RESULTS FOR THE YEAR ENDED 31 DECEMBER 2022

 

THIS ANNOUNCEMENT HAS BEEN DETERMINED TO CONTAIN INSIDE INFORMATION FOR THE PURPOSES OF THE MARKET ABUSE REGULATION (EU) NO. 596/2014.

 

3 March 2023

Triple Point Social Housing REIT plc

(the "Company" or, together with its subsidiaries, the "Group")

RESULTS FOR THE YEAR ENDED 31 DECEMBER 2022

The Board of Triple Point Social Housing REIT plc (ticker: SOHO) is pleased to announce its audited results for the year ended 31 December 2022.

 

	31 December 2022	31 December 2021
EPRA Net Tangible Assets per share (equal to IFRS NAV per share)	109.06p	108.27p
Earnings per share (basic and diluted) -      IFRS basis -      EPRA basis	6.18p 4.78p	7.05p 4.82p
Total annualised rental income	£39.0m	£35.8m
Operating profit	£35.7m	£35.2m
Value of the portfolio (IFRS basis)	£669.1m	£642.0m
Weighted average unexpired lease term	25.3 yrs	26.2 yrs
Dividend paid or declared per Ordinary Share	5.46p	5.20p

 

Financial highlights

·        EPRA Net Tangible Assets (equal to IFRS net asset value) per share of 109.06 pence as at 31 December 2022 (2021: 108.27 pence), an increase of 0.7%.

·        Portfolio independently valued as at 31 December 2022 at £669.1 million on an IFRS basis (2021: £642.0 million), reflecting a valuation uplift of 11.1% against total invested funds of £602.2 million¹. The properties have been valued on an individual basis.

·        The portfolio's total annualised contracted rental income was £39.0 million as at 31 December 2022 (2021: £35.8 million).

·        Operating profit for the year ended 31 December 2022 was £35.7 million (2021: £35.2 million).

·        Ongoing Charges Ratio of 1.60% as at 31 December 2022 (2021: 1.54%).

·        All debt is long-term (weighted average term of 10.6 years) and fixed priced (weighted average fixed coupon of 2.74%).

·        The Company has paid or declared dividends totalling 5.46 pence per Ordinary Share in respect of the year ended 31 December 2022, in line with the Company's target for the year. The dividend was 0.92x covered on an adjusted earnings basis as at 31 December 2022.²

 

Operational highlights

·        Acquired 14 properties (113 units) during the year for a total of £20.3 million (including costs) bringing the total investment portfolio to 497 properties.

·        100% of contracted rental income was either CPI or RPI linked (see Post Balance Sheet Activity in the Annual Report for further information). Weighted average contracted rental growth during the year was 6.7%.

·        91.8% of rent due was collected during the year, 25 out of the Group's 27 lessees recorded no material rent arrears.

·        EPRA net initial yield of 5.46% based on the market value of the portfolio (including  estimated purchasers' costs) as at 31 December 2022, against the portfolio's blended net initial yield on purchase of 5.90%.

·        Further diversified the portfolio:

o  11 regions

o  153 local authorities

o  497 properties

o  27 Approved Providers

·    94.3% of the Group's portfolio by rent roll was leased to Registered Providers that are subject to the regulatory protections and standards provided by the Regulator of Social Housing (the "Regulator").

 

Post Balance Sheet Activity

·        The Company declared a dividend of 1.365 pence per ordinary share in respect of the period from 1 October to 31 December 2022, payable on or around 31 March 2023 to shareholders on the register at 17 March 2023.

·        Following the announcement of a government cap of 7% on social and affordable rent increases from April 2023, notwithstanding that the cap does not apply to Specialised Supported Housing, the Company has voluntarily chosen to implement this cap for rent reviews applicable to its Registered Provider lessees in 2023

 

Notes:

1    Including acquisition costs

2    Historically dividend cover has been reported on a contracted run-rate basis which for 2021, due to all rent being in payment, was the same as adjusted earnings dividend cover. Due to an increase in rent arrears over the period we have moved to a reporting on an adjusted earnings basis.

 

Christopher Phillips, Chair of Triple Point Social Housing REIT plc, commented:

"I am pleased to report that we have delivered a stable and consistent set of results. The need for more Specialised Supported Housing in the UK continues to grow and this fact, more than anything, underpins our resilient financial performance. Through continued engagement with our care provider and Approved Provider partners we will seek to optimise the performance of the Group's properties with a focus on delivering good homes and long-term income to our investors. The Board and the Manager are focused on delivering value to shareholders, and are exploring making accretive share buybacks and the potential sale of a portfolio of the Group's properties."

FOR FURTHER INFORMATION ON THE COMPANY, PLEASE CONTACT:

Triple Point Investment Management LLP (Investment Manager)	Tel: 020 7201 8989
Max Shenkman
Isobel Gunn-Brown
Akur Capital (Financial Adviser)	Tel: 020 7493 3631
Tom Frost
Anthony Richardson
Siobhan Sergeant
Stifel (Joint Financial Adviser and Corporate Broker)	Tel: 020 7710 7600
Mark Young
Mark Bloomfield
Rajpal Padam
Madison Kominski

 

The Company's LEI is 213800BERVBS2HFTBC58.

 

Further information on the Company can be found on its website at www.triplepointreit.com.

 

NOTES:

The Company focuses on investing in newly developed social housing assets in the UK, with a particular focus on specialised supported housing. The majority of the assets within the portfolio are subject to inflation-linked, long-term, Fully Repairing and Insuring ("FRI") leases with Approved Providers (being Housing Associations, Local Authorities or other regulated organisations in receipt of direct payment from local government). The portfolio comprises investments into properties which are already subject to a lease with an Approved Provider, as well as forward funding of pre-let developments but does not include any direct development or speculative development.

 

There is increasing political pressure and social need to increase housing supply across the UK which is creating opportunities for private sector investors to help deliver this housing. The Group's ability to provide forward funding for new developments not only enables the Company to secure fit for purpose, modern assets for its portfolio but also addresses the chronic undersupply of suitable supported housing properties in the UK at sustainable rents as well as delivering returns to investors.

 

The Company is a UK Real Estate Investment Trust ("REIT") listed on the premium segment of the Official List of the UK Financial Conduct Authority and is a constituent of the FTSE EPRA/NAREIT index. 

 

 

CHAIR'S STATEMENT

 

2022 has proven to be another year of unforeseen challenges. Inflation and resultant rising interest rates were to be expected, but their pace of increase was accelerated by geopolitical events, most notably the tragic war in Ukraine, as well as the fallout from heightened domestic political volatility in the UK in the latter half of the year. The Bank of England base rate increased by 375 basis points in 12 months, and inflation reached levels not seen in over 40 years. Higher interest rates have provided investors seeking income with a range of options, many of which have not been viable over the last 15 years, and inflation and its root causes have created operational challenges for business throughout the UK and indeed the world. Questions remain about the impact these challenges will have on property valuations as investors and valuers grapple with understanding the real impact on the performance of property assets, and their relative attractiveness when compared to alternative sources of income.

As with most publicly traded REITs, these factors, combined with further regulatory judgements issued by the Regulator  in relation to two of the Group's Approved Providers, have contributed to the Company's shares trading at a discount to Net Asset Value during the period. The Board continues to actively engage with its shareholders and is committed to addressing this discount. As noted in our recent trading update, in order to deliver value to shareholders, the Board and Manager are exploring making accretive share buybacks outside of a close period and the potential sale of a portfolio of the Group's properties. If the Group considered that a potential sale of a portfolio would be in the best interests of its shareholders, and conditional on such a transaction not having a material adverse impact on the Group's leverage position, the Board would seek to use the proceeds to optimise shareholder value in the most efficient way.

Whilst we remain conscious of the need to address the current share price discount to Net Asset Value, I am pleased to report that we have delivered a stable and consistent set of results, and we have been able to continue to focus on providing more good homes for vulnerable people throughout the UK. Our strategy is well insulated against the fallout from deteriorating economic circumstances and any resultant decline in demand for other goods and services. The need for more Specialised Supported Housing in the UK continues to grow and this fact, more than anything, underpins our resilient financial performance.

Despite challenging operating conditions, we have delivered a total return of 5.7% comprising 5.0% from dividend income and 0.7% from a growth in capital value. Given current concerns around interest rates, it is worth reiterating that all of the Group's debt is long-term and fixed-price with a weighted average term of 10.6 years and a weighted average coupon of 2.74%.

This year we have been able to demonstrate to our investors the strong inflation protection within our portfolio. We increased our dividend target by 5.0%, supported by strong underlying rental growth (the weighted average rental growth for the period was 6.7%). Looking forward, whilst Specialised Supported Housing is excluded from the Government's 7% cap on social housing rent increases, we have prudently decided to temporarily cap the Group's rent increases at 7% for the year of 2023. The voluntary cap applied to the portfolio's leases with Registered Providers for 2023 allows for material rental growth (in excess of the Group's highest historical weighted average annual rental growth rate), whilst ensuring that the Group's rent increases remain sustainable and in line with wider social housing sector policy.

Whilst the Group is well placed to navigate the current economic headwinds, we must acknowledge that the Group's Approved Providers have been presented with significant operating challenges. We continue to work closely with our counterparties whose operating margins have come under pressure from increases in maintenance, staffing and energy costs at a time where local authorities and central Government are tightening fiscal policy. Rent collection during the year fell below historic levels of 100% to 91.8%. As noted in the Company's recent trading update, these rent arrears are predominantly attributable to two Approved Providers, My Space Housing Solutions and Parasol Homes. A full update on what steps are being taken to actively address the causes of the rental arrears and preserve the Group's rental income generated from these two lessees going forward is provided in the Investment Manager's Report.

In conjunction with working with Approved Providers to help them address specific challenges, we have also remained focused on helping all of our Registered Provider partners respond to concerns raised by the Regulator about the risks associated with the long-lease model that is commonly employed in the sector. Through amending the Company's investment policy and investment restrictions in May last year, which enabled the Group to enter into more flexible leases, we commenced a process of looking to address these concerns in a way that we hope will help deliver meaningful change to our Approved Providers whilst enhancing the sustainability and performance of the Group's portfolio. The Investment Manager's report will expand on the new flexible leases that the Group can now enter into, and the roll-out of a new clause in the Group's existing leases to help address concerns about risk sharing. The clause has been developed in consultation with key stakeholders, including the Regulator. The implementation of the clause is intended to enhance the Group's Registered Provider lessees' compliance with the Regulator's standards.

It is important to us that over 94% of our lessees benefit from being regulated by the Regulator. We believe in proportionate specialist regulation and the enhancements and protections around governance and service provision that this brings. In over 88% of our properties specialist care and support is provided by care providers regulated by the Care Quality Commission ("CQC") further enhancing both the services provided to the individuals living in our properties and the associated regulatory protections.

As well as proving commercially challenging, 2022 exacerbated a number of existing societal issues and has seen a growing cost-of-living crisis begin to impact the lives of millions of people throughout the UK. Despite additional government support, high inflation has created an affordability crisis which research has shown to disproportionately impact the most vulnerable members of society. In the social housing sector, rising interest rates, growing maintenance costs, labour shortages and a need to invest into existing homes to bring them up to standard in terms of fire safety and energy efficiency have eroded the development budgets of Registered Providers. This, combined with growing pressure on people's ability to afford private rents, has exacerbated the housing crisis and increased demand for social housing at a time when Registered Providers are struggling to meet supply targets. Finally, it is rightly impossible to ignore the clear daily pressures faced by the NHS and the social care sector and hard to see, given the current strain on public finances, how things can materially improve in the short term without additional funding.

More than ever therefore, it is clear that private capital is required to help meet the UK's social housing needs. The Group has continued to deploy capital into both new and existing Specialised Supported Housing properties over the course of the year. In 2022, we have delivered 14 newly developed or newly adapted properties containing 113 homes. These additional homes should help local authorities move people off social housing waiting lists and in some cases relieve pressure on the NHS by enabling people to move out of long-stay hospitals and into their own homes.

Financial Performance

During the year, we continued to deploy our remaining capital in order to address the acute need for this type of housing and provide additional homes for people with care and support needs. The Group invested £20.3 million in acquiring 14 properties providing 113 additional homes. This has enabled us to grow the Group's portfolio to over £669.1 million in value and provide over 3,400 homes working alongside our Approved Provider and care provider partners with the continued support of our shareholders and lenders.

I am pleased to continue to report this year that we have paid all target dividends in full as we have done consistently since IPO. For the year ending 31 December 2022, dividend cover, based on adjusted earnings, was 0.92x. Dividend cover was lower than in previous years due to the higher than usual level of rent arrears. Through our focus on addressing the current level of rent payments with My Space and Parasol (as expanded on in the Investment Manager's Report) we will look to increase dividend cover this coming year and preserve it over the longer-term. We expect to announce our dividend target for 2023 in May as we have done in previous years.

Overall, we are proud of another set of stable financial results which build on our performance to date. This would not have been possible without the support of our stakeholders, all of whom played an important role in supporting us with delivering on our investment strategy during the period. You can read more about our financial performance during the period in our Key Highlights, along with a more in-depth review in the Investment Manager's report.

Despite the relative resilience of the Group's financial performance and the sector's compelling supply and demand fundamentals, the Company's share price has traded at a discount to Net Asset Value during the period. As noted above, the Board along with the Investment Manager, are actively considering what further steps can be taken to address the discount.

Social Impact

Social Impact remains engrained in our decision-making processes and is central to our business model. This set of results once again demonstrates our conviction that financial performance and social impact are mutually reinforcing. The independent Impact Report prepared by The Good Economy identifies that our properties have delivered £3.30 of Total Social Value for every £1.00 invested in the year to 31 December 2022. You can read more on the social value and impact that our properties create in the Impact Report prepared by the Good Economy, available separately on our website.

The Board

The Board, led by Ian Reeves, Chair of the Nomination Committee, has instructed Nurole Ltd, an external search consultancy (there is no connection between the Company or any individual Directors and the external search consultancy), to commence a robust succession exercise to recruit a new non-executive director and hopes to provide an update before the 2023 AGM. As part of this succession exercise, the Board has taken into consideration the diversity targets within the FCA's Listing Rules, which we consider to be in the interests of the Group and its shareholders.

Further detail regarding the succession process that has commenced can be found in the Nomination Committee Report section of the Annual Report.

Outlook

The Group's focus in 2023 will be on optimising the performance of our portfolio. We will look to help ensure that our Approved Providers are able to weather the operational obstacles, principally driven by high inflation, facing organisations throughout the UK. With a combination of routine property inspections and continued engagement with our care provider and Approved Provider partners we will seek to optimise the performance of the Group's properties with a focus on delivering good homes and long-term income to our investors. Finally, through delivering on our strategic initiatives, which are focused on addressing concerns raised by the Regulator, we hope to deliver meaningful and sustainable change to both the Group's portfolio and the wider sector.

We take comfort from the fact that the majority of the Group's Approved Providers are regulated by the Regulator and the additional accountability and higher standards this brings to their provision of social housing. We will continue to work with our Registered Provider partners to, where relevant, help them address any points that have been raised by the Regulator. Similarly, we will continue to engage directly with the Regulator in order to ensure that we can better understand and accommodate any observations they have about our investment model and our engagement with our lessees.

We will remain focused on controlling and positively influencing what we can, but we must also accept that there are factors that we cannot control, and which could have an impact on the Group's performance. Specialised Supported Housing valuations showed resilience throughout the COVID pandemic and are relatively well-insulated from the impact of an economic downturn, however they are not impervious to the pressures of rising interest rates. Whilst we feel well positioned relative to most other real estate sectors, the risk of further outward movement in social housing yields remains, principally driven by the tighter spread versus the risk-free rate. We expect any movement to be limited relative to some other commercial property sectors due to the excess demand for Specialised Supported Housing coupled with a continued lack of supply.

Despite these challenges, it is important to also focus on the Group's current strengths. We have successfully mitigated any direct negative impact of rising interest rates on the Group's financial performance having ensured that all debt financing was long-term and fixed rate. Whilst we have capped rent increases at 7% for next year, we expect to deliver strong rental growth nonetheless, which will help protect investors against a backdrop of persistent high inflation. Finally, the Company has met its dividend target for the full year ended 31 December 2022.

As ever, I would like to thank all our advisers, and the Investment Manager, for their continued hard work and dedication to our investment strategy. Our corporate broker and joint financial adviser, Stifel Nicolaus Europe Limited, and our joint financial adviser, Akur Capital, continue to provide valuable and high-quality advice during the year. Finally, I would like to thank our shareholders for their continued support, as well as my fellow Board members for their ongoing commitment and assistance this year.

 

Chris Phillips

Chair

2 March 2023

 

 

STRATEGY AND BUSINESS MODEL

 

The Board is responsible for the Company's investment objective and investment policy and has overall responsibility for ensuring the Group's activities are in line with such overall strategy. As noted in the interim report, in May 2022 shareholders approved the resolution to amend the Company's investment policy. The Company's investment policy, reflecting these amendments, and investment objective are published below.

 

As noted in the Chair's Statement and the Investment Manager's report, in 2023 most of the Group's leases will be subject to a one-off rental increase cap of 7%.

 

Investment Objective

 

The Company's investment objective is to provide shareholders with stable, long-term, inflation-linked income from a portfolio of social housing assets in the United Kingdom with a focus on Supported Housing assets. The portfolio comprises investments in operating assets and the forward funding of pre-let development assets, the Group seeks to optimise the mix of these assets to enable it to pay a covered dividend increasing in line with inflation and so generate an attractive risk-adjusted total return.

 

Investment Policy

 

To achieve its investment objective, the Group invests in a diversified portfolio of freehold or long leasehold social housing assets in the UK. Supported Housing assets account for at least 80% of the Group's gross asset value. The Group acquires portfolios of social housing assets and single social housing assets, either directly or via SPVs. Each asset is subject to a lease or occupancy agreement with an Approved Provider. The rent payable thereunder is, or is expected to be, subject to adjustment in line with inflation (generally CPI) or central housing benefit policy. Title to the assets remains with the Group under the terms of the relevant lease. The Group is not primarily responsible for any management or maintenance obligations under the terms of the lease or occupancy agreement, which typically are serviced by the Approved Provider lessee, save that the Group may take responsibility for funding the cost of planned maintenance. The Group is not responsible for the provision of care to residents of Supported Housing assets.

The social housing assets are sourced in the market by the Investment Manager.

The Group intends to hold its portfolio over the long-term, benefitting from generally long-term upward-only leases which are, or are expected to be, linked to inflation or central housing benefit policy. The Group will not be actively seeking to dispose of any of its assets, although it may sell investments should an opportunity arise that would enhance the value of the Group as a whole.

The Group may forward fund the development of new social housing assets when the Investment Manager believes that to do so would enhance returns for shareholders and/or secure an asset for the Group's portfolio at an attractive yield. Forward funding will only be provided in circumstances in which:

(a)          there is an agreement to lease the relevant property upon completion in place with an Approved Provider;

(b)          planning permission has been granted in respect of the site; and

(c)           the Group receives a return on its investment (at least equivalent to the projected income return for the completed asset) during the construction phase and before the start of the lease.

For the avoidance of doubt, the Group will not acquire land for speculative development of social housing assets.

In addition, the Group may engage third party contractors to renovate or customise existing social housing assets as necessary.

Gearing

The Group uses gearing to enhance equity returns. The Directors will employ a level of borrowing that they consider prudent for the asset class and will seek to achieve a low cost of funds while maintaining flexibility in the underlying security requirements and the structure of both the Company's portfolio and the Group.

The Directors intend that the Group will target a level of aggregate borrowings over the medium-term equal to approximately 40% of the Group's gross asset value. The aggregate borrowings will always be subject to an absolute maximum, calculated at the time of drawdown, of 50% of the Group's gross asset value.

Debt will typically be secured at the asset level, whether over a particular property or a holding entity for a particular property (or series of properties), without recourse to the Group and having consideration for key metrics including lender diversity, cost of debt, debt type and maturity profiles.

Use of Derivatives

The Group may use derivatives for efficient portfolio management. In particular, the Group may engage in full or partial interest rate hedging or otherwise seek to mitigate the risk of interest rate increases on borrowings incurred in accordance with the Investment Policy as part of the Group's portfolio management. The Group will not enter into derivative transactions for speculative purposes.

Investment Restrictions

The following investment restrictions apply:

·    the Group will only invest in social housing assets located in the United Kingdom;

·    the Group will only invest in social housing assets where the counterparty to the lease or occupancy agreement is an Approved Provider. Notwithstanding that, the Group may acquire a portfolio consisting predominantly of social housing assets where a small minority of such assets are leased to third parties who are not Approved Providers. The acquisition of such a portfolio will remain within the Investment Policy provided that at least 90% (by value) of the assets are leased to Approved Providers and, in aggregate, all such assets within the Group's total portfolio represent less than 5% of the Group's gross asset value at the time of acquisition;

·    at least 80% of the Group's gross asset value will be invested in Supported Housing assets;

·    the maximum exposure to any one asset (which, for the avoidance of doubt, will include houses and/or apartment blocks located on a contiguous basis) will not exceed 20% of the Group's gross asset value;

·    the maximum exposure to any one Approved Provider will not exceed 30% of the Group's gross asset value, other than in exceptional circumstances for a period not to exceed three months;

·    the Group may forward fund social housing units in circumstances where there is an agreement to lease in place and where the Group receives a coupon (or equivalent reduction in the purchase price) on its investment (generally slightly above or equal to the projected income return for the completed asset) during the construction phase and before entry into the lease. Forward funding equity commitments will be restricted to an aggregate value of not more than 20% of the Group's net asset value, calculated at the time of entering into any new forward funding arrangement;

·    the Group will not invest in other alternative investment funds or closed-ended investment companies (which, for the avoidance of doubt, does not prohibit the acquisition of SPVs which own individual, or portfolios of, social housing assets);

·    the Group will not set itself up as an Approved Provider; and

·    the Group will not engage in short selling.

 

The investment limits detailed above apply at the time of the acquisition of the relevant asset in the portfolio. The Group will not be required to dispose of any investment or to rebalance its portfolio as a result of a change in the respective valuations of its assets or a merger of Approved Providers.

