaction costs, except for those fi nancial liabilities
classified as at fair value through profit or loss, which are
initially measured at fair value.
Fair value through profit or loss
This category comprises certain of the Group's borrowings and
out-of-the-money derivatives where the time value does not offset
the negative intrinsic value. The Group's loans with USS held at
fair value through profit and loss may be recorded at a different
value to the notional value of the borrowings due to changes in the
expected future rate of inflation versus the date the debt was
drawn, impacting gilt rates. The designation to value a loan at
fair value through profit and loss is irrevocable and was made to
correct an accounting mismatch as the value of the loan is linked
to the shared ownership investment portfolio. The decision to link
the loan to RPI was made to ensure that returns are matched to rent
proceeds received (also linked to RPI). They are carried in the
Consolidated Statement of Financial Position at fair value with
changes in fair value recognised in the Group Statement of
Comprehensive Income as either a fair value movement (note 13) or
in the finance income or expenses line (note 12), except where the
movement relates to a change in own credit risk which is recognised
in other comprehensive income.
At 30 September 2022, the Group had the following non-derivative
financial liabilities which are classified as other financial
liabilities:
Trade and other payables
Trade and other payables are initially recognised at fair value
and subsequently held at amortised cost.
Borrowings
Borrowings are recognised initially at fair value less
attributable transaction costs or at fair value, with attributable
transaction costs fully expensed if an election is made to hold at
fair value through profit or loss. Subsequent to initial
recognition, borrowing costs are stated at amortised cost with any
difference between the amount initially recognised and redemption
value being recognised in profit or loss in the Statement of
Comprehensive Income over the period of the borrowings using the
effective interest method or at fair value if elected to hold at
fair value through profit or loss.
De-recognition of financial liabilities
The Group derecognises a financial liability when its
contractual obligations are discharged, cancelled or expire.
n) Derivative instrument and hedge accounting
Derivative financial instruments, comprising interest rate swaps
held are initially recognised at fair value and are subsequently
measured at fair value being the price that would be received to
sell an asset or paid to transfer a liability in an orderly
transaction between market participants at a measurement date.
Movements in fair value are recognised in profit and loss as part
of finance costs.
o) Leases
The group as lessor
A lease is classified as a finance lease if substantially all of
the risks and rewards of ownership transfer to the lessee. In the
case of properties where the Group has a leasehold interest, this
assessment is made by reference to the Group's right of use asset
arising under the head lease rather than by reference to the
underlying asset. If the Group substantially retains those risks, a
lease is classified as an operating lease.
Rentals receivable under operating leases are recognised in the
income statement on a straight-line basis over the term of the
relevant lease. In the event that lease incentives are granted to a
lessee, such incentives are recognised as an asset. The aggregate
cost of the incentives is recognised as a reduction in rental
income on a straight-line basis over the term of the relevant
lease.
The group as lessee
Where an investment property is held under a head lease, the
lease liability is capitalised at the lease commencement at the
present value of the minimum lease payments. Each lease payment is
allocated between repayment of the liability and a finance charge
to achieve a constant rate on the outstanding liability. The
corresponding rental obligations, net of finance charges, are
included in liabilities. Investment properties held under head
leases are subsequently carried at their fair value. The carrying
value of lease liabilities are remeasured when the variable element
of the future lease payments dependent on a rate or index is
revised, using the same discount rate as at the lease commencement
date.
p) Share based payments
Payments made to the Fund Manager that are to be settled by the
issue of shares is determined on the basis of the Net Asset Value
of the Group. The estimated number of shares to be issued in
satisfaction of the services provided is calculated using the daily
closing share price of the Company at the date of calculation.
4. Significant accounting judgements and estimates
The preparation of financial statements in accordance with the
principles of IFRS required the Directors of the Group to make
judgements, estimates and assumptions that affect the reported
amounts recognised in the financial statements. However,
uncertainty about these assumptions and estimates could result in
outcomes that require a material adjustment to the carrying amount
of the asset or liability in the future. Estimates and underlying
assumptions are reviewed on an ongoing basis. Revisions to
accounting estimates are recognised in the period in which the
estimates are revised and in any future periods affected.
Estimates:
Investment properties
The Group uses the valuation carried out by its independent
external valuers as the fair value of its property portfolio. The
assumptions on which the property valuation reports have been based
include, but are not limited to, matters such as the tenure and
tenancy details for the properties, ground conditions at the
properties, the structural condition of the properties, prevailing
market yields and comparable market transactions. Further
information is provided in note 17.
The Group's properties have been independently valued by Savills
(UK) Limited ("Savills" or the "Valuer") in accordance with the
definitions published by the Royal Institute of Chartered
Surveyors' ("RICS") Valuation - Professional Standards, July 2017,
Global and UK Editions (commonly known as the "Red Book"). Savills
is one of the most recognised professional firms within residential
and social housing property valuation and has sufficient current
local and national knowledge and has the skills and understanding
to undertake the valuations competently.
If the assumptions upon which the external valuer has based its
valuations prove to be inaccurate, this may have an impact on the
value of the Group's investment properties, which could in turn
have an effect on the Group's financial position and results.
Further information is provided in note 17.
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 (the 'fair value hierarchy'). 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.
Level 3 - Inputs not based on observable market data (that is,
unobservable inputs).
The Group's investment properties are included in Level 3 as the
inputs to the valuation are not based on observable market
data.
Borrowings held at fair value
Some of the Group's borrowings are held at fair value.
The inputs / assumptions on which these borrowings have been
valued include the relevant inflation linked gilt rate at the date
of valuation and the future rate of RPI inflation. Further
information is provided in note 22.
If these assumptions prove to be inaccurate, this may have an
impact on the carrying value of the Group's borrowings held at fair
value, which could in turn have an effect on the Group's financial
position and results.
In the fair value hierarchy, borrowings valued at fair value are
included in Level 2 as they are based on observable market data
(inflation linked gilt yields).
Shared Ownership Properties
First Tranche Sales
The Group estimates the proportion of shared ownership
properties that will be sold as First Tranche sales and therefore
classified as inventory rather than investment property. The
assumptions on which the proportion has been based include, but are
not limited to, matters such as the affordability of the shared
ownership properties, local demand for shared ownership properties,
and general experience of First Tranche shared ownership sales in
the social housing sector. The first tranche sales percentage used
is consistent with values used by the valuers. As at 30 September
2022, the average first tranche sales percentage assumed for vacant
shared ownership properties was 25%. If there is a change in
percentage used, this will affect the proportion of inventory and
investment property recognised with a higher assumed first tranche
sale percentage resulting in a higher inventory value and lower
investment property value.
5. Operating segments
IFRS 8, Operating Segments, requires operating segments to be
identified on the basis of internal financial reports about
components of the Group that are regularly reviewed by the chief
operating decision maker (which in the Group's case is the Board of
Directors) in order to allocate resources to the segments and to
assess their performance.
The Group's reporting to the chief operating decision maker does
not differentiate by property type or location as the Group is
considered to be operating in a single segment of business and in
one geographical area.
No customers have revenue that is greater than 10% of the total
Group revenue.
The internal financial reports received by the Board of
Directors contain financial information at a Group level and there
are no reconciling items between the results contained in these
reports and the amounts reported in the Financial Statements.
6. Income less cost of sales
2022 2021
First
Net property tranche
income sales Total Total
GBP'000 GBP'000 GBP'000 GBP'000
Gross Rental income 25,670 - 25,670 22,826
First tranche property
sales - 6,115 6,115 16,770
-------------- ---------- ---------- ----------
Total income 25,670 6,115 31,785 39,596
-------------- ---------- ---------- ----------
Service charge expenses (4,927) - (4,927) (4,701)
Property operating
expenses (3,717) - (3,717) (3,958)
Impairment of receivables (10) - (10) (2)
First tranche cost
of sales - (5,605) (5,605) (15,762)
----------
Total cost of sales (8,654) (5,605) (14,259) (24,423)
-------------- ---------- ---------- ----------
Net rental income/gross
profit before ground
rents 17,016 510 17,526 15,173
Ground rents disclosed
as finance lease interest (996) - (996) (989)
-------------- ---------- ---------- ----------
Net rental income/gross
profit after ground
rents disclosed as
finance lease asset 16,020 510 16,530 14,184
-------------- ---------- ---------- ----------
Included within gross rental income is a GBP1,148,000 (2021:
GBP650,000) rent smoothing adjustment that arises as a result of
IFRS 16 'Leases' which require rental income in respect of leases
with rents increasing by a fixed percentage being accounted for on
a straight-line basis over the lease term. During the year this
resulted in an increase in rental income, with an offsetting entry
being recognised in profit or loss as an adjustment to the
investment property revaluation (see note 17).
Gross rental income includes service charges collected from
tenants, included in rent collected but not separately invoiced, of
GBP4,622,000 during the year (2021: GBP4,344,000). Service charge
expenses, as reflected in the cost of sales, also includes amounts
paid in respect of properties which were vacant during the period
of GBP305,000 (2021: GBP357,000).
The gross profit after ground rents disclosed as finance lease
interest are presented to provide what the Board believes is a more
appropriate assessment of the Group's net property income. Ground
rent costs are an inherent cost of holding certain leasehold
properties and are taken into consideration by Savills when valuing
the Group's properties.
7. Fund management fee
2022 2021
GBP'000 GBP'000
Cash portion 1,400 1,353
Equity 467 449
1,867 1,802
--------- ---------
ReSI Capital Management Limited acts as alternative investment
fund manager (the "Fund Manager") pursuant to the Fund Management
Agreement.
The Fund Manager is entitled to an annual management fee (the
"Fund Manager Fee") under the Fund Management Agreement with effect
from the date of Admission, as follows:
a) on that part of the Net Asset Value up to and including
GBP250mn, an amount equal to 1% p.a. of such part of the Net Asset
Value;
b) on that part of the Net Asset Value over GBP250mn and
including GBP500mn, an amount equal to 0.9% p.a. of such part of
the Net Asset Value;
c) on that part of the Net Asset Value over GBP500mn and up to
and including GBP1,000mn, an amount equal to 0.8% p.a. of such part
of the Net Asset Value;
d) on that part of the Net Asset Value over GBP1,000m, an amount
equal to 0.7% p.a. of such part of the Net Asset Value.
The Fund Management Fee is paid quarterly in advance. 75% of the
total Fund Management Fee is payable in cash and 25% of the total
Fund Management Fee (net of any applicable tax) is payable in the
form of Ordinary Shares rather than cash.
8. General and administrative expenses
Group Group
2022 2021
GBP'000 GBP'000
Professional fees 579 552
Directors' fees and expenses 220 217
Fees paid to the Company's Auditor 279 224
Other expenses 41 53
Aborted acquisition costs 9 1
1,128 1,047
--------- ---------
9. One-off administration costs
2022 2021
GBP'000 GBP'000
One-off administration costs 225 368
225 368
--------- ---------
In July 2021, the property and lettings management of the ReSI's
retirement portfolio was transferred from Girlings to ReSI Property
Management Limited, a subsidiary of the Fund Manager, and now
property management services are provided at cost. The transfer has
led to improved performance on the retirement portfolio, as
evidenced in void reductions, and is expected to drive further cost
efficiencies and operational improvements. The charges above relate
to residual set-up costs associated with the transfer, which
straddled the 2021-year end, and is now complete, one-off costs
associated with upgrading the energy performance of properties.
10. Directors' fees and expenses
2022 2021
GBP'000 GBP'000
Fees 155 155
Taxes 17 17
172 172
--------- ---------
Fees paid to directors of subsidiaries 48 45
220 217
--------- ---------
The Group had no employees during the year (2021: Nil) other
than the Directors and Directors of subsidiaries.
The Chairman is entitled to receive a fee linked to the Net
Asset Value of the Group as follows:
Each of the Directors, save the Chairman, is entitled to receive
a fee linked to the Net Asset Value of the Group as follows:
None of the Directors received any advances or credits from any
Group entity during the year (2021: Nil).
During the year, the Net Asset Value of the Company increased to
such that the Directors became eligible for a fee increase under
the Remuneration Policy. However, taking into consideration current
ongoing activities within the Company, the Board agreed to waive an
increase of fees for the year ended 30 September 2022. The Board
will meet to review the Directors' Remuneration during the course
of the year ending 30 September 2023 and consider a potential
increase per the remuneration policy.
11. Fees paid to the Company's Auditor
2022 2021
GBP'000 GBP'000
Audit fees
Parent and consolidated financial statements 75 60
Audit of subsidiary undertakings 143 122
Additional fees payable to the Auditors
in relation to prior year audit 18 -
--------- ---------
Total audit fees 237 182
--------- ---------
Audit related services
Review of interim report 42 42
Non-audit fees
Corporate Finance Fees 44 -
Total fees 318 224
--------- ---------
Non audit fees of GBP44,000 relating to corporate finance
services have been incurred in the year ended 30 September 2022
(2021: GBPnil). These costs have been included in prepayments as
they relate to a future work.
Fees paid to the Company's Auditors are inclusive of
irrecoverable VAT.
12. Net finance costs
2022 2021
GBP'000 GBP'000
Finance income
Interest income 67 -
--------- ---------
67 -
--------- ---------
Finance expense
Interest payable on borrowings (4,300) (3,946)
Amortisation of loan costs (268) (259)
Debt programme costs (91) (27)
Lease interest (996) (989)
(5,655) (5,221)
--------- ---------
Movement in fair value of derivative
contracts
Interest rate swaps - 104
--------- ---------
Net finance costs (5,588) (5,117)
--------- ---------
One-off shared ownership facility
set-up costs (300) (567)
Debt set up fees (69) (39)
Debt set up costs (369) (606)
--------- ---------
The Group's interest income during the year relates to cash
invested in a money market fund, which is invested in short-term
AAA rated Sterling instruments.
Ground rents paid in respect of leasehold properties have been
recognised as a finance cost in accordance with IFRS 16
"Leases".
Movement in fair value of derivative contracts arose from
interest rate swaps entered into in February 2019 to partially fix
the GBP14.5mn of debt secured by the Local Authority portfolio. The
swaps expired on 20 August 2021.
Debt set up fees in the current year relate to the abortive fees
of debt that was not put in place.
13. Change in fair value
2022 2021
GBP'000 GBP'000
Gain/(loss) on fair value adjustment
of investment properties 4,348 8,381
Adjustments for lease incentive assets and rent
straight line assets recognised
Start of the year 922 272
End of the year (2,070) (922)
--------- ---------
3,200 7,731
Gain/(loss) on fair value adjustment
of borrowings (note 22) 1,809 (2,731)
Shared ownership facility set up
costs (300) (567)
---------
4,709 4,433
--------- ---------
Gain/(loss) on fair value adjustment of borrowings arises from
debt raised against the shared ownership portfolio, which the
Company elected to fair value through profit and loss in order to
address an accounting mismatch as the value of the loan is linked
to the shared ownership investment portfolio. During the year the
Group incurred costs of GBP0.3mn (equivalent to 0.2 basis points on
the drawn balance per annum over 45 years) in relation to further
GBP20mn drawdown of debt under the shared ownership 45-year
GBP300mn facility. With the election made to value this debt at
fair value through profit or loss, all fees associated with this
debt have been expensed in the current year.
14. Taxation
2022 2021
GBP'000 GBP'000
Current tax - -
Deferred tax - -
- -
--------- ---------
The tax charge for the period varies from the standard rate of
corporation tax in the UK applied to the profit before tax. The
differences are explained below:
2022 2021
GBP'000 GBP'000
Profit before tax 13,334 11,221
--------- ---------
Tax at the UK corporation tax rate
of 19% (2021: 19%) 2,533 2,132
Tax effect of:
UK tax not payable due to REIT exemption (1,995) (656)
Investment property revaluation not
taxable (608) (1,469)
Expenses that are not deductible
in taxable profit (27) (15)
Unutilised residual current year
tax losses 97 8
Tax charge for the year - -
--------- ---------
As a UK REIT the Group is exempt from corporation tax on the
profits and gains from its property rental business provided it
meets certain conditions set out in the UK REIT regulations.
The government has announced that the corporation tax standard
rate is to remain at 19% until 31 March 2023. From 1 April 2023 the
rate will increase to 25%.
15. Earnings per share
2022 2021
GBP'000 GBP'000
Profit attributable to Ordinary shareholders 13,334 11,221
Deduction of fair value movement
on investment properties, borrowings
and interest rate swap (5,009) (5,104)
Deduction of non-recurring set up
costs 225 368
Deduction of debt set up costs 369 606
Deduction of aborted acquisition
costs 9 1
Loss on property disposals 24 12
Adjusted Earnings 8,952 7,104
--------- ---------
Weighted average number of ordinary
shares (thousands) 180,159 171,071
--------- ---------
Basic Earnings per share (pence)
- 2022 (pence) 7.4
- 2021 (pence 6.6
Adjusted Earnings per share (pence)
- 2022 (pence) 5.0
- 2021 (pence 4.2
Basic earnings per share ('EPS') is calculated as profit
attributable to Ordinary Shareholders of the Company divided by the
weighted average number of shares in issue throughout the relevant
period.
