TIDMRESI
RNS Number : 1307U
Residential Secure Income PLC
21 November 2019
21 November 2019
Residential Secure Income plc
FULL YEAR RESULTS
SHARED OWNERSHIP ACQUISITIONS, INFLATION-LINKED RENTS AND ASSET
MANAGEMENT INITIATIVES UNDERPIN STRONG PERFORMANCE AND POSITION
REIT FOR FUTURE INCOME GROWTH
Residential Secure Income plc ("ReSI") (LSE: RESI), which
invests in affordable shared ownership, retirement and Local
Authority housing, today announces its annual results for the 12
months to 30 September 2019.
Financial highlights
-- IFRS Net Asset Value ("NAV") Total Return of 8.0 pence per
share for the period and 17.3 pence / or 18%, since Admission, with
ReSI delivering on its 8%+ p.a. target
-- Earnings per share of 7.7 pence (30 September 2018: 9p)
-- Significant growth in operating earnings per share to 2.9
pence (30 September 2018: 0.9p), reflecting ongoing ramp up of
rental income
-- 3.9%, or GBP8.7 million, uplift in the portfolio valuation
during the year, driven primarily by inflation linked rent
increases (GBP6.6 million) and successful long-term, lease
extensions in the retirement portfolio (GBP1.6 million)
-- 3.3% increase in IFRS NAV to 108.6 pence per share (30
September 2018: 105.1 pence per share), representing growth of 11%
since Admission
-- Annualised net rental income increased 6.7% to GBP11.2
million (30 September 2018: GBP10.5 million), representing a 5% net
yield on capital deployed to income producing assets, which will
increase in 2020 with inflation and as shared ownership portfolio
comes on stream
-- 96% of rental income is subject to contractual inflation-linked rental uplifts
-- Total asset level drawn debt of GBP108.2 million (30
September 2018: GBP51.6 million) reflecting a gearing ratio of
36.3%
-- Total dividends declared for the period of 5 pence per share
(in four equal quarterly instalments of 1.25 pence), in line with
target at IPO
-- NAV accretive share buy-back programme launched in April 2018
has resulted in 9,304,729 shares being purchased at an average
price of 92.5p
The movement in NAV for the year to 30 September 2019 is as
follows:
GBPm Pence per
share
Net Asset Value as at 30th
September 2018 183.6 105.1
------- -----------
Net Income for period 4.7 2.8
------- -----------
Valuation change 8.5 5.0
------- -----------
Dividend paid (7.7) (4.5)
------- -----------
Net capital reduction (3.4) (2.0)
------- -----------
Impact of reduction in number
of shares - 2.2
------- -----------
Net Asset Value as at 30th
September 2019 185.7 108.6
------- -----------
High quality and diverse portfolio, delivering measurable social
benefit, enhanced through acquisitions and asset management; fully
invested IPO proceeds and substantially invested available debt
-- GBP83 million invested or committed in 332 residential units
during the year, bringing the total deployed since IPO to GBP302
million. The portfolio now comprises 2,677 residential units valued
at GBP321.3 million (including GBP60.6 million of committed
acquisitions), across 655 unique locations serving shared
ownership, retirement and Local Authority housing tenants
-- Social impact from portfolio of GBP731 million, calculated by
the Social Profit Calculator, to be delivered over 25 years,
representing GBP4.27 per share, through subsidised rents, wellbeing
improvements to tenants, fiscal savings and wider economic
benefits
-- Registered Provider status facilitated entry into the shared
ownership sector, with GBP77 million invested or committed
delivering 166 homes as shared ownership using grant funding from
the Greater London Authority's "Homes for Londoners" programme:
- GBP60 million committed to acquire 132 apartments at Clapham
Park from Metropolitan Thames Valley Housing in March 2019, with
construction expected to complete in Q1 2020
- Acquisition of 34 new-build homes in Barnet, London, for
GBP16.5 million from Crest Nicholson in October 2018, of which over
80% are already sold or in progress at a sales price in line with
the target at acquisition, delivering long-term rental income for
ReSI
- Execution of a GBP300 million Housing Investment Agreement
between the ReSI fund manager ReSI Capital Management and Morgan
Sindall Investments, initially targeting 1,500 new Shared Ownership
homes
-- Lease terms extended to 150 years on 279 retirement
properties, adding value and increasing the average unexpired lease
term of ReSI's retirement portfolio to 131 years
-- GBP6.5 million addition to the retirement portfolio completed in October 2018
-- New 10 year management agreement with Places for People
group, rated G1/V1 by the Regulator of Social Housing, covering the
day-to-day management, rent collection and maintenance of its
2,219-unit retirement housing portfolio
-- Portfolio optimization progressed through the sale of 12
retirement properties at an average of 7% above book valuation
Team strengthened with senior independent appointments
-- David Orr, former CEO of the National Housing Federation,
appointed as independent Chairman of ReSI's Registered Provider of
Social Housing, ReSI Housing Limited
-- Gillian Rowley appointed as an independent non-executive director of ReSI Housing Limited
Jonathan Slater, Chief Executive of ReSI Capital Management, the
Fund Manager, commented:
"This strong set of results was underpinned by an uplift in
portfolio valuation which was driven by a combination of
contractual inflation-linked rental increases flowing through into
valuation accretions, along and our own asset management
initiatives. More recently we have focused on establishing our
Shared Ownership portfolio, which will, once fully occupied,
produce high-quality and sustainable income, to the benefit of our
shareholders, whilst at the same time delivering significant social
value.
"Our ambition remains to significantly grow the size of ReSI to
be able to achieve the benefits of scale, and we continue to
generate a strong pipeline of potential investments to facilitate
this. We have remained highly disciplined in selecting the
transactions we are prepared to undertake and believe that this is
fundamental to delivering the long-term secure returns expected by
ReSI's shareholders."
Robert Whiteman, Chairman of Residential Secure Income plc,
added:
"The well-documented shortage of housing in many parts of the
United Kingdom continues to drive high levels of demand, and ReSI
has seen strong appetite from Housing Associations, Local
Authorities and private developers for new sources of capital to
invest in housing in these areas. ReSI has clearly demonstrated its
ability, through ReSI Housing, our Registered Provider of social
housing, to deliver new and much needed affordable accommodation
supported by government grant, including shared ownership.
"Having now substantially committed our available equity
capital, together with leverage currently at c. 36% borrowings to
Gross Asset Value, we are now focussed on the delivery of ReSI's
shared ownership assets to make the portfolio fully income
producing."
Meeting
A meeting for investors and analysts will be held at 12.30pm
today at the offices of ReSI Capital Management Ltd, 21-26 Garlick
Hill London EC4V 2AU.
The conference call dial-in for the meeting is: +44 (0)330 336
9105 (Participant Passcode: 5687977).
FOR FURTHER INFORMATION, PLEASE CONTACT:
ReSI Capital Management Limited
Ben Fry
Alex Pilato
Mark Rogers
Jonathan Slater +44 (0) 20 7382 0900
Jefferies International Limited
Stuart Klein
Gary Gould +44 (0) 20 7029 8000
FTI Consulting +44 (0) 20 3727 1000
Richard Sunderland resi@fticonsulting.com
Claire Turvey
Richard Gotla
About Us
Residential Secure Income plc ("ReSI") is a real estate
investment trust (REIT) listed on the premium segment of the Main
Market of the London Stock Exchange with the objective of
delivering secure inflation linked returns by investing in
affordable shared ownership, retirement and Local Authority housing
throughout the UK.
ReSI targets a secure, long-dated, inflation-linked dividend
yield of 5.0% p.a. (paid quarterly) and a total return in excess of
8.0% p.a. and has to date committed c. GBP300 million, assembling a
portfolio of 2,677 properties.
ReSI aims to make a meaningful contribution to alleviating the
UK housing shortage by meeting demand from housing developers
(Housing Associations, Local Authorities and private developers)
for long-term investment partners to accelerate the development of
socially and economically beneficial new affordable housing.
ReSI's subsidiary, ReSI Housing Limited, is registered as a
for-profit Registered Provider of Social Housing, and so provides a
unique proposition to its housing developer partners, being a long
term private sector landlord within the social housing regulatory
environment. As a Registered Provider, ReSI Housing can acquire
affordable housing subject to s106 planning restrictions and
housing funded by government grant.
ReSI is managed by ReSI Capital Management Limited ("RCM"), a
wholly-owned subsidiary of TradeRisks Limited which has an 18 year
track record of executing transactions within the UK social housing
sector and, to date, has arranged funding of over GBP11 billion in
the social housing, care and other specialist residential property
sectors.
Acquisitions by ReSI are limited to homes with sufficient
cashflows, counterparty credit quality and property security to be
capable of supporting long-term investment grade equivalent
debt.
ReSI does not manage or operate stock and uses experienced and
credit-worthy third party managers.