Investment Strategy

The Group specialises in investing in UK social housing, with a focus on Supported Housing. The strategy is underpinned by strong local authority demand for more social housing, which is reflected in the focus on acquiring recently developed and refurbished properties across the United Kingdom. The assets within the portfolio have typically been developed for pre-identified residents and in response to demand specified by local authorities or NHS commissioners. The existing portfolio comprises investments made into properties already subject to a fully repairing and insuring lease with specialist Approved Providers in receipt of direct payment from local government (usually Registered Providers regulated by the Regulator), as well as forward funding of pre-let developments. The portfolio will not include any direct development or speculative development investments. Following the amendments to the Company's investment policy in May 2022, the Group expects to enter into more flexible lease structures in future. These more flexible lease structures may include entering into leases for shorter terms and, in certain cases, the Group may selectively take on the cost of funding planned maintenance on some properties.

In addition, as noted in the Chair's Statement and the Investment Manager's report, we are considering including a new clause in the Group's existing leases. The aim of this clause is to protect Registered Providers if factors beyond their control, such as a change in government policy in relation to Specialised Supported Housing rents, reduce the amount of rent they are able to generate from a property or properties that they lease from the Group. In some such circumstances the clause allows for the Registered Provider to agree a new rent level which is reflective of the revised circumstances. Should the new rent level not be acceptable to the Group, the Group has the ability to re-assign or terminate the lease. As noted, we have consulted with the Group's valuers and lenders, and following the publication of these results it is our intention to gain feedback from investors before looking to roll out the new lease clause with our Registered Provider lessees.

 

Business Model

 

The Group owns and manages social housing properties that are leased to experienced housing managers (typically Registered Providers, which are often referred to as housing associations). The vast majority of the portfolio and future deal pipeline is made up of Supported Housing homes which are residential properties that have been adapted or built such that care and support can easily be provided to vulnerable residents who may have mental health issues, learning difficulties or physical disabilities. Whilst we have acquired operational properties, we have tended to focus more on acquiring recently developed or adapted properties in order to help local authorities meet increasing demand for suitable accommodation for vulnerable residents (the drivers of this demand are discussed in the Investment Manager's report. Local authorities are responsible for housing these residents and for the provision of all care and support services that are required.

 

The Supported Housing properties owned by the Group are leased to Approved Providers which are usually not-for-profit organisations focused on developing, tenanting and maintaining housing assets in the public (and private) sectors. Approved Providers are approved and regulated by the Government with the majority through the Regulator (or in some instances, where the Group contracts with care providers and charitable entities, the Care Quality Commission and the Charity Commission, respectively). The majority of the Group's existing leases with Approved Providers are linked to inflation, have a duration of 20 years or longer, and are fully repairing and insuring - meaning that the obligations for management, repair and maintenance of the property are passed to the Approved Provider. Typically, the Government funds both the rent of the individuals housed in Supported Housing and the maintenance costs associated with managing the property. In addition, because of the vulnerable nature of the residents, the rent and maintenance costs are typically paid directly from the local authority to the Approved Provider on behalf of the individuals living in the property. The rent paid by the local authority to the Approved Provider on behalf of the residents is then paid to the Group via the lease. Ultimate funding for the rent of the individuals living in the properties owned by the Group typically comes from the Department for Work and Pensions in the form of housing benefit.

 

The majority of residents housed in Supported Housing properties require support and/or care. This is typically provided by a separate care provider regulated by the Care Quality Commission. The agreement for the provision of care for the residents is between the local authority and the care provider. The care provider is paid directly by the local authority. Usually, the Group has no direct financial or legal relationship with the care provider and the Group never has any responsibility for the provision of care to the residents in properties the Group owns. The care provider will often be responsible for nominating residents into the properties and, as a result, will normally provide some voids cover to the Approved Provider should they not be able to fill the asset (i.e. if occupancy is not 100% it is often the care provider rather than the Approved Provider that will cover the cost of the rent due on void units). Under the terms of its lease, the Group is owed full rent regardless of underlying occupancy, but monitors occupancy levels and the payment of voids cover by care providers, to ensure that Approved Providers are appropriately protected.

 

Many assets that the Investment Manager sources for the Group have been recently developed and are either specifically designed new build properties or renovated existing houses or apartment blocks that have been adapted for Supported Housing. The benefit of buying recently-developed or adapted stock is that it has been planned in response to local authority demand and is designed to meet the specific requirements of the intended residents. In addition, it enables the Group to work with a select stable of high-quality developers on pipelines of deals rather than being reliant on acquiring portfolios of already-built assets on the open market. This has two advantages: firstly, it enables the Group to source the majority of its deals off-market through trusted developer partners and, secondly, it ensures the Group has greater certainty over its pipeline with visibility over the long-term deal flow of the developers it works with and knows it will not have to compete with other funders.

 

As well as acquiring recently developed properties, the Group can provide forward funding to developers of new Supported Housing properties. Being able to provide forward funding gives the Group a competitive advantage over other acquirers of Supported Housing assets as it enables the Group to offer developers a single funding partner for both construction and the acquisition of the completed property. This is often more appealing to developers than having to work with two separate funders during the build of a new property as it reduces practical and relationship complexity. As well as strengthening developer relationships, forward funding enables the Group to have a greater portion of new build properties in its portfolio which typically attract higher valuations, are modern and have been custom-built to meet the needs of the residents they house, helping to achieve higher occupancy levels. The Group benefits from the Investment Manager's long track record of successfully forward funding a range of property and infrastructure assets. The Group will only provide forward funding when the property has been pre-let to an Approved Provider and other protections, such as fixed-priced build contracts and deferred developer profits, have been put in place to mitigate construction risk.

 

Since the Company's IPO, the Group has set out to build a diversified portfolio that contains assets leased to a variety of Approved Providers, in a range of different counties, and serviced by a number of care providers. This has been possible due to the Investment Manager's over 15-year track record of asset-backed investments, its active investment in the Supported Housing sector since 2014, and the strong relationships it has enjoyed with local authorities for over a decade. These relationships have enabled the Group, in a relatively short space of time, to work with numerous Approved Providers, care providers and local authorities to help deliver Supported Housing that provide homes to some of the most vulnerable members of society.

 

KEY PERFORMANCE INDICATORS

 

In order to track the Group's progress the following key performance indicators are monitored:

 

KPI AND DEFINITION	RELEVANCE TO STRATEGY	PERFORMANCE	EXPLANATION
1. Dividend
Dividends paid to shareholders and declared during the year.   Further information is set out in Note 27	The dividend reflects the Company's ability to deliver a low risk income stream from the portfolio.	Total dividends of 5.46 pence per share were paid or declared in respect of the period 1 January 2022 to 31 December 2022.   (2021: 5.20 pence)	The Company has declared a dividend of 1.365 pence per Ordinary share in respect of the period 1 October 2022 to 31 December 2022, which will be paid on 31 March 2023. Total dividends paid and declared for the year are in line with the Company's target.
2. EPRA Net Tangible Assets (NTA)
The EPRA NTA is equal to IFRS NAV as there are no deferred tax liabilities or other adjustments applicable to the Group under the REIT regime.   Further information is set out in Note 5 of the Unaudited Performance Measures.	EPRA NTA measure that assumes entities buy and sell assets, thereby crystallising certain levels of deferred tax liability.	109.06 pence at 31 December 2022.                           (31 December 2021: 108.27 pence)	The IFRS NAV (equivalent to EPRA NTA) per share at IPO was 98 pence. This represents an increase of 11.3% since IPO driven primarily by yield compression at acquisition and subsequent annual rental uplifts.
3. Loan to Value (LTV)
A proportion of our portfolio is funded through borrowings. Our medium to long-term target LTV is 35% to 40% with a maximum of 50%.   Further information is set out in Note 20.	The Group uses gearing to enhance equity returns.	37.4% LTV at 31 December 2022.   (31 December 2021: 37.6% LTV)	Borrowings comprise two private placements of loan notes totalling £263.5 million provided by MetLife Investment Management and Barings. The £160.0 million revolving credit facility with Lloyds and NatWest was completely undrawn as at 31 December 2021, and during the year, the Group cancelled this facility in its entirety.
4. EPRA Earnings per Share
EPRA Earnings per share (EPRA EPS) excludes gains from fair value adjustment on investment property that are included in the IFRS calculation for Earnings per share.   Further information is set out in Note 36.	A measure of a Group's underlying operating results and an indication of the extent to which current dividend payments are supported by earnings.	4.78 pence per share for the year ended 31 December 2022, based on earnings excluding the fair value gain on properties, calculated on the weighted average number of shares in issue during the year.   (31 December 2021: 4.82 pence)	EPRA EPS reduced slightly reflecting the expected credit loss.
5. Adjusted Earnings per Share
Adjusted earnings per share includes adjustments for non-cash items. The calculation is shown in Note 36.	A key measure which reflects actual cash flows supporting dividend payments.	5.03 pence per share for the year ended 31 December 2022, based on earnings after deducting the fair value gain on properties, and amortisation and write-off of loan arrangement fees; calculated on the weighted average number of shares in issue during the year.   (31 December 2021: 5.14 pence)	This demonstrates the Company's ability to meet dividend payments from net cash inflows. It represents a dividend cover for the year to 31 December 2022 of 0.92x.
6. Weighted Average Unexpired Lease Term (WAULT)
The average unexpired lease term of the investment portfolio, weighted by annual passing rents.   Further information is set out in the Investment Manager's report.	The WAULT is a key measure of the quality of our portfolio. Long lease terms underpin the security of our income stream.	25.3 years at 31 December 2022 (includes put and call options).   (31 December 2021: 26.2 years)	As at 31 December 2022, the portfolio's WAULT stood at 25.3 years.

 

7. Exposure to Largest Approved Provider
The percentage of the Group's gross assets that are leased to the single largest Approved Provider.	The exposure to the largest Approved Provider must be monitored to ensure that we are not overly exposed to one Approved Provider in the event of a default scenario.	29.5% at 31 December 2022.   (31 December 2021: 28.3%)	Our maximum exposure limit is 30%.
8. Total Return
Change in EPRA NTA plus total dividends paid during the period.	The Total Return measure highlights the gross return to investors including dividends paid since the prior year.	EPRA NTA per share was 109.06 pence at 31 December 2022. Total dividends paid during the year ended 31 December 2022 were 5.395 pence per share.   Total return was 5.7% for the year to 31 December 2022.   (31 December 2021: 6.62%)	The EPRA NTA per share at 31 December 2022 was 109.06 pence. Adding back dividends paid during the year of 5.395 pence per Ordinary Share to the EPRA NTA at 31 December 2022 results in an increase of 5.7%.   The Total Return since IPO is 37.4% at 31 December 2022.

 

 

EPRA PERFORMANCE MEASURES

 

The table shows additional performance measures, calculated in accordance with the Best Practices Recommendations of the European Public Real Estate Association (EPRA). We provide these measures to aid comparison with other European real estate businesses.

 

Full reconciliations of EPRA Earnings and NAV are included in Note 36 of the consolidated financial statements and Notes 3 to 5 of the Unaudited Performance Measures, respectively. A full reconciliation of the other EPRA performance measures are also included in the Unaudited Performance Measures section of the Annual Report.

 

KPI AND DEFINITION	PURPOSE	PERFORMANCE
1. EPRA Earnings per Share
EPRA Earnings per share excludes gains from fair value adjustment on investment property that are included in the IFRS calculation for Earnings per share.	A measure of a Group's underlying operating results and an indication of the extent to which current dividend payments are supported by earnings.	4.78 pence per share for the year to 31 December 2022.   (31 December 2021: 4.82 pence)
2. EPRA Net Reinstatement Value (NRV) per share
The EPRA NRV adds back the purchasers' costs deducted from the IFRS valuation.	A measure that highlights the value of net assets on a long-term basis.	£480.7 million/119.33 pence per share as at 31 December 2022.   £475.4 million/118.08 pence per share as at 31 December 2021.
3. EPRA Net Tangible Assets (NTA) per share
The EPRA NTA is equal to IFRS NAV as there are no deferred tax liabilities or other adjustments applicable to the Group under the REIT regime.	A measure that assumes entities buy and sell assets, thereby crystallising certain levels of deferred tax liability.	£439.3 million/109.06 pence per share as at 31 December 2022.   £436.1 million/108.27 pence per share as at 31 December 2021.
4. EPRA Net Disposal Value (NDV)
The EPRA NDV provides a scenario where deferred tax, financial instruments, and certain other adjustments are calculated as to the full extent of their liability.	A measure that shows the shareholder value if assets and liabilities are not held until maturity.	£510.1 million /126.63 pence per share as at 31 December 2022.   £434.0 million /107.76 pence per share as at 31 December 2021.
5. EPRA Net Initial Yield (NIY)
Annualised rental income based on the cash rents passing at the balance sheet date, less non-recoverable property operating expenses, divided by the market value of the property, increased with (estimated) purchasers' costs.	A comparable measure for portfolio valuations. This measure should make it easier for investors to judge for themselves how the valuation of a portfolio compares with others.	5.46% at 31 December 2022.   5.20% at 31 December 2021.
6. EPRA 'Topped-Up' NIY
This measure incorporates an adjustment to the EPRA NIY in respect of the expiration of rent-free periods (or other unexpired lease incentives such as discounted rent periods and step rents).	The topped-up net initial yield is useful in that it allows investors to see the yield based on the full rent that is contracted at 31 December 2022.	5.51% at 31 December 2022.     5.27% at 31 December 2021.
7. EPRA Vacancy Rate
Estimated Market Rental Value (ERV) of vacant space divided by ERV of the whole portfolio.	A "pure" percentage measure of investment property space that is vacant, based on ERV.	0.00% at 31 December 2022.   0.26% at 31 December 2021.
8. EPRA Cost Ratio
Administrative and operating costs (including and excluding costs of direct vacancy) divided by gross rental income.	A key measure to enable meaningful measurement of the changes in a Group's operating costs.	21.09% at 31 December 2022.     20.91% at 31 December 2021.

 

 

INVESTMENT MANAGER'S REPORT

 

Introduction

 

Coming into 2022, the Group had evidenced its strong operational performance despite the COVID pandemic and high inflationary environment. All of the Group's debt was fixed-rate meaning that concerns around the risk of rising interest rates had been mitigated through the Group's refinancing in August 2021. Similarly, the inflation-linked nature of the Group's leases (with the majority being uncapped and linked to CPI) combined with the Government's stated policy of increasing social housing rents by CPI + 1% meant that the Group was well positioned to offer investors strong protection against the risk of rising inflation. Valuations had proven to be resilient and, given the strong underlying supply and demand fundamentals of the sector, seemed well placed to withstand a possible economic downturn. Given these inherent protections against key macroeconomic investor concerns, our focus at the start of the year was on making sure that the Group's portfolio remained resilient and continued to perform well, delivering good homes and sustainable returns to our investors, deploying the Group's remaining capital into high quality Specialised Supported Housing properties with a focus on additionality, and making sure that the Group was able to constructively respond to the known concerns raised by the Regulator around the risks posed to Registered Providers through entering into long leases.

Now that 2022 has drawn to a close, it is important to look back and consider to what extent our assumptions around the Group's protections against inflation and rising rates held firm, assess how successful we were in achieving our strategic objectives, and how well we responded to 2022, an unpredictable year that was more volatile and tragic than anyone could have foreseen.

Taking interest rates first, this year has seen those with floating rate debt scramble to refinance or hedge against a backdrop of rapidly rising interest rates and hedging costs. Our decision to refinance the Group's floating rate revolving credit facility in August 2021 was hugely beneficial to the Group this year and has fully insulated the Group from any direct financial impact from rising interest rates. However, rates have risen at such a pace, and to such an extent, that not only have they increased the cost of borrowing but they have also begun to undermine wider property market valuations, especially those with a focus on long income, as the gap between property yields and the risk-free rate has narrowed. The impact on the valuation of the Group's properties has been limited so far and, whilst the risk of further rate increases remains, we expect this to be the case going forward.

This year, the Board took the decision to increase the Company's target dividend by 5% which was supported by the Group's rental income increasing on average by 6.7%. During November, in order to help alleviate the cost-of-living crisis, the Government moved away from the prevailing social housing rent policy (which was to increase rents by CPI + 1%) and capped social housing rent increases at 7% for the year, beginning April 2023. Specialised Supported Housing was excluded from this cap. Despite Specialised Supported Housing being excluded, the Group will voluntarily apply a 7% temporary rent increase cap to the Group's leases. We took this decision with the Board because we wanted to support the Group's lessees and ensure that the Group's rent increases remained consistent with the wider social housing sector. It also felt like the right thing to do in the midst of a cost-of-living crisis.

A lot of the focus of the last twelve months has been on optimising the performance of the Group's property portfolio. The rate of making new acquisitions was impacted by many of the properties we targeted being in development and so suffered from the supply chain issues, labour shortages and/or cost increases that have caused delays for development projects throughout the UK. We have deployed during the year £20.3 million into 14 properties and have £13.1 million of uncommitted cash still available. Whilst we had originally expected to be fully deployed by the end of the year, given the deterioration of market conditions over the course of the year, we have retained a certain amount of capital in order to give the Group optionality over the coming year.

As the Chair has made clear, the Company is exploring making accretive share buybacks and the potential sale of a portfolio of the Group's properties. So, whilst the Group's pipeline of strategically important opportunities remains strong, given the Company's share price is at a significant discount to net asset value, any decision to deploy capital into income producing properties needs to be considered against the relative benefit of returning capital to shareholders.

The Manager's Housing Team of 24 people are focused on monitoring the performance of the properties, lessees and care providers within the Group's portfolio. Properties are routinely inspected by the Manager's in-house surveyors and this is complemented by quarterly and bi-annual operational, financial and compliance surveys as well as frequent engagement with senior management teams. We have added to the asset management side of our Housing Team at Triple Point with two new hires, both of whom have strong direct Registered Provider or Local Authority experience. The constant engagement between our asset management team and the Group's lessees has helped to ensure that the vast majority have performed in line with expectations over the last 12 months. Excess demand for Specialised Supported Housing continues to underpin the rental payments made to the Group by its lessees, and these payments have generally remained consistent with the exception of two Approved Providers, more information on which is provided in the Approved Provider section below. If there are issues within the portfolio at a granular level, for example a need to find a new care provider for a property due to the exit of an incumbent, then it is the job of the asset management team to work with the relevant Approved Provider to ensure that a resolution that secures the continued delivery of a good Specialised Supported Housing service and the sustainability of the Group's rental income can be found as quickly as possible, and in a way that benefits all stakeholders. As always, the team's focus remains on ensuring that the individuals living in properties owned by the Group have a good home whilst receiving the care and support on which they rely.

Social Impact remains at the core of the Group's strategy. The independent Impact Report prepared by The Good Economy for the period ended 31 December 2022 sets out the Group's impact objectives and target outcomes on which the Group's performance can be measured against. The Impact Report prepared by the Good Economy is available separately on the Group's website and we look forward to continuing our work with the Good Economy, as well as our other partners, to drive forward standardised reporting for equity investors in the sector.

It is now recognised that climate change can impact the long-term value of an asset and therefore developing robust climate risk management is an important part of an Investment Manager's responsibilities. The Task Force on Climate Related Financial Disclosure has emerged as the industry-leading standard for providing transparency on how investments are being protected against possible risk from climate change, or conversely how opportunities may be captured. The Group has chosen to make a voluntary disclosure using this framework which can be found in the Annual Report. The disclosure demonstrates how the Investment Manager approaches this challenge for the Group, through four areas (Governance, Strategy, Risk Management, Metrics & Targets) and in doing so seeks to provide added reassurance to investors on how risk as a result of climate change is understood and managed for the Group's assets.  The Investment Manager is committed to continuing to develop and improve its approach to this challenge and the scope of the disclosure details provided.

Our retrofit pilot project continues to progress well. Each property in the pilot has been reviewed to assess the suitability of the proposed upgrade works and costings. Our primary focus is on a 'fabric first' approach, ensuring that properties are insulated and airtight. This approach will enable us to minimise disruption to residents whilst reducing energy consumption. The pilot project will see a range of new technologies and systems installed into our properties including air source heat pumps and solar PV panels as well as 'fabric first' items such as additional insulation. We are working with a single contractor and retrofit designer, and are in the process of agreeing how to implement the proposed physical works in the pilot projects.

At the start of the year, we were focused on amending the Company's investment policy in order to ensure that we could agree more flexible leases with Registered Providers. We are grateful for the shareholder support regarding these changes which were agreed in May. These amendments were required to ensure that the Group is at the forefront of an evolving sector and able to engage with the strongest counterparties on the best projects. They were also reflective of our desire to alter the Group's investment structure to help our Registered Provider partners address some of the concerns that the Regulator has raised about the long-lease model and promote their compliance with the Regulator's standards.

The changes to the Company's investment policy have also enabled us, in the latter half of 2022, to begin work on a new clause that we hope to include in all of our existing Registered Provider leases following ongoing consultation with stakeholders, including the Regulator. The aim of this clause is to address some of the general risks raised by the Regulator in relation to long leases and in so doing protect Registered Providers if factors beyond their control, such as a change in government policy in relation to Specialised Supported Housing rents, reduce the amount of rent they are able to generate from a property or properties that they lease from the Group. In some such circumstances, the clause allows for the Registered Provider to agree a new rent level which is reflective of the revised circumstances. Should the new rent level not be acceptable to the Group, the Group has the ability to re-assign or terminate the lease. This clause has been developed in close consultation with the senior management teams of a selection of the Group's Registered Providers and has been discussed with the Regulator. The Group's valuers are supportive of the clause and have opined that the roll-out of the clause would lead to no negative impact on the value of the Group's portfolio. In addition we have had initial conversations with Group's lenders about the clause being included in leases over which they have security. Now that the clause is in near agreed form, following the publication of the Annual Report, it is our intention to engage with shareholders to understand their feedback on the clause. Subject to shareholder feedback, we will look to roll out the clause methodically with all of the Group's Registered Provider lessees in the second quarter of this year. In so doing, we hope to be enable the Boards of the Registered Providers we work with to further their compliance with the Regulator's standards.

In responding to the unforeseen challenges thrown up by 2022, we feel that the Group has arguably proven its relative resilience. Come what may politically in the UK, there will still be an overwhelming need for more Specialised Supported Housing in this country and its unlikely that political volatility is going to change that. Similarly, with both main political parties seemingly now wedded to fiscal prudence, private funding and privately owned social housing properties are going to be a critical part of our collective ability to respond meaningfully to the housing crisis. As was demonstrated through COVID, the Group remains resilient to a downturn in economic circumstances. The events of 2022 served to accelerate such a downturn. Due to the ongoing strong demand for more specialised supported homes and the Government support for the individuals living in the properties owned by the Group, we expect continued resilience to these external factors, as demonstrated by the Group since inception.