The Adjusted Earnings are presented to provide what the Board
believes is a more appropriate assessment of the operational income
accruing to the Group's activities. Hence, the Group adjusts basic
earnings for income and costs which are not of a recurrent nature
or which may be more of a capital nature.
EPRA Earnings per share
2022 2021
GBP'000 GBP'000
Earnings per IFRS income statement 13,334 11,221
Changes in value of investment properties (3,200) (7,731)
Profits or losses on disposal of investment properties 24 12
Profits or losses on sales of trading properties (510) (1,008)
Changes in fair value of financial instruments
and associated close-out costs (1,809) 2,627
EPRA Earnings 7,839 5,121
--------- ---------
Basic number of shares 180,159 171,071
EPRA Earnings per Share (EPS) (pence) 4.4 3.0
Adjusted EPRA Earnings per share
2022 2021
GBP'000 GBP'000
Company specific adjustments:
Exclude debt set up costs 369 607
Exclude one-off administration costs 225 368
Exclude one-off aborted acquisition costs 9 -
Include shared ownership first tranche sales 510 1,008
Company specific Adjusted EPRA Earnings 8,952 7,104
--------- ---------
Company specific Adjusted EPRA Earnings per
share (pence) 5.0 4.2
EPRA earnings per share ('EPS') is calculated as EPRA earnings
attributable to Ordinary shareholders of the Company divided by the
weighted average number of shares in issue throughout the relevant
period.
The Adjusted EPRA Earnings are presented to provide what the
Board believes is a more appropriate assessment of the operational
income accruing to the Group's activities. Hence, the Group adjusts
EPRA earnings for income and costs which are not of a recurrent
nature or which may be more of a capital nature.
Dividend coverage for the year ended 30 September 2022 is 97%
based on an adjusted earnings figure of GBP8.95mn and dividends
paid over the year of GBP9.20mn.
16. Inventories - finished properties available for sale
2022 2021
GBP'000 GBP'000
Shared ownership properties 1,203 3,800
1,203 3,800
--------- ---------
The costs of inventories recognised in cost of sales as an
expense in the year is GBP5,605,000 (2021: GBP15,762,000). The
amount of inventories written down to net realisable value is Nil
(2021: Nil).
17. Investment properties
2022 2021
GBP'000 GBP'000
At beginning of period 372,335 331,782
Property acquisitions at cost 30,827 33,113
Grant receivable (672) (1,652)
Capital expenditure 652 539
Property disposals (1,498) (1,731)
Movement in head lease gross up 135 1,631
Adjustments for lease incentive assets and
rent straight line assets recognised - 272
Change in fair value during the
period 4,348 8,381
At end of period 406,127 372,335
--------- ---------
Valuation provided by Savills 374,785 341,128
Adjustment to fair value - finance
lease asset 31,342 31,207
Total investment properties 406,127 372,335
-------------- ---------
The investment properties are divided into:
2022 2021
GBP'000 GBP'000
Leasehold properties 293,734 284,596
Freehold properties * 81,051 56,532
Head lease gross up 31,342 31,207
Total investment properties 406,127 372,335
--------- ---------
*Includes Feuhold properties, the Scottish equivalent of
Freehold.
The table below shows the total value of the Group's investment
properties including committed properties with purchase contracts
exchanged at 30 September 2022. Consistent with the valuation
provided by Savills, the adjustment to fair value in respect of
finance lease assets for ground rents receivable has been excluded
to show the value of the asset net of all payments to be made
(including ground rent payments). Committed properties with
purchase contracts exchanged have been included to provide an
indication of the value of all properties to which the Group is
contractually committed at 30 September 2022.
2022 2021
GBP'000 GBP'000
Total investment properties 406,127 372,335
Adjustment to fair value - finance
lease asset (31,342) (31,207)
Committed properties with purchase
contracts exchanged 8,635 9,946
Total investment properties including committed
properties with purchased contracts exchanged 383,420 351,074
---------- ----------
Included within the carrying value of investment properties at
30 September 2022 is GBP2,070,000 (2021: GBP922,000) in respect of
the smoothing of fixed contractual rent uplifts as described in
note 6. The difference between rents on a straight-line basis and
rents actually receivable is included within the carrying value of
the investment properties but does not increase that carrying value
over the fair value.
The historical cost of investment properties at 30 September
2022 was GBP339,012,000 (2021: GBP309,703,000).
In accordance with "IAS 40: Investment Property", the Group's
investment properties have been independently valued at fair value
by Savills (UK) Limited ("Savills"), an accredited external valuer
with recognised and relevant professional qualifications.
The carrying values of investment property as at 30 September
2022 agree to the valuations reported by external valuers, except
that the valuations have been:
Increased by the amount of finance lease liabilities recognised
in respect of investment properties held under leases of
GBP31,342,000 (GBP31,207,000 at 30 September 2021) representing the
present value of ground rents payable for the properties held by
the Group under leasehold - further information is provided in note
31. This is because the independent valuations are shown net of all
payments expected to be made. However, for financial reporting
purposes in accordance with IAS 40, "Investment Property", the
carrying value of the investment properties includes the present
value of the minimum lease payments in relation to these leases.
The related lease liabilities are presented separately on the
Statement of Financial Position.
'Rent straight line adjustments' represent the recognition of
lease incentives and contractual fixed annual rent increases on a
straight-line basis over the term of the underlying leases.
The Group's investment objective is to provide shareholders with
an attractive level of income, together with the potential for
capital growth, from acquiring portfolios of homes across
residential asset classes that comprise the stock of statutory
registered providers.
The Group intends to hold its investment property portfolio over
the long term, taking advantage of upward-only inflation linked
leases. The Group will not be actively seeking to dispose of any of
its assets, although it may dispose of investments should an
opportunity arise that would enhance the value of the Group as a
whole.
The Group has pledged substantially all of its investment
properties to secure loan facilities granted to the Group (see note
22).
In accordance with IFRS 13, the Group's investment property has
been assigned a valuation level in the fair value hierarchy. The
fair value hierarchy gives the highest priority to quoted prices in
active markets for identical assets (Level 1) and the lowest
priority to unobservable inputs (Level 3). The Group's investment
property as at 30 September 2022 is categorised as Level 3.
ReSI's properties are valued by Savills using a discounted cash
flow ("DCF") methodology applying a discount rate to estimated
future cash flows to arrive at a net present value of the
properties.
Historically, Savills valued ReSI's retirement rentals portfolio
using a capitalisation methodology which applied a yield to current
and estimated rental income, subject to certain adjustments for
estimated vacant possession value and head lease length (where
yields and rental values were considered to be unobservable
inputs). In order to align with incoming RICS guidance to use DCF
valuation methodologies and to apply consistent methodologies
across all of ReSI's portfolios, Savills transitioned the
retirement valuation approach to a DCF methodology at 30 September
2022.
There are multiple key unobservable inputs that play material
roles in determining the Group's fair value of investment
property:
1. The discount rates applied to projected rental cash flows
(and to staircasing cash flows for shared ownership
properties):
a. Effectively, the discount rate is representative of both the
long-term cost of borrowing and the risks implicit in the
properties concerned, as well as the risk associated with the cash
flow assumptions reflected in the valuation.
b. Everything else being equal, there is a negative relationship
between the discount rate and the property valuation, such that an
increase in the discount rate will decrease the valuation of a
property and vice versa.
c. Weighted average nominal rental discount rates applied across
the shared ownership and retirement portfolio valuations at 30
September ranged from 5.4% to 10.2%.
2. Projected rates of inflation (both CPI and RPI):
a. The majority of ReSI's leases are inflation-linked (subject
to inflation floors and, for some leases, inflation caps).
Additionally, some of ReSI's operating expenses are subject to
inflationary pressures. Changes in inflation assumptions can have a
material impact on the Group's valuations.
b. The relationship between inflation and income growth (and
resulting rental values) is generally positive, as the majority of
the Group's revenues are inflation-linked (subject to certain
inflation caps and floors in certain leases in ReSI's portfolio),
however, inflation can also increase operating expenses,
potentially offsetting some or all of inflation-linked revenue
growth, all else being equal.
c. Forecast inflation rates applied for different years across
the portfolio valuations at 30 September ranged from 2.0% to 8.5%
for CPI and 2.5% to 12.3% for RPI.
3. House price growth for shared ownership properties
a. Projected house price growth plays a significant role in
determining the prevailing open market value at which shared
ownership residents staircase.
b. Everything else being equal, there is a positive relationship
between future house price growth and the property valuation, such
that an increase in future house price growth will increase the
valuation of a property and vice versa. HPI forecasts applied for
different years to the shared ownership valuations ranged from
-1.5% to +10%.
4. Staircasing rates for shared ownership properties:
a. Shared ownership residents have the option to incrementally
purchase from ReSI additional shares in their homes at the
prevailing open market value. This process, known as "staircasing",
generates additional cash flow to the Group, and the rate of
staircasing partly determines the amount of cash flow from equity
purchases that the Group may receive in any given period of
time.
b. The relationship between future staircasing rates and
property valuation may be either positive or negative depending on
the discount rate and house price growth assumptions used for a
given property. If a zero rate of staircasing is assumed this would
result in an increase in the valuation of ReSI's shared ownership
properties as Savills apply a higher discount rate to staircasing
cash flows as compared to rental cash flows. Equally, if it assumed
that a propertystaircases immediately this would also result in
increase in the valuation of ReSI's shared ownership properties as
these properties are valued at a discount to their Open Market
Value (the price at which shared owners staircase).
c. Staircasing rates applied to shared ownership valuations ranged from 2.5% to3.0%.
There are interrelationships between these inputs as they are
determined by market conditions, and the valuation movement in any
one period depends on the balance between them. If these inputs
move in opposite directions (i.e. rental values increase and
discount rates decrease) valuation movements can be amplified,
whereas if they move in the same direction they may be offset,
reducing the overall net valuation movement. The valuation movement
is materially sensitive to changes in discount rates and rental
values. The impact on valuation from the change in key factors has
been modelled below by Savills:
Key inputs Key inputs Sensitivity Valuation + -
modelled at Updated Valuation Updated
30 September GBPmn Valuation
2022 GBPmn
GBPmn
Retirement Regional Discount +/- 25bps 218.9mn 210.4mn 228.1mn
Rate
------------------- ------------- --------------- -------------------- ------------
Consumer Price +/- 25bps 218.9mn 208.6mn 230.1mn
Index (CPI)
[75]
------------------- ------------- --------------- -------------------- ------------
Retail Price +/- 25bps 218.9mn 229.1mn 209.2mn
Index (RPI)
[76]
------------------- ------------- --------------- -------------------- ------------
Shared Ownership Rental Discount +/- 25bps 128.2mn 125.5mn 131.1mn
Rate
------------------- ------------- --------------- -------------------- ------------
Retail Price +/- 25bps 128.2mn 130.0mn 126.5mn
Index (RPI)
------------------- ------------- --------------- -------------------- ------------
House Price +/- 25bps 128.2mn 129.7mn 127.0mn
Index (HPI
(long-term
rate Yr 6+))
------------------- ------------- --------------- -------------------- ------------
18. Trade and other receivables
2022 2021
GBP'000 GBP'000
Trade debtors 385 968
Prepayments 2,623 2,488
Other debtors 382 595
3,390 4,051
--------- ---------
The Group applies the IFRS 9 simplified approach to measuring
expected credit losses using a 12-month expected loss provision for
rent receivables. To measure expected credit losses on a collective
basis, rent receivables are grouped based on similar credit risk
and ageing.
The expected loss rates are based on the Group's historical
credit losses experienced since inception to the period end. The
historical loss rates are then adjusted for current and
forward-looking information on macroeconomic factors affecting the
Group's customers. Both the expected credit loss provision and the
incurred loss provision in the current and prior years are
immaterial. No reasonably possible changes in the assumptions
underpinning the expected credit loss provision would give rise to
a material expected credit loss.
There is no significant difference between the fair value and
carrying value of trade and other receivables at the Statement of
Financial Position date.
19. Deposits paid for property purchases
2022 2021
GBP'000 GBP'000
Deposit paid for property purchases 827 1,158
827 1,158
--------- ---------
The deposits paid as at 30 September 2022 relate to the
acquisition of 41 shared ownership homes from Brick by Brick
Croydon Ltd located in Croydon which are expected to complete in
the first half of FY 2023.
The deposits paid as at 30 September 2021 relate to the
acquisition of 46 shared ownership homes in Leicestershire and
Croydon, 38 of which were acquired during the year with the rest
expected to complete in the first half of FY 2023.
20. Cash and cash equivalents
2022 2021
GBP'000 GBP'000
Cash at bank 12,739 5,684
Cash held as investment deposit 2 2
12,741 5,686
Restricted cash 3,243 2,684
15,984 8,370
--------- ---------
During the year, the Group has reassessed the classification of
restricted cash and has included it in cash and cash equivalents at
30 September 2022. This relates to cash that is subject to
restrictions with a third party where the terms of the account do
not prevent the Group from the cash. In prior periods, this balance
was not included in cash and cash equivalents in the Consolidated
Statement of Cash flows. Comparatives have not been adjusted for
this reclassification on grounds of materiality. Included within
cash at the year-end was an amount totalling GBP3,243,000
(GBP2,684,000 at 30 September 2021) held in separate bank accounts
which the Group considers restricted cash. Restricted cash is cash
where there is a legal restriction to specify its type of use. This
is typically where the Group has agreed to deposit cash with a bank
as part of a joint arrangement with a tenant under a lease
agreement, or to provide additional security to a lender over loan
facilities, or under an asset management initiative.
GBP1,324,000 (2021: GBP1,227,000) was held by the managing agent
of the retirement portfolio in respect of tenancy rental deposits.
Other funds were held by the management agent in an operating
account to pay service charges in respect of the RHP Portfolio due
on 1 October 2022.
GBP1,564,000 (2021: GBP1,139,000) was held by US Bank in respect
of funds required as a debt service reserve for the shared
ownership debt.
GBP354,000 (2021: GBP318,000) was held in respect of a service
charge reserve fund.
Cash held as investment deposit relates to cash invested in a
money market fund, which is invested in short-term AAA rated
Sterling Investments. As the fund has a short maturity period, the
investment has a high liquidity. The fund has GBP13.8bn AUM, hence
the Group's investment deposit represents an immaterial proportion
of the fund.
21. Trade and other payables
2022 2021
GBP'000 GBP'000
Trade payables 1,173 3,735
Accruals 1,238 1,756
VAT payable 4 3
Deferred income 797 661
Other creditors 1,679 1,583
4,891 7,738
--------- ---------
Trade payables and accruals principally comprise amounts
outstanding for trade purchases and ongoing costs. For most
suppliers interest is charged if payment is not made within the
required terms. Thereafter, interest is chargeable on the
outstanding balances at various rates. The Company has financial
risk management policies in place to control that all payables are
paid within the agreed credit timescale.
There is no significant difference between the fair value and
carrying value of trade and other payables at the Statement of
Financial Position date.
22. Borrowings
2022 2021
GBP'000 GBP'000
Loans 192,126 170,814
Unamortised borrowing costs (2,421) (2,475)
189,705 168,339
--------- ---------
Current liability 14,285 2,984
Non-current liability 175,420 165,355
189,705 168,339
--------- ---------
The loans are repayable as follows:
Within one year 14,285 2,984
Between one and two years 9,851 14,792
Between three and five years 9,088 6,911
Between six and ten years 14,887 12,019
Between eleven and twenty years 29,452 23,953
Over twenty years* 112,142 107,680
189,705 168,339
--------- ---------
*GBP77.6mn of this is due at the maturity date of the loan in
2043.
The maturity analysis has been expanded in the current year to
provide better information. The comparatives have been amended for
consistency.