as at 30 September 2019
Financial Highlights
108.6p /+3.3% GBP185.7m /+1.2% GBP155.6m
Net Asset Value per Net Asset Value Market Capitalisation
share
IFRS Net Asset Value, Market Capitalisation
IFRS Net Asset Value an increase of GBP2.1m of equity at 30 September
per share, an increase versus Net Asset Value 2019 (2018: GBP164.9m)
of 3.5p or 3.3% (versus of GBP183.6m as at
Net Asset Value per 30 September 2018
share of 105.1p at
30 September 2018)
------------------------------- ------------------------------ -------------------------------
7.7p GBP321m GBP108.2m
Earnings per share Value of Investment Debt Outstanding
Property
Profit after tax per (2018: GBP53m) The
share including revaluations Fair Value of investment debt has a weighted
based on IFRS NAV (2018: property at 30 September average remaining life
9.0p) 2019, excluding adjustment of 19.5 years
to fair value for the
finance lease asset,
plus committed properties
with purchase contracts
exchanged (2018: GBP225m)
(see note 16 on page
62)
------------------------------- ------------------------------ -------------------------------
5.0p GBP8.7m/3.9% 36.3%
Dividend per share Valuation uplift GAV Leverage Ratio
Dividends declared Increase in fair value Ratio of total debt
for the year to 30 of investment property outstanding against
September 2019 (2018: in the year to 30 September Gross Asset Value (excluding
3.0p); targeting 5p 2019 (2018: GBP14.8m) adjustment for finance
per share annually lease asset) (2018:21.5%)
thereafter increasing (see note 35e on page
broadly in line with 72)
inflation
------------------------------- ------------------------------ -------------------------------
GBP302m 1.5% 2.8m
Capital deployed Ongoing charges ratio Shares
Total invested in acquiring Ongoing charges ratio Held by the Fund Manager,
properties up to 30 based on year end NAV, directors of the Fund
September 2019 inclusive including 1.0% for Manager, and Directors
of GBP60m committed the Fund Manager's of ReSI plc. Equal
at Clapham Park (2018: fee (2018: 1.5%) (See to 1.6% of the total
GBP210m) note 8 on page 60) number of shares outstanding
as at 30 September
2019 (2018: 2.3m)
------------------------------- ------------------------------ -------------------------------
Operational Highlights
2,677 GBP4.27 Over 80%
Homes acquired Social Impact per share Of homes located in
Southern England
2,677 homes acquired GBP731m total social
spread across the UK impact over 25 years, Percentage of the total
as at 30 September or GBP2.49 for every portfolio located in
2019 including 132 GBP1 invested in ReSI's Southern England, defined
homes at Clapham Park properties (see page as the South East,
due to complete in 10) South West, East Anglia
Q1 2020 (2018: 2,362) and Greater London
(2018: over 80%)
------------------------------ ---------------------------- -----------------------------
GBP11.2m 5.0% 655
Net rental income Net yield Locations
Net rental income (net Net rental income divided Number of unique locations
property income less by capital deployed where properties are
ground rents disclosed to income-producing owned across the United
as finance lease interests) assets (2018: 5.0%) Kingdom (2018: 610)
for the year to 30 (see note 36 on page
September 2019 (2018: 72)
GBP5.3m)(see note 6
on page 59)
------------------------------ ---------------------------- -----------------------------
Investment Strategy
ReSI seeks to provide its shareholders with income and capital
appreciation in excess of inflation by acquiring and holding
residential social housing assets including affordable shared
ownership, retirement and Local Authority housing.
ReSI's Investment Strategy
ReSI's investment strategy is to deliver a secure income stream
from a residential social housing portfolio benefiting from:
- below market rents ensuring on-going tenant demand;
- diverse income stream from less economically sensitive tenants; and/or
- strong counterparty covenants and managers - shared equity tenants, Local Authorities, large credit-worthy Housing Associations
Acquisitions are fundamentally limited to homes with sufficient
cashflows, counterparty credit quality and property security to be
capable of supporting long-term investment grade equivalent debt
(at 50% leverage on average).
Seeks to deliver an inflation-linked target of 5% p.a. dividend
and total return in excess of 8% p.a.
Key Investment Themes
1. Reduced government grant and other financial constraints are
causing Housing Associations to seek third party equity capital
2. Similarly, government initiatives are encouraging Local
Authorities to bring in third party capital
3. UK housebuilders and developers are under pressure to
deleverage and reduce their balance sheets
4. Demographic trends and a historical undersupply are driving growing demand for UK housing
-- This environment has created a highly scalable, long-term
investment opportunity to generate secure, long term,
inflation-linked returns
-- ReSI was created to meet demands from housing developers
(Housing Associations, Local Authorities and private developers)
for:
- alternative equity like financing routes to support their development ambitions
- investment partners to facilitate their provision of housing
ReSI offers a highly ReSI Capital Management TradeRisks is a risk
scalable, long-term Limited ("RCM"), a advisory firm and financing
investment opportunity wholly-owned and separately arranger focused on
generating secure, inflation-linked regulated subsidiary social housing and other
returns from a defensive of TradeRisks Limited, specialist residential
asset class that is is ReSI's Alternative property and social
supported by strong Investment Fund Manager. infrastructure sectors.
demographic and structural ReSI has a fully independent TradeRisks has advised
drivers. board of experienced on and arranged funding
ReSI's long-term economic non-executive directors. of over GBP11bn for
objectives make it an In addition, ReSI Housing social housing and other
attractive partner for Limited, the Group's specialist residential
Housing Associations, for profit Registered property. It has advisory
Local Authorities and Provider of social or transactional relationships
private developers who housing, has its own with many of the larger
favour partners with board with experienced UK Housing Associations,
business models to invest non-executive directors together representing
and hold assets over that include David c. 1.2m homes.
the long term. Orr, previously chief TradeRisks uses its
ReSI's subsidiary ReSI executive of the National significant debt financing
Housing Limited became Housing Federation, expertise to lock in
a Registered Provider and Gillian Rowley, returns on assets at
of social housing in former Head of Private the point of acquisition,
July 2018 and is therefore Finance at the Homes by arranging long-term
able to acquire properties & Community Agency. investment grade debt
designated as affordable which matches asset
and which are funded cashflows.
by government grant,
expanding ReSI's pool
of potential investments
to include those developed
by the private sector.
------------------------------- ---------------------------------
Investment Portfolio
Since IPO, ReSI has assembled a portfolio of 2,677 homes
comprising: 166 (22.3% by value) Shared Ownership homes, 289 (10.8%
by value) Local Authority housing units and 2,222 (66.8% by value)
Retirement Rental homes.
Shared Ownership
-- Shared Ownership will be the predominant focus of ReSI's ongoing investment.
-- Shared Ownership allows households earning up to GBP90,000
per annum in London and GBP80,000 in the rest of England to buy an
initial stake of at least 25% in a property and pay a below market
rent on the remaining part.
-- Shared Owners have the option to staircase (i.e. to purchase
a bigger share in the property at the then market value),
crystallising expected valuation growth for ReSI.
Social impact
-- Shared Ownership opens the door to home ownership by enabling
a broad range of buyers to purchase a home with a smaller deposit
and lower annual payments than would be required under Help to Buy
or an outright purchase.
-- Creates additional sub-market rental homes.
Shared Ownership portfolio at a glance
-- ReSI's portfolio consists of 166 new build apartments,
purchased for GBP76m (including GBP60m committed with purchase
contracts exchanged at Clapham Park). The apartments were
originally intended for private sale and ReSI will use grant
funding of GBP6m from the Greater London Authority's "Homes for
Londoners" programme to deliver these as shared ownership.
-- Shared Owners at these schemes require a starting deposit of GBP9.8k.
-- 132 homes are part of Metropolitan Thames Valley Housing's
("MTVH") Clapham Park regeneration site and 34 homes are part of
Crest Nicholson's Totteridge Place development.
-- The Clapham Park portfolio is situated between Clapham,
Brixton, Streatham and Balham, and forms part of MTVH's
regeneration project on the Clapham Park estate.
-- The regeneration will deliver 2,500 new homes (of which 700
have already been delivered), a community hub, a new community
centre and new shops - all of which are designed to underpin the
long-term prospects for the area.
-- The Clapham Park purchase is expected to complete in Q1 2020
after some delays to Practical Completion by the constructor.
Delays have been put to good use to increase the number of off-plan
purchases.
-- The Totteridge Place development completed in January 2019
and has been well-received by shared owners with to date 80% of the
homes sold or with sales in progress.
-- Managed by MTVH, one of the largest Housing Associations and
a recognised leader in shared ownership delivering c.500 new shared
ownership homes each year.
-- There are c. 200,000 Shared Ownership Homes across England,
and a total of 11,447 new Shared Ownership sales were made by
Registered Providers/Local Authorities in 2018/9 (Housing
Statistical Data Release: October 2019).
-- Shared Ownership homes are held through ReSI Housing Limited
- registered as a for-profit Registered Provider of social housing
since 5 July 2018.
Local Authority housing
-- ReSI's aim is to become a long-term partner to Local
Authorities who have a statutory duty to house those who are
homeless or at risk of homelessness.
-- ReSI's focus is on acquiring properties in areas with the
highest need for accommodation and strong supply and demand
dynamics, with rents set around market rent to minimise downside
risk if the Local Authority does not renew a lease.
Social impact
-- The UK is facing significant demand for short term council
housing nationally - there were 84,740 households in temporary
accommodation as at March 2019 an increase of 77% from December
2010.
-- New legislation introduced under the Homelessness Reduction
Act 2017 places additional obligations on Local Authorities for
housing vulnerable/statutory homeless people, creating further
pressures on councils looking to increase their access to emergency
and temporary housing.
-- Local Authorities are increasingly unable to meet demand for
temporary accommodation from their own housing stock (currently
used to provide housing for 21% of households in temporary
accommodation), diverting resources from other core services of
Local Authorities.
-- There is an increasing reliance on pay-nightly privately
managed accommodation (accounting for 29% of those in temporary
accommodation in December 2017, up from 9% in December 2011) and
B&Bs (a further 8% of households in temporary accommodation),
which is more costly than leasing from the private sector.
-- As a result there is a shortfall between cost and support for
temporary housing in London, the South East and other metropolitan
areas. English Local Authorities spent GBP845m on temporary
accommodation in 2015/16, a 39% increase in real terms from
2010/11. London Councils are meeting an estimated GBP170m per annum
of this cost from their general fund.
-- Rents at ReSI's properties are set at around long-term market
rent levels, provide a cost saving to Local Authorities, who often
have to rely on costly pay-nightly accommodation and B&B's
(used to house 33% of households in temporary accommodation).
-- ReSI provides Local Authorities with a long-term
institutional landlord to replace the numerous individual landlords
that Local Authorities currently rely upon and removes the
difficulties that Local Authorities have with ensuring adequate
standards across their rented estates.
Local Authority housing portfolio at a glance
-- 289 residential homes (2018: 289) in five freehold buildings
-- Let to Luton Borough Council on leases with a weighted
average remaining term of 7.0 years with no void risk
-- Recently refurbished in 2016 and 2017
-- Managed and maintained by Luton Borough Council and Mears.
-- Annualised net rent of GBP1.8m (2018: GBP1.8m)
-- Secured GBP14.5m of 3 year debt partially fixed at a coupon of 2.56% (2018: GBPnil)
Retirement rental housing
-- Retirement Housing provides fit for purpose homes for retired
people, allowing them to maintain their independence for longer,
whilst freeing up larger homes for families.
-- ReSI's rental income is delinked to the economy as tenants
primarily pay their rent from pensions and housing benefits where
applicable, rather than employment income.
-- Almost 25% (by net operating income) of the portfolio is used
to house the individual managing the retirement home for ReSI and
other leaseholders, providing additional rental security.
Social impact
-- There has been a steady upward trend in life expectancy in
the UK. By 2025 the average life expectancy of a person reaching
retirement age is expected to reach c.22 years. As a result the UK
population over 65 in 2025 is expected to be 22% higher than in
2015.