 

Market

 

As ever, growing excess demand for more homes is one of the defining characteristics of the Specialised Supported Housing sector. Whether it be analysis undertaken by the National Audit Office, the conclusions of the Government's social care white paper or independently commissioned research there is strong consensus that demand for social care will continue to grow due to better diagnosis, higher survival rates for premature babies and longer life expectancies and this will drive further demand for Specialised Supported Housing. Put most succinctly, in its 2021 "People at the Heart of Care" white paper, the Government estimated that by 2030 demand for supported housing will increase by 125,000 homes.

 

This growing demand is now set against a backdrop of a challenging operating environment for Registered Providers. For decades now this country has looked to Registered Providers to deliver the affordable homes that local authorities rely on. However, an ever-growing set of financial headwinds now face the sector and is beginning to inhibit the ability of Registered Providers to deliver their development pipelines. As well as the ubiquitous concerns around rising costs and interest rates, Registered Providers also need to accommodate within their business plans the ability to meet the expenditure associated with ensuring that their properties meet the latest fire safety standards and energy efficiency targets and an increasing level of regulation, particularly in relation to consumer standards. As a result, Registered Providers are increasingly considering alternative sources of capital in order to deliver on the potential of their development pipeline. We are seeing a growing number of larger Registered Providers interested in exploring working with providers of private capital such as the Group, in order to develop new homes.

Whilst the case for private capital remains strong and there is a consensus around growing demand for social care and the efficacy of Specialised Supported Housing, it is important not to focus solely on meeting demand. The recent Levelling Up, Housing and Communities Committee's report on Exempt Accommodation was an important reminder of the need to focus on delivering services that meet the needs of the individuals and which are appropriately regulated. Amongst other things, the report recommended the implementation of minimum standards for exempt accommodation, including on referrals, care and support, and quality of housing and a requirement for all exempt accommodation providers to be registered.

The Group has leases with 27 Approved Providers, having entered into leases with another three Approved Providers during the period. The vast majority of these lessees have performed steadily over the last 12 months, managing the challenges of inflation and labour shortages well. However, , two of the Group's lessees (Parasol and My Space) fell behind with their rental payments over the course of 2022, which in turn has caused rent collection at the portfolio level to slip below historical levels.

Since the latter half of 2022, whilst Parasol have continued to make regular rental payments to the Group, these have not reflected the full amount of rent due and so rental arrears have built up. We have been engaging consistently with both the management team and the Board of Parasol and understand they have taken meaningful steps to address the underlying causes behind the build up of arrears. Our expectation is that we will agree a plan with Parasol in March that will see rent payments increase over the course of the year, simultaneously we are working with Parasol to put in place a repayment plan for the arrears that built up over the course of 2022.

As noted in the Company's recent trading update, in January, the Regulator published an Enforcement Notice about My Space Housing Solutions in which it noted concerns around solvency. This followed on from the Regulatory Judgement of My Space published in December in which My Space was downgraded to the non-compliant rating of V4 for viability and G4 for governance (from a V3 G3 previously). My Space currently have a number of actions prescribed by the Regulator that they need to complete within a relatively short timeframe. We have taken the decision to actively look to move the Group's properties away from My Space. We have identified a possible alternative Registered Provider and are in the process of providing all of the information required for the Registered Provider to determine whether they can provide the right level of service to the individuals living in the properties. Protecting the welfare of the residents of these properties is the Group's principal concern and it should be noted that a transfer might require lease terms to be amended. The Regulator has requested that My Space consider, amongst other things, the option of a business combination or merger, were a business combination or merger be agreed then this could negate the need to move properties.

In order to establish the downside risk, the Board and the Manager requested the Group's valuer, Jones Lang LaSalle ("JLL"), to determine the potential negative impact on the value of the Group's property portfolio in the event that My Space were to go into administration. JLL have estimated this impact to be up to 2.4% of the value of the Group's total portfolio valuation as of 31 December 2022.

The performance of My Space is not reflective of the Group's wider portfolio of lessees and whilst we are focused on finding a resolution to the issues described above, the Group's other lessees do not require the same level of engagement and are broadly performing in line with expectations. Last year, the Regulator issued two notices in relation to the Group's Registered Providers, as noted above, one related to My Space and the other related to Highstone Housing Association (3.5% of the Group's rent roll). Highstone has committed to work with the Regulator to address the issues outlined in the regulatory notice and has already made meaningful progress in that regard.

94.3% of the Group's portfolio by rent roll is leased to Registered Providers that are subject to regulatory protections and standards provided by the Regulator. Since IPO, of the Group's 27 lessees, 10 have had regulatory notices or judgements issued about them by the Regulator highlighting issues that they need to address. The Group's focus has always been on working with Registered Providers, regulated by the Regulator, in order to deliver Specialised Supported Housing to vulnerable individuals throughout the UK (Specialised Supported Housing makes up 88.5% of the Group's properties by rent roll). We believe in proportionate specialist industry regulation and its ability to enhance governance and service provision. We think this is important when delivering homes to vulnerable adults as it brings additional scrutiny, accountability, and higher standards all of which are implemented by a Regulator that is focused on the delivery of social housing.

88.5% of the Group's properties (by rent roll) benefit from a separate care provider, regulated by the CQC. The care provider delivers care and/or support to the residents living in the Group's properties. A further 3.8% of the Group's properties are leased directly to a care provider regulated by the CQC, meaning that 92.3% of the Group's properties have care and support provided by a CQC registered care provider. Based on data received by the Manager from lessees, the Group estimates that, for those lessees, the average care hours received by residents is over 40 hours per week, considerably above guidance around the levels of care expected in Specialised Supported Housing.

As described above, a lot of our focus this year has been on working to ensure that the Group's Registered Provider partners are able to address the points that are consistent across the range of notices and judgements that the Regulator has put out about Registered Providers that operate in the Specialised Supported Housing sector. These principally concern the risks associated with long leases and our ability to materially address these points has been unlocked through the recent changes to the Company's investment policy. We expect the Regulator to remain very active in the sector and to hold Registered Providers to the highest standards. We complement our work with our lessees by direct engagement with the Regulator to keep the Regulator informed on our areas of focus and as much as possible better understand their concerns so they can be reflected in any changes we make to our lease structures.

Financial Review

 

We are pleased to present another stable set of financial results as highlighted earlier. The Group's financial performance is underpinned by an increase in annualised rental income from inflationary uplifts in the Group's predominantly uncapped leases.

 

Touching on some of the key highlights:

 

The annualised rental income of the Group was £39.0 million as at 31 December 2022 compared to £35.8 million as at 31 December 2021. The Group is a UK REIT for tax purposes and is exempt from corporation tax on its property rental business.

 

A fair value gain of £8.3 million was recognised during the year on the revaluation of the Group's properties.

 

IFRS Earnings per share was 6.18 pence for the year, compared to 7.05 pence in 2021.

 

The EPRA EPS excludes the fair value gain on investment property and is measured on the weighted average number of shares in issue during the period. EPRA EPS was 4.78 pence for the year compared to 4.82 pence in 2021.

 

The EPRA NTA per share as at 31 December 2022 was 109.06 pence per share, the same as the IFRS NAV per share.

 

At the year end, the portfolio was independently valued at £669.1 million on an IFRS basis compared to £642.0 million in 2021, reflecting a valuation increase of 11.1% against the portfolio's aggregate purchase price (including acquisition costs). This reflects an EPRA net yield of 5.46%, against the portfolio's blended net initial yield of 5.90% at the point of acquisition.

 

The EPRA ongoing charges ratio is calculated as a percentage of the average net asset value throughout the year. The ongoing charges ratio for the year was 1.60% compared to 1.54% in 2021.

 

The Group held cash and cash equivalents of £30.1 million at 31 December 2022 compared to £52.5 million at 31 December 2021. £13.1 million of cash was available for further investment as at 31 December 2022. Cash generated from operating activities was £25.7 million for the year, compared to £24.7 million for the year ended 31 December 2021.

 

Debt Financing 

 

Following a refinancing in 2021, all of the Group's debt is fixed-price and long-term with the earliest debt maturity occurring in mid-2028, providing strong protection from rapidly increasing interest rates.

Over the period, the Group fully cancelled the £160.0 million revolving credit facility that had been provided by Lloyds and NatWest. The undrawn facility had previously remained in place following a reduction from £160.0 million to £50.0 million in February 2022 to provide the Group with access to additional capital for deployment. However, the recent increase in SONIA rates have made this facility non-accretive to investor returns and the remaining facility was cancelled in December 2022.

As at 31 December 2022, the Group's debt structure comprised two facilities with a combined value of £263.5 million. Both facilities are fixed-priced (with a weighted average coupon of 2.74%), long-term (with a weighted average maturity of 10.6 years) and fully drawn. The Group continues to maintain significant covenant headroom across both facilities while also having additional liquidity in the form of £75.1 million unencumbered properties.

In August 2021, the Group secured £195.0 million of long-term, fixed-rate, interest only, sustainability linked loan notes through a private placement with Barings and MetLife Investment Management clients against a defined portfolio of the Group's properties at a loan-to-value of 50% at the point at which the debt was put in place. The loan notes are divided into two tranches of £77.5 million and £117.5 million with maturities in 2031 and 2036 respectively. Across both tranches the weighted average coupon is 2.634%.

In addition, the Group has a long-term, fixed-rate facility with MetLife Investment Management providing £68.5 million of debt secured against a defined portfolio of the Group's properties at a loan-to-value of 40% at the point at which the debt was put in place. The facility comprises two tranches of £41.5 million and £27.0 million with maturities in 2028 and 2033, respectively. Across both tranches the weighted average coupon is 3.039%.

In August 2022, the Group completed its first annual review with Fitch Ratings, and we were pleased that the Group's existing rating of 'A-' with a Stable Outlook and senior secured ratings of 'A' were re-affirmed by Fitch Ratings in respect of both debt facilities. This is a reflection of not only the Group's continued financial resilience, but also the resilience of the sector in spite of the broader economic and market conditions.

Further information on the Group's debt facilities is set out in Note 20 of the financial statements.

Property Portfolio Review

 

As at 31 December 2022, the portfolio comprised 497 properties providing 3,456 homes, showing a broad geographic diversification across the UK and reflecting our investment strategy of providing additional homes to address the acute need for Specialised Supported Housing.

 

The IFRS value of the portfolio as at 31 December 2022 was £669.1 million, representing a 4.2% increase compared to £642.0 million in 2021. On a like for like basis there has been some negative adjustment to the valuation yields of the Group's properties reflecting a general trend in real estate, principally driven by rising interest rates over the last 12 months. However, at a range of between 10bps to 25bps this outward yield movement for the Group's properties over the 12-month period has been limited relative to commercial property sectors. This is reflective of excess demand for Specialised Supported Housing and a continued lack of supply, and the fact that, prior to this year, yields had not tightened as much in the Specialised Supported Housing sector as they had in some commercial property sectors. In addition to this general outward movement in yields, in the latter half of 2022 further outward yield adjustments were applied to two of the Group's Approved Providers, My Space and Parasol, to reflect rent arrears that had built up over the course of the year.

During the period, the Group bought 14 properties for a total investment cost of £20.3 million (including acquisition costs) as we looked to deploy our remaining capital. As reported in the interim report, in the first half of the year the Group disposed of four properties and exchanged on the sale of two further properties. The exchanges have now completed and so the Group has sold 6 properties during the period. The decision to sell these properties was taken due to changes in the underlying investment cases and therefore, we believe this to have been in the best interest of shareholders. Where occupied properties have been sold, the Group's priority has been ensuring that the sale proceeded in a way that ensured the continuous provision of the services at the property and maintaining the well-being of its residents. Since IPO, the Group has sold seven properties as a result of changes in the underlying investment cases and its focus remains on securing long-term, inflation-linked income to generate sustainable financial returns.

Rental Income

 

The Group's 395 leases generated a total annualised rental income of £39.0 million at the period end, an increase of £3.2 million since 2021 that was predominantly driven by the Group's rental income increasing on average by 6.7% during the period.

All rents under the leases are currently indexed against either CPI (92.6%) or RPI (7.4%). At the period end, the portfolio had a WAULT of 25.3 years, which at present we anticipate continuing to remain above 20 years, with 77.6% of the portfolio's rental income showing a current unexpired lease term of 20 years or longer. As we move into 2023, we expect to start entering into more flexible lease terms as part of bringing new, larger Approved Providers into the portfolio either through new investments or by taking over the management of existing properties.

Prior to the decision to voluntarily implement the Government's temporary 7% cap on social housing rent increases in the Group's rent increases for 2023, the Group's leases have been predominantly uncapped with only a small portion (5.1% of rental income) containing a cap and collar structure. For the purposes of the portfolio valuation, JLL have held their inflation assumption that CPI and RPI increase at 2% and 2.5% per annum, respectively over the term of the relevant leases.

 

Outlook

 

We will need to remain focused on helping our Approved Provider and care provider partners navigate a high inflationary environment and remain watchful of the impact that rising interest rates will have on the value of the Group's portfolio. Our asset management team will continue to engage actively with My Space and Parasol to ensure that we preserve the long-term income generated by those properties we have leased to these two organisations, but it is important to note that we remain broadly confident about the resilience of our other 25 lessees to the prevailing economic conditions and this resilience is underpinned by growing demand for Specialised Supported Housing.

Through our ongoing engagement with My Space and Parasol we will look to increase dividend cover this year and preserve it over the longer-term. We expect the Group to continue to offer investors protection against rising inflation due to both the inflation-linked nature of the Group's leases and the long-term fixed price debt that the Group has secured. We have a number of strategic objectives that we want to achieve over the course of the year. As noted, the Board is currently considering making accretive share buybacks and the potential sale of a portfolio, and so any future deployment will need to be considered in this context. Were capital to be deployed, the focus would be on opportunities that bring new Registered Providers into the Group's portfolio on flexible lease terms and which demonstrate how our recent change in investment policy has enabled us to secure best in class opportunities for the Group. We will continue to work with our lessees in order to roll out a new lease clause that we hope will help ensure a path to compliance for those Registered Providers who are able to demonstrate to the Regulator that they have meaningfully accommodated historic concerns. As always, we will remain focused on ensuring that our partners deliver good homes to our residents throughout the UK.

 

 

Max Shenkman

Head of Investment

2 March 2023

 

 

 

PORTFOLIO SUMMARY

 

Region	Properties	% of funds invested*
North West	99	19.8
West Midlands	84	16.3
Yorkshire	64	14.8
East Midlands	58	11.9
South East	62	9.4
London	27	8.5
North East	50	8.9
South West	29	4.7
East	20	4.1
Scotland	2	1.0
Wales	2	0.6
Total	497	100.0

* calculated excluding acquisition costs

 

 

 

SUSTAINABILITY REPORT

 

We aim to be one of the leading investors in UK Specialised Supported Housing and this is reflected in our constantly evolving and committed approach to embedding social outcomes through the homes we create, alongside an understanding of the need to ensure wider environmental, social and governance (ESG) factors in decisions taken by the Group and our counterparties.

Our business model seeks to ensure that our properties are suitable to meet residents' needs and assist local authorities in responding to local demand for the benefit of the wider community. Our social impact is therefore at the heart of what we do, and we focus on investing where there is clear long-term social need. How we do this is summarised below and set out in further detail in the independent Impact Report available separately on the website https://www.triplepointreit.com/. We maintain a robust corporate governance framework, and this is described in further detail within our Governance report in the Annual Report. We also recognise the importance of a wide range of other social factors alongside environmental considerations and in particular environmental efficiency, which is becoming increasingly integral to our investment strategy.     

 

The Group's sustainability

 

The Group continues to provide homes to individuals with a significant need for appropriate housing and support. These are some of the most vulnerable members of society, with a range of learning disabilities, physical disabilities and mental health diagnoses. Conversations with housing providers, care providers and local authority commissioners confirm that there is a high level of underlying demand for Specialised Supported Housing. We also have a responsibility to consider the wider risk, opportunities and impacts of sustainability issues if the Group is to succeed in providing high quality social housing for vulnerable people over the long term.

 

We understand the importance of transparent reporting as a requisite to accountability for strong sustainability performance. During the last year, we have identified key environmental, social and governance data points, each that play a role in influencing the strategy's sustainable future. These data points incorporate areas where the Group has the ability to drive positive change across its portfolio and the wider sector.

 

To demonstrate the commitment to sustainability progress, the Group has opted to track and report on these ESG data points, noted in table 1 below. In addition to reporting, we have set targets, where appropriate and possible, for achievement during the 2023 financial year or beyond.

 

Sustainability Table 1. Portfolio sustainability performance for the reporting year ended 31 December 2022

 

Metric	Results (as at 31 December 2022)
Portfolio EPC ratings	A: 0.4% B: 31.15% C: 39.31% D: 22.02% E: 6.95% F: 0.12%	A-C: 70.87%
Property emissions per m2 (portfolio level carbon intensity)	The average annual Co2 emissions from a Group property: 1.4 tonnes per annum   Total portfolio Co2 emissions: 3,610 tonnes   The carbon emissions produced by the Group's properties are categorised as Scope 3, generated from the energy usage across the portfolio properties.   The Group partnered with Kamma Data, an innovative data provider in the sector, demonstrating best practice in estimating property emissions by utilising a variety of data sources. EPC data is used as a baseline, with a proprietary matching system indexing localised and more frequently updated EPC databases to ensure a high coverage rate. Emissions are recalculated using primary data from the EPC reports to better reflect the emissions associated with new technologies, and utilise up-to-date carbon intensity data from the National Grid.   The Investment Manager is in the process of developing a net zero plan. The Group's emissions data have been taken from the baseline net zero calculations for the Group's portfolio, as of November 2022.   We are committed to improving the accuracy level of our environmental disclosures and continue to work with highly rated data partners to ensure best practice is followed.
Metric
Number of properties and location of these properties	497 properties and 3456 units. See breakdown below: Region # of properties # of units East 20 125 East Midlands 58 442 London 27 192 North East 50 377 North West 99 732 Scotland 2 29 South East 62 276 South West 29 167 Wales 2 20 West Midlands 84 554 Yorkshire 64 542   497 3,456
Quality rating of care providers (CQC)	85% rated Good or Outstanding

 

Governance of the Company

Governance
Metric	Data
Investment Trust Governance: -       Board diversity -       Board experience -       Board independence	Gender split: See Governance report in the Annual Report for gender disclosure Ethnicity split: See Governance report in the Annual Report for ethnicity disclosure Experience / education: See the Governance report in the Annual Report for board member biographies Average age: 68 Non-executives vs. directors: 100% non-executive
Board engagement with ESG:	The Board receive specific sustainability training from the Investment Manager's Head of Sustainability at a minimum of every 2 years. The Board received regular updates on the Eco-Retrofit Project throughout the year. Specifically, this is an ongoing programme to fund the upgrade of properties owned by the Group. Consideration and approval for the implementation of a 7% rent increase cap, in line with the Department for Levelling Up, Housing, and Communities (DLUHC) social housing rent cap. Specialised Supporting Housing was excluded from the cap, but the Company still took the decision to apply the 7% cap. In making this decision, the Board wanted to support the Group's lessees and ensure that the Group's rent increases remained consistent with the wider social housing sector, and also wanted to do the right thing in the midst of the cost-of-living crisis. In order to address Regulator concerns regarding risks that long leases can pose on Registered Providers (such as risk of changes to government policy impacting the amount of housing benefit available to individuals living in Specialised Supported Housing and therefore RP's ability to pay lease rent), the Board agreed to engaging with the boards and senior management teams of some of its lessees to agree a new lease clause that aims to re-apportion some of this risk. The clause will ensure that where there are risks that are beyond the control of the Group's lessees such as changes in government policy or regulation, then, subject to a materiality threshold being breached, these risks will sit with the Group. The Board intends to engage with shareholders on implementation of the lease clause. The Board and the Nomination Committee both considered the FCA's new Diversity Listing Rules and the targets these set out.

 

Initiative-taking improvements

 

The Investment Manager's Property Asset Management team have developed a comprehensive retrofit program, to improve the energy efficiency of properties, seeking to meet EPC regulation changes, reduce tenant costs and reduce portfolio-wide emissions.

 

To conduct retrofit work on Specialised Supported Housing requires careful and considerate planning, especially regarding the impact of construction during retrofit work, and the ease of functionality for all technology that is used, including heating controls and ventilation systems. To this end, where possible, the team will conduct as many upgrades as possible in one go in order to minimise disruption to tenants, considering tenant needs and ability to benefit from proposed upgrades. All retrofit works will closely follow sustainability best practices.

 

See retrofit section in the Investment Manager's Report for further details regarding the retrofit plans and implementation.

 

Sustainability approaches: Impact and ESG integration

 

The Group's approach to sustainability is to create social impact by delivering homes for vulnerable individuals supported through the additional management of wider risks and opportunities which may impact the quality of those homes or the long-term value of the assets through the integration of ESG factors in the investment decision making process.

 

Impact creation: The Group's social impact goal is to increase the provision of Specialised Supported Housing that delivers positive outcomes for people with care and support needs. Under this overall impact goal, the Group has established the following set of impact objectives and identified the target outcomes to which the Fund aims to contribute:

Impact objectives The areas under the Group's direct control or influence:	Contribute towards	Target outcomes The outcomes for people and planet; these depend on many factors, one of which may be the Group's activities
Social Need;		Improve wellbeing
Fund sustainable developments;		Value for money
increase supply; quality services and partnerships

 

The Good Economy conduct an independent assessment of the impact objectives and target outcomes. Full details regarding the impact results can be found at The Good Economy's website.

 

ESG integration: In conjunction with the Board's endorsement, and in line with the Principles of Responsible Investment (PRI), the Investment Manager has an ESG integration policy in place, directly relating to the Group's investments with the aim of ensuring value for investors, coupled with respecting society and the environment. Within this integration policy, the Investment Manager has set out principles which it incorporates throughout its business, for example, to consider the impact of operations on local communities and to uphold high standards of business integrity and honesty.

 

An overview of how ESG is integrated throughout the investment process is outlined in table 2, whilst further details of this process, including examples, can be found within the ESG integration policy (available on request).

 

Sustainability Table 2. The Group integrates ESG throughout all stages of the investment process.