Movements in borrowings are analysed as follows:
Fair Held at
value amortised
through cost
profit
or loss 2022 2021
GBP'000 GBP'000 GBP'000 GBP'000
At 30 September
2021 59,513 108,826 168,339 141,101
Drawdown of facility 20,000 8,100 28,100 25,128
New borrowing
costs - (215) (215) (275)
Amortisation of
loan costs - 268 268 259
Fair value movement (1,809) - (1,809) 2,731
Repayment of borrowings - (4,978) (4,978) (605)
---------- ------------ --------- ---------
Year ended 30
September 2022 77,704 112,001 189,705 168,339
---------- ------------ --------- ---------
The table below lists the Group's borrowings:
Outstanding
debt net of
Drawn on original unamortised Maturity Annual interest
Lender facility issue costs date rate
2022 2021 2022 2021
GBP'000 GBP'000 GBP'000 GBP'000
Held at amortised
cost
Scottish Widows 3.5% Fixed
Ltd 97,000 97,000 92,506 95,224 Jun-43 (Average)
National Westminster 1.50% over
Bank plc 21,550 14,450 12,704 14,450 Apr-23 SONIA
2.25% over
Santander 7,100 1,628 6,791 1,628 Jun-25 SONIA
---------- ----------
125,650 113,078 112,001 111,302
--------- ---------- --------- ----------
Held at fair
value
Universities
Superannuation 0.94% (Average)
Scheme 77,500 57,500 77,704 59,513 May-65 *
---------- ----------
77,500 57,500 77,704 59,513
--------- ---------- --------- ----------
Total borrowings 203,150 170,578 189,705 170,815
--------- ---------- --------- ----------
*The principal will increase at a rate of RPI+0.5% on a
quarterly basis; RPI is capped between 0% and 5% on a pro-rated
basis.
The Group elected to fair value through profit and loss the
Universities Superannuation Scheme borrowings. The notional
outstanding debt at 30 September 2022 was GBP77.5mn (2021:
GBP57.5mn) with an amortised cost of GBP82.7mn (2021:
GBP59.0mn).
The Universities Superannuation Scheme borrowings have been fair
valued by calculating the present value of future cash flows, using
the gilt curve and a credit spread reflecting the high credit
strength of the borrower at the date of valuation. The credit
spread used for the valuation as at 30 September 2022 was
1.81%.
In accordance with IFRS 13, the Group's borrowings held at fair
value have been assigned a valuation level in the fair value
hierarchy. The fair value hierarchy gives the highest priority to
quoted prices in active markets for identical assets (Level 1) and
the lowest priority to unobservable inputs (Level 3). The Group's
borrowings held at fair value as at 30 September 2022 are
categorised as Level 2.
Everything else being equal, there is a negative relationship
between the credit spread and the borrowings valuation, such that
an increase in the credit spread (and therefore the future interest
payable) will reduce the valuation of a borrowing liability and
vice versa. A 10-basis point increase in the credit spread would
result in a reduction of the liability by GBP1.2mn.
During the year the Group transferred all of its borrowings
subject to a variable rate of interest from LIBOR to SONIA. SONIA
is an overnight rate whereas LIBOR was a term rate. SONIA is close
to a risk-free measure of borrowing costs. It is compounded over a
lending period to produce a backward-looking term interest rate, It
is expected that this change in risk-free rate will not lead to a
material change in overall borrowing costs.
The fair value of borrowings held at amortised cost at 30
September 2022 was GBP83.3mn (GBP114.2mn at 30 September 2021).
The Scottish Widows facility is secured by a first charge over
retirement properties with a fair value of GBP218.9mn.
The NatWest facility is secured by a first charge over Local
Authority Housing properties with a fair value of GBP27.7mn.
The Universities Superannuation Scheme facility is secured by a
first charge over shared ownership properties with a fair value of
GBP128.2mn, cash of GBP11.2mn, deposits of GBP0.8mn and restricted
cash balances of GBP1.6mn.
On 12 September 2022, the Group amended the terms of the
revolving capital facility with Santander UK plc under which the
facility was increased from GBP10mn to GBP25mn at a reduced margin
of 2.25%, down from 2.80%, over SONIA and extended to 12 March
2025. Each draw under the facility must be repaid within 2 years of
drawdown. There is a commitment fee of 2.25% on 30% of the undrawn
balance of the facility. As at the year end, GBP7.1mn had been
drawn down under the facility. The facility bears interest at SONIA
plus 2.25%.
23. Recycled Capital Grant
ReSI's shared ownership portfolio has been supported by grant
funding, which is designed to facilitate the delivery of affordable
housing projects. In some circumstances, typically when a shared
owner staircases, ReSI will be required to recycle the grant into
the purchase of new properties within three years or to repay it to
the relevant grant provider.
On disposal / staircasing of a grant funded property, the Group
initially recognises a liability in the Recycled Capital Grant
fund. If the disposal receipts are not subsequently recycled, the
grant will be repaid.
The balance at 30 September 2022 was GBP205,000 (2021:
GBP38,000).
24. Share capital account
Number
of Ordinary
1 p GBP'000
shares
At 30 September 2021 180,324,377 1,803
Issue of shares 13,824,884 138
At 30 September 2022 194,149,261 1,941
-------------- ---------
The share capital account relates to amounts subscribed for
share capital.
Rights, preferences and restrictions on shares
All Ordinary Shares carry equal rights; 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.
During the year, 13,824,884 ordinary shares of 1p each were
issued at a premium of GBP1.075 per share. Costs of GBP364,514
associated with the share issue have been offset against the share
premium account.
Treasury shares do not hold any voting rights.
25. Share premium account
GBP'000
At 30 September 2021 108
Issue of shares 14,862
Share issue costs (365)
---------
At 30 September 2022 14,605
---------
The share premium account relates to amounts subscribed for
share capital in excess of nominal value.
26. Treasury shares reserve
GBP'000
At 30 September 2021 (8,515)
Purchase of treasury shares (245)
Transferred as part of Fund Management
fee 467
At 30 September 2022 (8,293)
---------
The treasury shares reserve relates to the value of shares
purchased by the Company in excess of nominal value.
During the year ended 30 September 2022, the Company purchased
232,564 of its own 1p ordinary shares at a total gross cost of
GBP240,201 (GBP240,400 cost of shares and GBP801 associated
costs).
During the year, 212,153 1p Ordinary Shares were transferred
from its own shares reserve to the Fund Manager, in lieu of the
management fee in accordance with the Fund Management
Agreement.
As at 30 September 2022, 8,985,980 (2021: 9,198,133) 1p Ordinary
Shares are held by the Company.
27. Retained earnings
GBP'000
At 30 September 2021 188,996
Profit for the year 13,334
Share based payment charge 467
Issue of management shares (467)
Dividends (9,195)
At 30 September 2022 193,135
---------
Retained earnings incorporate all gains and losses and
transactions with shareholders (e.g. dividends) not recognised
elsewhere .
28. Group entities
The Group entities which are owned either directly by the
Company or indirectly through a subsidiary undertaking are:
Principal
Percentage Country place
Name of entity of ownership of incorporation of business Principal activity
ReSI Portfolio
Holdings
Limited* 100% UK UK Holding company
RHP Holdings Limited 100% UK UK Holding company
The Retirement
Housing
Limited Partnership 100% UK UK Property investment
Registered Provider
ReSI Housing Limited 100% UK UK of Social Housing
Wesley House
(Freehold)
Limited 100% UK UK Property investment
Eaton Green
(Freehold)
Limited 100% UK UK Property investment
Name of entity Registered address
ReSI Portfolio Holdings
Limited 5 New Street Square, London, EC4A 3TW
RHP Holdings Limited 5 New Street Square, London, EC4A 3TW
The Retirement Housing
Limited Glanville House, Frobisher Way, Taunton ,
Partnership Somerset, TA2 6BB
5 New Street Square, London,
ReSI Housing Limited EC4A 3TW
Wesley House (Freehold) 5 New Street Square, London,
Limited EC4A 3TW
Eaton Green (Freehold) 5 New Street Square, London,
Limited EC4A 3TW
All group entities are UK tax resident.
29. Notes to the cash flow statement
The liabilities arising from financing activities are reconciled
below:
Borrowings Borrowings
due within due in Fair
one year more than value
(note one year of interest Lease liabilities
22) (note 22) rate swaps (note 31) Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 October 2021 2,984 165,355 - 31,207 199,546
Cash flows
Borrowings advanced - 28,100 - - 28,100
Borrowings repaid (4,978) - - - (4,978)
Debt arrangement fees
paid (215) (215)
Non-cash flows
Reclassification
of borrowings
Borrowings reclassified 15,279 (15,279) -
Amortisation of debt
set up fees - 268 - - 268
Change in fair value
of borrowings - (1,809) - - (1,809)
Recognition of headlease
liabilities acquired - - - 135 135
At 30 September 2022 14,285 175,420 - 31,342 221,047
------------- ------------ -------------- ------------------- ---------
Borrowings Borrowings
due within due in Fair
one year more than value
(note one year of interest Lease liabilities
22) (note 22) rate swaps (note 31) Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 October 2020 388 140,713 104 29,576 170,781
Cash flows
Borrowings advanced 2,201 22,927 - - 25,128
Borrowings repaid (605) - - - (605)
Debt arrangement
fees paid - (275) - - (275)
Non-cash flows
Borrowings reclassified 1,000 (1,000) -
Amortisation of debt
set up fees - 259 - - 259
Change in fair value
of borrowings - 2,731 - - 2,731
Change in fair value
of interest rate
swaps - - (104) - (104)
Recognition of headlease
liabilities acquired - - - 1,631 1,631
At 30 September
2021 2,984 165,355 - 31,207 199,546
30. Dividends
2022 2021
GBP'000 GBP'000
Amounts recognised as distributions to shareholders
in the period:
4th interim dividend for the year ended
30 September 2020 of 1.25p per share - 2,138
1st interim dividend for the year ended
30 September 2021 of 1.25p per share - 2,138
2nd interim dividend for the year ended
30 September 2021 of 1.25p per share - 2,138
3rd interim dividend for the year ended
30 September 2021 of 1.25p per share - 2,138
4th interim dividend for the year ended 2,208 -
30 September 2021 of 1.29p per share
1st interim dividend for the year ended 2,209 -
30 September 2022 of 1.29p per share
2nd interim dividend for the year ended 2,389 -
30 September 2022 of 1.29p per share
3rd interim dividend for the year ended 2,389 -
30 September 2022 of 1.29p per share
9,195 8,552
Amounts not recognised as distributions to shareholders
in the period:
4th interim dividend for the year ended
30 September 2021 of 1.25p per share - 2,138
4th interim dividend for the year ended 2,389
30 September 2022 of 1.29p per share -
Categorisation of dividends for UK tax
purposes:
Amounts recognised as distributions
to shareholders in the period:
Property Income Distribution (PID) 7,345 3,078
Non-PID 1,850 5,474
9,195 8,552
On 1 December 2021, the Company declared its fourth interim
dividend of 1.29p per share for the period 1 July 2021 to 30
September 2021.
On 27 January 2022, the Company declared its first interim
dividend of 1.29p per share for the period 1 October 2021 to 31
December 2021.
On 24 May 2022, the Company declared its second interim dividend
of 1.29p per share for the period 1 January 2022 to 31 March
2022.
On 27 July 2022, the Company declared its third interim dividend
of 1.29p per share for the period 1 April 2022 to 30 June 2022.
On 1 December 2022, the Company announced the declaration of a
fourth interim dividend of 1.29 pence per share for the period 1
July 2022 to 30 September 2022 which will be payable on 18 January
2023 to Shareholders on the register at the close of business on 8
December 2022.
The Company intends to continue to pay dividends to shareholders
on a quarterly basis in accordance with the REIT regime.
Dividends are not payable in respect of its Treasury shares
held.
31. Lease arrangements
The Group as lessee
The interest expense in respect of lease liabilities for the
period was GBP996,000 (2021: GBP989,000).
There was no expense relating to variable lease payments in the
period (2021: Nil).
The Group did not have any short-term leases or leases for low
value assets accounted for under IFRS 16 paragraph 6, nor any sale
and leaseback transactions.
The total cash outflow in respect of leases was GBP994,000
(2021: GBP989,000).
At 30 September 2022, the Group had outstanding commitments for
future minimum lease payments under non-cancellable leases, which
fall due as follows:
As at 30 September Less 10-20 More
2022 than Two years than
one to five 20 years
year years 6-10 years Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Minimum lease
payments 994 3,976 4,970 9.920 113,062 132,922
Interest - (291) (432) (1,485) (99,372) (101,580)
Present value
at 30 September
2022 994 3,685 26,663 8,435 13,690 31,342
As at 30 September Less Two 10-20 More
2021 than to years than
one five 6-10 20
year years years years Total
GBP'000 GBP'000 GBP'000 GBP'000
Minimum lease payments 989 3,955 4,944 9,888 113,600 133,377
Interest - (288) (429) (1,496) (99,957) (102,170)
Present value at
30 September 2021 989 3,667 26,551 8,392 13,643 31,207
The above commitment is in respect of ground rents payable for
properties held by the Group under leasehold. There are 2,182
properties (2021: 2,281) held under leasehold with an average
unexpired lease term of 155 years (2021: 157 years).
The majority of restrictions imposed are the covenants in place
limiting tenancies to people of retirement age.
The Group as lessor
The Group leases some of its investment properties under
operating leases. At the balance sheet date, the Group had
contracted with tenants for the following future aggregate minimum
rentals receivable under non-cancellable operating leases:
2022 2021
GBP'000 GBP'000
Receivable within 1 year 7,987 6,616
Receivable between 1-2 years 5,817 4,544
Receivable between 2-3 years 5,723 4,544
Receivable between 3-4 years 4,728 4,544
Receivable between 4-5 years 4,530 4,544
Receivable between 5-10 years 19,039 13,665
Receivable between 10-20 years 37,987 25,635
Receivable after 20 years 373,736 250,571
459,537 314,663
--------- ---------
The maturity analysis has been expanded in the current year to
provide more information. The comparatives have been amended for
consistency.
The total of contingent rents recognised as income during the
period was GBPnil (2021: GBPnil).
The majority of leases are assured tenancy or assured shorthold
tenancy agreements. The table above shows the minimum lease
payments receivable under the assumption that all tenants terminate
their leases at the earliest opportunity. However, assured
tenancies are long-term agreements providing lifetime security of
tenure to residents.
The leases in the licensed retirement homes portfolio are
indefinite and would only be terminated in the event that the
leaseholders of the relevant retirement development vote to no
longer have a resident house manager living at their
development.
The Group's shared ownership properties are let to Shared Owners
on leases with initial lease terms of between 130 to 999 years.
Two of the Group's properties are let out on more traditional
leases which account for approximately 8% of total rental
income.
The table below shows our expected lease receivables, excluding
future rent reviews, from existing leases based on historical
turnover rates consistent with our assumptions for valuing the
properties:
2022 2021
GBP'000 GBP'000
Receivable within 1 year 25,099 22,971
Receivable between 1-2 years 21,547 19,576
Receivable between 2-3 years 18,590 16,839
Receivable between 3-4 years 15,286 14,631
Receivable between 4-5 years 13,221 12,847
Receivable between 5-10 years 44,784 38,255
Receivable between 10-20 years 54,455 41,539
Receivable after 20 years 382,089 258,530
575,071 425,008
--------- ---------
The maturity analysis has been expanded in the current year to
provide more information. The comparatives have been amended for
consistency.
32. Net asset value per share
2022 2021
GBP'000 GBP'000
Net assets 201,388 182,392
201,388 182,392
Ordinary shares in issue at period end (excluding
shares held in treasury) 185,163,281 171,126,244
Basic NAV per share (pence) 108.8 106.6
The net asset value ('NAV') is calculated as the net assets of
the Group attributable to shareholders divided by the number of
Ordinary Shares in issue at the period end.
EPRA Net Tangible Assets (NTA) per share
2022 2021
GBP'000 GBP'000
Restated
IFRS NAV per the financial statements 201,388 182,392
Revaluation of trading properties 93 278
Fair value of financial instruments (4,997) 2,012
Real estate transfer tax - -
EPRA NTA 196,484 184,682
Fully diluted number of shares 185,163,281 171,126,244
EPRA NTA per share (pence) 106.1 107.9
EPRA NTA is equivalent to EPRA Net Reinstatement
Value
The EPRA Net Tangible Assets ('EPRA NTA') per share calculated
as the EPRA NTA of the Group attributable to shareholders divided
by the number of Ordinary Shares in issue at the period end.
The Group has debt which it elected to carry at fair value
through profit and loss. In accordance with the EPRA Best Practice
Recommendations, EPRA NTA should reflect the amortised cost of the
debt rather than its fair value. In the current period, an
adjustment has been made for GBP5.0mn which represents the
difference between fair value and what amortised cost would have
had the Group carried the debt at amortised cost. No adjustment was
made in the prior year as it was immaterial. The adjustment would
have been GBP1.5mn for the year ended 30 September 2021.
33. Contingent liabilities and commitments
ReSI's shared ownership portfolio has been supported by GBP15mn
of grant funding. In some circumstances, typically when a Shared
Owner staircases, ReSI will be required to recycle the grant into
the purchase of new properties within three years or to repay it to
the grant providing body (see note 23).
ReSI is committed to the acquisition of 41 shared ownership
units in South London which are expected to complete within the
next financial year, at a total acquisition cost of GBP8.9mn.
There are no provisions for fines and settlements specified for
ESG (Environmental, Social or Governance) or any other issues.