-- Just 1% of UK over 60's live in purpose built retirement
housing, compared to 13% in Australia and 17% in the USA.
-- There is a very limited pipeline of retirement developments
in the UK, with only 3% of consented developments being designed
specifically for the elderly.
-- Specialist retirement housing is accessible (e.g. without
steep staircases) and easy to manage, enabling people to live
independently in their own living space to a greater age, whilst
still having access to some level of day-to-day and emergency
support.
-- According to Age UK, over 1 million older people say they
always or often feel lonely. Nearly half of older people in the UK
(49% of over 65's) say that television or pets are their main form
of company, with one research report claiming that loneliness can
be as harmful for our health as smoking 15 cigarettes a day.
Specialised retirement accommodation helps to foster a sense of
community by offering shared spaces such as a residents' lounge and
communal gardens.
-- Residents are able to rent a retirement property through an
assured tenancy, providing lifetime security of tenure without the
burdens of home ownership, which can expose the resident to
significant transaction costs on entry and on departure.
Retirement rental portfolio at a glance
-- 2,222 retirement rental homes within 651 purpose-built
retirement housing blocks (2018: 2,073 homes).
-- Includes 323 licensed rental homes used to house property
manager within the accommodation they manage.
-- Over 80% of the portfolio located in Southern England.
-- New 10 year management and maintenance agreement signed in
May 2019 with Places for People group.
-- Extended the head lease term on 1,282 properties to 150 years
since initial acquisition (2018: 1,003 properties).
-- Annualised net rent, after ground rents, of GBP9.4m (2018: GBP8.7m).
-- Secured GBP97m of 25 year partially amortising fixed rate
debt at a coupon of 3.46% (2018: GBP53m at a coupon of 3.45%).
Quantifying Social Impact
ReSI is committed to accelerating the development of socially
and economically beneficial new housing to make a meaningful
contribution to the UK housing shortage.
ReSI's homes deliver a social benefit through providing
wellbeing improvements to tenants (e.g. by providing the security
of a home for life), fiscal savings (e.g. lower costs for housing
those at risk of homelessness and savings to the NHS), and wider
economic benefits (e.g. by enabling people to live and find work in
otherwise unaffordable parts of the country).
The social impact delivered by ReSI is readily quantifiable
using methodologies accredited by Social Value UK and Social Value
international.
ReSI's existing property portfolio delivers a total social
benefit of GBP731m over 25 years, or GBP4.27 per share.
Social Benefits of Different Types of Ownership within ReSI's
portfolio
Social Tenancy Overall Local Authority Retirement Rental Shared Ownership
Housing
Financial wellbeing Provides homes to Living with peers Opens the door to
- reduced problems those helps address loneliness, home ownership
of rent and less who are homeless the largest health
punitive approach or at risk of homelessness problem for the
to arrears. Increased elderly population
ability to find,
retain and travel
to work
----------------------------- ---------------------------- --------------------------
Physical wellbeing Provides savings Supports independent Provides lifetime
- positive health to Local Authorities living for longer security of tenure
outcomes from provision vs. hotels and B&Bs and greater security
of Homes to Decent of GBP200 per week of future housing
Homes Standard per unit costs compared to
renting privately
or purchasing a home
through Help to Buy
----------------------------- ---------------------------- --------------------------
Mental wellbeing Provides institutional Frees up large family Creates additional
- positive mental landlord to ensure homes for families sub-market rental
outcomes due to adequate standards homes
stable and secure of accommodation
housing
----------------------------- ---------------------------- --------------------------
Value for money Good quality accommodation Renting avoids the Delivers social dividend
for tenants and burdens and transaction through rental discount
capped and regulated costs of home ownership
rent levels
----------------------------- ---------------------------- --------------------------
Overall impact of ReSI's Investment in Affordable Social
Housing
Investment Social Impact over Social Impact Ratio
25 years over 25 years
Shared Ownership GBP77m GBP209m GBP2.71
------------ -------------------- ---------------------
Local Authority GBP34m GBP168m GBP4.94
Housing
------------ -------------------- ---------------------
Retirement Rental GBP183m GBP354m GBP1.93
------------ -------------------- ---------------------
Overall Impact GBP294m GBP731m GBP2.49
------------ -------------------- ---------------------
(Source: Social Profit Calculator)
.
Chairman's Statement
Rob Whiteman
Chairman
Introduction
I am pleased to present the second annual results of Residential
Secure Income plc ("ReSI" or the "Company") together with its
subsidiaries (the "Group") which covers the year ended 30 September
2019 (the "Year").
These results build on the significant progress made by the
Company during its first year and see ReSI delivering on both the
target returns and the strategy outlined at IPO. We have further
expanded the Company's portfolio, most notably by entering the
shared ownership sector, and achieved strong valuation growth,
while at the same time building a secure rental income stream that
will be capable of supporting future dividends.
As a reminder, ReSI's objective is to deliver secure,
long-dated, inflation-linked income and capital returns through
investment in UK social housing. It aims to meet demand from
housing developers (Housing Associations, Local Authorities and
private developers) for long-term investment partners to accelerate
the development of socially and economically beneficial new
housing, making a meaningful social contribution by helping to
alleviate the UK's housing shortage.
ReSI's acquisitions are selected to have sufficient cashflows,
counterparty credit quality and property security to allow them to
support long-term investment grade equivalent debt (at our target
leverage of 50% on average).
We are also pleased to be able to highlight, in the prior
section of this report, the positive social impact of our
investments. We are a long-term holder of our assets and seek to
provide additionality to the existing social housing sector, for
example by using grant to deliver - as new Shared Ownership -
properties that would otherwise be sold in the open market.
We remain particularly enthusiastic about the opportunities that
the Shared Ownership sector presents. Shared Ownership is
increasingly being seen as an effective solution to lack of
affordability across a range of value points, and is an efficient
way for government grant funding to be used, as the grant
translates directly into a subsidised level of rent with a lower
annual housing cost than purchasing through Help to Buy. Shared
Ownership presents a very scalable investment opportunity, and we
expect to be focussing our future deployment in this area.
The Property Portfolio
ReSI has now fully invested the capital available to it from its
IPO and its borrowings, having assembled a portfolio consisting of
2,677 properties (2018: 2,362) valued at GBP321m, including GBP60m
committed at Clapham Park (2018: GBP225m) serving shared ownership
tenants, Local Authority housing needs and the retirement
sector.
In October 2018 we were pleased to announce ReSI's first Shared
Ownership transaction, when we acquired 34 new build homes located
in the London Borough of Barnet. This was followed in March 2019 by
the exchange of contracts to acquire 132 homes in Clapham Park,
London from Metropolitan Thames Valley Housing for GBP60m.This
transaction is due to complete in Q1 2020 when the houses are
built.
ReSI is utilising grant funding of GBP6m from the Greater London
Authority's Homes for Londoners programme to deliver these as
shared ownership, providing much needed affordable homes in
London.
Both these Shared Ownership transactions are to be held by ReSI
Housing, ReSI's Registered Provider. Having a Registered Provider
enables the acquisition of properties that are designated as
affordable accommodation under planning requirements and allows
access to government grant programmes, thus greatly expanding the
range of opportunities available to ReSI and also providing all
stakeholders with assurance that the properties will be kept within
the social housing regulatory environment.
The shared ownership portfolios are managed by MTVH, continuing
our successful relationship with one of the UK's largest Housing
Associations which is a specialist in providing and managing shared
ownership properties. Through MTVH, ReSI is offering the
opportunity to purchase a shared ownership home with a minimum
initial stake of 25%. Our homes in London are available to those
with a deposit of GBP9,800 and annual household incomes of between
GBP52,000 and GBP90,000.
We were pleased to announce in January 2019 that, in order to
generate a further pipeline of investments, ReSI Capital Management
had entered into a GBP300m Housing Investment Partnership with
Morgan Sindall Investments which gives exclusive access to invest
in Morgan Sindall's conforming residential developments. The
agreement will initially target 1,500 new shared ownership
homes.
Where particularly good opportunities have arisen, ReSI has
selectively added to its retirement homes portfolio, including a
GBP7m purchase of 39 licensed retirement homes in October 2018. As
a result, the retirement portfolio consists of 2,222 residential
homes (2018: 2,073), including licensed house manager flats,
located across England, Wales and Scotland.
The retirement units are used to provide age-restricted
retirement housing or are licensed for use by the scheme house
managers.
They are managed on behalf of ReSI by Places for People, one of
the largest UK housing groups, with whom ReSI agreed a new 10 year
management contract in May 2019. The vast majority of the units are
long-leasehold properties, with a weighted average unexpired lease
term which has increased to around 131 years after ReSI extended
the term of a further 279 leases to 150 years, in a value-enhancing
transaction which was announced previously and has helped to
increase the value of the portfolio to GBP214.7m compared to
GBP190.4m last year.
During the year, ReSI raised a further GBP58.5m of debt, GBP44m
of which was 25 year fixed rate debt secured against 925 retirement
homes and GBP14.5m of which was debt secured on its Local Authority
housing portfolio.
Financial results
ReSI's financial results for the year are strong, reflecting
that ReSI's initial equity capital is now deployed and leverage is
substantially deployed and that the property portfolio is
performing well, as further described in the Fund Manager's
report.
The Company maintained its rigorous and highly disciplined
approach to selecting investments and was able to make acquisitions
at attractive levels. This is reflected in the increase in ReSI's
Net Asset Value, and the fact that the assets are producing the
expected income.
During the year, the portfolio produced GBP19.6m of gross rental
income (2018: GBP10.4m), in line with expectations, and as at 30
September 2019 its valuation, assessed by Savills, had increased by
9.8% in total over its aggregate purchase price. As a result, we
remain fully confident in our overall investment strategy and our
target dividend and return expectations are unchanged from those
set out at the time of our IPO.
The Net Asset Value per share increased by 3.3% from September
2018 to 108.6p at 30 September 2019, representing a 10.8% increase
from the 98.0p Net Asset Value per share immediately after IPO.
pence per
GBPm share
======= ===========
Net Asset Value as
at
30 September 2018 183.6 105.1
======================== ======= ===========
Net Income for year 4.7 2.8
======================== ======= ===========
Valuation change 8.5 5.0
======================== ======= ===========
Dividend paid (7.7) (4.5)
======================== ======= ===========
Net capital reduction (3.4) (2.0)
======================== ======= ===========
Impact of reduction
in number of shares - 2.2
======================== ======= ===========
Net Asset Value as
at
30 September 2019 185.7 108.6
======================== ======= ===========
For the year ended 30 September 2019 ReSI recorded a net income
of GBP4.7m (2018: GBP1.7m) excluding revaluations for the year.