 

Investment stage	Sustainability activities
Origination and initial due diligence	Key ESG and impact factors are summarised within the team's internal pipeline tracker. An opportunity will only progress to incurring costs once the senior investment team members believe that ESG conditions are being met or managed and the opportunity does not present a material ESG risk.
Cost incurring due diligence	Key ESG considerations are assessed on a deal-by-deal basis within the due diligence trackers. A new due diligence tracker is completed for new transactions, the tracker also assesses transactions against six impact objectives. The due diligence tracker is designed to capture all the ESG metrics collated throughout the origination and due diligence phase.
Property Investment Committee	ESG factors are presented and considered by members of the investment committee within a paper which is accompanied by the due diligence tracker for all supporting ESG data. The meeting minutes will record any ESG issues raised, with confirmation that ESG factors have been considered, and the committee believes that once any ESG conditions are met, the deal does not present a material ESG risk. The final due diligence Tracker will record any investment committee comments or actions on ESG.
Ownership and asset management	On-going conversations with partners to discuss and gather insight and share good practice as well as identifying early any future challenges. Property performance is monitored to ensure that social needs continue to be met. The governance of existing counterparties is monitored through regular meetings and inspections. We consider how to optimise ESG performance across the portfolio - for example, upgrading the EPC ratings of existing properties through comprehensive retrofit programs. We engage in sector-wide discussions (including with government) about ESG performance and best practices
Exit	If properties are sold, we will disclose ESG improvements during the period of ownership.

 

When considering ESG within the investment process, a materiality approach is taken to ensure focus is given to those issues most likely to negatively impact or positively strengthen the homes we are investing in. The details below summarise the areas of interrogation.

Environment

When acquiring assets, we look closely at their environmental impact, and encourage a sustainable approach for new development. We also look to ensure the environmental impact is considered in relation to the maintenance and upgrading of existing properties.

We now require every property we acquire to have a minimum energy performance rating of at least a 'C' on an EPC for renovated properties and at least a 'B' on an EPC for new-build properties, notwithstanding the legal requirement for any privately rented properties to have a minimum energy performance rating of E on an EPC. A retrofit programme also commenced in 2021 to increase all our properties EPC ratings to a minimum of C.

Through our rigorous and evolving due diligence process, the high standards we expect from developers and significant investment in the Specialised Supported Housing sector, we have been able to provide capital and expertise that has enabled our counterparties to progress alongside us. We focus on offering residents resource-efficient and adapted living areas which help ensure our investments are fit-for-purpose and sustain their value over the long-term. As a landlord, we consider the opportunities we have to help reduce running costs for our lessees and occupiers, and increase resident well-being. Considering these issues helps to increase the security of income and preserve the long-term value of investments.

Climate Change

The Investment Manager, in accordance with the FCA's ESG Sourcebook, is committed to the implementation of disclosures consistent with the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD) by 30 June 2024.

Whilst the Group is not currently required to disclose against the TCFD framework, it seeks to demonstrate best practice in transparency and therefore has included a disclosure within this report. Further details are found in the Climate Risk analysis section below, and the full report is set out in the Annual Report.

Social and Social Impact

Our properties aim to provide multiple benefits to local communities. We want to provide residents with safe and secure accommodation, which meet their individual care needs. We work with Approved Provider lessees to enable them to grow the portfolio of properties they are responsible for managing, allowing them to expand the number of individuals they support whilst providing employment for local carers, housing managers and builders. While development and refurbishment can cause some minor short-term disruption to an area, these activities help create employment and, at the same time, help alleviate the UK's housing crisis.

Governance

The Group looks to encourage best practice governance among all counterparties in order to minimise operational risks and encourage them to continually assess how they can contribute more to employees, residents, wider society and the environment, through compliance with legislation and regulations, and the adoption and implementation of issue-specific policies. Details on the Group's corporate governance practices are set out in the Annual Report.

Future sustainability innovations

Net Zero Roadmap Exercise

The Investment Manager has started the process of aligning all of its financed emissions to Net Zero pathways. The Investment Manager is a signatory of the Partnership for Carbon Accounting Fundamentals and discloses its financed emissions as part of this commitment. The Investment Manager intends to set near-term Science-Based Targets for 2030 across all of its eligible assets as a first step towards reaching Net Zero emissions by 2050, and as part of our obligations as signatories of the Net Zero Asset Managers initiative.

Climate risk analysis

Climate-related risks and appropriate mitigation is a growing area of focus for the Group. The team are seeking to roll out comprehensive climate analysis initiatives to support risk mitigation and forward planning. This will encompass both existing portfolio properties as well as becoming incorporated into the selection process for new properties.

The Group is considering the climate change strategy of its portfolio including a review of its climate risks and opportunities, and has committed to disclose these in line with The Task Force for Climate-Related Financial Disclosures (TCFD) recommendations. These are designed to provide a framework to take account of climate-related risks and opportunities and ensure that corporate reporting is consistent and comparable.

The Group is pleased to voluntarily report its progress to date in line with the eleven disclosures set out in the TCFD recommendations.

Please refer to the Annual Report for the full TCFD disclosure.

Wider Governance and sustainable business behaviours of the Group and Investment Manager

Business Relationships

The Group has a set of corporate providers that ensure the smooth running of the Group's activities. The Group's key service providers are listed in the Annual Report, and the Management Engagement Committee annually reviews the effectiveness and performance of these service providers, taking into account any feedback received. The Group also benefits from the commitment and flexibility of its corporate lenders for its debt facilities. Each of these relationships is important to the long-term success of the business. The Group and the Investment Manager maintain high standards of business conduct by acting in a collaborative and responsible manner with all its business partners that protects the reputation of the Group as a whole.

Employees

The Group has no employees and accordingly no requirement to separately report on this area.

The Investment Manager is an equal opportunities employer who respects and seeks to empower each individual and the diverse cultures, perspectives, skills and experiences within its workforce. The Investment Manager places great importance on company culture and the wellbeing of its employees and considers various initiatives and events to ensure a positive working environment.

Health and Safety

The Group is committed to fostering the highest standards in health and safety. Day-to-day responsibility for health and safety in our properties is shared by the Approved Providers and care providers who manage the housing and provide care. Our Investment Manager requests confirmation from Approved Providers that all properties remain compliant and visit properties, following an agreed visiting schedule, are undertaken to verify this. Every quarter the Board is provided with updates on the health and safety of our residents.

Diversity

We are an externally managed business and do not have any employees or office space. As such the Group does not operate a diversity policy with regards to any administrative, management and supervisory functions. A description of the Board's policy on diversity can be found in the Annual Report.

Human Rights

The Group is not within the scope of the Modern Slavery Act 2015 because it has not exceeded the turnover threshold and is therefore not obliged to make a slavery and human trafficking statement.

The Board are satisfied that, to the best of their knowledge, the Company's principal advisers, which are listed in the Shareholder Information section in the Annual Report comply with the provisions of the UK Modern Slavery Act 2015.

The Investment Manager takes the risk of Modern Slavery extremely seriously. The Investment Manager's responsibilities as both an employer and investor are laid out in a separate and public Modern Slavery Act Statement available on the Triple Point website.

STAKEHOLDER ENGAGEMENT

 

This section describes how the Board engages with its key stakeholders, how it considers their interests and the outcome of the engagement when making its decisions, the likely consequences of any decision in the long-term, and further ensures that it maintains a reputation for high standards of business conduct. The Group is committed to continual stakeholder engagement and implements a cycle of constant engagement at all stages of the Group's investment lifecycle.

 

Section 172(1) Statement

 

Stakeholder	Why is it important to engage?	How have the Investment Manager/Directors engaged?	What were the key topics of engagement?	What was the feedback obtained and the outcome of the engagement?
Shareholders	Investment from our shareholders plays an important role by providing capital to ensure we can deliver additional housing into the Supported Housing market. Through the investment of private capital into an under-funded sector, we can achieve a positive social impact whilst ensuring our shareholders receive a long-term inflation-linked return.	The way in which we engage with our shareholders is set out in our Governance Report.	Financial and operational performance.   Share price discount to NAV and potential rectification action.   The share price and possible share buybacks or the sale of a portfolio.   The regulatory environment of the Supported Housing sector.   Environmental, social and governance considerations.   The Company's key service provider appointments, including the AIFM and broker arrangements.	The Board and the Investment Manager are considering share buybacks and a portfolio sale to address investor feedback about the Company's share price.   The Board and Investment Manager consider shareholder concerns when speaking to the Regulator and agreed to keep shareholders updated of any developments. We understand the importance of, and are committed to, working with Registered Providers to address the concerns of the Regulator. Refer to the Market review in the Investment Manager's Report.   The Investment Manager has enhanced environmental, social and governance considerations within its investment process, and within its own business. Refer to Investment Manager's Report, and the Sustainability Report.
Residents	Our strategy is centred on providing Supported Housing for our residents.  We remain focused on providing homes to our residents which offer them greater independence than institutional accommodation, as well as meeting their specialist care needs.	The Investment Manager monitors resident welfare through engagement with Approved Providers. The Investment Manager receives quarterly reports from Approved Providers to ensure compliance with health and safety standards. Any concerns are raised to the Board. We do not generally engage with residents directly. Instead, day-to-day engagement is done by care providers and, to a lesser extent, Approved Providers.	We provide oversight of resident welfare by ensuring properties are safe and secure before residents move in by: monitoring compliance with health and safety standards; ensuring residents are looked after by competent counterparties; and requesting updates on any health and safety issues every quarter.	Resident issues raised as a result of engagement through care providers were addressed.   Any compliance issues are remedied with any associated works undertaken.   The Group's investment decisions are informed by the long-term needs of our residents.
Investment Manager	The Investment Manager is responsible for executing the Investment Objective within the Investment Policy of the Company.	The Board maintains regular and open dialogue with the Investment Manager at Board meetings and has regular contact on operational and investment matters outside of meetings.	In addition to all matters related to the execution of the Company's Investment Objective, the Board engaged with the Investment Manager on the structure of the Group, developments in the market and updates from the Regulator.	As a result of the engagement between the Board and the Investment Manager the Group has been able to execute its investment strategy and has considered what adjustments can be made to the Group's model that will uphold financial and governance standards while attracting further private investment. Additionally, the Investment Manager produces reports to the Board every quarter on various governance and operational matters at the Board's request. Capital allocation is also considered with regard to the views of the Board.
Approved Providers	Our relationship with Approved Providers is integral to ensuring rent received from the Local Authority is paid to the Group and that properties are managed appropriately to safeguard tenants. The  Group's leases with Approved Providers are fully repairing and insuring - meaning that Approved Providers are responsible for management, repair and maintenance, in addition to tenanting the properties.	The Investment Manager looks to maintain good relationships with Approved Providers, having formal meetings with senior management at least every six months as well as engaging more frequently on an ad hoc basis on a variety of matters. Quarterly operational surveys and biannual compliance surveys are provided to the Investment Manager.	The Investment Manager discussed a number of topics with Approved Providers including that properties are managed in accordance with their leases; financial reporting and governance; and specific property-related issues such as occupancy, health and safety issues, rent levels, management accounts and governance.	Refer to the Investment Manager's Report.
Care Providers	Our residents receive care from care providers. It is important to ensure that our vulnerable residents receive the best possible care. In addition, the care providers share the cost of voids with Approved Providers so we engage with care providers to ensure our Approved Providers are able to pay our rent in the event of empty units. Therefore, care providers play an essential role in the occupancy levels of our properties and strong engagement with the Group ensures the best possible care for our residents.	The Investment Manager engages with care providers as part of its due diligence process and regularly meets and engages with our provider representatives when inspecting the Group's portfolio, when reviewing quarterly data and on an ad hoc basis.	The Investment Manager engages with care providers on: the specific care and support requirements of residents including health and safety compliance (refer to Investment Manager's Report); property management by Approved Providers; financial and operational capacity for new schemes; occupancy levels; and financial performance.	The Investment Manager rejected deals where care providers did not meet the care or governance standards expected or where care providers were unable to demonstrate the financial strength to meet its obligations under a service level agreement. Following engagement, scope of works were agreed with care providers to produce properties that meet the specific care needs of residents. Whilst done at the relevant local authorities' discretion care providers have been changed where expectations around the standard of care were not met or where engagement identified care providers in financial difficulties.
Local authorities	Local authorities are responsible for identifying appropriate housing and care for the individuals who live in the Group's properties. New acquisitions are assessed to ensure that they meet the expectations of the relevant local authority in order to ensure that referrals are made as efficiently and safely as possible.	When looking at a new acquisition the Investment Manager engages with, or receives feedback from, various departments within local authorities including Commissioners and Housing Benefit officers. The Investment Manager will look to engage with a local authority in relation to an existing scheme if required (for example if a new care provider is needed).	The aim of the engagement is, as much as possible, to ensure that the properties acquired by the Group are consistent with the requirements of the relevant local authority.   Where necessary local authorities will be engaged with directly post the acquisition of a property to access ongoing demand levels and any changes in commissioning strategy.	The Investment Manager will listen to feedback from local authorities and where possible will work with Approved Providers to improve and upgrade properties to ensure that they meet ongoing commissioning requirements.   An initial pilot programme to implement energy efficiency upgrades across 12 initial properties has commenced. Refer to the Investment Manager's Report for more detail.
The Regulator	The Regulator regulates Registered Providers of social housing to ensure providers are financially viable and properly governed. It is important to ensure that, as much as possible, the Group reflects observations made by the Regulator in its investment structures and its engagement with its Registered Provider lessees.	The Investment Manager is in contact with the Regulator in order to understand the key concerns and priorities of the Regulator in the Specialised Supported Housing Sector.	Discussions with the Regulator are focused on ensuring the market evolves in line with its observations, and Registered Providers can best focus on addressing the Regulator's observations.	The Investment Manager continues to work with the Boards of its Registered Provider lessees to understand how best we can help them meet the standards of the Regulator. Refer to the Investment Manager's Report for more detail.
Lenders	The Group's investments in social housing assets are partly funded by debt. Prudent debt financing is required to achieve the Group's return targets. All of our debt is long-term and so it is important for the Group and the Investment Manager to form a good relationship with our debt provider partners and provide them with all information and commentary required.	The Investment Manager engages with its lenders mainly via the reporting of financial and information covenants under the existing loan agreements on a quarterly basis. In addition, there are regular ad-hoc engagements in relation to general topics relating to the social housing sector as well as specific topics arising from the financial and operational performance of the Group's activities and future opportunities, and any other general matters affecting the relationship between the Group and the lenders.	The Group engaged on the following topics: financial and information covenant reporting and; active asset management activities undertaken by the Group e.g. any other asset management activity that requires lenders' consent.	The Group is fully compliant with its debt covenants. The Investment Manager's pro-active engagement with the Group's lenders is welcome by its lenders and to date no concerns in relation to the performance of its loans have been raised by the lenders. The Board continues to monitor compliance with debt covenants and keeps liquidity under constant review to make certain the Group has sufficient headroom in its debt facilities. The Group cancelled the undrawn £160.0 million Revolving Credit Facility jointly provided by Lloyds and NatWest across two separate reductions occurring in February 2022 (a part-cancellation of £110.0 million) and December 2022 (a cancellation of the remaining £50.0 million). In August 2022, Fitch Ratings affirmed the Group's existing Investment Grade, long-term Issuer Default Rating (IDR) of 'A-' with a stable outlook and a senior secured rating of 'A' for the Group's existing loan notes.

 

Principal Decisions

 

Principal decisions have been defined as those that have a material impact to the Group and its key stakeholders. In taking these decisions, the Directors considered their duties under section 172 of the Act.

 

Increase in target dividend

 

During the year, the Board increased the Company's target dividend by 5%. The decision was supported by underlying rental growth in the Group's leases and represented strong dividend growth in a high inflationary environment. Further detail can be found in the Investment Manager's Report. The Board believed that the decision was in the best interests of the Company's shareholders and feel confident that the decision will not impact the Company's ability to pay future dividends.

 

Rent increase cap of 7%

 

The Board voluntarily took the decision to apply a 7% rent increase cap to the Group's leases and agreed a temporary one-year cap with most of the Group's lessees.

 

This cap is in line with the Government's cap on social housing rent increases. Specialised Supported Housing was excluded from this cap, however, the Board believed that applying the cap was in the best interests of the shareholders, Approved Providers, residents, and the local authorities. The Board believed that 7% would still represent further significant rental growth for the Group's portfolio and also provide a greater degree of certainty for investors.

 

Cancellation of £160 million Revolving Credit Facility

 

The Board decided to cancel the undrawn £160 million Revolving Credit Facility with Lloyds and Natwest across two separate reductions occurring in February 2022 and December 2022.

 

In making this decision, the Board considered the Group's liquidity position and the Investment Manager's engagement with the relevant lenders, and determined that the decision was in the best interests of the Group's investors, taking into account the Group's gearing level and facility fees.

 

 

RISK MANAGEMENT

 

The Board recognises that effective risk management is key to the Group's success and that a proactive approach is critical to ensuring the sustainable growth and resilience of the Group.

 

In the Company's 2022 Interim Report we noted that events that emerged in the first half of 2022 could adversely impact on three of the Group's principal risks outlined in the 2021 Annual Report. These events principally related to rising interest rates and inflation in the United Kingdom, and the UK government's consultation on a possible rent cap to be applied to increases to social housing rents for the year starting in April 2023. In addition, at the Company's annual general meeting in May, shareholders approved changes to the Company's Investment Policy and Investment Restrictions. These changes allow the Group to enter into a broader range of lease structures, including: shorter leases; selectively taking on the cost of planned maintenance; and leases where upward only rent reviews are linked to either inflation or central housing benefit policy. Given the approved changes to the Company's Investment Policy and Investment Restrictions, and now that the outcome of the government's rent cap consultation is known (as noted in both the Chair's Statement and the Investment Manager's Report) and the Company has a better understanding of the impact of both rising inflation and interest rates on the Group's portfolio and performance, the Company has taken the opportunity to refresh the Group's principal risks and uncertainties, as set out herein.

 

By way of background, the Group focuses on a single sub-sector of the UK real estate market with the aim of delivering an attractive, growing and secure income for shareholders. The Company has a specific investment policy, as outlined above, which is adhered to and for which the Board has overall responsibility. The Group does not undertake speculative development. Furthermore, the Group looks to work with experienced lessees and has assembled a granular portfolio with a relatively high WAULT.

 

As an externally managed investment company, the Company outsources key services to the Investment Manager and other service providers and relies on their systems and controls. The Board undertakes a formal risk review, with the assistance of the audit committee, twice a year to assess and challenge the effectiveness of the Company's risk management and internal control systems. The Board regularly reviews the control reports of the key service providers and the external auditors note any deficiencies in internal controls and processes that have been identified during the course of the audit. A description of the key internal controls of the Group can be found in the Annual Report.

 

The Investment Manager has responsibility for identifying potential risks at an early stage, escalating risks or changes to risk, and relevant considerations and implementing appropriate mitigations which are recorded in the Group's risk register. Where relevant the financial model is stress tested to assess the potential impact of certain risks against the likelihood of occurrence. The Board regularly reviews the risk register to ensure gradings and mitigating actions remain appropriate.

 

The Group's risk management process is designed to identify, evaluate and mitigate (rather than eliminate) the significant and emerging risks the Group faces and continues to evolve to reflect changes in the Group's business and operating environment. The process can therefore only provide reasonable, and not absolute, assurance. It does however ensure a defined approach to decision making that decreases uncertainty surrounding anticipated outcomes, balanced against the objective of creating value for shareholders.

 

During the year, the Board has not identified or been advised of any failings or weaknesses in the Group's risk management and internal control systems.

 

Principal risks and uncertainties

 

The table below sets out what we the Company believes to be the principal risks and uncertainties facing the Group. As noted above the table has been updated to reflect changes  to the Company's Investment Policy and Investment Restrictions and any risks emerging as a result of the events and trends of 2022. The table does not cover all of the risks that the Group may face. Additional risks and uncertainties not presently known to management or deemed to be less material at the date of this report may also have an adverse effect on the Group.

 

In the 2021 Annual Report two emerging risks were reported: "change in social housing legislation" and the "Ukraine-Russia conflict". The risk of "change in social housing legislation" has been incorporated into the risk of "changes to the social housing regulatory regime and changes to government policy in relation to social housing and housing benefit" in the table below. The Group has no direct exposure to Russia or Eastern European territories and so the principle impact of the Ukraine-Russia conflict has been regarding inflation. As such we consider this risk to be covered in the "higher than projected levels of inflation may impact Approved Providers' ability to pay rent due under the Group's leases" risk detailed in the table below.