34. Related party disclosure
As defined by IAS 24 Related Party Disclosures, parties are
considered to be related if one party has the ability to control
the other party or exercise significant influence over the other
party in making financial or operational decisions.
For the year ended 30 September 2022, the Directors of the Group
are considered to be the key management personnel. Details of
amounts paid to Directors for their services can be found within
note 10, Directors' fees and expenses.
ReSI Capital Management Limited acts as alternative investment
fund manager (the "Fund Manager") pursuant to the Fund Management
Agreement. The Fund Manager has responsibility for the day-to-day
management of the Company's assets in accordance with the
Investment policy subject to the control and directions of the
Board.
The Fund Management agreement is terminable on not less than 12
months' notice, such notice not to expire earlier than 12 July 2022
(the fifth anniversary of admission to the Official List of the
UKLA and traded on the London Stock Exchange main market).
Details regarding the Fund Manger's entitlement to a management
fee are shown in note 7.
For the year ended 30 September 2022, the Company incurred
GBP1,867,000 (2021: GBP1,802,000) in respect of fund management
fees of which GBPnil was outstanding as at 30 September 2022 (2021:
GBPnil). The above fee was split between cash and equity as per the
Fund Management Agreement with the cash equating to GBP1,401,000
(2021: GBP1,351,000) and the equity fee of GBP467,000 (2021:
GBP449,000) being paid as 444,717 Ordinary Shares (2021: 506,000)
at an average price of GBP1.05 per share (2021: GBP0.91 per
share).
In addition, the Fund Manager was paid a fee, pursuant to the
Fund Management Agreement, of GBP143,000 (2021: GBP186,000) in
respect of its arrangement of borrowings for the Group and GBPnil
was outstanding at 30 September 2022 (September 2021: GBPnil).
During the period the Directors and the Fund Manager received
dividends from the Company of GBP15,000 (2021: GBP10,000) and
GBP149,000 (2021: GBP53,000) respectively.
ReSI Property Management Limited ('RPML') is a wholly owned
subsidiary of ReSI Capital Management Limited and provides property
management services to the Group on a cost pass through basis with
no profit margin. During the year, RPML charged fees of
GBP1,738,000 (2021: GBP408,000) in respect of costs incurred in
providing property management services and GBP166,000 (2021:
GBP317,000) in respect of non-recurring costs.
.
35. Post balance sheet events
There have been no significant events that require disclosure
to, or adjustment in the financial statements as at 30 September
2022.
36. Financial instruments
The table below sets out the categorisation of the financial
instruments held by the Group as at 30 September 2022. Borrowings
held at amortised cost have a fair value of GBP83.3mn. The carrying
amount of other financial instruments approximates to their fair
value.
2022 2021
GBP'000 GBP'000
Financial assets
At amortised cost
Trade and other receivables 767 1,563
Cash and cash deposits 15,984 8,370
16,751 9,933
-------------- ---------
Financial liabilities
At amortised cost
Obligations under leases 31,342 31,207
Borrowings 112,002 108,826
Trade and other payables 4,090 7,074
147,434 147,107
-------------- ---------
At fair value through profit or
loss
Borrowings 77,703 59,513
77,703 59,513
-------------- ---------
225,137 206,620
The Group's activities expose it to a variety of financial
risks: market risk, interest rate and inflation risk, credit risk,
liquidity risk and capital risk management.
The Group's risk management policies are established to identify
and analyse the risks faced by the Group, to set appropriate limits
and controls, and to monitor risks and adherence to limits. When
considered appropriate the Group uses derivative financial
instruments to hedge certain risk exposures.
Risk management policies and systems are reviewed regularly by
the Board and Fund Manager to reflect changes in the market
conditions and the Group's activities.
The exposure to each financial risk considered potentially
material to the Group, how it arises and the policy for managing
the risk is summarised below:
a) Market risk
Market risk is the risk that changes in market prices will
affect the Group's income or the value of its holding of financial
instruments.
The Company's activities will expose it to the market risks
associated with changes in property and rental 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;
changes in the general social environment;
competition from 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 Company and the rental values it can achieve,
and as a result can influence the financial performance of the
Company.
The Group mitigates these risks by entering into long-term
management and rental/letting agreements to ensure any fall in the
property market should not result in significant impairment to
rental cash flows. The average unexpired length of lease in the
portfolio is 155 years. In addition, the Group focuses on areas of
the market with limited and ideally countercyclical exposure to the
wider property market.
As the Group operates only in the United Kingdom residential
property market for Retirement Homes, Shared Ownership and Local
Authority housing it is not exposed to currency risk.
b) Interest rate and inflation risks
Interest rate risk is the risk that the fair value or future
cash flows of a financial instrument will fluctuate because of
changes in market interest rates.
The interest rate exposure profile of the Group's financial
assets and liabilities as at 30 September 2022 and 30 September
2021 were:
Nil
rate Floating
assets rate Fixed rate Floating
and liabilities assets liability rate liability Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
2022
Trade and other
receivables 767 - - - 767
Cash and cash
equivalents - 15,984 - - 15,984
Trade and other
payables (4,090) - - - (4,090)
Bank borrowings - - (170,210) (19,495) (189,705)
Obligations under
finance leases - - (31,342) - (31,342)
(3,323) 15,984 (201,552) (19,495) (208,386)
2021
Trade and other
receivables 1,563 - - - 1,563
Cash and cash
equivalents - 8,370 - - 8,370
Trade and other
payables (7,074) - - - (7,074)
Bank borrowings - - (152,538) (15,801) (168,339)
Obligations under
finance leases - - (31,207) - (31,207)
(5,511) 8,370 (183,745) (15,801) (196,687)
The Group has primarily financed its activities with fixed rate
debt, which reduces the Group's exposure to changes in market
interest rates. If market interest rates increased by 1% the
Group's finance costs for existing debt facilities would increase
by GBP198,040. Conversely, if market interest rates decreased by 1%
the Group's finance costs for existing debt facilities would
decrease by GBP198,040.
The Group intends to finance its activities with fixed, floating
rate or inflation-linked debt. Changes in the general level of
interest rates and inflation can affect the Group's profitability
by affecting the spread between, amongst other things, the income
on its assets and the expense of its interest-bearing liabilities,
the value of its interest-earning assets and its ability to realise
gains from the sale of assets should this be desirable.
The Fund Manager intends to match debt cash flows to those of
the underlying assets and therefore does not expect to utilise
derivatives. However, to the extent this is not possible, the Group
may utilise derivatives for full or partial inflation or interest
rate hedging or otherwise seek to mitigate the risk of inflation or
interest rate movements. The Group will closely manage any
derivatives, in particular with regard to liquidity and
counterparty risks. The Group will only use derivatives for risk
management and not for speculative purposes.
c) Credit risk
Credit risk is the risk of financial loss to the Group if a
counterparty fails to meet its contractual obligations and arises
principally from the Group's tenants (in respect of trade
receivables arising under operating leases), banks and money market
funds (as holders of the Group's cash deposits).
Exposure to credit risk
2022 2021
GBP'000 GBP'000
Trade and other receivables 767 1,563
Cash and cash equivalents 15,984 8,370
16,751 9,933
--------- ---------
The Group engages third parties to provide day-to-day management
of its properties including letting and collection of underlying
rent from residents or shared owners. The Group mitigates void risk
by acquiring residential asset classes with a demonstrable strong
demand or where the residents are part owners of the properties (as
exhibited by retirement, sub-market rental assets or shared
ownership properties).
The credit risk of cash and cash equivalents is limited due to
cash being held at banks or money market funds considered credit
worthy by the Fund Manager, with high credit ratings assigned by
international credit rating agencies.
Note 31 details the Group's exposure as a lessor in respect of
future minimum rentals receivable.
d) Liquidity risk
Liquidity risk is the risk that the Group will encounter
difficulty in meeting the obligations associated with its financial
liabilities that are settled by delivering cash or another
financial asset.
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 Company ensures,
through forecasting of capital requirements, that adequate cash is
available.
The Company's near-term debt maturities include c.GBP12.7mn of
debt repayable in full to NatWest in April 2023. The Company
currently has c.GBP31mn of liquidity on hand to address this
upcoming maturity, including GBP18mn of available capacity on the
Santander revolving credit facility.
The Group has been in compliance with all financial covenants on
its external borrowings throughout the year.
The following table details the Group's remaining contractual
maturing for its financial liabilities. The tables have been drawn
up based on the undiscounted cash flows of financial liabilities,
including future interest payments, based on the earliest date on
which the Group can be required to pay.
Less Two
than one to five More than
year years five years Total
GBP'000 GBP'000 GBP'000 GBP'000
2022
Borrowings 14,285 18,456 156,964 189,705
Interest on borrowings 3,824 14,611 53,435 71,870
Obligations under leases 994 3,975 127,953 132,922
Payables and accruals 4,090 - - 4,090
23,193 37,042 338,352 398,587
-------------
2021
Borrowings 2,984 21,703 143,652 168,339
Interest on borrowings 3,805 14,108 54,009 71,922
Obligations under leases 989 3,955 128,433 133,377
Payables and accruals 7,074 - - 7,074
14,852 39,766 326,094 380,712
-------------
e) Capital risk management
The Group manages its capital to ensure the entities in the
Group will be able to continue as a going concern whilst maximising
the return to shareholders through the optimisation of the debt and
equity balance.
The capital structure of the Group consists of debt (note 22),
cash and cash equivalents (note 20) and equity attributable to the
shareholders of the Company (comprising share capital, retained
earnings and the other reserves as referred in notes 24 to 27).
The Group is not subject to externally imposed capital
requirements under the UK AIFM regime.
The Group's management reviews the capital structure on a
regular basis in conjunction with the Board. As part of this review
management considers the cost of capital, risks associated with
each class of capital and debt and the amount of any dividends to
shareholders.
2022 2021
GBP'000 GBP'000
Obligations under leases 31,342 31,207
Borrowings (book value) 189,705 168,339
Cash and cash equivalents (15,984) (8,370)
---------- ---------
Net debt 205,063 191,176
Equity attributable to equity holders 201,388 182,392
---------- ---------
Net debt to equity ratio 1.02 1.05
---------- ---------
Borrowings excluding lease liability 189,705 168,339
Available cash* (12,675) (6,825)
Net debt excluding lease liability
and cash 177,030 161,514
Total assets less finance lease gross
up and cash 380,206 350,137
Loan to Value ("LTV") leverage ratio 0.47 0.46
* Available cash includes amounts held by US Bank in respect of
funds required as a debt service reserve for the shared ownership
debt but excludes other restricted cash balances.
The LTV leverage ratio has been presented to enable a comparison
of the group's borrowings as a proportion of Gross Assets as at 30
September 2022 to its medium term target LTV leverage ratio of
0.50.
37. Supplemental financial information
Note 2022 2021
GBP'000 GBP'000
Non-current assets
Investment in subsidiary undertakings 8 189,018 174,390
Total non-current assets 189,018 174,390
Current assets
Trade and other receivables 9 715 1,859
Cash and cash equivalents 10 42 1,039
Total current assets 757 2,898
Total assets 189,775 177,288
Current liabilities
Trade and other payables 11 367 370
Total current liabilities 367 370
Net assets 189,408 176,918
Equity
Share capital 12 1,941 1,803
Share premium 13 14,605 108
Treasury shares reserve 14 (8,293) (8,515)
Retained earnings 181,155 183,522
Total interests 189,408 176,918
Total equity 189,408 176,918
The notes on pages 134 to 162 form part of these financial
statements.
The Company has taken advantage of the exemption allowed under
section 408 of the Companies Act 2006 and has not presented its own
profit and loss account in these financial statements. The profit
attributable to the Parent Company for the year ended 30 September
2022 amounted to GBP6.8mn (2021: GBP8.5mn).
These financial statements were approved and authorised for
issue by the Board of Directors on 1 December 2022 and signed on
its behalf by:
Robert Whiteman
Chairman
1 December 2022
Treasury
Share Share shares Retained
Total
capital premium reserve earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 30 September
2020 1,803 108 (8,626) 183,567 176,852
---------
Profit for the period - - - 8,507 8,507
Total comprehensive
income - - - 8,507 8,507
Contributions by and
distributions to shareholders
Issue of management
shares - - 449 (449) -
Share based payment
charge - - - 449 449
Purchase of own shares - - (338) - (338)
Dividend paid - - - (8,552) (8,552)
Balance at 30 September
2021 1,803 108 (8,515) 183,522 176,918
---------
Profit for the period - - - 6,828 6,828
Total comprehensive
income - - - 6,828 6,828
Contributions by and
distributions to shareholders
Issue of shares 138 14,862 - - 15,000
Share issue costs - (365) - - (365)
Issue of management
shares - - 467 (467) -
Share based payment
charge - - - 467 467
Purchase of own shares - - (245) - (245)
Dividends paid - - - (9,195) (9,195)
Balance at 30 September
2022 1,941 14,605 (8,293) 181,155 189,408
The notes on pages 134 to 162 form part of these financial
statements.
1. Basis of preparation
The financial statements have been prepared in accordance with
Financial Reporting Standard 100 Application of Financial Reporting
Requirements ("FRS 100") and Financial Reporting Standard 101
Reduced Disclosure Framework ("FRS 101").
2. Disclosure exemptions adopted
In preparing these financial statements the Company has taken
advantage of all disclosure exemptions conferred by FRS 101.
Therefore these financial statements do not include:
Certain comparative information as otherwise required by adopted
IFRS;;
Certain disclosures regarding the Company's capital;
A statement of cash flows;
The effect of future accounting standards not yet adopted;
The disclosure of the remuneration of key management personnel;
and
Disclosure of related party transactions with other wholly owned
members of Residential Secure Income plc.
In addition, and in accordance with FRS 101, further disclosure
exemptions have been adopted because equivalent disclosures are
included in the Company's consolidated financial statements. These
financial statements do not include certain disclosures in respect
of:
Financial instruments;
Fair value measurement other than certain disclosures required
as a result of recording financial instruments at fair value
3. Changes to accounting standards and interpretations
Revised standards adopted during the year
The IASB and IFRIC have revised a number of standards. None of
these amendments have led to any material changes in the Company's
accounting policies or disclosures during the year.
Standards in issue but not yet effective
Certain new standards, amendments and interpretations to
existing standards have been published that are mandatory for the
Company's accounting periods beginning on or after 1 October 2022
and whilst the Directors are considering these, initial indications
are that these changes, will have no material impact on the
Company's financial statements.
4. Significant accounting policies
The significant accounting policies applied in the preparation
of the financial statements are set out below. The policies have
been consistently applied throughout the period.
a) Basis of accounting
These financial statements have been presented as required by
the Companies Act 2006 and have been prepared under the historical
cost convention and in accordance with applicable Accounting
Standards and policies in the United Kingdom ("UK GAAP")
b) Currency
The Company financial information is presented in Sterling which
is also the Company's functional currency and all values are
rounded to the nearest million (GBPmn), except where otherwise
indicated.
c) Investments in subsidiary undertakings in the Company Financial Statements
Investments in subsidiary undertakings are stated at cost less
any provision for impairment in value.
d) Share issue costs
The costs of issuing or reacquiring equity instruments (other
than in a business combination) are accounted for as a reduction to
share premium to the extent that share premium has arisen on the
related share issue.
e) Finance income
Finance income comprises interest receivable on funds invested
and is recognised in profit and loss as it accrues, using the
effective interest method.
f) Taxation
Taxation on the profit or loss for the period not exempt under
UK REIT regulations would comprise of current and deferred tax. Tax
would be 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 would be recognised as a
direct movement in equity. Current tax is expected tax payable on
any non-REIT taxable income for the period, using tax rates enacted
or substantively enacted at the balance sheet date. Deferred tax is
provided in full using the balance sheet liability method on timing
differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for taxation
purposes. Deferred tax is determined using tax rates that have been
enacted or substantively enacted by the reporting date and are
expected to apply when the asset is realised or the liability is
settled.
No provision is made for timing differences (i) arising on the
initial recognition of assets or liabilities, other than on a
business combination, that affect neither accounting nor taxable
profit and (ii) relating to investments in subsidiaries to the
extent that they will not reverse in the foreseeable future.
g) Dividend payable to shareholders
Equity dividends are recognised when they become legally payable
which for the final dividends is the date of approval by the
members. Interim dividends are recognised when paid.
h) Financial instruments
Financial assets
Recognition of financial assets
All fi nancial assets are recognised on a trade date which is
the date when the Company becomes a party to the contractual
provisions of the instrument.
Initial measurement and classification of financial assets
Financial assets are classified into the following categories:
'financial assets at fair value through profit or loss' and
'financial assets at amortised cost'. The classification depends on
the business model in which the asset is managed and on the cash
flows associated with that asset.