Total profit attributable to shareholders was GBP13.2m (2018:
GBP16.1m) resulting in net earnings per share for the year of 7.7p
(2018: 9.0p) comprising operating income of 2.7p (2018: 0.9p) and
valuation gain of 5.0p per share (2018: 8.1p).
Dividends
For the year ended 30 September 2019, ReSI has declared four
equal dividends of 1.25p per share (in February, May, August and
November 2019) totalling 5.0p per Ordinary Share, in line with our
target at IPO and reaffirmed in our 2018 Annual Report.
We intend to continue to pay dividends to shareholders on a
quarterly basis and in accordance with the REIT regime.
Given the progress in deploying ReSI's initial capital and in
the portfolio becoming income-producing, ReSI reaffirms both its
target dividend yield of 5% per annum (based on the issue price of
100p per Ordinary Share) for the year commencing 1 October 2019 and
which we subsequently expect to increase broadly in line with
inflation, and its target total return of in excess of 8% per
annum.
Share buybacks
ReSI commenced a share buyback programme in April 2018 in
response to the discount in its share price below Net Asset Value.
The programme allowed ReSI to invest in its own shares at
attractive prices without compromising its ability to execute on
its investment pipeline. To date, ReSI has purchased just over 9.3m
shares at an average price of 92.5p which is accretive to Net Asset
Value for shareholders. These shares are held in Treasury and are
not expected to be sold except at prices above prevailing Net Asset
Value per share.
In November 2018, ReSI paused its share buyback programme as it
had reached the point where it needed to commit its capital
resources to certain remaining shared ownership transactions in its
investment pipeline, which offered good return on equity and met
its strategic objectives. To the extent that ReSI has surplus
capital, ReSI will always consider whether shareholder returns are
best served by buying back further shares if they are available at
a discount to Net Asset Value.
ReSI Housing board changes
In March 2019, ReSI Housing, our Registered Provider of social
housing, appointed Gillian Rowley, formerly Head of Private Finance
at the former social housing regulator, the Homes & Communities
Agency, as independent non-executive director alongside David Orr,
who was appointed as independent Chairman of ReSI Housing in
October 2018.
Outlook
The well-documented shortage of housing in many parts of the
United Kingdom continues to drive high levels of demand, and ReSI
has seen strong appetite from the large, well-established Housing
Associations we work with, as well as Local Authorities and private
developers for new sources of capital to invest in housing in these
areas.
ReSI has clearly demonstrated its ability, through ReSI Housing,
our Registered Provider of social housing, to acquire properties
designated as affordable accommodation, or those that are funded by
government grant, including Shared Ownership. We continue to expect
this route to be key to the future growth of our property
portfolio.
ReSI has now substantially committed the capital raised at IPO,
together with leverage currently at c.36% borrowings to GAV, and is
now focussed on delivering the shared ownership part of its
portfolio to becoming fully income-producing.
RCM continues to have available, through its relationships and
through contractual agreements, a pipeline of high quality
investments that meet ReSI's investment criteria and return
thresholds and which could support ReSI's further growth.
The Board is grateful for the support of ReSI's shareholders and
the contribution of its advisers.
Rob Whiteman
Chairman
Residential Secure Income plc
20 November 2019
Strategic Report
Fund Manager's Report
Jonathan Slater
In the year to 30 September 2019, ReSI's acquisition and
origination activity has been focussed on shared ownership, with
166 homes being acquired in two transactions for a total
consideration of GBP76m (including GBP60m committed with purchase
contracts exchanged at Clapham Park).
These two purchases are supported by over GBP6m of government
grant and utilise the legal and regulatory structure put in place
during the previous financial year when ReSI's subsidiary, ReSI
Housing, became a Registered Provider. This allowed access to
otherwise restricted assets and grant funding opportunities,
including becoming an investment partner of the Greater London
Authority through its "Homes for Londoners" programme.
With these two transactions, along with other activity in the
year, ReSI has now amassed a property portfolio valued at GBP321m,
including Clapham Park, and consisting of 2,677 properties serving
the retirement sector, Local Authority housing needs and Shared
Owners.
Our proven ability to purchase through ReSI Housing as a
Registered Provider has been important in continuing to grow the
pipeline of potential future investments, particularly by allowing
engagement with private developers to acquire their stock and
deliver it as shared ownership using government grant. The main
limitation on developers in delivering new homes is absorption
rates for developments, and because shared ownership widens the
pool of people who can buy a home, selling to ReSI to deliver as
shared ownership allows accelerated rates of development, and
supports return on capital and housing volume for developers, while
providing an attractive investment profile for ReSI shareholders.
This model is demonstrated by the Housing Investment Partnership
agreed with Morgan Sindall in January 2019, which gives exclusive
access to GBP300m of Morgan Sindall's development pipeline and
which will initially focus on delivering 1,500 homes for use as
shared ownership.
As a result, we have continued to generate a further strong
pipeline of potential investments for ReSI. We have remained highly
disciplined in selecting the transactions we are prepared to
undertake and believe that this is fundamental to delivering the
long term secure returns expected by ReSI's shareholders.
The pipeline is focussed on shared ownership transactions,
sourced via investment agreements and existing counterparty
relationships.
ReSI and RCM have agreed an amendment to the Fund Management
Agreement that replaces the obligation on RCM to present investment
opportunities to ReSI ahead of other clients with an allocation
policy that provides established criteria and aims to ensure
opportunities are allocated in a way that a newly established
committee considers fair, reasonable and equitable, taking into
account ReSI and any other clients of RCM.
With ReSI being now effectively fully committed, this amendment
improves the ability of RCM to service its GBP700m and growing
shared ownership pipeline, thus protecting its credibility as a
reliable counterparty and therefore the integrity of the pipeline
until ReSI raises further capital.
Social impact
The social impact of ReSI's investments is extremely important
to us particularly in the delivery of new supply of social and
affordable housing, In turn this makes ReSI an attractive partner
to Housing Associations, Local Authorities and private developers.
TradeRisks, which owns the fund manager, has been a long-standing
promoter of the concept of "social economic value" which quantifies
the benefits that affordable housing provides, focusing on the
value of below market rents and the social benefits of a long term,
secure, fit-for purpose and well maintained home.
This can be through providing a lifetime home to shared owners
with subsidised rents, or to those who are homeless or at risk of
homelessness. It also includes enabling elderly populations to live
with peers, which supports their independent living for longer.
We have engaged the Social Profit Calculator to quantify this
social impact as GBP731m over 25 years, or GBP4.27 per share.
Opportunities and investment focus
ReSI can invest across the range of types of residential housing
owned by Housing Associations and Local Authorities. This allows
management to optimise the portfolio amongst the available
opportunities, taking into account prospective returns, security of
those returns and diversification within the portfolio. We can
either buy existing social housing stock or, through our for-profit
Registered Provider, ReSI Housing, can buy unrestricted stock and
use government grant to convert their use to affordable
housing.
We have built a well-performing portfolio focussed on three
areas, shared ownership, Local Authority housing and retirement
rental housing which all focus on underlying demographic trends and
lack of availability of affordable accommodation for first-time
buyers, the homeless and the elderly population. We expect ReSI's
future investment capacity to be focussed predominantly on Shared
Ownership.
The safety and wellbeing of our tenants is our highest priority
and when making an investment we are rigorous in using the skills
and expertise of our property team to provide high quality product
and identify and mitigate all risks to tenants. Our lifecycle plans
for accommodation take a conservative approach to the long term
costs of ownership to ensure that the standard of quality is
maintained or improved throughout the life of the property. At the
same time, we only work with well-regarded partners to ensure all
routine and other maintenance is undertaken promptly and
properly.
Shared Ownership
The case for raising equity-like capital within the social
housing sector has increased since our IPO with the main Housing
Association developers responding to government calls to increase
the supply of housing. Under current arrangements this leads to
increasing indebtedness, with a number of Housing Associations
nearing their debt capacity. The annual publication by the
Regulator of Social Housing (2018 Global Accounts of Registered
Providers, December 2018) shows a slow but steady growth in debt as
a proportion of net book value of properties. A recent survey by
Savills (The Savills Housing Sector Survey June 2018 in association
with the Social Housing magazine) demonstrates that, in terms of
financing additional supply, the most quoted barrier is gearing
capacity. In order to increase supply, Housing Associations need to
overcome several barriers, ranging from access to land, financial
constraints and increases in planning obligations for affordable
housing. The growing trend for equity-like capital to fund new
social housing is becoming more prevalent and is the only way that
long-term capacity to develop can be assured.
We continue to work with the leading Housing Associations and
private developers to both invest in their existing stock and
forward-fund new properties in order to accelerate their
development programmes. These discussions are primarily around
multi-year programmes to become the equity funding partner of
developers (both private and Housing Associations) and allow
acceleration of development plans without using the developer's
capital. Examples include our purchases from Crest Nicolson and
MTVH as well as our framework agreement with Morgan Sindall.
We are particularly excited by our GBP60m shared ownership
acquisition at Clapham Park, which provides the opportunity to
partner with a well-regarded Housing Association in a landmark
redevelopment project. MTVH's regeneration of the Clapham Park
estate will deliver 2,500 new homes (of which 700 have already been
delivered), a community hub, a new community centre and new shops -
all of which are designed to underpin the long-term prospects for
the area. The acquisition will enable MTVH to recycle their sales
proceeds directly into the delivery of further new homes.
We now expect to complete the purchase of Clapham Park in Q1
2020, which is slightly later than initially expected due to delays
in Practical Completion by the constructor.
Local Authority housing
Many Local Authorities, especially those in South East England,
have in recent years experienced significant increases in
households presenting as homeless. This is primarily a result of
the critical shortage of both affordable and market housing,
exacerbated by reforms to the Local Housing Allowance. Together
these factors have left Local Authorities with a statutory duty to
find housing for increasing numbers of households but without the
permanent homes to do so. The 2018 Homelessness Reduction Act has
further added to the pressure on Local Authorities to find housing
solutions in order to prevent homelessness building upon its 1996
predecessor, as amended by the Homelessness Act 2002, which places
a duty on Local Authorities to secure accommodation for
unintentionally homeless people who are in priority need. According
to published reports, England had 84,740 households in temporary
accommodation at the end of March 2019, which included 126,020
children. Demand for temporary accommodation has grown by over 75%
since March 2011.