 

Risk Category	Risk Description	Risk Impact	Risk Mitigation	Impact	Likelihood	Change in year
Property	Default of one or more Approved Provider lessees	The default of one or more of the Group's lessees could impact the rental income received from the relevant assets. If the lessee cannot remedy the default, the Group may have to terminate, re-assign or re-negotiate the relevant lease. This could lead to a sustained reduction in rental income.   Additionally, were a care provider not to renew the service level agreement with a lessee, this may result in a lessee having to cover rental payment on void units without receiving the corresponding housing benefit payment from the care provider.	Under the terms of the Company's investment policy and restrictions, no more than 30% of the Group's Gross Asset Value may be exposed to one lessee. This restriction is in place to mitigate against the risk of significant rent loss in the event of an Approved Provider default.   Were a lessee to default or were the Group to believe it likely that a lessee would default, the Group could look to move the affected properties to another Approved Provider with whom the Group has a good relationship. The intention would be to ensure both the ongoing provision of housing to the residents, and, as much as possible, the preservation of the income stream associated with the relevant properties.	Moderate	Moderate to High	Increased
Regulatory	Risk of an Approved Provider being deemed non-compliant with the Governance and Viability Standard by the Regulator	Should an Approved Provider with which the Group has one or more leases in place be deemed non-compliant by the Regulator, in particular in relation to viability, depending on the further actions of the Regulator, it is possible that there may be a negative impact on the market value of the relevant properties which are the subject of such lease(s). Depending on the exposure of the Group to such Approved Provider, this in turn may have a material adverse effect on the Group's Net Asset Value unless the matter is resolved through an improvement in the relevant Approved Provider's rating or the transfer of leases to an alternative Approved Provider.	The Investment Manager has established relationships with the Approved Providers with whom it works. The Approved Providers keep the Investment Manager informed of developments surrounding regulatory notices.   As at 31 December 2022, the Group has assembled a diversified portfolio with leases to 27 Approved Providers. The Group has leases in place with 10 Registered Providers that have been deemed non-compliant by the Regulator.   Where Registered Providers have been deemed non-compliant the Group has looked to work with them in order to help address the issues identified by the Regulator. The Group's commitment to this approach can be seen through the Group's proposed new lease clause described in both the Chair's Statement and the Investment Manager's Report.   In all but two cases there has been no subsequent reduction in value in the properties we lease to the Registered Providers that have been deemed non-compliant by the Regulator.	Moderate	Moderate to High	Increased
Regulatory	Risk of changes to the social housing regulatory regime and changes to government policy in relation to social housing and housing benefit.   The previously noted emerging risk concerning changes in social housing legislation has now been incorporated into this risk	The Social Housing Regulation Bill is in the process of being passed by the UK government which is reflective of the government's ability, and desire, to change and update regulation and policy relating to social housing.   In addition future governments may take a different approach to the social housing regulatory regime, resulting in significant changes to the law and other regulation or practices of the Government with regard to social housing.	It is important that the Group works with the Group's Approved Provider lessees to help ensure that they respond proactively to any changes in regulation or policy and the Group understands what, if any, impact it will have on their organisation and the properties that the Group leases to them.   As demand for social housing remains high relative to supply, the Board and the Investment Manager are confident there will continue to be a viable market within which to operate and a need for private investment to deliver more homes   In addition, the social housing regulatory regime in which most of the Group's lessees operate provides a high degree of accountability and transparency.	High	Low to Moderate	Stable
Financial Risk	Non-payment of voids cover by care providers	If a care provider gets into financial difficulty and is unable to pay contracted voids cover to an Approved Provider, this could have a negative impact on the financial performance of the Approved Provider which ultimately could impact its ability to pay the Group its rent. This risk is compounded if there is low occupancy in a property.	The Investment Manager closely monitors the performance of the care providers to ensure, so far as reasonably possible, that they are financially viable and performing well. Should a care provider get into financial difficulty, the Group works with a wide range of alternative care providers who could step in to provide care services and therefore cover the voids payment.   Occupancy is also closely monitored and the Investment Manager works with Approved Providers and care providers to optimise occupancy.	Moderate	Moderate	Stable
Financial	Property valuations may be subject to change over time	Property valuations are inherently subjective and uncertain. Market conditions, which may impact the creditworthiness of lessees, may adversely affect valuations. This is particularly relevant at the moment given rising interest rates and the resultant negative impact on property valuations.   The portfolio is valued on a Market Value basis, which takes into account the expected rental income to be received under the leases in the future. This valuation methodology provides a significantly higher valuation than the Vacant Possession value of a property. In the event of an unremedied default of an Approved Provider lessee, the value of those assets in the portfolio may be negatively affected.   Any changes could affect the Group's net asset value and the share price of the Group.	All of the Group's property assets are independently valued quarterly by Jones Lang LaSalle, a specialist property valuation firm, who are provided with regular updates on portfolio activity by the Investment Manager. The Investment Manager meets with the external valuers to discuss the basis of their valuations and their quality control processes. Default risk of lessees is mitigated in accordance with the lessee default principal risk explanation provided above. In order to protect against loss in value, the Investment Manager's property management team seeks routinely to visit each property in the portfolio, and works closely with the Group's lessees to ensure, to the extent reasonably possible, their ongoing financial strength viability, and that governance procedures remain robust through the duration of the relevant lease.	Moderate	Moderate	Stable
Property   (New)	Risk of poor or inadequate housing management (including compliance) or poor provision of care services by the Group's Approved Providers lessees and care providers respectively	Approved Providers and care providers face a number of operational challenges (e.g. rising costs and labour shortages) which have heightened the risk of poor or inadequate housing management or poor care being provided in relation to the Group's properties.   Poor services being provided to the individuals in the Group's properties could undermine the benefits of Specialised Supported Housing and cause reputational damage to the Group which could negatively impact the Group's performance and/or the price of the Company's shares.	The Investment Manager undertakes strategic property inspections in order to review the physical condition of the Group's properties as well as the quality of services being provided to the Group's residents. In addition, there is frequent engagement with the Group's Approved Providers and Care Providers as well as quarterly operational and compliance surveys which provide data on the performance of the Group's properties.	Moderate	Moderate	New
Financial Risk	Higher than projected levels of inflation may impact Approved Providers' ability to pay rent due under the Group's leases	The Group's leases contain upward only rent reviews, generally linked to inflation (typically CPI), with the majority being uncapped.   Annual rental uplifts have been, and will continue to be, higher than projected as a result of increased inflation in 2022 and 2023.	Whilst the social housing rent increase cap of 7% will not apply to Specialised Supported Housing, the Group has decided to apply a temporary 7% cap to the rent increases it agrees with its Registered Provider lessees for the calendar year 2023.   This should help to ensure that the Group's lessees are able to agree rent increases with Local Authorities, in relation to the Group's residents, that are in-line with the rent increases in the Group's leases.	Moderate	Moderate	Increased
Climate Risk   (New)	The potential impact of climate change on the valuation of the Group's properties	Changing weather patterns under projected climate change scenarios could physically damage the Group's properties and reduce their value. New minimum efficiency standards could require retrofitting of efficiency measures, or result in a reduction in valuations. The impact of the most prominent climate-related risks to the portfolio is assessed in detail in the Group's TCFD reporting in the Annual Report.	The Investment Manager's sustainability team has been working with the housing team to assess the risk that climate change poses to the Group's properties. The key transition risks to the portfolio have been identified and qualitatively assessed. Physical risks to the portfolio have been assessed using a new piece of analytical software and the outputs of this analysis are demonstrated in the Group's TCFD reporting in the Annual Report. The Investment Manager will work to ensure protections are put in place for any properties that are deemed to be at high risk to the negative impact of climate change. The Group believes that the Group's reporting on climate change is ahead of regulatory requirements.	Moderate	Low to Moderate	New
Financial	Unable to operate within debt covenants	The borrowings the Group currently has and which the Group uses in the future may contain loan to value and interest covenants ratios. If property valuations and rental income significantly decrease, such covenants could be breached. The impact of such an event could include (among other things): an increase in borrowing costs; a requirement for additional cash or property collateral; payment of a fee to the lender; a sale of an asset or assets, or a forfeit of an asset or any assets to a lender.   Any of the above could result in a material decrease to the Group's Net Asset Value.	The Investment Manager monitors loan to value and interest covenants ratios on an ongoing basis. In the unlikely event that an event of default occurs under these covenants the Group has a remedy period during which it can potentially cure the covenant breach by either injecting cash collateral or unencumbered property assets in order to restore covenant compliance.   During the year to 31 December 2022, no debt covenants have been breached.	High	Low	Stable
Corporate	Reliance on the Investment Manager	The Company continues to rely on the Investment Manager's services and its reputation in the social housing market. As a result, the Group's performance will, to a large extent, depend on the Investment Manager's asset management abilities in the property market. Termination of the Investment Management Agreement would severely affect the Investment Manager's ability to effectively manage the Group's operations and may have a negative impact on the Group's performance and/or the price of the Company's shares.	Unless there is a default, either party may terminate the Investment Management Agreement by giving not less than 12 months' written notice. The Board regularly reviews and monitors the Investment Manager's performance. In addition, the Board meets regularly with the Investment Manager to ensure that the Company and the Investment Manager maintain a positive working relationship.	High	Low	Stable

 

 

GOING CONCERN AND VIABILITY

 

Going Concern

 

The Strategic Report and financial statements have set out the current financial position of the Group and Parent Company. The Board has regularly reviewed the position of the Company and its ability to continue as a going concern in Board meetings throughout the year. The Group has targeted high-quality properties in line with yield expectations and will continue to analyse investment opportunities to ensure that they are the right fit for the Group.

 

The Group benefits from a secure income stream from long leases which are not overly reliant on any one tenant and present a well-diversified risk. The Directors have reviewed the Group's forecast which shows the expected annualised rental income exceeds the expected operating costs of the Group. 91.8% of rental income due and payable for the period ended 31 December 2022 has been collected, rent arrears are predominantly attributable to two Approved Providers, My Space Housing Solutions and Parasol Homes.

 

The Directors believe that the Group is still well placed to manage its financing and other business risks and that the Group will remain viable, continuing to operate and meet its liabilities as they fall due. During the year, Fitch Ratings Limited assigned the Company an investment Long-Term Issuer Default Rating of 'A-' with a stable outlook.

 

The Directors have performed an assessment of the ability of the Group to continue as a going concern, for a period of at least 12 months from the date of signing these financial statements. The Directors have considered the expected obligations of the Group for the next 12 months and are confident that all will be met.

 

 

The Directors have also considered the financing provided to the Group. Norland Estates Limited and TP REIT Propco 2 Limited have bank facilities with MetLife and Metlife and Barings respectively. TP REIT Propco 5 Ltd's Revolving Credit Facility (RCF) with Lloyds and Natwest cancelled in December 2022. Prior to cancellation the facility was undrawn.

The loans secured by Norland Estates Limited and TP REIT Propco 2 Limited are subject to asset cover ratio covenants and interest cover ratio covenants which can be found in the table below. The Directors have also considered reverse stress testing and the circumstances that would lead to a covenant breach. Given the level of headroom, the Directors are of the view that the risk of scenarios materialising that would lead to a breach of the covenants is remote.

 

	Norland Estates Limited	TP REIT Propco 2 Limited
Asset Cover (ACR)
Asset Cover Ratio Covenant	x2.00	x1.67
Asset Cover Ratio 31 December 2022	x2.77	x2.10
Blended Net initial yield	5.55%	5.34%
Headroom (yield movement)	196bps	130bps
Interest Cover (ICR)
Interest Cover Ratio Covenant	1.75x	1.75x
Interest Cover Ratio 31 December 2022	5.02x	4.41x
Headroom (rental income movement)	65%	60%

 

 

The loan secured by Norland Estates Limited asset cover ratio was amended from previous covenant of x2.25 in August 2021 to bring more in line with the ACR covenant in the new Note Purchase Agreement with MetLife and Barings.

 

Under the downside model the forecasts have been stressed to show the effect of some Care Providers ceasing to pay their voids liability, and as a result this causes Approved Providers to default under some of  the Group leases. Under the downside model the Group will be able to settle its liabilities for a period of at least 12 months from the date of signing these financial statements. As a result of the above, the Directors are of the opinion that the going concern basis adopted in the preparation of the financial statements is appropriate.

 

The Group has no short or medium term refinancing risk given the 10.6 year average maturity of its long term debt facilities with MetLife and Barings, the first of which expires in June 2028, and which are fully fixed at an all-in weighted average rate of 2.74%.

 

Based on the forecasts prepared and the intentions of the parent company, the Directors consider that the Group will be able to settle its liabilities for a period of at least 12 months from the date of signing these financial statements and therefore has prepared these financial statements on the going concern basis.

 

 

Viability Statement

 

In accordance with Principle 21 of the AIC Code, the Board has assessed the prospects of the Group over a period longer than 12 months required by the relevant 'Going Concern' provisions. The Board has considered the nature of the Group's assets and liabilities, and associated cash flows, and has determined that five years, up to 31 December 2027, is the maximum timescale over which the performance of the Group can be forecast with a material degree of accuracy and therefore is the appropriate period over which to consider the viability.

 

In determining this timescale the Board has considered the following:

 

·    That the business model of the Group assumes the future growth in its investment portfolio through the acquisition of Supported Housing assets which are intended to be held for the duration of the viability period.

·    The length of the service level agreements between Approved Providers and care providers.

·    The future growth of its investment portfolio of properties is achieved through long-term, inflation linked, fully repairing and insuring leases

·    The Group's property portfolio has a WAULT of 25.3 years to expiry, representing a secure income stream for the period under consideration

·    The Group's Loan Notes have a weighted average term of 10.6 years

 

In assessing the Company's viability, the Board has carried out a robust assessment of the emerging risks and principal risks facing the Group, including those that would threaten its business model, future performance, solvency, liquidity and dividend cover for a five-year period.

 

The Directors' assessment has been made with reference to the principal risks and uncertainties and emerging risks summarised above and how they could impact the prospects of the Group and Company both individually and in aggregate. The following risks in particular have been addressed in the assessment:

 

1.    Default of one or more Approved Provider lessees (taking into account that two of the Group's lessees have built up arrears during 2022)

2.    Risk of changes to the social housing regulatory regime

3.    Non-payment of voids cover by care providers

 

The business model was subject to a sensitivity analysis, which involved flexing a number of key assumptions underlying the forecasts. The sensitivities performed were designed to provide the Directors with an understanding of the Group's performance in the event of a severe but plausible downturn scenario, taking full account of mitigating actions that could be taken to avoid or reduce the impact or occurrence of the underlying risks outlined below:

 

·    Rental income: It is assumed that some care providers do not meet their void payment obligations and this causes Approved Providers to default under 7% of the Group's leases.

 

·    Property valuations: It is assumed that where there are void units, Approved Providers will default on their leases, resulting in those units being valued significantly below their vacant possession value. We believe this represents a severe reduction in value.

 

·    Inflation: No inflation uplift on rental income but costs and dividends increase in line with inflation.

 

The outcome in the downturn scenario on the Group's covenant testing is that there are no breaches and the Group can maintain a covenant headroom on existing facilities.

 

In the downturn scenario mitigating actions to reduce variable costs such as marketing, PR and any other non-critical spend would be required to enable the Group to meet its future liabilities.

 

The remaining principal risks and uncertainties, whilst having an impact on the Group's business, are not considered by the Directors to have a reasonable likelihood of impacting the Group's viability over the five-year period.

 

Based on the results of this analysis, the Directors have a reasonable expectation that the Group and Company will be able to continue in operation and meet its liabilities as they fall due for the next five years.

 

BOARD APPROVAL OF THE STRATEGIC REPORT

 

The Strategic Report was approved by the Board and signed on its behalf by:

 

Chris Phillips

Chair

2 March 2023

 

 

 

 

 

GROUP FINANCIAL STATEMENTS

 

GROUP STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2022

 

		Year ended    31 December 2022		Year ended 31 December 2021
	Note	£'000		£'000
Income
Rental income	5	37,300		33,117
Expected credit loss	5	(2,073)		-
Other Income		110		-
Total income		35,337		33,117
Expenses
Directors' remuneration	6	(308)		(307)
General and administrative expenses	9	(2,854)		(2,067)
Management fees	8	(4,704)		(4,552)
Total expenses		(7,866)		(6,926)
Gain from fair value adjustment on investment property	14	8,264		8,998
Operating profit		35,735		35,189
Finance income	11	56		44
Finance costs	12	(10,889)		(6,823)
Profit for the year before tax		24,902		28,410
Taxation	13	-		-
Profit and total comprehensive income for the year		24,902		28,410
IFRS Earnings per share - basic and diluted	36	6.18p		7.05p

 

The accompanying notes form an integral part of these Group Financial Statements.

 

 

 

 

GROUP STATEMENT OF FINANCIAL POSITION

As at 31 December 2022

 

 

			31 December 2022		31 December 2021
		Note	£'000		£'000
Assets
Non-current assets
Investment properties		14	667,713		641,293
Trade and other receivables		15	2,889		2,311
Total non-current assets			670,602		643,604
Current assets
Assets held for sale			-		480
Trade and other receivables		16	4,272		3,435
Cash, cash equivalents and restricted cash		17	30,139		52,470
Total current assets			34,411		57,385
Total assets			705,013		699,989
Liabilities Current liabilities
Trade and other payables		18	3,120		3,651
Total current liabilities			3,120		3,651
Non-current liabilities
Other payables		19	1,520		1,523
Bank and other Borrowings		20	261,088		258,702
Total non-current liabilities			262,608		260,225
Total liabilities			265,728		263,876
Total net assets			439,285		436,113
Equity
Share capital		22	4,033		4,033
Share premium reserve		23	203,753		203,753
Treasury shares reserve		24	(378)		(378)
Capital reduction reserve		25	160,394		160,394
Retained earnings		26	71,483		68,311
Total Equity			439,285		436,113
IFRS Net asset value per share - basic and diluted		37	109.06p		108.27p

 

The Group Financial Statements were approved and authorised for issue by the Board on 2 March 2023 and signed on its behalf by:

 

Chris Phillips

Chair                                                                                     

2 March 2023

 

The accompanying notes form an integral part of these Group Financial Statements.

 

 

GROUP STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2022

 

		Share capital	Share premium reserve	Treasury shares reserve	Capital reduction reserve	Retained earnings	Total equity
Year ended 31 December 2022	Note	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 January 2022		4,033	203,753	(378)	160,394	68,311	436,113
Profit and total comprehensive income for the year		-	-	-	-	24,902	24,902
Transactions with owners
Dividends paid	27	-	-	-	-	(21,730)	(21,730)
Balance at 31 December 2022		4,033	203,753	(378)	160,394	71,483	439,285

 

 

		Share capital	Share premium reserve	Treasury shares reserve	Capital reduction reserve	Retained earnings	Total equity
Year ended 31 December 2021	Note	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 January 2021		4,033	203,776	(378)	166,154	55,066	428,651
Profit and total comprehensive income for the year		-	-	-	-	28,410	28,410
Transactions with owners
Share issue costs capitalised	23	-	(23)	-	-	-	(23)
Dividends paid	27	-	-	-	(5,760)	(15,165)	(20,925)
Balance at 31 December 2021		4,033	203,753	(378)	160,394	68,311	436,113

 

The accompanying notes form an integral part of these Group Financial Statements.

 

 

 

 

 

 

GROUP STATEMENT OF CASH FLOWS

For the year ended 31 December 2022

 

		Year ended 31 December 2022		Year ended 31 December 2021
	Note	£'000		£'000
Cash flows from operating activities
Profit before income tax		24,902		28,410
Adjustments for:
Expected credit loss		2,073		-
Gain from fair value adjustment on investment property		(8,264)		(8,998)
Finance income		(56)		(44)
Finance costs		10,889		6,823
Operating results before working capital changes		29,544		26,191
(Increase)/Decrease in trade and other receivables		(4,127)		(1,237)
(Decrease)/Increase in trade and other payables		280		(242)
Net cash flow generated from operating activities		25,697		24,712
Cash flows from investing activities
Purchase of investment properties		(20,611)		(61,350)
Prepaid acquisition costs paid		-		(18)
Disposal proceeds from sale of assets		2,120		125
Restricted cash - paid		(5)		(410)
Restricted cash - released		133		279
Interest received		18		-
Net cash flow used in investing activities		(18,345)		(61,374)
Cash flows from financing activities
Proceeds from issue of Ordinary Shares at a premium		-		-
Ordinary Share issue costs capitalised		-		(23)
Interest paid		(7,226)		(5,615)
Bank borrowings drawn	20	-		195,000
Bank borrowings repaid	20	-		(130,000)
Loan arrangement fees paid	21	(599)		(2,728)
Dividends paid	27	(21,730)		(20,925)
Net cash flow generated from financing activities		(29,555)		35,709
Net decrease in Cash, cash equivalents and restricted cash		(22,203)		(953)
Cash and cash equivalents at the beginning of the year		51,899		52,852
Cash and cash equivalents at the end of the year	17	29,696		51,899

 

The accompanying notes form an integral part of these Group Financial Statements.

 

NOTES TO THE GROUP FINANCIAL STATEMENTS

For the ended 31 December 2022

 

1.    CORPORATE INFORMATION

 

Triple Point Social Housing REIT PLC (the "Company") is a Real Estate Investment Trust ("REIT") incorporated in England and Wales under the Companies Act 2006 as a public company limited by shares on 12 June 2017. The address of the registered office is 1 King William Street, United Kingdom, EC4N 7AF. The Company is registered as an investment company under section 833 of the Companies Act 2006 and is domiciled in the United Kingdom.

 

The principal activity of the Company is to act as the ultimate parent company of Triple Point Social Housing REIT PLC and its subsidiaries (the "Group") and to provide shareholders with an attractive level of income, together with the potential for capital growth from investing in a portfolio of social homes.

 

2.    BASIS OF PREPARATION

 

The financial information contained in this results announcement has been prepared on the basis of the accounting policies set out in the statutory financial statements for the year ended 31 December 2022 which are consistent with policies those adopted in the year ended 31 December 2021. Whilst the financial information included in this announcement has been computed in accordance with UK adopted international accounting standards, this announcement does not itself contain sufficient disclosures to comply with IFRS. The financial information does not constitute the Group's statutory financial statements for the years ended 31 December 2022 or 31 December 2021, but is derived from those financial statements.  Financial statements for the year ended 31 December 2021 have been delivered to the Registrar of Companies and those for the year ended 31 December 2022 will be delivered following the Company's Annual General Meeting. The auditors' reports on both the 31 December 2022 and 31 December 2021 financial statements were unqualified; did not draw attention to any matters by way of emphasis; and did not contain statements under section 498 (2) or (3) of the Companies Act 2006.

 

The financial statements of the Group have been prepared in accordance with UK-adopted International Accounting Standards and with the requirements of the Companies Act 2006 as applicable to companies reporting under those standards. All accounting policies have been applied consistently.

 

The Group's Financial Statements have been prepared on a historical cost basis, as modified for the Group's investment properties, which have been measured at fair value. Gains or losses arising from changes in fair values are included in profit or loss.

 

On 31 December 2020, IFRS as adopted by the European Union at that date was brought into UK law and became UK-adopted international accounting standards, with future changes being subject to endorsement by the UK Endorsement Board. The Company transitioned to UK-adopted international accounting standards in its consolidated financial statements on 1 January 2021. There was no impact or changes in accounting policies from the transition. The Group has applied the same accounting policies and method of computation in these Financial Statements as in its 2021 annual financial statements. At the date of authorisation of these financial statements, there were a number of standards and interpretations which were effective, however none of which have an impact on these financial statements.

 

2.1.          Going concern

 

The Group benefits from a secure income stream from long leases which are not overly reliant on any one tenant and present a well-diversified risk. The Directors have reviewed the Group's forecast which shows the expected annualised rental income exceeds the expected operating costs of the Group. 91.8% of rental income due and payable for the period ended 31 December 2022 has been collected, rent arrears are predominantly attributable to two Approved Providers, My Space Housing Solutions and Parasol Homes.

 

The Directors believe that the Group is still well placed to manage its financing and other business risks and that the Group will remain viable, continuing to operate and meet its liabilities as they fall due. During the year, Fitch Ratings Limited assigned the Company an investment Long-Term Issuer Default Rating of 'A-' with a stable outlook.

 

The Directors have performed an assessment of the ability of the Group to continue as a going concern, for a period of at least 12 months from the date of signing these financial statements. The Directors have considered the expected obligations of the Group for the next 12 months and are confident that all will be met.