Financial assets are initially measured at fair value, plus
transaction costs, except for those fi nancial assets classified as
at fair value through pro fi t or loss, which are initially
measured at fair value.
At 30 September 2022, the Company had the following
non-derivative financial assets which are classified as financial
assets at amortised cost:
Cash and cash equivalents
Cash and short-term deposits in the balance sheet comprise cash
at bank (including investments in money-market funds) and
short-term deposits with an original maturity of three months or
less.
Trade and other receivables
Trade and other receivables are recognised at their original
invoiced value. Where the time value of money is material,
receivables are discounted and then held at amortised cost, less
provision for expected credit loss.
Impairment of financial assets
The Company applies the IFRS 9 simplified approach to measuring
the expected credit losses for trade and other receivables whereby
the allowance or provision for all trade receivables are based on
the lifetime expected credit losses ("ECLs").
The Company applies the general approach for initial recognition
and subsequent measurement of expected credit loss provisions for
the loan receivable and other receivables which have maturities of
12 months or more and have a significant finance component.
This approach comprises of a three-stage approach to evaluation
expected credit losses. These stages are classified as follows:
Stage 1
Twelve-month expected credit losses are recognised in profit or
loss at initial recognition and a loss allowance is established.
For financial instruments that have not deteriorated significantly
in credit quality since initial recognition or that have low credit
risk at the reporting date, the loss allowance for 12-month
expected credit losses is maintained and updated for changes in
amount. Interest revenue is calculated on the gross carrying amount
of the asset (i.e. without reduction for expected credit
losses).
Stage 2
If the credit risk increases significantly and the resulting
credit quality is not considered to be low credit risk, full
lifetime expected losses are recognised and includes those
financial instruments that do not have objective evidence of a
credit loss event. Interest revenue is still calculated on the
gross carrying amount of the asset.
Stage 3
If the credit risk of a financial asset increases to the point
that it is considered credit impaired (there is objective evidence
of impairment at the reporting date), lifetime expected credit
losses continue to be recognised. For financial assets in this
stage, lifetime expected credit losses will generally be
individually assessed. Interest revenue is calculated on the
amortised cost net carrying amount (amortised cost less
impairment).
De-recognition of financial assets
The Company derecognises a financial asset when the contractual
rights to the cash flows from the asset expire, or it transfers the
financial asset and substantially all the risks and rewards of
ownership to another entity. If any interest in a transferred asset
is retained, then the Company recognises its retained interest in
the asset and associated liabilities.
Financial liabilities
Recognition of financial liabilities
All fi nancial liabilities are recognised on the date when the
Company becomes a party to the contractual provisions of the
instrument.
Initial measurement and classification of financial
liabilities
Financial liabilities are classified into the following
categories: 'financial liabilities at fair value through pro fi t
or loss' and 'other financial liabilities'. The classification
depends on the nature and purpose of the fi nancial liabilities and
is determined at the time of initial recognition.
Financial liabilities are initially measured at fair value, net
of transaction costs, except for those fi nancial liabilities
classified as at fair value through pro fi t or loss, which are
initially measured at fair value.
At 30 September 2022, the Company had the following
non-derivative financial liabilities which are classified as other
financial liabilities:
Trade and other payables
Trade and other payables are initially recognised at fair value
and subsequently held at amortised cost.
De-recognition of financial liabilities
The Group derecognises a financial liability when its
contractual obligations are discharged, cancelled or expire.
5. Significant accounting judgements and estimates
The preparation of financial statements requires the Directors
of the Company to make judgements, estimates and assumptions that
affect the reported amounts recognised in the financial statements.
However, uncertainty about these assumptions and estimates could
result in outcomes that require a material adjustment to the
carrying amount of the asset or liability in the future. Estimates
and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in
which the estimates are revised and in any future periods
affected.
Impairment of fixed asset investments
The Directors are required to review the carrying amounts of its
investments to determine whether there are any indicators for
impairment. After assessing the carrying amounts of the Company's
investments, it was determined that impairment indicators no longer
existed for some of the investments and a reversal of impairment
loss should be recognised.
6. Fees paid to the Company's Auditor
2022 2021
GBP'000 GBP'000
Audit fees 78 60
Audit related services 15 14
Non-audit fees
Corporate Finance Fees 44 -
Total fees 137 74
Fees paid to the Company's Auditors are inclusive of
irrecoverable VAT.
7. Dividends paid
2022 2021
GBP'000 GBP'000
Amounts recognised as distributions to shareholders
in the period:
4th interim dividend for the year ended
30 September 2020 of 1.25p per share - 2,138
1st interim dividend for the year ended
30 September 2021 of 1.25p per share - 2,138
2nd interim dividend for the year ended
30 September 2021 of 1.25p per share - 2,138
3rd interim dividend for the year ended
30 September 2021 of 1.25p per share - 2,138
4th interim dividend for the year ended 2,208 -
30 September 2021 of 1.29p per share
1st interim dividend for the year ended 2,209 -
30 September 2022 of 1.29p per share
2nd interim dividend for the year ended 2,389 -
30 September 2022 of 1.29p per share
3rd interim dividend for the year ended 2,389 -
30 September 2022 of 1.29p per share
9,195 8,552
Amounts not recognised as distributions to shareholders
in the period:
4th interim dividend for the year ended
30 September 2021 of 1.25p per share - 2,138
4th interim dividend for the year ended 2,138
30 September 2022 of 1.29p per share -
Categorisation of dividends for UK
tax purposes:
Amounts recognised as distributions
to shareholders in the period:
Property Income Distribution (PID) 7,345 3,078
Non-PID 1,850 5,474
9,195 8,552
On 1 December 2021, the Company declared its fourth interim
dividend of 1.29p per share for the period 1 July 2021 to 30
September 2021.
On 27 January 2022, the Company declared its first interim
dividend of 1.29p per share for the period 1 October 2021 to 31
December 2021.
On 24 May 2022, the Company declared its second interim dividend
of 1.29p per share for the period 1 January 2022 to 31 March
2022.
On 27 July 2022, the Company declared its third interim dividend
of 1.29p per share for the period 1 April 2022 to 30 June 2022.
On 1 December 2022, the Company announced the declaration of a
fourth interim dividend of 1.29p per share for the period 1 July
2022 to 30 September 2022 which will be payable on 18 January 2023
to Shareholders on the register at the close of business on 8
December 2022.
The Company intends to continue to pay dividends to shareholders
on a quarterly basis in accordance with the REIT regime.
Dividends are not payable in respect of its Treasury shares
held
8. Investments
2022 2021
GBP'000 GBP'000
At beginning of year 174,390 171,865
Additions 14,628 174,390
Disposals - (172,728)
Impairment reversal - 863
At end of year 189,018 174,390
---------
Investments represent investment in subsidiary undertakings are
subject to review for impairment indicators.
The impairment reversal is included in administrative expenses
in the Company's statement of comprehensive income.
The impairment of the Company's investments in subsidiary
undertakings has been determined by the comparing the Company's
cost of investment in each subsidiary with the fair value of each
subsidiaries' assets and liabilities. The investments are
categorised as Level 3 in the fair value hierarchy.
The Company had the following subsidiary undertakings at 30
September 2022:
Principal
Percentage Country place
Name of entity of ownership of incorporation of business Principal activity
ReSI Portfolio
Holdings
Limited 100% UK UK Holding company
RHP Holdings Limited 100% UK UK Holding company
The Retirement Housing
Limited Partnership 100% UK UK Property investment
Registered Provider
ReSI Housing Limited 100% UK UK of Social Housing
Wesley House
(Freehold)
Limited 100% UK UK Property investment
Eaton Green (Freehold)
Limited 100% UK UK Property investment
Name of entity Registered address
ReSI Portfolio Holdings
Limited 5 New Street Square, London, EC4A 3TW
RHP Holdings Limited 5 New Street Square, London, EC4A 3TW
The Retirement Housing Glanville House, Frobisher Way, Taunton ,
Limited Partnership Somerset, TA2 6BB
5 New Street Square, London,
ReSI Housing Limited EC4A 3TW
Wesley House (Freehold) 5 New Street Square, London,
Limited EC4A 3TW
Eaton Green (Freehold) 5 New Street Square, London,
Limited EC4A 3TW
All group entities are UK tax resident.
9. Trade and other receivables
2022 2021
GBP'000 GBP'000
Amounts due from group
undertakings 697 1,806
Prepayments 18 53
715 1,859
Amounts due from group undertakings are unsecured, interest free
and repayable on demand.
All amounts fall due for repayment within one year.
10. Cash and cash equivalents
2022 2021
GBP'000 GBP'000
Cash at bank 40 1,037
Cash held as investment
deposit 2 2
42 1,039
Cash held as investment deposit relates to cash invested in a
money market fund, which is invested in short-term AAA rated
Sterling Investments. As the fund has a short maturity period, the
investment has a high liquidity. The fund has GBP13.8bn AUM, hence
the Group's investment deposit represents an immaterial proportion
of the fund.
11. Trade and other payables
2022 2021
GBP'000 GBP'000
Trade payables 37 82
Accruals 330 288
367 370
Amounts due to group undertakings are unsecured, interest free
and repayable on demand.
12. Share capital
Number
of Ordinary
1 p GBP'000
shares
At 30 September 2021 180,324,377 1,803
Issue of shares 13,824,884 138
At 30 September 2022 194,149,261 1,941
The share capital account relates to amounts subscribed for
share capital.
Rights, preferences and restrictions on shares
All Ordinary Shares carry equal rights, and no privileges are
attached to any shares in the Company. All the shares are freely
transferable, except as otherwise provided by law. The holders of
Ordinary Shares are entitled to receive dividends as declared from
time to time and are entitled to one vote per share at meetings of
the Company. All shares rank equally with regard to the Company's
residual assets.
Treasury shares do not hold any voting rights.
13. Share premium
GBP'000
At 30 September 2021 108
Issue of shares 14,862
Share issue costs (365)
At 30 September 2022 14,605
The share premium account relates to amounts subscribed for
share capital in excess of nominal value.
14. Treasury share reserve
GBP'000
At 30 September 2021 (8,515)
Purchase of treasury shares (245)
Transferred as part of
Fund Management fee 467
At 30 September 2022 (8,293)
---------
The treasury shares reserve relates to the value of shares
purchased by the Company in excess of nominal value.
During the year ended 30 September 2022, the Company purchased
232,564 of its own 1p ordinary shares at a total gross cost of
GBP244,165 (GBP240,140 cost of shares and GBP4,025 associated
costs).
During the year 444,717 1p Ordinary Shares were transferred from
its own shares reserve to the Fund Manager, in lieu of the
management fee in accordance with the Fund Management
Agreement.
As at 30 September 2022, 8,985,980 (2021: 9,198,133) 1p Ordinary
Shares are held by the Company.
15. Related party transactions
The Company has taken advantage of the exemption not to disclose
transactions with other members of the Group as the Company's own
financial statements are presented together with its consolidated
financial statements. For all other related party transactions
please make reference to note 34 of the Group accounts
Supplementary information
1) EPRA Earnings Recurring earnings from core operational activities
2022 2021
GBP'000 GBP'000
Earnings per IFRS income statement 13,334 11,221
Changes in value of investment properties (3,200) (7,731)
Profits or losses on disposal of investment properties 24 12
Profits or losses on sales of trading properties
incl. impairment charges in respect of trading properties. (510) (1,008)
Changes in fair value of financial instruments
and associated close-out costs (1,809) 2,627
EPRA Earnings 7,839 5,121
--------- ---------
171,
Basic number of shares 180,159 071
EPRA Earnings per share (EPS) ( pence ) 4.4 3.0
Adjusted EPRA Earnings per share
2022 2021
GBP'000 GBP'000
Company specific adjustments:
Exclude one off costs 603 975
Include shared ownership first tranche sales 510 1,008
Company specific Adjusted Earnings 8,952 7,104
--------- ---------
Company specific Adjusted Earnings EPRA per
share (pence) 5.0 4.2
2) EPRA Net Tangible Assets (NTA) and EPRA Net Reinstatement Value (NRV)
2022 2021
GBP'000 GBP'000
IFRS NAV per the financial statements 201,388 182,392
Revaluation of trading properties 93 278
Fair value of financial instruments (4,997) 2,012
Real estate transfer tax - -
EPRA NTA 196,484 184,682
---------
Fully diluted number of shares 185,163 171,126
EPRA NTA per share (pence) 106.1 107.9
The Group has debt which it elected to carry at fair value
through profit and loss. In accordance with the EPRA Best Practice
Recommendations, EPRA NTA should reflect the amortised cost of the
debt rather than its fair value. In the current period, an
adjustment has been made for GBP5mn which represents the difference
between fair value and what amortised cost would have been had the
Group carried the debt at amortised cost. No adjustment was made in
the prior year as it was immaterial. The adjustment would have been
GBP1.5mn for the year ended 30 September 2021.
The fair value of financial instruments removes the effect of
mark-to-market adjustments, arising from the movement in gilt
yields and credit spreads, to include the value of debt at
amortised cost which will be crystallised through holding debt in
normal circumstances.
3) EPRA Net Reinstatement Value (NRV)
2022 2021
GBP'000 GBP'000
IFRS NAV per the financial statements 201,388 182,392
Revaluation of trading properties 93 278
Fair value of financial instruments (4,997) 2,012
Revaluation of intangibles to fair value - -
Real estate transfer tax - -
EPRA NRV 196,484 184,682
---------
Fully diluted number of shares 185,163 171,126
EPRA NRV per share (pence) 106.1 107.9
The Group has debt which it elected to carry at fair value
through profit and loss. In accordance with the EPRA Best Practice
Recommendations, EPRA NRV should reflect the amortised cost of the
debt rather than its fair value. In the current period, an
adjustment has been made for GBP5mn which represents the difference
between fair value and what amortised cost would have been had the
Group carried the debt at amortised cost. No adjustment was made in
the prior year as it was immaterial. The adjustment would have been
GBP1.5mn for the year ended 30 September 2021.
The fair value of financial instruments removes the effect of
mark-to-market adjustments, arising from the movement in gilt
yields and credit spreads, to include the value of debt at
amortised cost which will be crystallised through holding debt in
normal circumstances.
4) EPRA Net Disposable Value (NDV)
2022 2021
GBP'000 GBP'000
IFRS NAV per the financial statements 201,388 182,392
Revaluation of trading properties 93 278
Fair value of fixed interest rate debt 23,974 (4,511)
EPRA NDV 225,455 178,159
---------
Fully diluted number of shares 185,163 171,126
EPRA NDV per share (pence) 121.8 104.1
5) EPRA Net Initial Yield (NIY) AND EPRA "Topped Up" NIY
2022 2021
GBP'000 GBP'000
Investment property - wholly owned 374,785 341,128
Trading property (including share of JVs) 1,203 3,800
Completed property portfolio 375,988 344,928
Allowance for estimated purchasers' costs
estimated as 6% of property portfolio 22,559 20,696
Gross up completed property portfolio valuation 398,548 365,624
---------
Annualised cash passing rental income 24,809 21,805
Property outgoings (8,653) (8,661)
Annualised net rents 16,156 13,144
---------
Add: notional rent expiration of rent-free
periods or other lease incentives - -
Topped-up net annualised rent 16,156 13,144
---------
EPRA NIY 4.1% 3.6%
EPRA Topped up NIY 4.1% 3.6%
In accordance with the EPRA Best Practice Recommendations, EPRA
NIY should be based on net passing cash rental. The prior period
annualised rental income has been updated to reflect this.
6) EPRA Vacancy Rate
2022 2021
GBP'000 GBP'000
Estimated Rental Value of vacant space 1,368 1,514
Estimated rental value of the whole portfolio 27,292 25,061
EPRA Vacancy Rate 5% 6%
7) EPRA Cost Ratios
2022 2021
GBP'000 GBP'000
Restated
Administrative/operating expense line per
IFRS income statement 3,221 3,217
Net service charge costs/fees 4,927 4,701
Management fees less actual/estimated profit
element 1,739 1,994
Other property operating expenses 1,988 1,966
Service charge costs recovered through rents
but not separately invoiced (4,622) (4,344)
EPRA Costs (including direct vacancy costs) 7,253 7,534
Direct vacancy costs (527) (745)
EPRA Costs (excluding direct vacancy costs) 6,726 6,789
Gross Rental Income less ground rents - per
IFRS 24,673 21,837
Less: service fee and service charge costs
components of Gross Rental Income (4,622) (4,344)
Gross Rental Income 20,051 17,493
EPRA Cost Ratio (including direct vacancy
costs) 36% 43%
EPRA Cost Ratio (excluding direct vacancy
costs) 34% 39%
In accordance with the EPRA Best Practice Recommendations, EPRA
Costs should exclude service charges recovered through rents but
not separately invoiced and include all property operating
expenses. The prior period costs have been updated to reflect
this.