As such, we are working with a number of Local Authorities to
provide good quality buildings as accommodation for vulnerable
single people and families without relying on expensive and
short-tenure solutions such as hotels or hostels. ReSI provides
Local Authorities with a long term institutional landlord to
replace the numerous individual landlords that they currently rely
upon and removes the difficulties that are associated with ensuring
adequate standards across their rented estates.
Retirement rental housing
The UK population continues to age, with opportunities for
downsizing for over 60's historically limited to renting sheltered
accommodation owned by charities and Local Authorities, or buying
into age-restricted accommodation blocks, which can expose the
resident to significant transaction costs on entry and on
departure. Surveys indicate that 25% of UK over 55's would like to
buy or rent in a retirement village. However, the market is faced
with a lack of supply of specialised retirement living options. We
see significant opportunity to deliver an affordable good quality
rental offering to provide accommodation that is fit for purpose
without the burdens and transaction costs of ownership.
ReSI's retirement rental model provides retirees with an
alternative to having to commit capital and costs to the purchase
of a leasehold retirement flat, and offers them lifetime security
of tenure at a known, RPI-linked rent.
Performance
The property portfolio has generated gross income in line with
expectations. Net income was slightly below expectations largely
due to a decision to increase maintenance expenditure in the
retirement homes portfolio aimed at improving letting rates and
yields. The portfolio has again delivered a strong valuation uplift
of GBP8.6m during the year. The largest contributor to this
valuation increase, at GBP6.6m, was capital accretion due to the
realisation of the contractual inflation-linked rent increases
embedded in the portfolio. In the absence of changes to property
valuation yields or other factors, such rent increases
automatically drive capital accretion when the portfolio is
revalued each quarter. One-off gains in the year were derived from
asset management activity of GBP1.6m, including the negotiated
lease extensions in the retirement portfolio announced in March
2019, and net gains of GBP0.3m on revaluation of new acquisitions
made at favourable yields.
We have also been active in optimising the characteristics of
the retirement rentals portfolio, leading to the sale of 12
properties, which realised gross proceeds on average 7% above their
book valuation.
As at 30 September 2019, the Net Asset Value incorporates a 9.8%
gain in the valuation of the portfolio above its aggregate initial
purchase price. The NAV Total Return (combining NAV growth and
dividends) is now 17.6p since immediately after IPO.
ReSI's completed income-producing acquisitions to 30 September
2019 deliver an unlevered yield of 5.0%. The retirement rental
portfolio, with leverage in place, delivers a leveraged yield of
6.9%. The Local Authority housing portfolio, which is also now
leveraged, produces a leveraged yield of 7.2%. Both portfolios
deliver the income performance required to support our 5% per annum
dividend target after fund costs.
In the shared ownership portfolio, ReSI has begun, through its
manager and agent MTVH, the marketing process of offering First
Tranche sales under which new occupiers will purchase a stake in
their property and take up a shared ownership lease. Marketing of
Totteridge Place has proceeded well, with over four-fifths of homes
now already sold or in progress and having achieved our target
sales prices. The delay to the completion of the Clapham Park
development has meant that full marketing of the homes has been
correspondingly delayed, but we have put the time to good use by
increasing the number of off-plan purchases and expect to continue
making good progress as we approach completion now expected in Q1
2020. The income from the shared ownership portfolio will ramp-up
to its target level as shared owners move into their new homes.
ReSI's on-going expense ratio (annualised and based on closing
NAV) is in line with our expectation, (as detailed in the 2018
Annual Report), of 1.5%. In addition, ReSI incurred aborted
transaction costs equivalent to 0.1% in the year in connection with
transactions that ReSI decided not to pursue following the results
of property due-diligence.
Borrowing
On 26 October 2018, ReSI completed a GBP40m debt financing
secured on the retirement homes portfolio and which sits alongside
the existing GBP53m debt financing. The financings are both at a
fixed rate for a term of 25 years and represent a leverage of
around 50% on the initial acquisition cost. In April 2019, a
further GBP4m debt facility was agreed, secured against the
retirement homes portfolio.
In January 2019, ReSI completed a GBP14.5m debt facility secured
against its Local Authority portfolio. The financing is at a fixed
rate for a 3 year term, pending refinancing with long-term debt in
combination with other assets or pending an extension of the term
of the underlying leases.
These debt financings form part of the strategy to target an
overall level of indebtedness of 50% loan to gross asset value and
a low cost of long-term funding, which, together, enhance the
returns to equity available to ReSI shareholders and minimise
exposure to interest rate and refinancing risks.
Since 30 September 2019, ReSI has continued to work with
institutional debt investors and is in advanced due diligence with
debt providers to put in place further investment grade equivalent
debt against our Shared Ownership portfolio.
Jon Slater
Chief Executive
ReSI Capital Management Limited
20 November 2019
Investment Strategy
Investment objective
The Investment objective of ReSI is to provide shareholders with
an attractive level of income, together with the potential for
capital growth, from acquiring portfolios of Homes across
residential asset classes that comprise the stock of Statutory
Registered Providers. Such asset classes are categorised as Shared
Ownership Homes, Market Rental Homes, Functional Homes and
Sub-Market Rental Homes and will provide secure long-term inflation
linked cashflows to the Group. The target is to deliver an
inflation linked 5% p.a. dividend and total return in excess of 8%
p.a.
Background to the sector
The background to the need for additional affordable housing
across the UK is well attested:
significant growth in household numbers and constrained supply
have led to poor affordability of houses; and
tighter financial regulation that restricts access to mortgages
is further driving demand for rental homes.
On average, people in work could expect to pay around 7.6 times
their annual earnings to purchase a home in England and Wales in
2016, up from 3.6 times in 1997. The median price paid for
residential property in England and Wales increased by 259% between
1997 and 2016, compared to a 68% increase in median individual
annual earnings in the same year. No recent government has seen
enough homes built to keep up with demand (Source: ONS, March
2017).
The housebuilding industry is producing 210,000 new homes per
year in England, more than at any time since the global financial
crisis in 2007. However, this is still less than both the
Government's own assessment, which sets the annual housing need in
England at 266,000, and the House of Lords Economic Affairs
Committee which suggests over 300,000 new homes are needed each
year to have any impact on affordability. The 2017 housing white
paper explicitly identifies slow delivery as one of the major
difficulties facing the housing market (Source: Savills Residential
Property Forecasts, Autumn 2017). This is creating demand for new
investment in housing, whether in social or private renting.
Housing Associations and Local Authorities
Housing Associations and Local Authorities are increasingly seen
as key in meeting the need to extend the supply of affordable
housing and are seeking ways to access private sector capital to
enable this supply. They are increasingly using different types of
tenancy such as Shared Ownership to address affordability and to
provide access to the housing ladder.
These factors produce demand for private sector investment into
residential housing, and provide a highly scalable, long-term
investment opportunity to generate secure, inflation-linked
returns. ReSI aims to make a meaningful contribution to alleviating
the UK housing shortage by meeting demand from housing developers
(Housing Associations, Local Authorities and private developers)
for long-term investment partners to accelerate the development of
socially and economically beneficial new affordable housing.
ReSI's subsidiary, ReSI Housing Limited, is registered as a
for-profit Registered Provider of Social Housing, and so provides a
unique proposition to its housing developer partners, being a long
term private sector landlord within the social housing regulatory
environment. As a Registered Provider, ReSI Housing can acquire
affordable housing subject to s106 planning restrictions and
housing funded by government grant.
Transaction types
ReSI can invest across the range of types of residential housing
typically owned by Housing Associations and Local Authorities and
seeks to optimise the portfolio amongst the available opportunities
taking into account prospective returns, security of those returns
and diversification within the portfolio. ReSI applies the
fundamental constraint that acquisitions should be able to support
investment-grade equivalent debt. This ensures that each
acquisition has the relevant combination of high quality
properties, strong counterparties and secure income streams, and
that it can be funded efficiently. We categorise the investment
areas as follows:
Rental Housing
Functional Homes
Functional Homes are properties equipped to provide elderly care
facilities, assisted living facilities, supported housing or
sheltered housing to residents.
In order to provide security of income, and to allow long-term
debt funding, of investment grade equivalent credit strength to be
put in place, ReSI enters into rental agreements in respect of
Functional Homes with Statutory Registered Providers and Reputable
Care Providers. The Statutory Registered Providers and/or Reputable
Care Providers may also be providing care services.
Sub-Market Rental Homes
Sub-Market Rental Homes are properties made available to
residents for rent at a level below the local market rent.
ReSI anticipates entering into rental agreements in respect of
Sub-Market Rental Homes with Statutory Registered Providers to
provide long-term income streams.
Market Rental Homes
Market Rental Homes are properties being made available to
Residents at a market rent.
ReSI anticipates entering into rental agreements in respect of
Market Rental Homes with Statutory Registered Providers,
Universities and Reputable Private Landlords to provide long term
income streams.
Shared Ownership Homes
Shared Ownership Homes are properties where the beneficial
interest is held in part by the Shared Owner and part held by ReSI,
and the Shared Owner has sole use of the property in return for a
rent payable to ReSI for its beneficial interest. The Shared Owner
has the right to acquire a further portion of ReSI's retained
beneficial (or heritable) interest (known as "staircasing") at
market value.
ReSI will enter into a fully repairing and insuring Shared
Ownership Lease with the Shared Owner, typically for a term of 125
years or over, and a Rent Collection and Management Agreement with
a Statutory Registered Provider acting as Rent Collector and
Manager.
ReSI can either buy existing Shared Ownership stock or, through
our Registered Provider ReSI Housing Ltd, can buy unrestricted
stock and use government grant to convert their use to Shared
Ownership.
Investment Objective, Policy and Restrictions
Investment objective
The Company's investment objective is to provide Shareholders
with an attractive level of income, together with the potential for
capital growth, from acquiring portfolios of homes across
residential asset classes that comprise the stock of Statutory
Registered Providers. Such asset classes are categorised as Shared
Ownership Homes, Market Rental Homes, Functional Homes and
Sub-Market Rental Homes and will provide secure long--term
inflation-linked cash flows to the Group.
Investment policy
The investment policy is to invest in portfolios of homes
throughout the United Kingdom.