 

The Directors have also considered the financing provided to the Group. Norland Estates Limited and TP REIT Propco 2 Limited have bank facilities with MetLife and Metlife and Barings respectively. TP REIT Propco 5 Ltd's Revolving Credit Facility (RCF) with Lloyds and Natwest cancelled in December 2022. Prior to cancellation the facility was undrawn.

 

The loans secured by Norland Estates Limited and TP REIT Propco 2 Limited are subject to asset cover ratio covenants and interest cover ratio covenants which can be found in the table below. The Directors have also considered reverse stress testing and the circumstances that would lead to a covenant breach.   Given the level of headroom, the Directors are of the view that the risk of scenarios materialising that would lead to a breach of the covenants is remote.

 

	Norland Estates Limited	TP REIT Propco 2 Limited
Asset Cover
Asset Cover Ratio Covenant	x2.00	x1.67
Asset Cover Ratio 31 December 2022	x2.77	x2.10
Blended Net initial yield	5.55%	5.34%
Headroom (yield movement)	196bps	130bps
Interest Cover
Interest Cover Ratio Covenant	1.75x	1.75x
Interest Cover Ratio 31 December 2022	5.02x	4.41x
Headroom (rental income movement)	65%	60%

 

 

The loan secured by Norland Estates Limited asset cover ratio was amended from previous covenant of x2.25 in August 2021 to bring more in line with the ACR covenant in the new Note Purchase Agreement with MetLife and Barings.

 

Under the downside model the forecasts have been stressed to show the effect of some Care Providers ceasing to pay their voids liability , and as a result this causes Approved Providers to default under some of  the Group leases. Under the downside model the Group will be able to settle its liabilities for a period of at least 12 months from the date of signing these financial statements. As a result of the above, the Directors are of the opinion that the going concern basis adopted in the preparation of the financial statements is appropriate.

 

The Group has no short or medium term refinancing risk given the 10.6 year average maturity of its long term debt facilities with MetLife and Barings, the first of which expires in June 2028, and which are fully fixed at an all-in weighted average rate of 2.74%.

 

Based on the forecasts prepared and the intentions of the parent company, the Directors consider that the Group will be able to settle its liabilities for a period of at least 12 months from the date of signing these financial statements and therefore has prepared these financial statements on the going concern basis.

 

2.2 Currency

 

The Group financial information is presented in Sterling which is also the Company's functional currency.

 

3.    SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS

 

In the application of the Group's accounting policies, which are described in note 4, the Directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are outlined below:

 

Estimates:

 

3.1.     Investment properties (note 14)

 

The Group uses the valuation carried out by its independent valuers as the fair value of its property portfolio. The valuation is based upon assumptions including future rental income and the appropriate discount rate. The valuers also refer to market evidence of transaction prices for similar properties. Further information is provided in note 14.

 

The Group's properties have been independently valued by Jones Lang LaSalle Limited ("JLL" or the "Valuer") in accordance with the definitions published by the Royal Institute of Chartered Surveyors' ("RICS") Valuation - Professional Standards, July 2020, Global and UK Editions (commonly known as the "Red Book"). JLL is one of the most recognised professional firms within social housing valuation and has sufficient current local and national knowledge of both social housing generally and Specialist Supported Housing and has the skills and understanding to undertake the valuations competently.

 

With respect to the Group's Financial Statements, investment properties are valued at their fair value at each Statement of Financial Position date in accordance with IFRS 13 which recognises a variety of fair value inputs depending upon the nature of the investment. Specifically:

 

Level 1 - Unadjusted, quoted prices for identical assets and liabilities in active (typically quoted) markets;

 

Level 2 - Quoted prices for similar assets and liabilities in active markets; and

 

Level 3 - External inputs are "unobservable". Value is the Director's best estimate, based on advice from relevant knowledgeable experts, use of recognised valuation techniques and a determination of which assumptions should be applied in valuing such assets and with particular focus on the specific attributes of the investments themselves.

 

Given the bespoke nature of each of the Group's investments, all of the Group's investment properties are included in Level 3.

 

3.2.     Expected Credit Losses

 

The total ECL provision is £2.1 million and relates to rental arrears for two of the Group's Approved Providers. A default probability for each of the two Approved Providers, representing the estimated percentage likelihood of them paying any outstanding rent due at 31 December 2022, was determined based on their latest known financial position and any repayments plans that had been agreed or discussed. For each provider the estimated percentage probability of receiving unpaid rent has been multiplied by the rental arrears for the year. These two figures have then been aggregated to arrive at the ECL provision.

 

Judgements:

 

3.3.     Asset acquisitions

 

The Group acquires subsidiaries that own investment properties. At the time of acquisition, the Group considers whether each acquisition represents the acquisition of a business or the acquisition of an asset. The Directors consider whether a set of activities and assets which include an input and a substantive process that together significantly contribute to the ability to create outputs has been acquired in determining whether the acquisition represents the acquisition of a business. An optional concentration test is also performed which assesses whether substantially all of the fair value of the gross assets acquired is concentrated in a single asset or group of similar assets. If such a concentration exists, the transaction is not viewed as an acquisition of a business and no further assessment of the business combination guidance is required. The Group has not purchased, and does not intend to purchase, any subsidiaries which incorporate any assets other than investment property.

 

Where such acquisitions are not judged to be the acquisition of a business, they are not treated as business combinations. Rather, the cost to acquire the corporate entity is allocated between the identifiable assets and liabilities of the entity based upon their relative fair values at the acquisition date. Accordingly, no goodwill or deferred tax arises.

 

All corporate acquisitions during the period have been treated as asset purchases rather than business combinations because the optional concentration test has been performed which has determined that the fair value of the gross asset acquired is concentrated into a single asset, investment property and therefore is not a business combination.

 

3.4.     The Group as lessor (note 28)

 

The Group has determined, based on an evaluation of the terms and conditions of the arrangements, that it retains all the significant risks and rewards of ownership of its properties and so accounts for the leases as operating leases. This evaluation involves judgement and the key factors considered include comparing the duration of the lease terms compared to the economic life of the underlying property asset, or in the case of sub-leased properties, the remaining life of the right-of-use asset arising from the headlease, and the present value of minimum lease payments compared to the fair value of the asset at acquisition.

 

3.5.     Lease term

 

Rental income is recognised on a straight-line basis over the expected lease term. A judgement has to be made by the Directors as to the expected term of each lease. The judgement involves determining whether put and call options on certain leases will be exercised. This judgement impacts the length of time over which lease incentives are recognised. The key element of this judgement is whether the Directors can be "reasonably certain" that any options or breaks in place to extend the lease term will be exercised at the expiry of the current lease, which is typically some 20 years in the future. In particular, consideration was given to the future regulatory environment, government policy on social housing and future alternative uses for the property. The Directors concluded that it was impossible to say with reasonable certainty that an option will be exercised. The Directors concluded that lease terms should be restricted to the initial term of the lease, or to the break date, except where reversionary lease have already been executed or where options to extend have already been exercised.

 

The principal accounting policies applied in the preparation of the financial statements are set out below.

 

4.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

4.1.     Basis of consolidation

 

The financial statements comprise the financial information of the Group as at the year-end date.

 

Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and can affect those returns through its power to direct the activities of the entity. All intra-Group transactions, balances, income and expenses are eliminated on consolidation. The financial information of the subsidiaries are included in the financial statements from the date that control commences until the date that control ceases.

 

If an equity interest in a subsidiary is transferred but a controlling interest continues to be held after the transfer, then the change in ownership interest is accounted for as an equity transaction.

 

Accounting policies of the subsidiaries are consistent with the policies adopted by the Group.

 

4.2.     Investment property

 

Investment property, which is property held to earn rentals and/or for capital appreciation, is initially measured at cost, being the fair value of the consideration given, including expenditure that is directly attributable to the acquisition of the investment property. The Group recognises asset acquisitions on completion. After initial recognition, investment property is stated at its fair value at the Statement of Financial Position date. Gains and losses arising from changes in the fair value of investment property are included in profit or loss for the period in which they arise in the Statement of Comprehensive Income. Subsequent expenditure is capitalised only when it is probable that future economic benefits are associated with the expenditure.

 

An investment property is derecognised upon disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected to be obtained from the disposal. Any gain or loss arising on de-recognition of the property (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is recorded in profit or loss in the period in which the property is derecognised.

 

Investment properties under construction are financed by the Group where the Group enters into contracts for the development of a pre-let property under a forward funding agreement. The Group does not expose itself to any speculative development risk as the proposed property is pre-let to a tenant under an agreement for lease and the Group enters into a fixed price development agreement with the Developer. Investment properties under construction are initially recognised in line with stage payments made to the developer. The properties are revalued at fair value at each reporting date in the form of a work-in-progress value. The work-in-progress value of investment properties under construction is estimated as fair value of the completed asset less any costs still payable in order to complete, which includes the Developer's margin.

 

During the period between initial investment and the lease commencement date (practical completion of the works) a coupon interest due on the funds paid in the range of typically 6-6.75% per annum is payable by the Developer. The accrued coupon interest is considered as a discount on the fixed contract price. It does not result in any cash flows during the development but reduces the outstanding balance payable to the developer on practical completion. When practical completion is reached, the completed investment property is transferred to operational assets at the fair value on the date of completion. 

 

Significant accounting judgements, estimates and assumptions made for the valuation of investment properties are discussed in note 3.

 

4.3.     Leases

 

Lessor

 

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

 

The Group has determined that it retains all the significant risks and rewards of ownership of the properties it has acquired to date and accounts for the contracts as operating leases as discussed in note 3.

 

Properties leased out under operating leases are included in investment property in the Statement of Financial Position. Rental income from operating leases is recognised on a straight-line basis over the term of the relevant leases.

 

Lessee

 

As a lessee the Group recognises a right-of-use asset within investment properties and a lease liability for all leases, which is included within other payables (note 18). The lease liabilities are measured at the present value of the remaining lease payments, discounted using an appropriate discount rate   at inception of the lease or on initial recognition. The discount rate applied by the Group is the incremental borrowing rate at which a similar borrowing could be obtained from an independent creditor under comparable terms and conditions. Subsequent to initial measurement lease liabilities increase as a result of interest charged at a constant rate on the balance outstanding and are reduced for lease payments made. 

 

As leasehold properties meet the definition of investment property, the right-of-use assets are presented within investment property (note 14), and after initial recognition are subsequently measured at fair value.

 

Sub-leases

 

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership of the underlying property asset to the lessee. Sub-leases of leasehold properties are classified with reference to the right-of-use asset arising from the head lease. All other leases are classified as operating leases.

 

4.4.     Rent and other receivables

 

Rent and other receivables are amounts due in the ordinary course of business. If collection is expected in one year or less, they are classified as current assets.

 

Rent receivables are initially recognised at fair value plus transaction costs and are subsequently carried at amortised cost, less provision for impairment.

 

Impairment provisions for current and non-current rent receivables are recognised based on the simplified approach within IFRS 9 using a provision matrix in the determination of the lifetime expected credit losses. During this process the probability of the non-payment of the rent receivables is assessed. This probability is then multiplied by the amount of the expected loss arising from default to determine the lifetime expected credit loss for the rent receivables. For rent receivables, which are reported net, such provisions are recorded in a separate provision account with the loss being recognised in the consolidated statement of comprehensive income. On confirmation that the rent receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision.

 

Impairment provisions for all other receivables are recognised based on a forward-looking expected credit loss model using the general approach. The methodology used to determine the amount of the provision is based on whether there has been a significant increase in credit risk since initial recognition of the financial asset. For those where the credit risk has not increased significantly since initial recognition of the financial asset, twelve month expected credit losses along with gross interest income are recognised. For those for which credit risk has increased significantly, lifetime expected credit losses along with the gross interest income are recognised. For those that are determined to be credit impaired, lifetime expected credit losses along with interest income on a net basis are recognised.

 

4.5.     Cash, cash equivalents and restricted cash

 

Cash, cash equivalents and restricted cash include cash in hand, cash held by lawyers and liquidity funds with a term of no more than three months that are readily convertible to a known amount of cash, and which are subject to an insignificant risk of changes in value.

 

Cash held by lawyers is money held in escrow for expenses expected to be incurred in relation to investment properties pending completion. These funds are available immediately on demand.

 

Restricted Cash represents cash held in relation to retentions for repairs, maintenance and improvement works by the vendors that is committed on the acquisition of the properties, and restricted bank borrowings.

 

4.6.     Provisions

 

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle that obligation and a reliable estimate can be made of the amount of the obligation.

 

The amount recognised as a provision is the best estimate of the expenditure required to settle the present obligation at the Statement of Financial Position date, considering the risks and uncertainties surrounding the obligation.

 

4.7.     Trade and other payables

 

Trade and other payables are classified as current liabilities if payment is due within one year or less from the end of the current accounting period. If not, they are presented as non-current liabilities. Trade and other payables are recognised initially at their fair value and subsequently measured at amortised cost using the effective interest method until settled.

 

4.8.     Bank and other borrowings

 

Bank borrowings and the Group's loan notes are initially recognised at fair value net of any transaction costs directly attributable to the issue of the instrument. Such interest-bearing liabilities are subsequently measured at amortised cost using the effective interest rate method, which ensure that any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the Group Statement of Financial Position. For the purposes of each financial liability, interest expense includes initial transaction costs and any premium payable on redemption, as well as any interest or coupon payment while the liability is outstanding.

 

Modifications to borrowing terms are assessed when agreed with the lender to determine if they represent a substantial or non-substantial modification under IFRS 9. This involves the '10% test' comparing the discounted present value of the revised cash flows against the carrying value of the loan, as well as a review of any other qualitative changes to the terms. If the modifications are deemed substantial, the existing liability is extinguished and a new liability is recognised, with the difference between the carrying amount of the existing financial liability and the fair value of the modified financial liability at modification date being recognised in the Statement of Comprehensive Income. If the modification is deemed non-substantial, costs or fees incurred are adjusted against the liability and are amortised over the remaining term.

 

4.9.     Taxation

 

Taxation on the element of the profit or loss for the period that is not exempt under UK REIT regulations would be comprised of current and deferred tax. Tax is recognised in the Statement of Comprehensive Income except to the extent that it relates to items recognised as direct movement in equity, in which case it is recognised as a direct movement in equity. Current tax is the expected tax payable on any non-REIT taxable income for the period, using tax rates enacted or substantively enacted at the Statement of Financial Position date, and any adjustment to tax payable in respect of previous periods.

 

4.10        Dividends payable to shareholders

 

Dividends to the Company's shareholders are recognised as a liability in the Group's Financial Statements in the period in which the dividends are approved. Interim dividends are recognised when paid.

 

4.11        Rental income

 

Rental income from investment property is recognised on a straight-line basis over the term of ongoing leases and is shown gross of any UK income tax. A rental adjustment is recognised from the rent review date in relation to unsettled rent reviews, where the Directors are reasonably certain that the rental uplift will be agreed.

 

Tenant lease incentives are recognised as a reduction of rental revenue on a straight-line basis over the term of the lease. These are recognised within trade and other receivables on the Statement of Financial Position.

 

When the Group enters into a forward funded transaction, the future tenant signs an agreement for lease. No rental income is recognised under the agreement for lease, but once the practical completion has taken place the formal lease is signed at which point rental income commences to be recognised in the Statement of Comprehensive Income.

 

4.12        Finance income and finance costs

 

Finance income is recognised as interest accrues on cash balances held by the Group. Finance costs consist of interest and other costs that the Group incurs in connection with bank and other borrowings. These costs are expensed in the period in which they occur. Borrowing costs that are separately identifiable and directly attributable to the acquisition or construction of forward funded assets that take a substantial period of time to complete are capitalised as part of the development cost in investment property (note 14).

 

4.13        Expenses

 

All expenses are recognised in the Statement of Comprehensive Income on an accruals basis.

 

4.14    Investment management fees

 

Investment advisory fees are recognised in the Statement of Comprehensive Income on an accruals basis.

 

4.15    Share issue costs

 

The costs of issuing or reacquiring equity instruments (other than in a business combination) are accounted for as a deduction from equity.

 

4.16    Treasury shares

 

Consideration paid or received for the purchase or sale of treasury shares is recognised directly in equity. The cost of treasury shares held is presented as a separate reserve ("the treasury share reserve"). Any excess of the consideration received on the sale of treasury shares over the weighted average cost of the shares sold is credited to retained earnings.

 

5.         RENTAL INCOME

 

	Year ended		Year ended
	31 December 2022		31 December 2021
	£'000		£'000
Rental income - freehold assets	35,087		31,071
Rental income - leasehold assets	2,213		2,046
	37,300		33,117
Expected credit loss	2,073		-

 

The lease agreements between the Group and the Registered Providers are fully repairing and insuring leases. The Registered Providers are responsible for the settlement of all present and future rates, taxes, costs and other impositions payable in respect of the property. As a result, no direct property expenses were incurred.

 

All rental income arose within the United Kingdom.

 

The expected loss rates are based on the Group's credit losses which occurred in the year under review for the first time since IPO. The loss rates are then adjusted for current and forward-looking information affecting the Group's tenants. The total ECL provision is £2.1 million and relates to rental arrears for two of the Group's Approved Providers. For each provider the estimated percentage probability of receiving unpaid rent has been multiplied by the rental arrears for the period. These two figures have then been aggregated to arrive at the ECL provision. The residual balance not provided through the statement of comprehensive income is £1.0 million.

 

6.    DIRECTORS' REMUNERATION

 

	Year ended		Year ended
	31 December 2022		31 December 2021
	£'000		£'000
Directors' fees	275		275
Employer's National Insurance Contributions	33		32
	308		307
Additional fees paid - capitalised as share issue costs	-		-
	308		307

 

The Directors are remunerated for their services at such rate as the Directors shall from time to time determine. The Chairman receives a Director's fee of £75,000 per annum (2021: £75,000), and the other Directors of the Board receive a fee of £50,000 per annum (2021: £50,000). The Directors are also entitled to an additional fee of £7,500 in connection with the production of every prospectus by the Company. Each Director was paid this additional fee in 2020 following the publication of the prospectus, but no additional fees were received during 2022 or 2021. A summary of the Directors' emoluments, including the disclosures required by the Companies Act 2006, is set out in the Directors' Remuneration Report within the Governance Report in the Annual Report. None of the Directors received any advances or credits from any group entity during the year.

 

7.    PARTICULARS OF EMPLOYEES

 

The Group had no employees during the year other than the directors (2021: none).

 

8.    MANAGEMENT FEES

 

	Year ended		Year ended
	31 December 2022		31 December 2021
	£'000		£'000
Management fees	4,704		4,552
	4,704		4,552

 

On 20 July 2017 Triple Point Investment Management LLP 'TPIM' was appointed as the delegated investment manager of the Company by entering into the property management services and delegated portfolio management agreement. Under this agreement the delegated investment manager will advise the Company and provide certain management services in respect of the property portfolio. A Deed of Variation was signed on 23 August 2018. This defined cash balances in the Net Asset Value calculation in respect of the management fee as "positive uncommitted cash balances after deducting any borrowings". The management fee is an annual management fee which is calculated quarterly in arrears based upon a percentage of the last published Net Asset Value of the Group (not taking into account uncommitted cash balances after deducting borrowings as described above) as at 31 March, 30 June, 30 September and 31 December in each year on the following basis with effect from Admission:               

                               

·    on that part of the Net Asset Value up to and including £250 million, an amount equal to 1% of such part of the Net Asset Value;                                                      

·    on that part of the Net Asset Value over £250 million and up to and including £500 million, an amount equal to 0.9% of such part of the Net Asset Value;                                                       

·    on that part of the Net Asset Value over £500 million and up to and including £1 billion, an amount equal to 0.8% of such part of the Net Asset Value; and                                                   

·    on that part of the Net Asset Value over £1 billion, an amount equal to 0.7% of such part of the Net Asset Value.

 

Management fees of £4,704,000 (2021: £4,552,000) were chargeable by TPIM during the year. At the year end £1,159,000 (2021: £1,146,000) was due to TPIM.

 

By two agreements dated 30 June 2020, the Company appointed TPIM as its Alternative Investment Fund Manager by entering into an Alternative Investment Fund Management Agreement and (separately) documented TPIM's continued appointment as the provider of portfolio and property management services by entering into an Investment Management Agreement.

 

9.    GENERAL AND ADMINISTRATIVE EXPENSES

 

	Year ended		Year ended
	31 December 2022		31 December 2021
	£'000		£'000
Legal and professional fees	829		673
Audit fees	371		256
Administration fees	324		336
Lease transfer costs	151		40
Other administrative expenses	1,179		762
	2,854		2,067

 

On 1 October 2019 Hanway Advisory Limited, who are associated with Triple Point Investment Management LLP the delegated investment manager, were appointed to provide Administration and Company Secretarial Services to the Group. Within Administration Fees is an amount of £324,000 (2021: £326,000) for Company Secretarial Services chargeable by Hanway Advisory Limited. 

 

The audit fees in the table above are inclusive of VAT, and therefore differ to the fees in note 10 which are reported net of VAT.

 

On 30 June 2020 Triple Point Investment Management LLP was appointed as the fund's Alternative Investment Fund Manager (AIFM) to perform certain functions for the Group. During the year AIFM services of £192,000 (2021: £175,000) were chargeable by TPIM. At the year end £48,000 (2021: £44,000) was due to TPIM.

 

Lease transfer costs represent repairs costs incurred in relation to the transfer of 12 leases from Westmoreland and amortisation costs in relation to the original transfer costs.

 

10.  AUDIT FEES

 

	Year ended		Year ended
	31 December 2022		31 December 2021
	£'000		£'000
Group audit fees - current year	242		189
Subsidiary audit fees	31		24
	273		213

 

Non audit fees paid to BDO LLP included £36,000 (2021: £29,000) in relation to the half year interim review.

 

The audit fee for the following subsidiaries has been borne by the Company:

·     TP REIT Super Holdco Limited ·	·     Norland Estates Limited ·
·     TP REIT Holdco 1 Limited ·	·     TP REIT Propco 2 Limited ·
·     TP REIT Holdco 2 Limited ·	·     TP REIT Propco 3 Limited ·
·     TP REIT Holdco 3 Limited	·     TP REIT Propco 4 Limited
·     TP REIT Holdco 4 Limited	·     TP REIT Propco 5 Limited
·     TP REIT Holdco 5 Limited

 

11.  FINANCE INCOME

 

	Year ended		Year ended
	31 December 2022		31 December 2021
	£'000		£'000
Other interest income	56		44
	56		44

 

12.  FINANCE COSTS

 

	Year ended		Year ended
	31 December 2022		31 December 2021
	£'000		£'000
Interest payable on bank borrowings	7,217		5,492
Amortisation of loan arrangement fees	1,006		1,279
Written off loan arrangement fees	2,619		-
Head lease interest expense	37		44
Bank charges	9		8
	10,889		6,823
Total finance cost for financial liabilities not at fair value through profit or loss	10,880		6,815

 

Written off loan arrangement fees relate to the Lloyds and NatWest loan facility that was reduced and subsequently cancelled during the year, all remaining unamortised loan arrangement fees were written off.