Gross rental income includes service charges collected from
tenants, included in rent collected but not separately invoiced, of
GBP4,621,789 during the period (2021: GBP4,344,089). Service charge
expenses, as reflected in the cost of sales, also includes amounts
paid in respect of properties which were vacant during the period
of GBP304,966 (2021: GBP357,306).
Management fees less actual/estimated profit element is made up
of property management fees paid during the period.
8) EPRA LTV
2022 2021
GBP'000 GBP'000
Restated
Borrowings 189,705 168,339
Net payables - -
Less cash (15,984) (8,370)
Net debt 173,721 159,969
Investment properties at fair value 374,785 341,128
Net receivables 325 1,233
Total property value 375,110 342,361
EPRA LTV 46% 47%
9) AIC Ongoing Ratio
Total expenses ratio
Management fee 1,867 1,802
Fund operating expenses* 742 1,046
2,609 2.848
--------- ---------
Average Net Asset Valuation ** 191,890 181,002
--------- ---------
Annualised total expenses ratio 1.4% 1.6%
--------- ---------
* Fund operating expenses has been revised to only include the
direct costs at the Fund level and not subsidiary level. No
adjustment was made in the prior year.
**The average Net Asset Valuation is calculated as the average
of the opening and closing NAV for the financial year.
10) Net rental yield
The net yield on the Group's historical cost of investment
property represents the unlevered rental income return on the
Group's capital deployed into acquisition of investment
properties.
2022 2021
GBP'm GBP'm
Annualised net rental income at balance
sheet date 16.5 14.3
--------- ----------
Historical cost of investment property 339.0 309.7
Historical cost of investments not
yet income producing (7.5) (14.8)
--------- ----------
Historical cost of income producing
investment properties 331.5 294.9
--------- ----------
Net yield 5.0% 4.9%
11) Total Return on NTA
A performance measure which represents the total return for the
year, excluding movements in valuation of debt and derivatives,
expressed as a percentage of opening NTA.
2022 2021
GBP'mn GBP'mn
Operating profit before property
disposals and change in fair value 14.3 12.0
Valuation movement of investment
properties 3.2 7.7
Finance costs (6.0) (5.8)
Debt Indexation* (5.2) -
Revaluation of trading properties (0.2) (0.4)
Property return 6.1 13.5
IFRS NAV at beginning of the prior
year 182.4 179.6
Revaluation of trading properties 0.3 0.7
Fair value of financial instruments 2.0 (0.6)
Real estate transfer tax - -
Opening EPRA NTA 184.7 179.7
Movement in share capital 14.9 -
Increase/(decrease) in the year (3.1) 5.0
Closing EPRA NTA 196.5 184.7
Total return on opening NTA (%) 3.3% 7.5%
* The Group elected to carry this debt at fair value through
profit and loss. In accordance with the EPRA Best Practice
Recommendations, EPRA NTA should reflect the amortised cost of the
debt rather than its fair value. In the current period, an
adjustment has been made for GBP5.2mn which represents the
difference between fair value and what amortised cost would have
been had the Group carried the debt at amortised cost. No
adjustment was made in the PY as it was immaterial. The charge
would have been GBP1.5mn for the year ended 30 September 2021
12) Total Return on IFRS NAV
A performance measure which represents the total IFRS return for
the year as a percentage of opening IFRS NAV.
2022 2021
GBP'mn GBP'mn
Net income 13.3 11.2
Share issuance costs (0.3) -
Total Return 13.0 11.2
Net Asset Value at the beginning of the year 182.4 179.6
Total IFRS return on opening NAV (%) 7.1% 6.2%
13) Loan to Value Ratio
The LTV leverage ratio has been presented to enable a comparison
of the group's borrowings as a proportion of Gross Assets as at 30
September 2022 to its medium target LTV leverage ratio of 0.50.
2022 2021
GBP'000 GBP'000
Borrowings excluding lease liability 189,705 168,339
Available cash (12,675) (6,825)
Net debt excluding lease liability and cash
increase/(decrease) in year 177,030 161,514
Total assets less finance lease gross up and
cash 380,206 350,137
Loan to Value ("LTV") leverage ratio 0.47 0.46
Glossary
Administrator The Company's administrator from time to time, the
current such administrator being MGR Weston Kay LLP.
AIC Association of Investment Companies.
Alternative Investment An investment vehicle under the UK AIFM Regime. the
Fund or "AIF" Company is classified as an AIF.
Annual General A meeting held once a year which shareholders can
Meeting or "AGM" attend and where they can vote on resolutions to
be put forward at the meeting and ask directors questions
about the company in which they are invested.
Articles or Articles The articles of association of the Company.
of Association
Company Secretary The Company's company secretary from time to time,
the current such company secretary being Computershare
Company Secretarial Services Limited .
Discount The amount, expressed as a percentage, by which the
share price is less than the net asset value per
share.
Depositary Certain AIFs must appoint depositaries under the
requirements of the AIFM Regime. A depositary's duties
include, inter alia, safekeeping of assets, oversight
and cash monitoring. The Company's current depositary
is Thompson Taraz Depositary Limited.
Dividend Income receivable from an investment in shares.
Ex-dividend date The date from which you are not entitled to receive
a dividend which has been declared and is due to
be paid to shareholders.
Financial Conduct The independent body that regulates the financial
Authority or "FCA" services industry in the UK.
Functional Home Both a Unit and an aggregation of multiple Units
offering elderly care facilities, assisted living
facilities, sheltered housing or supported housing
that are made available, by a Tenant, Occupant or
Nominator (as the case may be) to a Resident/Residents.
Fund Manager ReSI Capital Management Limited, a company incorporated
in England and Wales with company number 07588964
in its capacity as Fund Manager to the Company.
Gearing A way to magnify income and capital returns, but
which can also magnify losses. A bank loan is a common
method of gearing.
Housing Association A regulated independent society, body of trustees
or company established for the purpose of providing
social housing.
HMRC HM Revenue & Customs
Investment company A company formed to invest in a diversified portfolio
of assets.
Liquidity The extent to which investments can be sold at short
notice.
Loan to Value Ratio of total debt outstanding, excluding the finance
(LTV) Ratio lease liability, against the total assets excluding
the adjustment for finance lease gross up.
Market Rental Home Both a Unit of residential accommodation and an accommodation
block comprising multiple Units facilities that is/are
made available, by a Tenant, Occupant or Nominator,
to a Resident/Residents at a market rent.
Net assets The net asset value of the Company as a whole on
the relevant date calculated in accordance with the
Company's normal accounting policies.
Net asset value The net asset value of the Company on the relevant
(NAV) per Ordinary date calculated in accordance with the Company's
Share normal accounting policies divided by the total number
of Ordinary Shares then in issue.
Non PID dividend A dividend paid by the Company that is not a PID.
Ongoing charges A measure, expressed as a percentage of average net
assets, of the regular, recurring annual costs of
running an investment company.
Ordinary Shares The Company's Ordinary Shares of 1p each.
PID A distribution referred to in section 548(1) or 548(3)
of the CTA 2010, being a dividend or distribution
paid by the Company in respect of profits or gains
of the Property Rental Business of the Group (other
than gains arising to non-UK resident Group companies)
arising at a time when the Group is a REIT insofar
as they derive from the Group's Property Rental Business.
Portfolio A collection of different investments held in order
to deliver returns to shareholders and to spread
risk.
Premium The amount, expressed as a percentage, by which the
share price is more than the net asset value per
share.
Property Rental A Property Rental Business fulfilling the conditions
Business in section 529 of the CTA 2010.
REIT Real estate investment trust.
Rental Agreement Comprise Leases, Occupancy Agreements and Nominations
Agreements.
Rental growth The change in gross rental income in a period as
a result of rent increases, tenant renewals or a
change in tenants. Applies to changes in gross rents
on a comparable basis and excludes the impact of
acquisitions, disposals and changes resulting from
refurbishments.
Reputable Care A Statutory Registered Provider or other private
Provider entity in the business of building, managing and/or
operating Functional Homes in the United Kingdom
that the Fund Manager considers reputable in light
of its investment grade equivalent debt strategy.
Reversionary Surplus The increase in valuation if the portfolio is valued
on a vacant possession basis compared to the IFRS
fair value
RPI The Retail Price Index (RPI) is a measure of inflation,
which in turn is the rate at which prices for goods
and services are rising.
Share buyback A purchase of a company's own shares. Shares can
either be bought back for cancellation or held in
treasury.
Share price The price of a share as determined by a relevant
stock market.
Shared Owner The part owner of a shared ownership home that occupies
such shared ownership home in return for the payment
of rent to the co-owner.
Social impact per The social, economic and environmental impact and
share value of investments calculated using two key analysis
frameworks, Social Return on Investment (SROI) and
Economic Impact, divided by the number of shares
outstanding.
Sub-Market Rental A Unit of residential accommodation that is made
Home available, by a Tenant, Occupant or Nominator, to
a Resident to rent at a level below the local market
rent.
Total return A measure of performance that takes into account
both income and capital returns.
Treasury shares A company's own shares which are available to be
sold by a company to raise funds.
UK AIFM Regime Together, The Alternative Investment Fund Managers
Regulations 2013 (as amended by The Alternative Investment
Fund Managers (Amendment etc.) (EU Exit) Regulations
2019) and the Investment Funds Sourcebook forming
part of the FCA Handbook, in each case as amended
from time to time.
Directors
Robert Whiteman
(Non-executive Chairman)
Robert Gray
(Senior Independent Director)
John Carleton
(Non-executive Director)
Elaine Bailey
(Non-executive Director)
Registered Office
The Pavilions
Bridgwater Road
Bristol
BS13 8FD
Company Information
Company Registration Number: 10683026
Incorporated in the United Kingdom
Fund Manager
ReSI Capital Management Limited
5 New Street Square
London
EC4A 3TW
Corporate Broker
Peel Hunt LLP
7th Floor, 100 Liverpool Street
London
EC2M 2AT
Legal and Tax Adviser
Cadwalader, Wickersham & Taft LLP
Dashwood House
69 Old Broad Street
London EC2M 1QS
Tax Adviser
Evelyn Partners Group Limited
(formerly Smith & Williamson)
45 Gresham Street
London
EC2V 7BG
Depositary
Thompson Taraz LLP
4th Floor, Stanhope House
47 Park Lane
Mayfair
London
W1K 1PR
Administrator
MGR Weston Kay LLP
55 Loudoun Road
St John's Wood
London
NW8 0DL
Company Secretary
Computershare Governance Service, UK
The Pavilions
Bridgwater Road
Bristol
BS13 8FD
Registrar
Computershare Governance Service, UK
The Pavilions
Bridgwater Road
Bristol
BS13 8FD
Auditors
BDO LLP
55 Baker Street
London
W1U 7EU
Public Relations Adviser
KL Communications
40 Queen Street
London
EC4R 1DD
Valuers
Savills (UK) Limited
33 Margaret Street
London
W1G 0JD
Notice of Annual General Meeting
Annual General Meeting 2023
In line with the requirements of the Companies Act 2006, the
Company will hold an Annual General Meeting ("AGM") of shareholders
to consider the resolutions laid out in the Notice of Meeting
below.
Shareholders are permitted to attend the AGM in person and any
shareholders wishing to do so are requested to register their
interest in attending by emailing the Fund Manager at
resiplc@greshamhouse.com by Monday 23 January 2023.
Should a shareholder have a question that they would like to
raise at the AGM, either of the Board or the Fund Manager, the
Board request that they either ask the question in advance of the
AGM via email to resiplc@greshamhouse.com by Monday 23 January
2023. Alternatively, a shareholder may attend the AGM and ask the
question at the meeting at the appropriate time. If appropriate,
the Company will publish the responses on its website
https://greshamhouse.com/real-assets/real-estate-investment/residential-secure-income-plc/
as soon as reasonably practicable after the conclusion of the
AGM.
AGM voting
Each of the resolutions to be considered at the AGM will be
voted on by way of a show of hands unless a poll is validly
demanded. A member present in person or by proxy shall have one
vote on a show of hands.
Details of how to vote, either electronically, by proxy form or
through CREST, can be found in the Administrative Notes to the
Notice of AGM on pages 186 to 194.
The results of the AGM will be announced to the London Stock
Exchange and placed on the Company's website, as soon as
practicable after the conclusion of the AGM.
Resolutions
Resolutions 1 to 11 will be proposed as ordinary resolutions. An
ordinary resolution requires a simple majority of votes cast,
whether in person or by proxy, to be cast in favour of the
resolution for it to be passed. Resolutions 12 to 15 will be
proposed as special resolutions. A special resolution requires a
majority of not less than 75% of the votes cast, whether in person
or by proxy, to be cast in favour of the resolution for it to be
passed.
Voting results
The results of the voting will be announced through a regulatory
information service and will be published on our website
https://greshamhouse.com/real-assets/real-estate-investment/residential-secure-income-plc/
as soon as reasonably practicable after the conclusion of the
AGM.
Notice of Annual General Meeting
Notice is hereby given that the Annual General Meeting of
Residential Secure Income plc (the "Company") will be held at the
offices of Gresham House plc, the parent company of the Fund
Manager Resi Capital Management Ltd, 80 Cheapside, EC2V 6EE on 31
January 2023 at 12.45 p.m. for the following purposes:
To consider and if thought fit pass the following resolutions of
which resolutions 1 to 11 will be proposed as ordinary resolutions
and resolutions 12 to 15 will be proposed as special
resolutions.
Ordinary Resolutions
1. To receive the Company's Annual Report and Accounts for the
year ended 30 September 2022, with the reports of the Directors and
Auditor thereon.
2. To approve the Directors' Remuneration Implementation Report
included in the Annual Report for the year ended 30 September
2022.
3. To re-elect Robert Whiteman as a Director of the Company.
4. To re-elect Robert Gray as a Director of the Company.
5. To re-elect John Carleton as a Director of the Company.
6. To re-elect Elaine Bailey as a Director of the Company.
7. To re-appoint BDO LLP as Auditor to the Company to hold
office until the conclusion of the next general meeting at which
the Company's annual accounts are laid before the meeting.
8. To authorise the Directors to fix the remuneration of the
Auditor until the conclusion of the next Annual General Meeting of
the Company.
9. To authorise the Directors to declare and pay all dividends
of the Company as interim dividends and for the last dividend
referable to a financial year not to be categorised as a final
dividend that would ordinarily be subject to shareholder
approval.
10. That the continuation of the Company as an investment trust
until the AGM of the Company falling five years after the date of
this resolution be approved.
11. That the Directors be and are hereby generally and
unconditionally authorised in accordance with section 551 of the
Companies Act 2006 (in substitution for all subsisting authorities
to the extent unused) to exercise all the powers of the Company to
allot Ordinary Shares of one pence each in the capital of the
Company up to an aggregate nominal amount equal to GBP37,032,656
(equivalent to approximately 20% of the Ordinary Shares in issue
(excluding shares held in Treasury) at the date of the notice of
this meeting) during the period commencing on the date of the
passing of this resolution and expiring (unless previously varied,
revoked or renewed by the Company in general meeting) at the
conclusion of the Annual General Meeting of the Company to be held
in 2024 or, if earlier, on the expiry of 15 months from the passing
of this resolution, save that the Company may, at any time prior to
the expiry of such authority, make an offer or enter into an
agreement which would or might require the allotment of shares in
pursuance of such an offer or agreement as if such authority had
not expired.
Special Resolutions
12. That, subject to the passing of resolution 11, in
substitution for all subsisting authorities to the extent unused
but without prejudice to the exercise of any such power prior to
the date hereof, the Directors be and are generally and
unconditionally authorised for the purposes of sections 570 and 573
of the Companies Act 2006 ("the Act") to allot equity securities
(within the meaning of section 560 of the Act) for cash either
pursuant to the authority conferred by resolution 11 or by way of
sale of treasury shares, as if section 561(1) of the Act did not
apply to any such allotment or sale, provided this authority shall
be limited to (a) the allotment or sale of equity securities up to
an aggregate nominal amount equal to GBP18,516,328 (equivalent to
approximately 10% of the issued Ordinary Shares of the Company
(excluding shares held in Treasury) at the date of this notice);
and (b) the allotment or sale of equity securities at a price not
less than the prevailing Net Asset Value per share, and shall
(unless previously varied, revoked or renewed by the Company in the
general meeting) expire at the conclusion of the Annual General
Meeting of the Company to be held in 2024 or, if earlier, on the
expiry of 15 months from the passing of this resolution, save that
the Company may, at any time prior to the expiry of such power,
make an offer or enter into an agreement which would or might
require equity securities to be allotted or sold from treasury
after the expiry of such power, and the Directors may allot or sell
from treasury equity securities in pursuance of such an offer or an
agreement as if such power had not expired.
