REG - Residential Secure - Results for the six months ended 31 March 2024

Residential Secure IncomeAnnouncement

18/06/2024 07:00

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RNS Number : 7834S  Residential Secure Income PLC  18 June 2024

18 June 2024

Residential Secure Income plc

 

("ReSI" or the "Company")

 

Interim Results to 31 March 2024

 

Residential Secure Income plc (LSE: RESI), which invests in independent
retirement living and shared ownership to deliver secure, inflation-linked
returns, is pleased to announce its interim results for the six months ending
31 March 2024.

 

Commenting on the results, Robert Whiteman CBE, ReSI's Chairman, said:

 

"ReSI continues to deliver strong operational performance, with high levels of
rent collection, occupancy, rent growth and stabilisation of operating costs.
Coupled with Gresham House agreeing to reduce fund management fees, this has
led to adjusted earnings growing by 9%, to comfortably cover our dividend. The
sale of our local authority portfolio is continuing to progress, with one
asset sale completing at the start of April and the remainder advancing
through due diligence. Sales proceeds will be used to repay floating rate
debt.

 

"We continue to review opportunities to make further disposals that add value
for shareholders, from which we would prioritise the return of capital.
However, with investment market volumes expected to remain low until any
future interest rate cuts, we expect opportunities may take time to emerge. In
the meantime, we will maintain our focus on driving operational performance in
the retirement portfolio, which should drive shareholder value."

 

Ben Fry, Managing Director of Housing at Gresham House, added:

 

"The quality of ReSI's operational business model, demonstrated by 6.5%
like-for-like rental growth, consistently strong rent collection of over 99%,
and record occupancy of 96% in retirement and 100% in shared ownership,
continues to reflect our focus on the underserved markets of affordable
purpose-built retirement living and the provision of affordable home ownership
to young families and key workers.

 

"Whilst cost pressures remain, they have started to ease. This has enabled
top-line performance to grow Adjusted Earnings by 9% and cover the dividend by
117%. We continue to see strong rental growth, combined with good progress on
our asset management initiatives, within our retirement portfolio, which we
anticipate will underpin ongoing earnings growth.

 

"The sale of our local authority portfolio is continuing to progress with one
asset sale in April generating £5.6m of net proceeds, slightly ahead of the
September 2023 book value. The remainder of the local authority portfolio is
advancing through due diligence and will enable the full repayment of floating
rate debt. This will lead to the simplification of ReSI's portfolio to focus
on the strongest market segments of independent retirement living and shared
ownership.

 

"The sector outlook remains positive, with low housing affordability and an
ageing population driving higher demand, amid the persistent shortfall in new
housing."

 

Key financial metrics

 

 Income                                          Six months to 31-Mar 2024     Six months to 31-Mar 2023           Change in year
 Like-for-like rental reviews                    +6.5%                         +6.2%                               +0.3%
 Rent collection                                 99%                           99%                                 -
 Gross Rental Income                             £14.9mn                       £13.6mn                             +9.6%
 Net Rental Income                               £9.4mn                        £8.8mn                              +6.8%
 Adjusted EPRA Earnings(1,2)                     £4.5mn                        £4.1mn                              +8.5%
 Adjusted EPRA EPS(1,2)                          2.4p                          2.2p                                +9.1%
 Dividend paid per share                         2.06p                         2.58p                               -20.2%
 Dividend cover(3)                               117%                          86%                                 +36.0%
 Changes in fair value of investment properties  £(7.3)mn                      £(28.5)mn                           -74.4%

 Capital                                                        31-Mar 2024               30-Sept 2023  Change in period
 IFRS net assets                                                £154.4mn                  £168.7mn      -8.4%
 IFRS NAV per share                                             83.4p                     91.1p         -8.4%
 IFRS Portfolio Valuation                                       £317.0mn                  £345.1mn      -8.2%
 EPRA NTA per share(1)                                          77.2p                     81.8p         -5.7%
 EPRA NTA Total Return(1)                                       (3.2)%                    (18.1)%       +14.9%
 Loan to Value                                                  53%                       50%           +3%

 

Financial highlights:  8.5% growth in EPRA adjusted earnings, primarily
through inflation linkage of rental income, delivering 117% dividend coverage

 

·       6.5% rent review growth (includes shared ownership rent
increases on 1 April 2024)

·       EPRA adjusted earnings(1) of £4.5million (H1 23: £4.1
million) with strong rent growth across retirement and shared ownership

·       Shared ownership rents increasing by average of 8.3% on 1 April
2024, set to underpin further earnings growth

·       EPRA Net Tangible Assets ("NTA") total return of (3.2)% (H1 23:
(13.7)%) to give 77.2p per share NTA

·       Valuations continue to be impacted by increased gilt yields,
down 2.1% like-for-like with 20bps outwards yield shift

·       LTV of 53% (FY 23: 50%) supported by 20-year average debt
maturity, but expected to reduce to 50% following completion of the local
authority portfolio sale