 

13.  TAXATION

 

As a UK REIT, the Group is exempt from corporation tax on the profits and gains from its property investment business, provided it meets certain conditions as set out in the UK REIT regulations. For the current period, the Group did not have any non-qualifying profits and accordingly there is no tax charge in the period. If there were any non-qualifying profits and gains, these would be subject to corporation tax. It is assumed that the Group will continue to be a group UK REIT for the foreseeable future, such that deferred tax has not been recognised on temporary differences relating to the property rental business.

 

	Year ended		Year ended
	31 December 2022		31 December 2021
	£'000		£'000
Current tax
Corporation tax charge for the year	-		-
Total current income tax charge in the profit or loss	-		-

 

The tax charge for the period is less than the standard rate of corporation tax in the UK of 19% (2021:19%). The differences are explained below.

 

	Year ended		Year ended
	31 December 2022		31 December 2021
	£'000		£'000
Profit for the year before tax	24,902		28,410
Tax at UK corporation tax standard rate of 19%	4,731		5,398
Change in value of investment properties	(2,727)		(1,710)
Disposal of investment property	1,157		-
Exempt REIT income	(3,768)		(4,202)
Amounts not deductible for tax purposes	27		22
Unutilised residual current period tax losses	580		492
	-		-

 

UK REIT exempt income includes property rental income that is exempt from UK Corporation Tax in accordance with Part 12 of CTA 2010.

 

14.  INVESTMENT PROPERTY

 

				Operational assets £'000		Properties under development £'000		Total £'000
As at 1 January 2022				641,293		-		641,293
Acquisitions and additions				19,752		-		19,752
Fair value adjustment*				15,239		-		15,239
Movement in head lease ground rent liability				(2)		-		(2)
Disposals				(8,569)		-		(8,569)
As at 31 December 2022				667,713		-		667,713
As at 1 January 2021				565,533		6,568		572,101
Acquisitions and additions				59,114		1,568		60,682
Fair value adjustment*				9,513		-		9,513
Movement in head lease ground rent liability				5		-		5
Transfer of completed properties				8,136		(8,136)		-
Reclassified to assets held for sale				(1,008)		-		(1,008)
As at 31 December 2021				641,293		-		641,293

*Additions in the table above differs to the total investment cost of new properties in the period in the front end due to retentions no longer payable which were credited to Investment Property additions.

 

*Gain from fair value adjustment on investment properties in the condensed Group statement of comprehensive income is net of the loss from fair value adjustments on assets held for sale of £0.88m (31 December 2021 - £0.51m) and loss on disposal of three assets of £6.1m (31 December 2021 - £nil).

 

Reconciliation to independent valuation:		31 December 2022		31 December 2021
		£'000		£'000
Investment property valuation		669,077		642,018
Fair value adjustment - headlease ground rent		1,460		1,462
Fair value adjustment - lease incentive debtor		(2,824)		(2,187)
		667,713		641,293

 

Properties under development represent contracts for the development of a pre-let property under a forward funding agreement. Where the development period is expected to be a substantial period, the borrowing costs that can be directly attributed to getting the asset ready for use are capitalised as part of the investment property value. All properties under development were completed in 2021. There are no properties under development as at 31 December 2021 or 2022.

 

The carrying value of leasehold properties at 31 December 2022 was £40.1 million (2021: £39.36 million).

 

In accordance with "IAS 40: Investment Property", the Group's investment properties have been independently valued at fair value by Jones Lang LaSalle Limited ("JLL"), an accredited external valuer with recognised and relevant professional qualifications. The independent valuers provide their fair value of the Group's investment property portfolio every three months.

 

JLL were appointed as external valuers by the Board on 11 December 2017. JLL has provided valuations services to the Group. The proportion of the total fees payable by the Company to JLL's total fee income is minimal. Additionally, JLL has a rotation policy in place whereby the signatories on the valuations rotate after seven years.

 

% Key Statistic

The metrics below are in relation to the total investment property portfolio held as at 31 December 2022.

 

Portfolio metrics		31 December 2022	31 December 2021
Capital Deployed (£'000) *		581,647	569,991
Number of Properties		497	488
Number of Tenancies***		395	382
Number of Registered Providers***		27	24
Number of Local Authorities***		153	156
Number of Care Providers***		123	115
Valuation Net Initial Yield**		5.49%	5.25%

*calculated excluding acquisition costs

**calculated using IAS 40 valuations (excluding forward funding acquisitions)

*** calculated excluding forward funding acquisitions

 

	31 December 2022		31 December 2021
Region	*Cost £'000	% of funds invested	*Cost £'000	% of funds invested
North West	115,042	19.8	122,622	21.5
West Midlands	94,790	16.3	92,794	16.3
East Midlands	69,429	11.9	64,595	11.3
London	49,579	8.5	49,526	8.7
North East	51,986	8.9	47,061	8.3
Yorkshire	86,293	14.8	81,034	14.2
South East	54,799	9.4	52,196	9.2
South West	27,466	4.7	27,900	4.9
East	23,703	4.1	23,703	4.2
Scotland	5,900	1.0	5,900	1.0
Wales	2,660	0.6	2,660	0.4
Total	581,647	100	569,991	100

 

*excluding acquisition costs

 

Fair value hierarchy

 

	Date of valuation	Total	Quoted prices in active markets (Level 1)	Significant observable inputs (Level 2)	Significant unobservable inputs (Level 3)
		£'000	£'000	£'000	£'000
Assets measured at fair value: Investment properties	31 December 2022	667,713	-	-	667,713
Investment properties	31 December 2021	641,293	-	-	641,293

 

There have been no transfers between Level 1 and Level 2 during the year, nor have there been any transfers between Level 2 and Level 3 during the year.

 

The valuations have been prepared in accordance with the RICS Valuation - Professional Standards (incorporating the International Valuation Standards) by JLL, one of the leading professional firms engaged in the social housing sector.

 

As noted previously, all of the Group's investment properties are reported as Level 3 in accordance with IFRS 13 where external inputs are "unobservable" and value is the Directors' best estimate, based upon advice from relevant knowledgeable experts.

 

In this instance, the determination of the fair value of investment property requires an examination of the specific merits of each property that are in turn considered pertinent to the valuation.

 

These include i) the regulated social housing sector and demand for the facilities offered by each Specialised Supported Housing property owned by the Group; ii) the particular structure of the Group's transactions where vendors, at their own expense,  meet  the majority of the refurbishment costs of each property and certain purchase costs; iii) detailed financial analysis with discount rates supporting the carrying value of each property; iv) underlying rents for each property being subject to independent benchmarking and adjustment where the Group considers them too high (resulting in a price reduction for the purchase or withdrawal from the transaction); and v) a full repairing and insuring lease with annual indexation based on CPI or CPI+1% and effectively 25 years outstanding, in most cases with a Registered Provider itself regulated by the Regulator.

 

The valuer treats the fair value for forward funded assets as work-in-progress value whereby the Group forward funds a development by committing a total sum, the Gross Development Value ("GDV") over the development period in order to receive the completed development at practical completion. The work-in-progress value of the asset increases during the construction period accordingly as payments are made by the Group which leads, in turn, to a pro-rata increase in the valuation in each quarter valuation assuming there are no material events affecting the GDV adversely. Interest accrued during construction as well as an estimation of future interest accrual prior to lease commencement will be deducted from the balancing payment which is the final payment to be drawn by the developer prior to the Group receiving the completed building. All properties under development were completed in 2021. There were no forward funded assets in the portfolio as at 31 December 2022.

 

Descriptions and definitions relating to valuation techniques and key unobservable inputs made in determining fair values are as follows:

 

Valuation techniques: Discounted cash flows

 

The discounted cash flows model considers the present value of net cash flows to be generated from the property, taking into account the expected rental growth rate and lease incentive costs such as rent-free periods. The expected net cash flows are then discounted using risk-adjusted discount rates.    

 

There are two main unobservable inputs that determine the fair value of the Group's investment property: 

 

1.    the rate of inflation as measured by CPI; it should be noted that all leases benefit from either CPI or RPI indexation; and

2.    the discount rate applied to the rental flows.

 

Key factors in determining the discount rates to assess the level of uncertainty applied include: the performance of the regulated social housing sector and demand for each Specialised Supported Housing property owned by the Group; costs of acquisition and refurbishment of each property; the anticipated future underlying cash flows for each property; benchmarking of each underlying rent for each property (passing rent); and the fact that all of the Group's properties have the benefit of full repairing and insuring leases entered into by a Housing Association.

 

All the properties within the Group's portfolio benefit from leases with annual indexation based upon CPI or RPI. The fair value measurement is based on the above items highest and best use, which does not differ from their actual use.

 

Sensitivities of measurement of significant unobservable inputs

 

As set out within the significant accounting estimates and judgements in note 3, the Group's property portfolio valuation is open to judgements and is inherently subjective by nature.

 

As a result, the following sensitivity analysis has been prepared:

 

Average discount rate and range:

The average discount rate used in the Group's property portfolio valuation is 6.82% (2021: 6.63%).

 

The range of discount rates used in the Group's property portfolio valuation is from 6.2% to 8.6% (2021: 6.21% to 8%).

 

	-0.5%  change in	+0.5% change in	+0.25% change  in	-0.25% change in
	Discount Rate	Discount Rate	CPI	CPI
	£'000	£'000	£'000	£'000
Changes in the IFRS fair value of investment properties as at 31 December 2022	40,552	(36,941)	21,037	(20,207)
Changes as at 31 December 2021	26,922	(24,663)	21,190	(20,238)

 

Given that the factors on which the valuations are based have not been adversely affected by COVID, there has been no direct impact to the investment property valuation at 31 December 2022. The valuations have also not been influenced by climate related factors due to there being little measurable impact on inputs at present.

 

15.  TRADE AND OTHER RECEIVABLES (non-current)

 

	31 December 2022		31 December 2021
	£'000		£'000
Other receivables	172		183
Lease incentive debtor	2,717		2,128
	2,889		2,311

 

The Directors consider that the carrying value of trade and other receivables approximate their fair value. All amounts are due to be received within one year from the reporting date.

 

16.  TRADE AND OTHER RECEIVABLES (current)

 

	31 December 2022		31 December 2021
	£'000		£'000
Rent receivable	3,209		1,971
Prepayments	174		796
Other receivables	782		608
Lease incentive debtor	107		60
	4,272		3,435

 

The Directors consider that the carrying value of trade and other receivables approximate their fair value. All amounts are due to be received within one year from the reporting date.

 

The Group applies the general approach to providing for expected credit losses under IFRS 9 for other receivables. Where the credit loss relates to revenue already recognised in the Income Statement, the expected credit loss allowance is recognised in the Statement of Comprehensive Income . Expected credit losses totalling £2,073,000 (2021: nil) were charged to the Statement of Comprehensive Income in the period.

 

17.  CASH, CASH EQUIVALENTS AND RESTRICTED CASH

 

	31 December 2022		31 December 2021
	£'000		£'000
Cash held by lawyers	544		8,459
Restricted cash	443		571
Ring-fenced cash	-		4,451
Cash at bank	29,152		38,989
	30,139		52,470

 

Cash held by lawyers is money held in escrow for expenses expected to be incurred in relation to investment properties pending completion. These funds are available immediately on demand.

 

Restricted cash represents retention money (held by lawyers only) in relation to repair, maintenance and improvement works by the vendors to bring the properties up to satisfactory standards for the Group and the tenants. The cash is committed on the acquisition of the properties. It also includes funds held in an escrow account in relation to the transfer of leases during 2020.

 

Ring-fenced cash includes retention monies held by Coutts in a "charged" account which requires lender's permission to release.

 

	31 December 2022		31 December 2021
	£'000		£'000
Total Cash, cash equivalents and restricted cash	30,139		52,470
Restricted cash	(443)		(571)
Cash reported on Statement of Cash Flows	29,696		51,899

 

18.  TRADE AND OTHER PAYABLES

 

Current liabilities

	31 December 2022		31 December 2021
	£'000		£'000
Accruals	2,014		2,373
Trade payables	37		48
Head lease ground rent (note 28)	40		39
Other creditors	1,029		1,191
	3,120		3,651

 

The Other Creditors balance consists of retentions due on completion of outstanding works and on the rebate of SDLT refunds. The Directors consider that the carrying value of trade and other payables approximate their fair value. All amounts are due for payment within one year from the reporting date.

 

19.  OTHER PAYABLES

 

Non-current liabilities

	31 December 2022		31 December 2021
	£'000		£'000
Head lease ground rent (note 28)	1,420		1,423
Rent deposit	100		100
	1,520		1,523

 

20.  BANK AND OTHER BORROWINGS

 

Non-current liabilities

	31 December 2022		31 December 2021
	£'000		£'000
Bank and other borrowings drawn at year end	263,500		263,500
Unamortised costs at beginning of period	(4,798)		(3,573)
Less: loan issue costs incurred	(131)		(2,390)
Add: loan issue costs amortised	433		1,165
Add: loan issue costs written off	2,085		-
Unamortised costs at end of the year	(2,412)		(4,798)
Balance at year end	261,088		258,702

 

The amount of loan arrangement fees written off and amortised in note 12, and loan issue costs in the Statement of cash flows differs to the amounts in the table above as this excludes amounts in relation to the undrawn cancelled RCF which amount to £534k, £573k and £468k respectively.

 

At 31 December 2022 there were undrawn bank borrowings of £NIL (2021: £160 million).

 

As at 31 December 2022, the Group's borrowings comprised two debt facilities:

 

·    a long dated, fixed rate, interest only financing arrangement in the form of a private placement of loan notes in an amount of £68.5 million with MetLife Investment Management (and affiliated funds); and

·    £195 million long dated, fixed rate, interest only sustainability-linked loan notes through a private placement with MetLife Investment Management clients and Barings.

 

The Group also had access to £160m Revolving Credit Facility (RCF) with Lloyds and NatWest during the year which was cancelled in December 2022. Prior to being cancelled, the facility was undrawn.

 

Loan Notes

The Loan Notes of £68.5 million are secured against a portfolio of Specialised Supported Housing assets throughout the UK, worth approximately £189 million (31 December 2021 - £188 million). The Loan Notes represent a loan-to-value of 40% of the value of the secured pool of assets and are split into two tranches: Tranche-A, is an amount of £41.5 million, has a term of 10 years from utilisation and is priced at an all-in coupon of 2.94% pa; and Tranche-B, is an amount of £27 million, has a term of 15 years from utilisation and is priced at an all-in coupon of 3.215% pa. On a blended basis, the weighted average term is 12 years carrying a weighted average fixed rate coupon of 3.04% pa. At 31 December 2022, the Loan Notes have been independently valued at £55.8 million which has been used to calculate the Group's EPRA Net Disposal Value in note 36 of the Unaudited Performance Measures. The fair value is determined by comparing the discounted future cash flows using the contracted yields with the reference gilts plus the margin implied. The reference gilts used were the Treasury 3.687% 2028 Gilt (Tranche A) and Treasury 3.665% 2033 Gilt (Tranche B), with an implied margin that is unchanged since the date of fixing.

 

In August 2021, the Group put in place Loan Notes of £195 million which enabled the Group to refinance the full £130 million previously drawn under its £160 million RCF with Lloyds and Natwest. The Loan Notes are secured against a portfolio of Specialised Supported Housing assets throughout the UK, worth approximately £410 million. The Loan Notes represent a loan-to-value of 40% of the value of the secured pool of assets and are split into two tranches: Tranche-A, is an amount of £77.5 million, has a term of 10 years from utilisation and is priced at an all-in coupon of 2.403% pa; and Tranche-B, is an amount of £117.5 million, has a term of 15 years from utilisation and is priced at an all-in coupon of 2.786% pa. On a blended basis, the weighted average term is 13 years carrying a weighted average fixed rate coupon of 2.634% pa. At 31 December 2022, the Loan Notes have been independently valued at £134.6 million which has been used to calculate the Group's EPRA Net Disposal Value in note 36 of the Unaudited Performance Measures. The fair value is determined by comparing the discounted future cash flows using the contracted yields with the reference gilts plus the margin implied. The reference gilts used were the Treasury 3.598% 2031 Gilt (Tranche A) and Treasury 3.929% 2036 Gilt (Tranche B), with an implied margin that is unchanged since the date of fixing.

 

The loans are considered a Level 2 fair value measurement.

 

The Group has met all compliance with its financial covenants on the above loans throughout the year.

 

Undrawn committed bank facilities - maturity profile

31 December 2022	Total		< 1 year		1 to 2 years		3 to 5 years		> 5 years
	£'000		£'000		£'000		£'000		£'000
At 31 December 2022	-		-		-		-		-
At 31 December 2021	160,000		-		160,000		-		-

 

 

21.  NOTES SUPPORTING STATEMENT OF CASH FLOWS

 

Reconciliation of liabilities to cash flows from financing activities:

 

		Bank borrowings		Head lease		Total
		£'000		£'000		£'000
		(note 20)		(note 18,19)
At 1 January 2022		258,702		1,463		260,165
Cashflows:
Repayment of principal on head lease liabilities		-		(40)		(40)
Loan arrangement fees paid		(131)		-		(131)
Non-cash flows:
-Amortisation of loan arrangement fees		433		-		433
-Loan arrangement fees written off		2,084		-		2,084
-Head lease additions		-		-		-
-Accrued interest on head lease liabilities		-		37		37
At 31 December 2022		261,088		1,460		262,548

 

		Bank borrowings		Head lease		Total
		£'000		£'000		£'000
		(note 20)		(note 18,19)
At 1 January 2021		194,927		1,456		196,383
Cashflows:
Bank borrowings drawn		195,000		-		195,000
Bank borrowings repaid		(130,000)		-		(130,000)
Repayment of principal on head lease liabilities		-		(39)		(39)
Loan arrangement fees paid		(2,728)		-		(2,728)
Non-cash flows:
-Amortisation of loan arrangement fees		1,278		-		1,278
-Loan arrangement fees paid in advance recognised in prepayments		225		-		225
-Head lease additions		-		2		2
-Accrued interest on head lease liabilities		-		44		44
At 31 December 2021		258,702		1,463		260,165

 

 

22.  SHARE CAPITAL

 

		Issued and fully paid		Issued and fully paid
		Number		£'000
At 1 January 2022		403,239,002		4,033
At 31 December 2022		403,239,002		4,033
		Issued and fully paid		Issued and fully paid
		Number		£'000
At 1 January 2021		403,239,002		4,033
At 31 December 2021		403,239,002		4,033

 

The Company achieved admission to the specialist fund segment of the main market of the London Stock Exchange on 8 August 2017, raising £200 million. As a result of the IPO, at 8 August 2017, 200,000,000 shares at one pence each were issued and fully paid. The Company was admitted to the premium segment of the Official List of the Financial Conduct Authority and migrated to trading on the premium segment of the Main Market on 27 March 2018.

 

Following a fourth public offer on 21 October 2020, a further 51,886,792 Ordinary Shares of one pence each were issued and fully paid.

 

Rights, preferences and restrictions on shares: All Ordinary Shares carry equal rights, and no privileges are attached to any shares in the Company. All the shares are freely transferable, except as otherwise provided by law. The holders of Ordinary Shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. All shares rank equally with regard to the Company's residual assets.

 

The table above includes 450,000 treasury shares (note 24). Treasury shares do not hold any voting rights.

 

23.  SHARE PREMIUM RESERVE

 

The share premium relates to amounts subscribed for share capital in excess of nominal value.

 

	31 December 2022		31 December 2021
	£'000		£'000
Balance at beginning of year	203,753		203,776
Share premium arising on Ordinary Shares issue	-		-
Share issue costs capitalised	-		(23)
Balance at end of year	203,753		203,753

 

24.  TREASURY SHARES RESERVE

	31 December 2022		31 December 2021
	£'000		£'000
Balance at beginning of year	(378)		(378)
Own shares repurchased	-		-
Balance at end of year	(378)		(378)

 

The treasury shares reserve relates to the value of shares purchased by the Company in excess of nominal value. No treasury shares were purchased during the current or prior year. During the year ended 31 December 2019, the Company purchased 450,000 of its own 1p Ordinary Shares at a total gross cost of £377,706 (£374,668 cost of shares and £3,038 associated costs). As at 31 December 2022 and 31 December 2021, 450,000 1p Ordinary Shares were held by the Company.

 

25.  CAPITAL REDUCTION RESERVE

 

	31 December 2022		31 December 2021
	£'000		£'000
Balance at beginning of year	160,394		166,154
Dividends paid	-		(5,760)
Balance at end of year	160,394		160,394

 

The capital reduction reserve relates to the distributable reserve established on cancellation of the share premium reserve. Dividends have been distributed out of Retained Earnings and the Capital Reduction Reserve in the year ended 31 December 2022.

 

26.  RETAINED EARNINGS

 

	31 December 2022		31 December 2021
	£'000		£'000
Balance at beginning of year	68,311		55,066
Total comprehensive income for the year	24,902		28,410
Dividends paid	(21,730)		(15,165)
Balance at end of year	71,483		68,311

 

27.  DIVIDENDS

	Year ended 31 December 2022		Year ended 31 December 2021
	£'000		£'000
1.295p for the 3 months to 31 December 2020 paid on 26 March 2021	-		5,217
1.3p for the 3 months to 31 March 2021 paid on 25 June 2021	-		5,236
1.3p for the 3 months to 30 June 2021 paid on 30 September 2021	-		5,236
1.3p for the 3 months to 30 September 2021 paid on 17 December 2021	-		5,236
1.3p for the 3 months to 31 December 2021 paid on 25 March 2022	5,236		-
1.365p for the 3 months to 31 March 2022 paid on 24 June 2022	5,498		-
1.365p for the 3 months to 30 June 2022 paid on 30 September 2022	5,498		-
1.365p for the 3 months to 30 September 2022 paid on 16 December 2022	5,498		-
	21,730		20,925

 

On 2 March 2023, the Company declared an interim dividend of 1.365 pence per Ordinary Share for the period 1 October 2022 to 31 December 2022. The total dividend of £5,498,070 will be paid on 31 March 2023 to Ordinary shareholders on the register on 17 March 2023.