13. That, subject to the passing of resolution 11 and in
addition to the authority granted in resolution 12, in substitution
for all subsisting authorities to the extent unused but without
prejudice to the exercise of any such power prior to the date
hereof, the Directors be and are generally and unconditionally
authorised for the purposes of sections 570 and 573 of the
Companies Act 2006 ("the Act") to allot equity securities (within
the meaning of section 560 of the Act) for cash either pursuant to
the authority conferred by resolution 11 or by way of sale of
treasury shares, as if section 561(1) of the Act did not apply to
any such allotment or sale, provided this authority shall be
limited to (a) the allotment or sale of equity securities up to an
aggregate nominal amount equal to GBP18,516,328 (equivalent to
approximately 10% of the issued Ordinary Shares of the Company
(excluding shares held in Treasury) at the date of this notice);
and (b) the allotment or sale of equity securities at a price not
less than the prevailing Net Asset Value per share, and shall
(unless previously varied, revoked or renewed by the Company in
general meeting) expire at the conclusion of the Annual General
Meeting of the Company to be held in 2024 or, if earlier, on the
expiry of 15 months from the passing of this resolution, save that
the Company may, at any time prior to the expiry of such power,
make an offer or enter into an agreement which would or might
require equity securities to be allotted or sold from treasury
after the expiry of such power, and the Directors may allot or sell
from treasury equity securities in pursuance of such an offer or an
agreement as if such power had not expired.
14. That the Company be and is hereby generally and
unconditionally authorised in accordance with section 701 of the
Companies Act 2006 ("the Act") to make market purchases (within the
meaning of section 693(4) of the Act) of its Ordinary Shares of 1p
each, provided that:
a. the maximum number of Ordinary Shares hereby authorised to be
purchased shall be 27,755,975 (representing 14.99% of the Company's
issued Ordinary Share capital (excluding shares held in Treasury)
at the date of the notice of this meeting);
b. the minimum price (exclusive of any expenses) which may be paid for an Ordinary Share is 1p;
c. the maximum price (excluding expenses) which may be paid for
an Ordinary Share is not more than the higher of:
i. 5% above the average of the middle market quotations for the
Ordinary Shares for the five business days immediately before the
day on which it purchases that share; and
ii. the higher of the price of the last independent trade and
the highest current independent bid for the Ordinary Shares.
d. the authority hereby conferred shall expire at the conclusion
of the Annual General Meeting of the Company in 2024 or, if
earlier, on the expiry of 15 months from the passing of this
resolution, unless such authority is renewed prior to such time;
and
e. the Company may make a contract to purchase Ordinary Shares
under the authority hereby conferred prior to the expiry of such
authority, which will or may be executed wholly or partly after the
expiration of such authority and may make a purchase of Ordinary
Shares pursuant to any such contract.
15. That a general meeting of the Company other than an Annual
General Meeting may be called on not less than 14 clear days'
notice, provided that this authority shall expire at the conclusion
of the Company's next Annual General Meeting after the date of the
passing of this resolution.
Registered office
The Pavilions,
Bridgwater Road,
Bristol,
England,
BS13 8FD
By order of the Board
For and on behalf of Computershare Company Secretarial
Services Limited
Company Secretary
1 December 2022
Notes to the Resolutions
Notes to resolution 1
Ordinary resolution: Annual report and accounts for the year
ended September 2022
The Directors are required to present the annual report and
accounts, which incorporate the Strategic report, Directors'
Report, the Auditor's Report and the financial statements for the
year ended 30 September 2022. These are contained in the Company's
Annual Report and Audited Financial Statements for the year ended
30 September 2022 (the "Annual Report").
Notes to resolution 2
Ordinary resolution: Directors' Remuneration Implementation
Report
In accordance with the requirements of the remuneration
reporting regime which came into force on 1 October 2013, the Board
is required to give notice to shareholders of the intention to
propose an ordinary resolution to approve the Directors'
Remuneration Implementation Report for the financial year ended 30
September 2022. The Directors' Remuneration Implementation Report,
which can be found on pages 114 to 115 of the Annual Report, gives
details of the Directors' remuneration and remuneration policy for
the year ended 30 September 2022.
The Company's Auditor, BDO LLP, has audited those parts of the
Directors' Remuneration Implementation Report which are required to
be audited and their report may be found in the Annual Report. The
Directors' Remuneration Implementation Report has been approved by
the Board and signed on its behalf by the Company Secretary. The
vote on the Directors' Remuneration Implementation Report is
advisory in nature and therefore not binding on the Company.
Notes to resolutions 3-6
Ordinary resolution: Re-election of directors
In line with best practice, the Board has resolved that all
Directors will be submitted for re-election on an annual basis.
Therefore, Robert Whiteman, Robert Gray, John Carleton and Elaine
Bailey will retire, and being eligible, offer themselves for
re-election.
The Board has carefully considered whether each of the
Non-Executive Directors is free from any relationship that could
materially interfere with the exercise of his or her independent
judgement. It has concluded that each Non-Executive Director is
independent. The Board has also reviewed and concluded that each
Non-Executive Director possesses the necessary mix of skills and
experience to continue to contribute effectively to the Company's
long-term sustainable success. Further, notwithstanding their other
appointments, the Board is satisfied that each Non-Executive
Director is able to commit sufficient and appropriate time to their
board responsibilities.
Full biographies of all the Directors are set out in the
Company's Annual Report on pages 92 to 94.
Notes to resolution 7
Ordinary resolution: Re-appointment of Auditor
The appointment of BDO LLP as Auditor of the Company ends at the
conclusion of the AGM. BDO LLP have indicated their willingness to
stand for reappointment as Auditor of the Company until the
conclusion of the AGM in 2024. The Audit Committee considers the
reappointment of the external Auditor each year before making a
recommendation to the Board. The Board recommends the reappointment
of the Auditors.
The effectiveness of the external Auditor is evaluated by the
Audit Committee. The Committee assessed BDO LLP's approach to
providing audit services as it undertook this year's audit. On the
basis of such assessment, the Committee concluded that the audit
team was providing the required quality in relation to the
provision of the services. The audit team had shown the necessary
commitment and ability to provide the services, together with a
depth of knowledge, robustness, independence and objectivity as
well as an appreciation of complex issues.
The Audit Committee assesses the independence of the external
Auditor on an ongoing basis and the external Auditor is required to
rotate the lead audit partner every five years and other senior
audit staff every seven years. The current lead partner has been in
place since the 2021 AGM, accordingly, the audit for the financial
year beginning 1 October 2025 will be led by a new audit partner.
No partners or senior staff associated with the audit may transfer
to the Group.
Notes to resolution 8
Ordinary resolution: Remuneration of Auditor
The Audit Committee reviews the fee structure, resourcing and
terms of engagement for the external Auditor annually. The Board is
seeking authority for the Audit Committee to fix the Auditor's
remuneration. Fees paid to the external Auditor for the year were
GBP178,000 (2021: GBP145,000).
The Audit Committee is satisfied that this level of fee is
appropriate in respect of the audit services provided and that an
effective audit can be conducted for this fee. BDO LLP were paid
fees of GBP61,000 in respect of non-audit services in the year to
30 September 2022 (2021: GBP34,000). These services were in respect
of the interim review of the Interim Report for the period ended 31
March 2022 (GBP34,000) and reporting accountant services
(GBP27,000). The consolidated financial statements provides details
of the remuneration of the Company's external Auditor. This can be
found on page 115 of the Annual Report.
Notes to resolution 9
Ordinary resolution: Policy of paying quarterly interim
dividends.
The purpose of the renewal is to provide flexibility to the
Company to continue implementing its quarterly interim dividend
policy.
Notes to resolution 10
Ordinary resolution: Continuation vote
Under the Articles of Association of the Company, the Directors
are required to propose an ordinary resolution at the Annual
General Meeting following the fifth anniversary from its initial
public offering that the Company should continue as presently
constituted and at every fifth AGM thereafter. In accordance with
this, a continuation vote is scheduled to be held at the Company's
AGM in 2023 in order to extend the Company's life for another five
years.
Notes to resolution 11
Ordinary resolution: Authority to allot
The purpose of this resolution is to grant the Board the
authority to allot ordinary shares in accordance with Section 551
of the Act up to up to 37,032,656 Ordinary Shares (excluding shares
held in Treasury) in the capital of the Company (equivalent to
approximately 20% of the Ordinary Shares in issue at the date of
the notice of this meeting). While the Directors have no present
intention of exercising this authority, they consider it important
to have the maximum flexibility commensurate with good corporate
governance guidelines, to raise finance to enable the Company to
respond to investment opportunities, market developments and
conditions. No ordinary shares will be issued for cash at a price
less than the prevailing net asset value per ordinary share at the
time of issue pursuant to this authority. This authority shall
expire at the conclusion of the Company's Annual General Meeting to
be held in 2024, or, if earlier, on the expiry of 15 months from
the passing of this resolution, save that the Company may, at any
time prior to the expiry of such authority, make an offer or enter
into an agreement which would or might require the allotment of
shares in pursuance of such an offer or agreement as if such
authority had not expired.
Notes to resolutions 12 and 13
Special resolution: Disapplication of pre-emption rights
If the Directors wish to exercise the authority under resolution
11 and offer shares (or sell treasury shares which the Company may
purchase and elect to hold as treasury shares) for cash, company
law requires that unless shareholders have given specific authority
for the waiver of their statutory pre-emption rights, the new
shares must be first offered to existing shareholders in proportion
to their existing holdings. There may be occasions, however, when
the Directors will need the flexibility to allot new shares (or to
grant rights over shares) for cash or to sell treasury shares for
cash without first offering them to existing shareholders in
proportion of their holdings in order to make investments in line
with the Company's investment policies. This cannot be done unless
the shareholders have first waived their pre-emption rights.
These Resolutions will, if passed, authorise the Directors to do
this by allowing the Directors to allot shares for cash or sell
treasury shares for cash up to an aggregate nominal value of
GBP37,032,656.20, which is equivalent to approximately 20% of the
Company's issued Ordinary Share capital as the date of this Notice
(being the latest practicable date prior to the publication of this
notice).
In the event that resolution 12 is passed, but resolution 13 is
not passed, the Directors will only be authorised to issue Ordinary
Shares up to an aggregate nominal value of GBP18,516,328, which
represents approximately 10% of the Company's issued Ordinary Share
capital (excluding shares held in Treasury) as the date of this
Notice (being the latest practicable date prior to the publication
of this notice).
Resolutions 12 and 13 will allow the Company to carry out one or
more tap issues, in aggregate, up to 20% of the number of Ordinary
Shares in issue at the AGM and thus to pursue specific investment
opportunities in a timely manner in the future and without the
requirement to publish a prospectus and incur the associated
costs.
The Directors are aware that the combined authority to dis-apply
pre-emption rights in respect of up to 20% of the Company's issued
Ordinary Share capital sought under resolutions 12 and 13 is higher
than the 10% typically sought by investment companies. However, the
Directors believe that a higher authority is justified to enable
the Company to fund future acquisitions in line with the Company's
anticipated acquisition pipeline. In addition, the higher authority
is expected to broaden the Company's asset base which will increase
the diversity of the portfolio. It will also allow the Company to
broaden its investor base and enhance the size and liquidity of the
Company's share capital, and spread the fixed operating costs over
a larger capital base, thereby reducing the Company's ongoing
charges ratio.
In accordance with UK Listing Rules, the Company will only issue
Ordinary Shares pursuant to this authority at a price that is not
less than the prevailing net asset value per share of the Company
calculated in accordance with its IFRS accounting policies at the
time of issue. In addition, the Directors will not sell treasury
shares at less than such net asset value per share.
Resolutions 12 and 13 will be proposed as special resolutions to
provide the Company with the necessary authority. If given, the
authority will expire at the conclusion of the next AGM of the
Company in 2024 or, if earlier on the expiry of 15 months from the
passing of this resolution. The Directors intend to renew such
authority in respect of 10% of the Company's issued Ordinary Share
capital (excluding shares held in Treasury) at successive AGMs in
accordance with current best practice.
Notes to resolution 14
Special resolution: Purchase of own shares
The current authority of the Company to make market purchases of
up to approximately 14.99%of its issued share capital expires
shortly. This resolution seeks renewal of such authority until the
next AGM, or the expiry of 15 months after the passing of the
resolution is earlier. The price paid for shares will not be less
than the nominal value nor more than the maximum amount permitted
to be paid in accordance with the rules of the Financial Conduct
Authority in force as at the date of purchase. This power will be
exercised only if, in the opinion of the Directors, a repurchase
would be in the best interests of shareholders as a whole. Any
shares repurchased under this authority will either be cancelled or
held in Treasury at the discretion of the Board for future re-sale
in appropriate market conditions.
The authority sought would replace the authority previously
given to the Directors. The maximum number of ordinary shares
authorised to be purchased pursuant to the authority represents
approximately 14.99%of the total number of ordinary shares in issue
(excluding shares held in Treasury) as at the date of this
Notice.
This authority shall expire at the conclusion of the Company's
next Annual General Meeting to be held in 2024.
Notes to resolution 15
Special resolution: Notice of General Meetings
Under the provisions in the Act, listed companies must call
general meetings (other than an annual general meeting) on at least
21 clear days' notice unless the company:
a. has obtained shareholder approval for the holding of general
meetings on 14 clear days' notice by passing an appropriate
resolution at its most recent annual general meeting; and
b. offers the facility for shareholders to vote by electronic
means accessible to all shareholders.
To enable the company to utilise the shorter notice period of 14
days for calling such general meetings, shareholders are asked to
approve this resolution. The shorter notice period would not be
used as a matter of routine for such meetings, but only where the
flexibility is merited by the business of the meeting and is
thought to be to the advantage of shareholders as a whole. If
granted, this authority will be effective until the company's next
annual general meeting.
Recommendation
The Directors consider that all the resolutions to be proposed
at the Annual General Meeting are in the best interests of the
Company and its shareholders as a whole. The Directors unanimously
recommend that shareholders vote in favour of all the resolutions,
as they intend to do in respect of their own beneficial holdings of
shares.
Administrative notes to the Notice of Annual General Meeting
Website address
1. Information regarding the meeting, including the information
required by section 311A of the Companies Act 2006, is available
from https://www.resireit.com/
Entitlement to attend and vote
2. Only those holders of Ordinary Shares registered on the
Company's register of members at 6.00 p.m. on Friday 27 January or,
if this meeting is adjourned, at close of business on the day two
days prior to the adjourned meeting, shall be entitled to vote at
the meeting.
Appointment of Proxies
3. Members entitled to vote at the meeting (in accordance with
Note 2 above) are entitled to appoint a proxy to vote in their
place. If you wish to appoint a proxy please use the Form of Proxy
or follow the instructions at note 7 below if you wish to appoint a
proxy through the CREST electronic proxy appointment service. In
the case of joint members, only one need sign the Form of Proxy.
The vote of the senior joint member will be accepted to the
exclusion of the votes of the other joint members. For this
purpose, seniority will be determined by the order in which the
names of the members appear in the register of members in respect
of the joint shareholding. The completion and return of the Form of
Proxy will not stop you attending and voting in person at the
meeting should you wish to do so. A proxy need not be a member of
the Company.
You may appoint more than one proxy provided each proxy is
appointed to exercise the rights attached to a different share or
shares held by you. If you choose to appoint multiple proxies use a
separate copy of this form (which you may photocopy) for each
proxy, and indicate after the proxy's name the number of shares in
relation to which they are authorised to act (which, in aggregate,
should not exceed the number of Ordinary Shares held by you).
Please also indicate if the proxy instruction is one of multiple
instructions being given. All forms must be signed and returned in
the same envelope. Additional forms may be obtained by contacting
the Company's registrars, Computershare Investor Services PLC
helpline on 0370 889 3181. Shareholders can access their
information at www.investorcentre.co.uk.
4. You can appoint the Chairman of the Meeting, or any other
person. If you wish to appoint someone other than the Chairman,
cross out the words "the Chairman of the Meeting" on the Form of
Proxy and insert the full name of your appointee.
5. You can instruct your proxy how to vote on each resolution by
marking the resolutions For and Against using the voting methods
stated in notes 6 and 7 below. If you wish to abstain from voting
on any resolution please mark these resolutions withheld. It should
be noted that a vote withheld is not a vote in law and will not be
counted in the calculation of the proportion of votes "For" and
"Against" a resolution. If you do not indicate how your proxy
should vote, he/she can exercise his/her discretion as to whether,
and if how so how, he/she votes on each resolution, as he/she will
do in respect of any other business (including amendments to
resolutions) which may properly be conducted at the meeting.
A company incorporated in England and Wales or Northern Ireland
should execute the Form of Proxy under its common seal or otherwise
in accordance with Section 44 of the Companies Act 2006 or by
signature on its behalf by a duly authorised officer or attorney
whose power of attorney or other authority should be enclosed with
the Form of Proxy.
