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

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 earnings¹ 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

The accompanying presentation will be made available shortly after the webinar on the Gresham House website.

A copy of the pdf Interim Report is available here 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/ 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.

For further information, please contact:

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 £317mn⁵.

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, and further information on Gresham House is available at 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