 

The Company intends to pay dividends to shareholders on a quarterly basis and in accordance with the REIT regime.

 

Dividends are not payable in respect of its Treasury shares held.

 

28.    LEASES

 

A.    Leases as lessee

 

The following table sets out a maturity analysis of lease payments, showing the undiscounted lease payments to be paid after the reporting date:

	< 1 year	1-2 years	2-3 years	3-4 years	4-5 years	> 5 years	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Lease payables
31 December 2022	40	40	40	40	40	13,024	13,224
31 December 2021	40	40	40	40	40	13,126	13,326

 

 

	31 December 2022		31 December 2021
	£'000		£'000
Current liabilities (note 18)	40		40
Non-current liabilities (note 19)	1,420		1,423
Balance at end of year	1,460		1,463

 

The above is in respect of properties held by the Group under leasehold. There are 23 properties (2021: 24) held under leasehold with lease ranges from 125 years to 999 years. The Group's leasing arrangements with lessors are headlease arrangements on land and buildings that have been sub-let under the Group's normal leasing arrangements (see above) to tenants. The Group carries its interest in these headlease arrangements as long leasehold investment property (note 14).

 

B.    Leases as lessor

 

The Group leases out its investment properties (see note 14).

 

The future minimum lease payments receivable by the Group under non-cancellable operating leases are as follows:

	< 1 year	1-2 years	2-3 years	3-4 years	4-5 years	> 5 years	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Lease receivables
31 December 2022	38,975	38,975	38,975	38,975	38,975	462,374	657,248
31 December 2021	35,771	35,800	35,800	35,800	35,800	461,561	640,532

 

 

Leases are direct-let agreements with Registered Providers for a term of at least 15 years and usually between 20 to 25 years with rent linked to CPI or RPI. All leases are full repairing and insuring (FRI) leases, the tenants are therefore obliged to repair, maintain and renew the properties back to the original conditions.

 

The following table gives details of the percentage of annual rental income per Registered Provider with 10% or more than 10%share in any year presented:

 

	31 December 2022		31 December 2021
Registered Provider	% of total annual rent		% of total annual rent
Inclusion Housing CIC	29		30
Falcon Housing Association CIC	8		10
Parasol Homes (previously 28A Supported Living)	10		10

 

Other disclosures about leases are provided in notes 5, 14, 18, 21 and 33.

 

29.    CONTROLLING PARTIES

 

As at 31 December 2022 there is no ultimate controlling party of the Company.

 

30.    SEGMENTAL INFORMATION

 

IFRS 8 Operating Segments requires operating segments to be identified based on internal financial reports about components of the Group that are regularly reviewed by the Chief Operating Decision Maker (which in the Group's case is delegated to the Delegated Investment Adviser TPIM).

 

The internal financial reports received by TPIM contain financial information at a Group level as a whole and there are no reconciling items between the results contained in these reports and the amounts reported in the financial statements.

 

The Group's property portfolio comprised 497 (2021: 488) Social Housing properties as at 31 December 2022 in England, Wales and Scotland. The Directors consider that these properties represent a coherent and diversified portfolio with similar economic characteristics and, as a result, these individual properties have been aggregated into a single operating segment.  In the view of the Directors there is accordingly one reportable segment under the provisions of IFRS 8. All the Group's properties are engaged in a single segment business with all revenue, assets and liabilities arising in the UK, therefore, no geographical segmental analysis is required by IFRS 8. 

 

31.    RELATED PARTY DISCLOSURE

 

Directors are remunerated for their services at such rate as the Directors shall from time to time determine. The Chairman receives a Director's fee of £75,000 per annum (2021: £75,000), and the other directors of the Board receive a fee of £50,000 per annum (2021: £50,000). The Directors are also entitled to an additional fee of £7,500 in connection with the production of every prospectus by the Company (including the Issue), This was received by the Directors in 2020 but not in the current year as no prospectus was produced.

 

Dividends of the following amounts were paid to the Directors during the year:

 

Chris Phillips: £2,960 (2021: £2,850)

Peter Coward: £4,266 (2021: £4,031)

Paul Oliver: £4,206 (2021: £4,050)

Tracey Fletcher-Ray: £2,036 (2021: £1,960)

 

No shares were held by Ian Reeves as at 31 December 2022 (31 December 2021: nil).

 

32.    CONSOLIDATED ENTITIES

 

The Group consists of a parent Company, Triple Point Social Housing REIT PLC, incorporated in the UK and a number of subsidiaries held directly by the Company, which operate and are incorporated in the UK. The principal place of business of each subsidiary is the same as their place of incorporation.

 

The Group owns 100% of the equity shares of all subsidiaries listed below and has the power to appoint and remove the majority of the Board of those subsidiaries. The relevant activities of the below subsidiaries are determined by the Board based on simple majority votes. Therefore, the Directors of the Company concluded that the Company has control over all these entities and all these entities have been consolidated within the financial statements. The principal activity of all the subsidiaries relates to property investment.

 

The subsidiaries listed below were held as at 31 December 2022:

 

Name of Entity	Registered Office	Country of Incorporation	Ownership %
TP REIT Super HoldCo Limited*	1 King William Street, London, EC4N 7AF	UK	100%
TP REIT HoldCo 1 Limited	1 King William Street, London, EC4N 7AF	UK	100%
TP REIT HoldCo 2 Limited	1 King William Street, London, EC4N 7AF	UK	100%
TP REIT HoldCo 3 Limited	1 King William Street, London, EC4N 7AF	UK	100%
TP REIT HoldCo 4 Limited	1 King William Street, London, EC4N 7AF	UK	100%
TP REIT HoldCo 5 Limited	1 King William Street, London, EC4N 7AF	UK	100%
TP REIT PropCo 2 Limited	1 King William Street, London, EC4N 7AF	UK	100%
TP REIT PropCo 3 Limited	1 King William Street, London, EC4N 7AF	UK	100%
TP REIT PropCo 4 Limited	1 King William Street, London, EC4N 7AF	UK	100%
TP REIT PropCo 5 Limited	1 King William Street, London, EC4N 7AF	UK	100%
Norland Estates Limited	1 King William Street, London, EC4N 7AF	UK	100%
Henderson Court 1 Limited	1 King William Street, London, EC4N 7AF	UK	100%
Lawrence Hotel 1 Ltd	1 King William Street, London, EC4N 7AF	UK	100%
The Glebe 1 Limited	1 King William Street, London, EC4N 7AF	UK	100%
Sunny Retford 1 Ltd	1 King William Street, London, EC4N 7AF	UK	100%
* indicates entity is a direct subsidiary of Triple Point Social Housing REIT plc.

 

The subsidiaries listed below were acquired in the year to 31 December 2022:
Name of Entity	Registered Office		Country of Incorporation	Ownership %
New Road 1 Limited	1 King William Street, London, EC4N 7AF		UK	100%
My House 1 Limited	1 King William Street, London, EC4N 7AF		UK	100%
Henderson Court 1 Limited	1 King William Street, London, EC4N 7AF		UK	100%
Lawrence Hotel 1 Ltd	1 King William Street, London, EC4N 7AF		UK	100%
The Glebe 1 Limited	1 King William Street, London, EC4N 7AF		UK	100%
Sunny Retford 1 Ltd	1 King William Street, London, EC4N 7AF		UK	100%
The subsidiaries listed below have been struck off since 31 December 2022:
My House 1 Ltd	1 King William Street, London, EC4N 7AF	UK		100%

 

33.          FINANCIAL RISK MANAGEMENT

 

The Group is exposed to market risk, interest rate risk, credit risk and liquidity risk in the current and future periods. The Board oversees the management of these risks. The Board's policies for managing each of these risks are summarised below.

 

33.1        Market risk

 

The Group's activities will expose it primarily to the market risks associated with changes in property values.

 

Risk relating to investment in property

 

Investment in property is subject to varying degrees of risk. Some factors that affect the value of the investment in property include:

 

·    changes in the general economic climate;

·    competition for available properties;

·    obsolescence; and

·    Government regulations, including planning, environmental and tax laws.

 

Variations in the above factors can affect the valuation of assets held by the Group and as a result can influence the financial performance of the Group.

 

The factors mentioned above have not had a material impact on the valuations of the investment properties as at 31 December 2022, and are not expected to in the immediate future, but will continue to be monitored closely.

 

Please refer to the Corporate Social Responsibility Report on pages 42 to 43 for further information on Environmental Policy which may affect the investment property valuations going forward.  There was no impact on the valuations in the year ended 31 December 2022 from climate change factors, given that there is little measurable impact on inputs at present.

 

33.2.  Interest rate risk

 

The Group's debt at 31 December 2022 does not have any exposure to interest rate risk.

 

33.3 Credit risk

 

Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Group is exposed to credit risks from both its leasing activities and financing activities, including deposits with banks and other institutions as detailed in notes 16 and 19.

 

Credit risk related to financial instruments and cash deposits

 

One of the principal credit risks facing the Group arises with the funds it holds with banks and other institutions. The Board believes that the credit risk on short-term deposits and current account cash balances is limited because the counterparties are banks and institutions with high credit ratings.

 

In August this year, Fitch has assigned the Company an Investment Grade Long-Term Issuer Default Rating of 'A-' with a stable outlook, and a senior secured rating of 'A' for the Group's new Loan Notes.

 

Credit risk related to leasing activities

 

In respect of property investments, in the event of a default by a tenant, the Group will suffer a rental shortfall and additional costs concerning re-letting the property to another Social Housing Registered Provider. Credit risk is primarily managed by testing the strength of covenant of a tenant prior to acquisition and on an ongoing basis. The Investment Manager also monitors the rent collection in order to anticipate and minimise the impact of defaults by occupational tenants. Outstanding rent receivables are regularly monitored. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial asset.

 

The Group has leases in place with ten Registered Providers that have been deemed non-compliant by the Regulator. We continue to conduct ongoing due diligence on all Registered Providers and all rents payable under these leases have been paid. We continue to monitor and maintain a dialogue with the Registered Providers as they work with advisers and the Regulator to implement a financial and governance improvement action plan in order to address the Regulator's concerns.  The Board believes that the credit risk associated with the non-compliant rating is limited.

 

33.4 Liquidity risk

 

The Group manages its liquidity and funding risks by considering cash flow forecasts and ensuring sufficient cash balances are held within the Group to meet future needs. Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of financing through appropriate and adequate credit lines, and the ability of customers to settle obligations within normal terms of credit. The Group ensures, through forecasting of capital requirements, that adequate cash is available to fund the Group's operating activities on a weekly basis. Upcoming cash requirements are compared to existing cash reserves available, followed by discussions around optimal cash management opportunities in order to best manage liquidity risk.

 

The following table details the Group's liquidity analysis:

31 December 2022			< 3 months		3-12 months		1-5 Years		> 5 years
	£'000		£'000		£'000		£'000		£'000
Headleases (note 28)	13,223		10		30		159		13,024
Trade and other payables
Bank and other borrowings (note 20):
-     Fixed interest rate	263,500		-		-		-		263,500
-     Variable interest rate	-		-		-		-		-
Interest payable on bank and other borrowings:
-     Fixed interest rate	76,609		1,804		5,413		28,869		40,523
-     Variable interest rate	-		-		-		-		-
	353,332		1,814		5,443		29,028		317,047

 

 

31 December 2021			< 3 months		3-12 months		1-5 Years		> 5 years
	£'000		£'000		£'000		£'000		£'000
Headleases (note 28)	13,325		10		30		159		13,126
Trade and other payables							-		-
Bank and other borrowings (note 20):
-     Fixed interest rate	263,500		-		-		-		263,500
-     Variable interest rate	-		-		-		-		-
Interest payable on bank and other borrowings:
-     Fixed interest rate	83,827		1,804		5,413		28,869		47,741
-     Variable interest rate	-		-		-		-		-
	360,652		1,814		5,443		29,028		324,367

 

 

33.5 Financial instruments

 

The Group's principal financial assets and liabilities, which are all held at amortised cost, are those that arise directly from its operation: trade and other receivables, trade and other payables, headleases, borrowings and cash held at bank.

 

Set out below is a comparison by class of the carrying amounts and fair value of the Group's financial instruments that are included in the financial statements:

	Book value 31 December 2022	Fair value 31 December 2022		Book value 31 December 2021	Fair value 31 December 2021
	£'000	£'000		£'000	£'000
Financial assets:
Trade and other receivables	6,804	6,804		4,739	4,739
Cash,  cash equivalents and restricted cash	30,139	30,139		52,470	52,470
Financial liabilities:
Trade and other payables	3,080	3,080		3,606	3,606
Borrowings	261,088	190,314		258,702	260,761

 

 

34.          POST BALANCE SHEET EVENTS

 

There were no post balance sheet events subsequent to the end of the period.

 

35.          CAPITAL COMMITMENTS

 

The Group had capital commitments of £NIL million (2021: £4.2 million) in relation to the assets exchanged but not completed at 31 December 2022.

 

36.          EARNINGS PER SHARE

 

Earnings per share ("EPS") amounts are calculated by dividing profit for the period attributable to ordinary equity holders of the Company by the weighted average number of Ordinary Shares in issue during the period. As there are no dilutive instruments outstanding, both basic and diluted earnings per share are the same.

 

The calculation of basic and diluted earnings per share is based on the following:

 

	Year ended		Year ended
	31 December 2022		31 December 2021
Calculation of Basic Earnings per share
Net profit attributable to Ordinary Shareholders (£'000)	24,902		28,410
Weighted average number of Ordinary Shares (excluding treasury shares)	402,789,002		402,789,002
IFRS Earnings per share - basic and diluted	6.18p		7.05p

 

Calculation of EPRA Earnings per share
Net profit attributable to Ordinary Shareholders (£'000)	24,902		28,410
Changes in value of fair value of investment property (£'000)	(8,264)		(8,998)
One-off amortisation of arrangement fees on the cancelled RCF	2,619		-
EPRA earnings (£'000)	19,257		19,412
Non cash adjustments to include:
Amortisation of loan arrangement fees	1,006		1,279
Adjusted earnings (£'000)	20,263		20,691
Weighted average number of Ordinary Shares (excluding treasury shares)	402,789,002		402,789,002
EPRA earnings per share - basic and diluted	4.78p		4.82p
Adjusted earnings per share - basic and diluted	5.03p		5.14p

 

Adjusted earnings is a performance measure used by the Board to assess the Group's dividend payments. The metric adjusts EPRA earnings for interest paid to service debt that was capitalised, and the amortisation of ongoing loan arrangement fees. The Board sees these adjustments as a reflection of actual cashflows which are supportive of dividend payments. The Board compares the Adjusted earnings to the available distributable reserves when considering the level of dividend to pay.

 

37.          NET ASSET VALUE PER SHARE

 

Basic Net Asset Value ("NAV") per share is calculated by dividing net assets in the Group Statement of Financial Position attributable to Ordinary Shareholders of the parent by the number of Ordinary Shares outstanding at the end of the period. Although there are no dilutive instruments outstanding, both basic and diluted NAV per share are disclosed below.

 

Net asset values have been calculated as follows:

 

	31 December 2022		31 December 2021
	£'000		£'000
Net assets at end of the year	439,285		436,113
Shares in issue at end of the year (excluding treasury shares)	402,789,002		402,789,002
Dilutive shares in issue	-		-
IFRS NAV per share - basic and dilutive	109.06p		108.27p

 

38.          CAPITAL MANAGEMENT

 

The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and to maintain an optimal capital structure to minimise the cost of capital.

 

The Group considers proceeds from share issuance, bank and other borrowings and retained earnings as capital.

 

Until the Group is fully invested and pending re-investment or distribution of cash receipts, the Group will invest in cash equivalents, near cash instruments and money market instruments.

 

The level of borrowing will be on a prudent basis for the asset class and will seek to achieve a low cost of funds, whilst maintaining the flexibility in the underlying security requirements and the structure of both the investment property portfolio and the Group.

 

The Directors currently intend that the Group should target a level of aggregate borrowings over the medium term equal to approximately 40% of the Group's Gross Asset Value. The aggregate borrowings will always be subject to an absolute maximum, calculated at the time of drawdown, of 50% of the Gross Asset Value.

 

The initial fixed rate facility with MetLife requires an asset cover ratio of x2.00 (amended from previous covenant of x2.25 in August 2021 to bring more in line with the ACR covenant in the new Note Purchase Agreement with Metlife and Barings) and an interest cover ratio of x1.75. At 31 December 2022, the Group was fully compliant with both covenants with an asset cover ratio of x2.77 (2021: x2.75) and an interest cover ratio of x5.02 (2021: x4.90). The subsequent facility with Metlife and Barings requires an asset cover ratio of x1.67 and an interest cover ratio of x1.75. At 31 December 2022, the Group was fully compliant with both covenants with an asset cover ratio of x2.10 and an interest cover ratio of x4.41.

 

UNAUDITED PERFORMANCE MEASURES

 

1.            PORTFOLIO NET ASSET VALUE

 

The objective of the Portfolio Net Asset Value "Portfolio NAV" measure is to highlight the fair value of the net assets on an ongoing, long-term basis, which aligns with the Group's business strategy as an ongoing REIT with a long-term investment outlook. This Portfolio NAV is made available on a quarterly basis on the Company's website and announced via RNS.

 

In order to arrive at Portfolio NAV, two adjustments are made to the IFRS Net Asset Value ("IFRS NAV") reported in the consolidated financial statements such that:

 

 

i.      The hypothetical sale of properties will take place based on a sale of a corporate vehicle rather than a sale of underlying property assets. This assumption reflects the basis upon which the Company's assets have been assembled within specific SPVs.

 

ii.     The hypothetical sale will take place in the form of a single portfolio disposal.

 

	31 December 2022		31 December 2021
	£'000		£'000
Net asset value per the consolidated financial statements	439,285		436,113
Value of Asset pools	439,285		436,113
Effects of the adoption to the assumed, hypothetical sale of properties as a portfolio and based on sale of a corporate vehicle	62,682		49,975
Portfolio Net Asset Value	501,967		486,088

 

After reflecting these amendments, the movement in net assets is as follows:

 

	31 December 2022		31 December 2021
	£'000		£'000
Opening reserves	486,088		468,788
Net issue proceeds	-		(23)
Operating profits	27,471		26,192
Capital appreciation	21,856		19,350
Loss on fair value adjustment on assets held for sale	(885)		(515)
Finance income	56		44
Finance costs	(10,889)		(6,823)
Dividends paid	(21,730)		(20,925)
Portfolio Net Assets	501,967		486,088
Number of shares in issue at the year end (excluding treasury shares)	402,789,002		402,789,002
Portfolio net asset value per share	124.62p		120.68p

 

2.            ADJUSTED EARNINGS PER SHARE - PORTFOLIO NAV BASIS

 

Summary Consolidated Statement of Comprehensive Income	31 December 2022		31 December 2021
	£'000		£'000
Net rental income	35,227		33,117
Other income	110		-
Expenses	(7,866)		(6,926)
Fair value gains on investment property	71,830		58,973
Loss on fair value adjustment on assets held for sale	(885)		(515)
Finance income	56		44
Finance costs	(10,889)		(6,823)
Value of each pool	87,583		77,870
Weighted average number of shares (excluding treasury shares)	402,789,002		402,789,002
Adjusted earnings per share - basic	21.74p		19.46p

 

3.            EPRA Net Reinstatement Value

 

	31 December 2022		31 December 2021
	£'000		£'000
IFRS NAV/EPRA NAV (£'000)	439,285		436,113
Include:
Real Estate Transfer Tax* (£'000)	41,283		39,492
EPRA Net Reinstatement Value (£'000)	480,568		475,605
Fully diluted number of shares	402,789,002		402,789,002
EPRA Net Reinstatement value per share	119.31p		118.07p

* Purchaser's costs

 

4.            EPRA Net Disposal Value

 

	31 December 2022		31 December 2021
	£'000		£'000
IFRS NAV/EPRA NAV (£'000)	439,285		436,113
Include:
Fair value of debt* (£'000)	70,774		(2,059)
EPRA Net Disposal Value (£'000)	510,059		434,054
Fully diluted number of shares	402,789,002		402,789,002
EPRA Net Disposal Value**	126.63p		107.76p

 

* Difference between interest-bearing loans and borrowings included in balance sheet at amortised cost, and the fair value of interest-bearing loans and borrowings.

 

**Equal to the EPRA NNNAV disclosed in previous reporting periods.

 

5.            EPRA Net Tangible Assets

 

	31 December 2022		31 December 2021
	£'000		£'000
IFRS NAV/EPRA NAV (£'000)	439,285		436,113
EPRA Net Tangible Assets (£'000)	439,285		436,113
Fully diluted number of shares	402,789,002		402,789,002
EPRA Net Tangible Assets *	109.06p		108.27p

 

*Equal to IFRS NAV and previous EPRA NAV metric as none of the EPRA Net Tangible Asset adjustments are applicable as at 31 December 2022 or 31 December 2021.

 

6.            EPRA net initial yield (NIY) and EPRA "topped up" NIY

 

	31 December 2022		31 December 2021
	£'000		£'000
Investment Property - wholly-owned (excluding head lease ground rents)	666,253		639,831
Less: development properties	-		-
Completed property portfolio	666,253		639,831
Allowance for estimated purchasers' costs	41,283		39,492
Gross up completed property portfolio valuation	707,536		679,322
Annualised passing rental income	38,626		35,343
Property outgoings	-		-
Annualised net rents	38,626		35,343
Contractual increases for lease incentives	349		443
Topped up annualised net rents	38,975		35,785
EPRA NIY	5.46%		5.20%
EPRA Topped Up NIY	5.51%		5.27%

 

7.            ONGOING CHARGES RATIO

 

	31 December 2022		31 December 2021
	£'000		£'000
Annualised ongoing charges	7,018		6,671
Average undiluted net assets	437,699		432,382
Ongoing charges	1.60%		1.54%

 

8.            EPRA VACANCY RATE

 

	31 December 2022		31 December 2021
	£'000		£'000
Estimated Market Rental Value (ERV) of vacant spaces	-		93
Estimated Market Rental Value (ERV) of whole portfolio	38,975		35,785
EPRA Vacancy Rate	-		0.26%

 

9.            EPRA COST RATIO

 

	31 December 2022		31 December 2021
	£'000		£'000
Total administrative and operating costs	7,866		6,926
Gross rental income	37,300		33,117
EPRA cost ratio	21.09%		20.91%