The freehold or long leasehold (typically 100 years and longer)
interest of homes will be acquired by the Company directly or
indirectly (either through the acquisition of Home-owning vehicles
or the entry into joint venture arrangements) with the benefit of
long-term (typically 20 years and longer) inflation-linked cash
flows.
In each case, the Group will outsource the day-to-day
management, rent collection and maintenance in respect of a
home.
The Group will make use of leverage, put in place on or shortly
after the acquisition of homes, to enhance returns on equity. The
Group will only invest in Homes, and forward funding of homes, with
sufficient cashflows, counterparty credit quality and property
security that allow the Fund Manager to secure debt of a credit
strength which is equivalent to investment grade based on published
rating agency methodologies. This restriction to homes that can be
funded with investment grade equivalent debt is the fundamental
limitation on asset quality of the Company.
The Group will not undertake any direct development activity or
assume direct development risk but may enter into forward funding
arrangements without limit subject to the investment restrictions
outlined below. These are arrangements with property developing
entities (typically expected to be Statutory Registered Providers)
whereby the Group forward funds the development of homes by such
developing entities, which will be structured so that the only risk
to the Group is the credit risk of such developing entity. Homes
that are subject to a forward funding arrangement with the Group
will be subject to a rental agreement with a Counterparty or Shared
Ownership Lease with a Shared Owner contingent on completion of
construction. In such circumstances, the Group will typically seek
to negotiate the receipt of immediate income from the asset, such
that the developing entity is paying the Group a return on its
investment during the construction phase and prior to the tenant
commencing rental payments under the terms of their lease. In
addition, the Group may engage in renovating or customising
existing homes, as necessary.
The Group aims to deliver capital growth by holding the
Portfolio over the long term and therefore it is unlikely that the
Group will dispose of any part of the Portfolio. In the unlikely
event that a part of the Portfolio is disposed of, the Group
intends to reinvest proceeds from such disposals in assets in
accordance with the Investment Policy.
Investment restrictions
The Group will invest and manage the Portfolio with the
objective of delivering a high quality Portfolio, which is
fundamentally driven by the requirement that homes have sufficient
cashflows, counterparty credit quality and property security that
allow the Fund Manager to secure debt of a credit strength which is
equivalent to investment grade based on published rating agency
methodologies and which is subject to the following investment
restrictions:
- the Group will only invest in homes located in the United Kingdom
- the homes will comprise Shared Ownership Homes, Market Rental
Homes, Functional Homes and Sub--Market Rental Homes
- the Group will only invest in Market Rental Homes, Functional
Homes and Sub-Market Rental Homes
- homes in respect of which the Counterparty is a Statutory
Registered Provider, University, Reputable Private Landlord or
Reputable Care Provider
- no home, or group of homes forming one contiguous, or largely
contiguous, block of homes (for example a building containing
multiple flats), will represent more than 20% of Gross Asset Value
calculated at the time of investment. However, during such time as
Gross Asset Value remains below GBP900 million, the maximum limit
for up to two homes may exceed 20% but will not exceed 25% of Gross
Asset Value (calculated at the time of investment) per Home in
order to facilitate the ownership of certain larger homes during
the Company's initial deployment period
- the aggregate maximum credit exposure to any Counterparty or
Shared Owner, will not exceed 20% of Gross Asset Value, calculated
at the time of investment. However during such time as Gross Asset
Value remains below GBP900 million, the maximum credit exposure to
up to two Counterparties and/or Shared Owners may exceed 20% but
will not exceed 25% of Gross Asset Value (calculated at the time of
investment) per Counterparty and/or Shared Owner in order to
facilitate the ownership of certain larger residential assets
during the Company's initial deployment period
- with respect to forward funded homes, the maximum exposure to
an individual property developing entity will be limited to 20% of
Gross Asset Value calculated at the time of investment. However,
during such time as Gross Asset Value remains below GBP900 million,
the maximum limit for up to two individual property developing
entities may exceed 20% but will not exceed 25% of Gross Asset
Value (calculated at the time of investment) per individual
property developing entity in order to facilitate the forward
funding of homes during the Company's initial deployment period;
and
- the Group will not undertake any direct development or speculative development.
The Group shall be permitted to acquire any property consisting
of homes and a commercial element; provided that the Fund Manager
is satisfied that such commercial element is ancillary to the
primary function of such Home as a Shared Ownership Home, Market
Rental Home, Functional Home or Sub-Market Rental Home.
The investment limits detailed above apply at the time of the
acquisition of the relevant investment 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 merger of Counterparties.
Joint ventures
The Group may acquire homes through joint-venture arrangements
with Statutory Registered Providers pursuant to which the Group and
the relevant Statutory Registered Provider will together
participate in a joint venture vehicle that owns (directly or
indirectly) the relevant Home.
Investments through such joint-ventures will be subject to the
same investment restrictions and leverage policy, which shall be
read to look through the joint venture vehicle and apply to the
Group's partial (through the joint venture vehicle) economic
ownership interest in the relevant Home.
Use of leverage and gearing limits
The Group will seek to use leverage to enhance equity returns of
the Portfolio. The level of borrowing will be determined by the
Fund Manager based on the characteristics of the relevant property
and asset class and the Fund Manager will seek to achieve a low
cost of funds, whilst maintaining the flexibility in the underlying
security requirements and the structure of both the Portfolio and
the Group.
The Fund Manager intends to have indicative terms of any debt
funding before completing an acquisition which will mitigate the
risk of a funding mismatch arising. When considering any funding
proposal, the Fund Manager will make use of its officers'
experience, and those of its parent, TradeRisks Limited, in
accessing long-term fixed rate and inflation-linked debt, which
will most appropriately match debt against the cashflow profile of
the investment opportunity. The Fund Manager intends to structure
the debt by assessing the operational cashflows from the target
asset and setting a Debt Service Coverage Ratio that, in
combination with the counterparty credit quality and property
security, gives efficient funding, which shall be of a credit
strength equivalent to investment grade based on published rating
agency methodologies. As such the gearing strategy for the Group is
more akin to long term project finance debt than to traditional
commercial property debt.
Debt may be secured or unsecured. If secured, it will be secured
at asset level, whether over a particular property or a holding
entity for a particular property or series of properties (without
recourse to the Company). The Fund Manager intends that all
indebtedness will be incurred on a fully or partially amortising
basis, to minimise the need to refinance on any final repayment
date, with the exception of any working capital facilities raised
at the level of the Company.
The Group will target an asset level aggregate level of
borrowings of 50% of Gross Asset Value over the medium term.
Aggregate Group borrowings will always be subject to an absolute
maximum, calculated at the time of drawdown, of 67% of Gross Asset
Value.
Use of derivatives
The Fund Manager intends to match debt cashflows to those of the
underlying assets and therefore does not expect to utilise
derivatives. However, to the extent this is not possible, the Group
may utilise derivatives for full or partial inflation or interest
rate hedging or otherwise seek to mitigate the risk of inflation or
interest rate movements. The Group will closely manage any
derivatives, in particular with regard to liquidity and
counterparty risks.
The Group will only use derivatives for risk management and not
for speculative purposes.
Cash management
Until the Group is fully invested and pending re-investment or
distribution of cash receipts, the Group will invest in cash, cash
equivalents, near cash instruments and money market
instruments.
REIT status
The Directors will at all times conduct the affairs of the
Company so as to enable it to become and remain qualified as a REIT
for the purposes of Part 12 of the CTA 2010 (and the regulations
made thereunder).
Amendments to and compliance with the Investment Policy
Material changes to the Investment Policy may only be made with
the approval of Shareholders by way of ordinary resolution and (for
so long as the Ordinary Shares are listed on the Official List) in
accordance with the Listing Rules. Non-material changes to the
Investment Policy must be approved by the Board, taking into
account advice from the Fund Manager and external advisers where
appropriate.
Key Performance Indicators
Measure Explanation Relevance to Strategy Result
=========================== ============================= =======================
Capital deployed ReSI measures the ReSI's strategy is GBP240m deployed
rate at which it to invest in high by 30 September
has deployed capital quality social housing 2019 with a
since IPO since this assets; hence the further GBP60m
drives the timing total capital deployed committed for
of income production. into such assets the shared ownership
reflects ReSI's ability acquisition
to source suitable at Clapham Park
investments. (2018: GBP210m).
================== =========================== ============================= =======================
IFRS NAV per ReSI measures its A higher IFRS NAV IFRS NAV of
share IFRS Net Asset Value per share compared 108.6p per share
per share, consistent to ReSI's opening (2018: 105.1p),
with its financial NAV of 98p per share including a
statements, with immediately following GBP23.5m capital
a target to achieve IPO, reflects capital appreciation
capital appreciation appreciation on its gain on investments
in line with inflation portfolio. since inception
without reliance (2018: GBP14.8m).
on gains from asset
sales.
================== =========================== ============================= =======================
Dividend per Targeting 3p per ReSI seeks to provide In line with
share share in the period stable rental income target:
from IPO to 30 September to its investors four equal dividends
2018; 5p per share through regular consistent declared of
per annum thereafter, dividend payments 1.25p per share
growing in line with in line with its (declared in
inflation. target. February, May,
August and November
Measuring dividend 2019) totalling
payments per share 5.0p per Ordinary
reflects ReSI's ability Share (2018:
to meet this target, 3.0p)
with performance
constrained by available
cash and the income
generated from ReSI's
assets.
================== =========================== ============================= =======================
Ongoing charges Ongoing charges express ReSI measures the 1.5% for the
ratio the ratio of annualised ongoing charges ratio year to 30 September
ongoing expenses to demonstrate that 2019 (2018:
to Net Asset Value the running costs 1.5%), of which
at the end of the of the Company are 1.0% relates
year. kept to a minimum to Fund Manager
without impacting fees (2018:
on performance. 1.0%) and the
remainder being
A lower ongoing charges general and
ratio will improve administrative
ReSI's financial expenses.
performance.
This is in line
with our target
of 1.5% which
was revised
upwards in the
2018 Annual
Report to reflect
the additional
costs associated
with operating
ReSI Housing.
================== =========================== ============================= =======================
Principal Risks and Uncertainties
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. The
Board is responsible, in conjunction with the Fund Manager, for
ensuring the maintenance of a sound system of internal control and
risk management (including financial, operational and compliance
controls) and for reviewing the overall effectiveness of systems in
place.