·       Total dividends paid for the half-year of 2.06p per share (H1
23: 2.58p) with 117% dividend cover (H1 23: 86%)

 

Portfolio and operational highlights

 

·       Diversified portfolio of 2,996 homes worth £317mn

o  £81mn reversionary surplus of vacant possession value compared to fair
value (26% uplift)

·       Portfolio focused on direct leases with pensioners and part
homeowners

·       Rent collection of over 99% for half year (H1 23: 99%)

·       Shared ownership portfolio 100% occupied

·       Record retirement occupancy of 96% continuing for half year (H1
23: 94%)

 

Strategic initiatives and retirement asset management programme

 

·       Local authority portfolio disposal:

o  One asset sale completed at start of April for £5.6mn net of costs, ahead
of the September 2023 valuation of £5.5mn

o  Remainder of portfolio remains under offer with sale expected in H2
following delays in obtaining building control signoff for works already
completed to upgrade fire safety systems in line with evolving legislation.

o  Local Authority portfolio sale is expected to reduce annualised dividend
cover by c.6% but improve quality through the repayment of the floating rate
revolving credit facility

o  The revolving credit facility, on which £16.6m is currently drawn,
requires repayment by 30 December 2024. Consequently, a material uncertainty
clause has been required for these interim results; further details are set
out in the Interim Report.

 

·       Good initial progress on retirement portfolio asset management
initiatives including:

o  Improved re-letting times ensuring occupancy maintained at the 96% levels
achieved in H2 2023 despite the winter months generally seeing increased
turnover, and allowing a focus on rent growth of 6.1%;

o  Portfolio rationalisation has commenced, with the first 20 retirement
properties (1% of portfolio) either sold or under offer and progressing to
completion.

 

Outlook

 

·       Strong rental inflation-linked growth expected to continue,
underpinned by wage and pension growth, which will underpin ReSI's earnings
growth

·       Continued focus on operational improvements to the retirement
portfolio including rationalising portfolio footprint, driving rents, and
reducing leakage

·       Sale of remainder of local authority portfolio expected to
complete in H2 2024

·       Continuing to review options for further disposals which
support maximising shareholder value, from which we would prioritise the
return of capital.

·       Investment market volumes expected to remain low until any
future interest rate cuts, we expect disposal opportunities may take time to
emerge

·       Acute shortfall of more affordable homes with an estimated
£34bn4 of annual investment needed in the UK

 

 

Interim Report and investor webinar

 

ReSI will host an online webinar and Q&A session to discuss the results
this morning, 18 June 2024, at 11:00am (BST). Registration is available at:
https://greshamhouse.zoom.us/webinar/register/WN_C7ToonJgQxmuWqXKvOf9QA
(https://greshamhouse.zoom.us/webinar/register/WN_C7ToonJgQxmuWqXKvOf9QA)

 

The accompanying presentation will be made available shortly after the webinar
on the Gresham House website
(https://greshamhouse.com/real-assets/real-estate-investment/residential-secure-income-plc/)
.

 

A copy of the pdf Interim Report is available here
http://www.rns-pdf.londonstockexchange.com/rns/7834S_1-2024-6-17.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/7834S_1-2024-6-17.pdf)   or
on the Company's website at
https://greshamhouse.com/real-assets/real-estate-investment/residential-secure-income-plc/
(https://greshamhouse.com/real-assets/real-estate-investment/residential-secure-income-plc/)
where further information on the Company can also be found. The Interim Report
has also been submitted to the National Storage Mechanism and will shortly be
available at https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) .

 

 

For further information, please contact:

 

 

 Gresham House Real Estate

                            +44 (0) 20 7382 0900

 Ben Fry

 Sandeep Patel

 Peel Hunt LLP

                            +44 (0) 20 7418 8900

 Luke Simpson

 Huw Jeremy

 KL Communications          gh@kl-communications.com (mailto:gh@kl-communications.com)

                            +44 (0) 20 3882 6644

 Charles Gorman

 Charlotte Francis

 

 

About Residential Secure Income plc

 

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 resident sub-sectors in UK residential - independent retirement rentals
and shared ownership - underpinned by an ageing demographic and untapped and
strong demand for affordable homeownership.

 

As at 31 March 2024, ReSI's investment portfolio comprises c3,000 properties,
with an (unaudited) IFRS fair value of £317mn(5).

 

ReSI'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'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 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.

 

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 is available at www.resi-reit.com
(http://www.resi-reit.com) , and further information on Gresham House is
available at www.greshamhouse.com (http://www.greshamhouse.com)

 

 

Notes:

(1) Alternative performance measures

(2) 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.

(3) Dividend cover measured as Adjusted EPRA earnings per share divided by
dividend per share

(4) British Property Federation and Legal & General, 2022

(5) Excluding the finance lease gross up and Local Authority portfolio

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