Appointment of proxy using
6. You can vote either:
-- by logging on to www.eproxyappointment.com and following the
instructions. Shareholders will need their shareholder reference
number, PIN and control number to submit a proxy vote this way
(which will be provided via email or on their paper form of
proxy);
-- you may request a hard copy form of proxy directly from the
registrars, Computershare Investor Services on Tel: 0370 889 3181;
or
-- in the case of CREST members, by utilising the CREST
electronic proxy appointment service in accordance with the
procedures set out below.
To be valid, a form of proxy should be lodged with the Company's
registrars, Computershare Investor Services PLC, The Pavilions,
Bridgewater Road, Bristol, BS99 6ZY so as to be receive not later
than 48 hours before the time appointed for the meeting or any
adjourned meeting or, in the case of a poll taken subsequent to the
date of the meeting or adjourned meeting, so as to be received no
later than 24 hours before the time appointed for taking the
poll.
Appointment of a proxy through CREST
7. CREST members who wish to appoint a proxy or proxies through
the CREST electronic proxy appointment service may do so for the
meeting to be held on the above date and any adjournment(s) thereof
by using the procedures described in the CREST Manual. CREST
Personal Members or other CREST sponsored members, and those CREST
members who have appointed a voting service provider(s), should
refer to their CREST sponsor or voting service provider(s), who
will be able to take the appropriate action on their behalf.
In order for a proxy appointment or instruction made using the
CREST service to be valid, the appropriate CREST message (a "CREST
Proxy Instruction") must be properly authenticated in accordance
with Euroclear UK & Ireland Limited's specifications and must
contain the information required for such instructions, as
described in the CREST Manual. The message, regardless of whether
it constitutes the appointment of a proxy or an amendment to the
instruction given to a previously appointed proxy, must, in order
to be valid, be transmitted so as to be received by the Company's
agent (ID: 3RA50) by the latest time(s) for receipt of proxy
appointments specified in the notice of meeting. For this purpose,
the time of receipt will be taken to be the time (as determined by
the timestamp applied to the message by the CREST Applications
Host) from which the Company's agent is able to retrieve the
message by enquiry to CREST in the manner prescribed by CREST.
After this time any change of instructions to a proxy's appointee
through CREST should be communicated to the appointee through other
means.
CREST members and, where applicable, their CREST sponsors or
voting service providers should note that Euroclear UK &
Ireland Limited does not make available special procedures in CREST
for any particular messages. Normal system timings and limitations
will therefore apply in relation to the input of CREST Proxy
Instructions.
It is the responsibility of the CREST member concerned to take
(or, if the CREST member is a CREST personal member or sponsored
member or has appointed a voting service provider(s), to procure
that his CREST sponsor or voting service provider(s) take(s)) such
action as shall be necessary to ensure that a message is
transmitted by means of the CREST system by any particular time. In
this connection, CREST members and, where applicable, their CREST
sponsors or voting service providers are referred, in particular,
to those sections of the CREST Manual concerning practical
limitations of the CREST system and timings.
The Company may treat as invalid a CREST Proxy Instruction in
the circumstances set out in Regulation 35(5) (a) of the
Uncertificated Securities Regulations 2001. All messages relating
to the appointment of a proxy or an instruction to a previously
appointed proxy, which are to be transmitted through CREST, must be
lodged at 12.45 p.m. on Friday 27 January 2023 in respect of the
meeting. Any such messages received before such time will be deemed
to have been received at such time. In the case of an adjournment,
all messages must be lodged with Computershare Investor Services
PLC no later than 48 hours before the rescheduled meeting.
Termination of proxy appointments
8. In order to revoke a proxy instruction you will need to
inform the Company. Please send a signed hard copy notice clearly
stating your intention to revoke your proxy appointment to
Computershare Investor Services PLC, The Pavilions, Bridgwater
Road, Bristol BS99 6ZY.
In the case of a member which is a company, the revocation
notice must be executed under its common seal or otherwise in
accordance with section 44 of the Companies Act 2006 or by
signature on its behalf by an officer or attorney whose power of
attorney or other authority should be included with the revocation
notice.
If you attempt to revoke your proxy appointment but the
revocation is received after the time specified in note 2 above
then, subject to the paragraph directly below, your proxy will
remain valid.
If you submit more than one valid proxy appointment in respect
of the same Ordinary Shares, the appointment received last before
the latest time for receipt of proxies will take precedence.
Nominated Persons
9. If you are a person who has been nominated under section 146
of the Companies Act 2006 to enjoy information rights:
-- You may have a right under an agreement between you and the
member of the Company who has nominated you to have information
rights (Relevant Member) to be appointed or to have someone else
appointed as a proxy for the meeting.
-- If you either do not have such a right or if you have such a
right but do not wish to exercise it, you may have a right under an
agreement between you and the Relevant Member to give instructions
to the Relevant Member as to the exercise of voting rights.
-- Your main point of contact in terms of your investment in the
Company remains the Relevant Member (or, perhaps, your custodian or
broker) and you should continue to contact them (and not the
Company) regarding any changes or queries relating to your personal
details and your interest in the Company (including any
administrative matters). The only exception to this is where the
Company expressly requests a response from you.
If you are not a member of the Company but you have been
nominated by a member of the Company to enjoy information rights,
you do not have a right to appoint any proxies under the procedures
set out in the notes to the form of proxy.
Questions at the Meeting
10. Under section 319A of the Companies Act 2006, the Company
must answer any question you ask relating to the business being
dealt with at the meeting unless:
-- answering the question would interfere unduly with the
preparation for the meeting or involve the disclosure of
confidential information;
-- the answer has already been given on a website in the form of an answer to a question; or
-- it is undesirable in the interests of the Company or the good
order of the meeting that the question be answered.
Issued Shares and total voting rights
11. As at the date of this Notice, the total number of shares in
issue is 194,149,261 Ordinary Shares of 1p each. The total number
of Ordinary Shares with voting rights is 185,163,281. On a vote by
a show of hands, every holder of Ordinary Shares who (being an
individual) is present by a person, by proxy or (being a
corporation) is present by a duly authorised representative, not
being himself a member, shall have one vote. On a poll every holder
of Ordinary Shares who is present in person or by proxy shall have
one vote for every Ordinary Share held by him.
Communication
12. Except as provided above, members who have general queries
about the meeting should use the following means of communication
(no other methods of communication will be accepted):
-- calling Computershare Investor Services PLC shareholder helpline: 0370 889 3181;
-- in writing to Computershare Investor Services PLC, The
Pavilions, Bridgwater Road, Bristol BS99 6ZZ.
You may not use any electronic address provided either in this
notice of meeting or in any related documents (including the Form
of Proxy for this meeting) to communicate with the Company for any
purposes other than those expressly stated.
[1] Including committed acquisitions.
[2] Shared ownership vacant possession value includes both the
value of ReSI's 63% average equity position, and the 37% owned by
residents.
[3] Assuming no staircasing.
[4] The shared ownership portfolio owned since September 2021 is
fully occupied. Including recent untenanted acquisitions, shared
ownership occupancy is 98%.
[5] Including GBP9mn committed acquisitions
[6] Total recurring return excludes the impact of one-off costs
and a one-time debt indexation catch-up adjustment. The Group has
debt which it elected to carry at fair value through profit and
loss. In accordance with the EPRA Best Practice Recommendations,
EPRA NTA should reflect the amortised cost of the debt rather than
its fair value. In the current period, an adjustment has been made
for GBP5.2mn which represents the difference between fair value and
what amortised cost would have been had the Group carried the debt
at amortised cost. No adjustment was made in the prior year as it
was immaterial. The charge would have been GBP1.5mn for the year
ended 30 September 2021.
[7] Inside Housing, L&G and British Property Federation,
March 2022 (based on a 2020 survey by Inside Housing).
[8] Savills and National Housing Federation, Decarbonising the
Housing Association Sector - Costs and Funding Options (October
2021).
[9] Retirement rents in line with Local Housing Allowance.
[10] Source: ONS: UK House Price Index: November 2022.
[11] Sources: Ministry of Housing, Communities & Local
Government - English Housing Survey, 2019-20, and YouGov (May
2021).
[12] Source: Department for Levelling Up, Housing and
Communities and Ministry of Housing, Communities & Local
Government (27 January 2022).
[13] Sources: Department for Levelling Up, Housing and
Communities (2021) and House of Commons Library (2022).
[14] Department for Levelling Up, Housing and Communities (2021)
and House of Commons Library (2022), British Property Federation,
and Legal & General, 2022
[15] Savills News, October 2022
https://www.savills.co.uk/insight-and-opinion/savills-news/334433-0/housing-associations-can-boost-economic-growth-with-increased-affordable-housing-supply--says-new-report
.
[16] Savills Research & G15, Mind the Gap (Not-for-profit
Housing Associations' Role in Delivering New Affordable Homes),
2022; Savills, Affordable Housing - Building Through Cycles,
2018.
[17] Inside Housing, L&G and British Property Federation,
March 2022 (based on a 2020 survey by Inside Housing).
[18] Savills and National Housing Federation, Decarbonising the
Housing Association Sector - Costs and Funding Options (October
2021).
[19] ONS, Past and projected period and cohort life tables:
2020-based, UK, 1981 to 2070, January 2022.
[20] ONS, 2020-based Interim National Population Projections,
January 2022.
[21] ONS, 2020-based Interim National Population Projections,
January 2022.
[22]
https://www.ageuk.org.uk/latest-news/archive/1-million-older-people-feel-lonely/#::text=Age%20UK%20is%20calling%20for,
loneliness%20is%20in%20the%20UK.
[23] Boomer & Beyond quantitative research study 2022.
[24] Including GBP9mn of committed acquisitions.
[25] Including 41 units of committed acquisitions.
[26] Source: Gresham House as at November 2022. Assumptions:
GBP293,000 house purchase; mortgage rate 5.3%; mortgage term 25
years; deposit requirement 10%; shared ownership rent 2.75%;
service charge / maintenance cost of GBP1,500; 1st tranche shared
ownership sale 25%; mortgage-to-income multiple requirement: 4.0x;
maximum housing costs 40% of net income (after 30% deductions
including tax, student loan repayment etc.).
[27] Assumptions: GBP293,000 house purchase; initial mortgage
rate 3.0%; updated mortgage rate 6.0%; %; mortgage term 25 years;
deposit requirement 10%; 1st tranche shared ownership sale 25%;
[28] YouGov (May 2021) 'Who does - and doesn't - want to own a
home?'
[29]
https://researchbriefings.files.parliament.uk/documents/SN02110/SN02110.pdf.
[30]
https://commonslibrary.parliament.uk/research-briefings/sn02110/
.
[31]
https://blog.shelter.org.uk/2022/02/temporary-accommodation-the-new-social-housing/
.
[32]
https://commonslibrary.parliament.uk/research-briefings/sn02110/
.
[33] FY 2021 versus FY2022
[34] Based on 251 respondents to a survey carried out by RPML,
representing c.11% of residents.
[35] FY 2021 versus FY2022
[37] Figures in the loan covenants table are based on most
recent quarter of lender covenant reporting.
[38] As defined in the English Housing Survey, 2020 to 2021
[39] Correct for the scheduled increase to the energy price cap
in April 2023
[40] Savills and National Housing Federation, Decarbonising the
Housing Association Sector - Costs and Funding Options (October
2021).
[41] Department for Business, Energy and Industrial Strategy
[42] EPC certificate for retirement rental property owned by
ReSI
[43] The Energy White Paper - Powering our Net Zero Future,
December 2020
[44] English Housing Survey, 2020 to 2021
[45] English Housing Survey, 2020-2021
[46] Ratio of house price to residence based earnings - ONS
[47] Compared with average CR0 gross rental yield. Data from
Realyse - Sept 2022
[48] FY 2021 emissions restated to include additional emissions
from communal areas not considered in prior year
[49] A considerably larger sample size of vacant properties was
used to calculated emissions from retirement properties in FY 2022
compared to FY 2021. As a result, the larger FY 2022 figure is a
more accurate assessment than the FY 2021 figure, rather than a
genuine increase in emissions
[50]
https://www.arup.com/news-and-events/arup-commits-to-whole-lifecycle-carbon-assessments-for-buildings-and-withdrawal-from-fossil-fuels.
[51] In FY 2022, Kamma determined the energy consumption of the
Local Authority Portfolio by using the EPC data from units which
have a domestic EPC and extrapolating across all Local Authority
units. The FY 2021 assessment used domestic and non-domestic EPC
data in its assessment, and therefore the year-on-year comparison
is not like for like. Going forward, Kamma will continue to use the
FY 2022 method.
[52] In FY 2022 the allocation of energy consumption by energy
source was performed based on the energy source information on
property EPC certificates, with consideration given to the actual
energy source of the properties as provided by ReSI where energy
source data was not available from EPC certificates. This is a more
granular approach than the one used last year and going forward, it
is intended that Kamma will continue to use the FY 2022 method.
[53] Includes Scope 1, Scope 2 and operational Scope 3
emissions. Embodied carbon excluded to allow like-for-like
year-on-year comparison.
[54] Gross rental income used as portfolio intensity measure as
it increases in proportion with Scope 1, Scope 2 and operational
Scope 3 emissions, and it is the most reliable available
metric.
[55] ONS - House price to workplace-based earnings ratio,
2021
[56] Based on a typical UK rental yield of 4.0%
[57] Comparison of Price cap at October 2021 versus October 22 -
https://www.energyhelpline.com/help/the-history-of-ofgems-energy-price-cap
[58] English Housing Survey 2020 to 2021
[59] Saving on energy bills assumes household energy consumption
equal to the level used to calculate the energy price cap headline
figure. Actual saving will vary dependent on the amount of energy
consumed by the resident
[60] https://www.ons.gov.uk/economy/inflationandpriceindices
[61] https://www.bbc.co.uk/news/business-63144506
[62] Money Supermarket - 22 November 2022
[63] Shared ownership assumptions: OMV GBP293k; First Tranche
Sale: 25%; Deposit: 10%; Mortgage term: 25 years; initial interest
3.0%; refinanced interest 5.3%; Rents: 2.75%; Service charge:
GBP1,500 p.a; EPC B
[64] 2022 energy bills as of March 2022 price cap. 2023 energy
bills as of April 2023 price cap
[65] Based on NHF announcement that they expect the majority of
Housing Associations to be applying a 7% cap to shared ownership
rent increases in 2023:
https://www.housing.org.uk/news-and-blogs/news/rent-cap-press-statement/
[66] Outright owner assumptions; OMV: GBP293k; Mortgage LTV 90%;
initial interest 3.0%; refinanced interest 5.3%; EPC D
[67] Rental Assumptions - OMV: GBP293k; Rental Yield: 4.0%; EPC
D
[68] Savills - Affordable rents capped, but private renters left
behind - November 2022
[69] Retirement Assumptions: Rent GBP800pcm; Rent increase 6%;
EPC C
[70] 2022 energy bills as of March 2022 price cap. 2023 energy
bills as of April 2023 price cap
[71] Private Rental Assumptions: Rent GBP800pcm; EPC D
[72] Savills - Affordable rents capped, but private renters left
behind - November 2022
[73] Metro Finance - Shared ownership - Where are we
heading?
[74] Gresham House calculation
[75] Applied to operating expenses and rents at the end of
contractual periods
[76] Applied to contractual rent increases
[i] For EPRA NTA, property valuation of GBP3.0mn, net of
GBP0.2mn revaluation of trading properties
[ii] For EPRA NTA movement reflects indexation of USS debt of
which GBP3.7mn / 2.0p related to FY 2022. The Group has elected to
carry this debt at fair value through profit and loss. In
accordance with the EPRA Best Practice Recommendations, EPRA NTA
should reflect the amortised cost of the debt rather than its fair
value. In the current period, an adjustment has been made for
GBP5.2mn which represents the difference between fair value and
what amortised cost would have been had the Group carried the debt
at amortised cost. No adjustment was made in the prior year as it
was immaterial. The charge would have been GBP1.5mn for the year
ended 30 September 2021.
[iii] EPRA adjusted earnings is EPRA earnings adjusted for
income and costs which are not recurring and is equivalent to IFRS
profit after tax before one-offs and valuation adjustments
[iv] Source: ReSI Housing Customer Survey
[v] Source: Retirement residents customer survey
[vi] Company internal calculation. Full calculation and
assumptions disclosed in cost of living section of the FY 2022
accounts
[vii] Including 40 homes that are committed acquisitions
[viii] The dividend target is a target only and not a profit
forecast. There can be no assurance that this target will be
met.
[ix] The dividend target and total return target are targets
only and are not profit forecasts. There can be no assurance that
either target will be met, and they should not be taken as an
indication of the Company's future results.
[x] Excluding the finance lease gross up and including GBP9mn of
committed acquisitions.
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END
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