The table below sets out the current identifiable and principal
risks and uncertainties which the board are monitoring:
Risk Risk Mitigation
=====================================================
Company, Investment Strategy
and Operations
==================================== =====================================================
ReSI may not meet its investment -- On-going information on investment activities
objective or return objective provided by RCM to the Board
-- Regular review of investment and return
objectives
==================================== =====================================================
ReSI may be unable to make -- ReSI has a detailed Investment Policy
acquisitions on its targeted that describes target assets and the process
timeline for acquiring such assets
-- RCM has long-term relationships with
leading UK Housing Associations and Local
Authorities
-- Registration of ReSI Housing as a Registered
Provider expands the origination universe
to include acquiring newly developed properties
that are designated as affordable accommodation
under planning requirements and unrestricted
stock where ReSI can apply government grant
to convert into Shared Ownership
-- RCM has extended its origination and
relationship network by bringing in additional
experienced professionals with backgrounds
working for housing associations, Local
Authorities and property developers
==================================== =====================================================
ReSI's due diligence ('DD') -- RCM engages established law firms to
may not identify all risks carry out
and liabilities in respect legal DD managed by in-house counsel
of an acquisition -- Property DD carried out by reputable
real estate surveyors and managed by in-house
property experts
-- Financial DD carried out by major accounting
firms and managed by in-house experienced
accountants
-- RCM performs shadow credit ratings utilising
published credit rating methodologies
-- ReSI appointed Laven Partners to conduct
an audit of its investment processes during
the year
==================================== =====================================================
Real estate
==================================== =====================================================
Significant or material -- The aim of ReSI is to hold the assets
fall in the value of the for the long term and generate inflation
property market linked income
-- ReSI does not intend to rely on realised
revaluation gains to cover dividend payments,
which it intends to cover from income once
fully invested
-- ReSI enters into long-term management
agreements to ensure any fall in the property
market should not result in significant
impairment to the rental cashflows
-- ReSI focuses on areas of the market
with limited and ideally countercyclical
exposure to the wider property market
==================================== =====================================================
Retaining and procuring -- RCM engages third parties to provide
appropriate tenants the day-to-day management of a home and
letting and collection of underlying rent
from residents or Shared Owners
-- RCM only accepts void risk where there
is a demonstrable strong demand or where
the tenants are part owners of the properties
(as exhibited by retirement, sub-market
rental assets or Shared Ownership properties)
==================================== =====================================================
Lack of demand for Shared -- RCM focuses on areas with high house
Ownership price to earnings multiples where it is
very difficult for average earners to afford
to buy homes on an outright basis or with
Help to Buy
-- RCM's acquisition due diligence includes
an assessment of affordability and local
supply and demand dynamics to avoid areas
where there is excess supply under development.
Appraisal assumptions allow for falls in
value and delays in sales
-- RCM engages experienced third parties
to act as sales agent and closely monitors
sales progress, including the level of
unsold stock
==================================== =====================================================
Service providers
==================================== =====================================================
ReSI is dependent on the -- ReSI places reliance on the independent
expertise of the RCM and Board of Directors who have strong relevant
TradeRisks and their key experience
personnel to evaluate investment -- RCM and TradeRisks' interests are aligned
opportunities and to assist to those of ReSI's shareholders through
in the implementation of a fee structure which pays 25% of Fund
ReSI's investment objective Manager fees in equity and provides for
and investment policy no transaction-specific fees
-- The directors of RCM (or persons connected
to them) hold in aggregate 1,663,750 Ordinary
Shares in ReSI and RCM holds 1,071,772
Ordinary Shares
==================================== =====================================================
Taxation
==================================== =====================================================
If ReSI fails to remain -- ReSI intends to remain within the UK
qualified as a REIT, its REIT regime and work within its investment
rental income and gains objective and policy
will be subject to UK corporation -- The Directors will at all times conduct
tax the affairs of ReSI so as to enable it
to become and remain qualified as a REIT
for the purposes of Part 12 of the CTA
2010
-- The Board would have oversight on any
action that would result in ReSI failing
to adhere to the UK REIT regime, and ReSI
receives tax advice from professional advisers
==================================== =====================================================
Investment Management
==================================== =====================================================
Market and individual investment -- RCM rigorously analyses investment opportunities
risks not analysed or detected and undertakes comprehensive due diligence
in a timely fashion leading before acquisition
to investments with poor -- RCM does not receive a performance based
performance or a higher fee and as such is not financially incentivised
risk profile than stated to target riskier higher yielding assets
within the investment policy -- RCM receives a management fee prior
to deployment and so is not financially
incentivised to purchase assets quickly
regardless of the performance of such assets
==================================== =====================================================
Changes to principal risks during the year
During the year the Group's principal risks and uncertainties
have been updated to include risks relating to the lack of demand
for Shared Ownership, reflecting the completion of the Group's
first Shared Ownership transaction.
Going Concern and Viability Statement
Going Concern
The Board monitors the Company's ability to continue as a going
concern. The following is a summary of the Director's assessment of
the going concern status of the Group and Company, which should be
read in conjunction with the viability statement.
The Directors have considered the Group's cash position, income
and expense flows. In addition, as at 30 September 2019 the Group's
net assets were GBP185.7m and the Group held cash and cash
equivalents of GBP26.2m. Annualised net rental income for the year
ended 30 September 2019 was GBP12.1m, which is expected to increase
as the Group's Shared Ownership investments become fully income
producing. The total ongoing Operating expenses (excluding finance
costs, taxation and aborted acquisition costs) for the period ended
30 September 2019 were GBP2.9m. Therefore the Group has substantial
Operating expenses cover.
The Group has exchanged contracts to acquire 132 new build
apartments at Clapham Park for a total acquisition cost of GBP60m,
including a GBP6m deposit paid to date. The acquisition is expected
to complete in Q1 2020 and will be funded from existing cash
resources, grant funding from the GLA and debt secured against the
Shared Ownership portfolio.
Based on the above information, the Board has made an assessment
and are satisfied that there are no material uncertainties in
relation to the Group and Company's ability to continue in business
for the foreseeable future, being at least 12 months from the date
of approval of the financial statements, and therefore has adopted
the going concern basis in preparation of the financial
statements.
Viability Statement
In accordance with the UK Corporate Governance Code the Board
has assessed the viability of the Group over a longer period than
the 12 months required by the 'Going Concern' provision. The Board
has conducted this review for the five years to September 2024. The
Board considers that five years is the maximum period for which the
degree of uncertainty relating to factors outside of the Board's
control is low enough to make a reasonable expectation in respect
of the Group's longer term viability.
Five years was considered appropriate given the Company's long
term investment objective. The Board has considered each of the
principal risks and uncertainties set out above and the liquidity
and solvency of the Company.
Having considered the relevant matters, the Board has a
reasonable expectation that the Group will be able to continue in
operation and meet its liabilities as they fall due over the five
year period of its assessment.
The Chairman's statement and Fund Manager's report present the
positive long term investment case for acquiring high quality
residential assets which also underpins the Group's viability for
the period.
Approval
The Strategic report was approved by the Board of Directors on
20 November 2019.
Rob Whiteman
Chairman of the Board of Directors
20 November 2019
Governance
Board of Directors
Robert Whiteman - Non-executive Chairman
Appointed: 9 June 2017
Skills, competence and experience
-- Significant knowledge of public service finances and reform
and a strong background in public financial management and
governance;
-- Previously Rob was Chief executive of UK Border Agency and
led the Improvement and Development Agency. Rob was Chief Executive
of London Borough of Barking and Dagenham from 2005-2010 and has
held various positions in London Borough of Lewisham from
1996-2005, latterly as Director of Resources and Deputy Chief
Executive;
-- Educated at the University of Essex where he gained a BA
(Hons) in Economics and Government.
Other roles
-- Chief Executive of the Chartered Institute of Public Finance & Accountancy (CIPFA);
-- Chairman of East London Health & Care Partnership;
-- Chairman of Barking & Dagenham College;
-- Technical adviser to the International Federation of Accountants (IFAC) in New York.
Robert Gray - Non-Executive Director and Audit Committee
Chairman
Appointed: 9 June 2017
Skills, competence and experience
-- Extensive business experience, including experience in debt finance and capital markets;
-- Robert has held roles at HSBC Markets Limited and HSBC
Investment Bank in London working initially as Managing Director
for Global Capital Markets and subsequently as Vice Chairman for
Client Development. Robert was also Chairman, Debt Finance &
Advisory at HSBC Bank plc. As Director and Chair of the Overseas
Promotion Committee of TheCityUK Robert served as financial
services sector adviser to the UK Minister for Trade &
Investment. He was Chairman of the International Capital Market
Association and Vice Chairman and Chairman of the Regulatory Policy
Committee of the International Capital Market Association;
-- Educated at Sherborne School and St. John's College,
Cambridge University where he gained a MA (Hons) in History.
Other roles
-- Director and Chair of the Audit Committee of the Arab British Chamber of Commerce.
John Carleton - Non-Executive Director
Appointed: 9 June 2017
Skills, competence and experience
-- Strong operational leader with management experience and a
track record in social infrastructure and housing;
-- Previously John was a Partner and Head of Housing,
Regeneration and Growth at Arcadis LLP, and was an executive
director for Markets & Portfolio at Genesis Housing Association
and Managing Director for Genesis Homes Ltd. In addition John has
held various other roles including Director of Social
Infrastructure and Housing at PricewaterhouseCoopers, Director of
the Housing Corporation (now the Homes and Communities Agency),
Property Director at Barclays Bank, Managing Director of HRC
Ltd/Lehman Brothers and Head of the Specialist Property Division at
the Bank of Ireland;
-- Educated at the University of Liverpool and holds an MBA in
Finance from Manchester Business School. John is a fellow of the
R.I.C.S and also holds an IPF Investment Property Forum Diploma
from the Cambridge University Land Institute.
Other roles
-- Executive Director of property investment at Orbit Group;
-- Director of Places for People Leisure Partnerships.
Mike Emmerich - Non-Executive Director
Appointed: 13 September 2018
Skills, competence and experience
-- Considerable experience in urban development, with over 20
years of experience in delivering strategies for planning, housing,
environment and innovation;
-- Mike is founding Director of Metro Dynamics, a specialised
consultancy for city authorities. Mike plays a central role on many
major city projects including the devolution deals in the West
Midlands and North East which give more local responsibility for
housing and infrastructure. He also provides support for the Metro
Mayor in Liverpool and advises the Cambridge and Peterborough
Independent Economic Review. Mike has held other roles including
Chief Executive of New Economy Manchester, Senior Policy Adviser on
social and economic development in the Prime Minister's Policy Unit
and Policy Adviser to HM Treasury.
Other roles
-- Director Manchester Camerata;
-- Trustee, the Tutor Trust.
Directors' Report
The Directors present their report and accounts for the year
ended 30 September 2019.
Residential Secure Income plc (the "Company") is a real estate
investment trust ("REIT") listed on the premium segment on the Main
Market of the London Stock Exchange with the objective of
delivering secure inflation linked returns by investing in
affordable shared ownership, retirement and Local Authority Housing
throughout the UK.
The Board is responsible for all aspects of the Company's
affairs, including setting the parameters for monitoring the
investment strategy and the review of investment performance and
policy. The Board also has responsibility for all strategic policy
issues, the timing, price and volume of any buybacks of Ordinary
Shares, corporate governance matters and dividends.
Further information on the Board's role is provided in the
Corporate Governance Report beginning on page 34, which forms part
of the Directors' report.
Results
The Group's profit for the year was GBP13.2m and the earnings
per share were 7.7 pence.
The results for the year are shown in the financial statements.
Commentary on the results, future developments and post balance
sheet events can be found in the Strategic Report, Chairman's
Statement and Investment Manager's Review.
Investment Property
A summary of the Group's investment property portfolio is
included on pages 5 to 9. A full portfolio listing can be made
available on request.
Dividend policy
The Company is targeting, on a fully invested and geared basis,
a dividend yield of 5% per annum based on the issue price of GBP1
per Ordinary Share, which the Company then expects to increase
broadly in line with inflation. It is the Company's intention to
pay dividends to Shareholders on a quarterly basis and in
accordance with the REIT Regime.
The Company has targeted a dividend of 5.0 pence per share for
the year ended 30 September 2019. Over time, the Company expects
its dividends to increase broadly in line with inflation, targeting
a total return in excess of 8% per annum.
As a REIT, the Company will be required to meet a minimum
distribution test for each accounting period that it is a REIT.
This minimum distribution test requires the Company to distribute a
minimum of 90% of its Property Rental Business income profits for
each accounting period, as adjusted for tax purposes.
When the Company pays a dividend, that dividend will be a
Property Income Distribution ('PID') to the extent necessary to
satisfy the 90% distribution condition. If the dividend exceeds the
amount required to satisfy that test, then depending on all the
circumstances the REIT may determine that all or part of the
balance is a Non-PID Dividend. Subject to certain exceptions, PIDs
will be subject to withholding tax at the basic rate of income tax
(currently 20%).
If the Company ceases to be a REIT, dividends paid by the
Company may nevertheless be PIDs to the extent they are paid in
respect of profits and gains of the Property Rental Business whilst
the Company was within the REIT Regime.
Dividends paid in the year ended 30 September 2019
In line with the Company's dividend policy, three interim
dividends totalling 3.75 pence per Ordinary Share were paid during
the year, of which 2.25 pence was paid as PIDs and 1.50 pence was
paid as Non-PID.
The Board declared a fourth interim dividend in respect of the
quarter to 30 September 2019 of 1.25 pence per Ordinary Share,
which will be payable on 27 December 2019 to shareholders on the
register at the close of business on 6 December 2019. The
ex-dividend date is 5 December 2019 and 0.50 pence per Ordinary
Share will be paid as a Property Income Distribution ('PID') and
0.75 pence per Ordinary Share will be paid as non--PID.
Including this interim dividend, the Company will have paid
total dividends of 5.0 pence per Ordinary Share during the year, in
line with its target dividends.
Management - Fund Manager
ReSI Capital Management Limited has been engaged as the
Company's alternative investment fund manager (the "Fund Manager"),
in compliance with the provisions of the Alternative Investment
Fund Managers Directive ("AIFMD"), pursuant to the Fund Management
Agreement, to advise the Company and provide certain management
services in respect of the Portfolio. ReSI Capital Management
Limited is regulated by the Financial Conduct Authority. The Fund
Manager is, for the purposes of the AIFMD and the rules of the FCA,
a 'full scope' UK alternative investment fund manager with a Part
4A permission for managing AIFs, such as the Company.
The Fund Manager is appointed under a contract subject to twelve
months' written notice with such notice not to expire prior to the
fifth anniversary of first admission of the Ordinary Shares to
trading on the London Stock Exchange.
The Fund Manager is entitled to remuneration calculated in
respect of each quarter, based upon the Net Asset Value, at a rate
equivalent to 1% (if under GBP250m), 0.9% (if over GBP250m), 0.8%
(if over GBP500m) or 0.7% (if over GBP1bn). The Fund Management Fee
shall be paid quarterly in advance, with 75% of the total Fund
Management Fee payable in cash and 25% of the total Fund Management
Fee (net of any applicable tax) payable in the form of Ordinary
Shares.
The Fund Manager is also entitled to a debt arrangement fee in
respect of debt arranged by the Fund Manager for ReSI or its
subsidiaries. The debt arrangement fee is equal to 0.04% p.a.
levied on the notional amount outstanding of any bond or private
placement financing. There is no debt arrangement fee payable in
respect of any bank debt financing the Fund Manager may arrange for
the Group.
Appointment of the Fund Manager
The Board has discretion to monitor the performance of the Fund
Manager and, from the date falling five years after entry into the
Fund Management agreement, to appoint a replacement Fund Manager.
Due to the recent launch of the Company and the Fund Manager's
experience in the sector, the continuing appointment of the Fund
Manager is considered by the Board to be in the best interests of
shareholders as a whole.
Depositary
Thompson Taraz Depositary Limited has been appointed as
Depositary to provide cash monitoring, safekeeping and asset
verification and oversight functions as prescribed by the AIFMD. A
Depositary Statement is included in this Annual Report.
Company Secretary
PraxisIFM Fund Services (UK) Limited has been appointed as the
Company Secretary of the Company and provides company secretarial
services and a registered office to the Company.
Administrator
MGR Weston Kay LLP has been appointed as Administrator to the
Company. The administration of the Company is delegated and in
consultation with the AIFM and the Fund Manager, financial
information of the Company is prepared by the Administrator and is
reported to the Board.
Share capital
As at 30 September 2019 the Company's issued share capital
comprised 180,324,377 Ordinary Shares, each of 1p nominal value,
including 9,304,729 Ordinary Shares held in Treasury. Treasury
shares do not hold any voting rights. The Company's total voting
rights, excluding treasury shares is 171,019,648. Each Ordinary
Share held entitles the holder to one vote. All shares, excluding
those held in Treasury, carry equal voting rights and there are no
restrictions on those voting rights. Voting deadlines are stated in
the Notice of Meeting and Form of Proxy and are in accordance with
the Companies Act 2006.
No shares were issued during the year under review.
There are no restrictions on the transfer of Ordinary Shares,
nor are there any limitations or special rights associated with the
Ordinary Shares.
The forthcoming Annual General Meeting will consider the
authority given to Directors to allot further shares in the capital
of the Company under section 551 of the Companies Act 2006.
The authority to issue new shares granted at the AGM held on 29
January 2019 will expire at the conclusion of the forthcoming
AGM.
The Board recommends that the Company be granted a new authority
to issue up to a maximum of 17,101,964 Ordinary shares representing
10% of the Company's Ordinary Shares in issue, for cash at a price
above prevailing Net Asset Value per share and to disapply
pre-emption rights when issuing those Ordinary Shares. Resolutions
to this effect will be put to shareholders at the AGM. The maximum
number of Ordinary Shares which can be admitted to trading on the
London Stock Exchange without the publication of a prospectus is
20% of the Ordinary Share Capital on a rolling previous 12 month
basis at the time of admission of the shares. The Board does not
have any immediate plans to issue shares under this authority.
Discount management
The Board makes use of its share buyback powers as a means of
correcting any imbalance between supply of and demand for the
Ordinary Shares.
In deciding whether to make any such repurchases, including the
timing, volume and price of such repurchases of Ordinary Shares,
the Directors have regard to the Company's REIT status and what
they believe to be in the best interests of Shareholders as a whole
and in compliance with the Articles, the Listing Rules, Companies
Act 2006 and all other applicable legal and regulatory
requirements.
During the year ended 30 September 2019 the Company purchased
3,653,059 of its own Ordinary Shares for holding in treasury. The
shares were repurchased for treasury to correct an imbalance
between supply of and demand for the Company's Ordinary Shares that
persisted at the time of the transaction. Since the year end no
Ordinary Shares have been bought back and held in treasury. These
shares were purchased at a discount to net asset value.
The timing, price and volume of any buybacks of Ordinary Shares
will be at the discretion of the Directors and is subject to the
working capital requirements of the Company and the Company having
sufficient surplus cash resources available. Directors will only
buyback shares at a discount to the then prevailing net asset value
of the shares.
Under the Listing Rules, the maximum price (exclusive of
expenses) which may be paid for an Ordinary Share must not be more
than the higher of: (i) 5 per cent. above the average of the
mid-market values of the Ordinary Shares for the five Business Days
before the repurchase is made; or (ii) the higher of the price of
the last independent trade and the highest current independent bid
for Ordinary Shares.
The authority for the Company to purchase its own shares granted
by the Annual General Meeting held on 29 January 2019 will expire
at the conclusion of the forthcoming Annual General Meeting. The
directors recommend that a new authority to purchase up to 14.99%
of the Ordinary Shares in issue (subject to the condition that not
more than 14.99% of the Ordinary Shares in issue, excluding
Treasury Shares, at the date of the Annual General Meeting are
purchased) is granted and a resolution to that effect will be put
to the Annual General Meeting to be held on 15 January 2020. Any
Ordinary Shares purchased will either be cancelled or, if the
directors so determine, held in Treasury.
Treasury shares
The Company is permitted to hold Ordinary Shares acquired by way
of market purchase in treasury, rather than having to cancel them.
Such Ordinary Shares may be subsequently cancelled or sold for
cash. Holding Ordinary Shares in treasury enables the Company to
sell Ordinary Shares from treasury quickly and in a cost efficient
manner, and provides the Company with additional flexibility in the
management of its capital base.
Unless authorised by Shareholders, Ordinary Shares held in
treasury will not be sold at less than Net Asset Value per Share
unless they are first offered pro rata to existing Shareholders.
The Company will not hold treasury shares in excess of 10% of the
Ordinary Share capital of the Company from time to time.
Appointment and Replacement of Directors
In accordance with the Company's Articles of Association,
Directors may be appointed by the Board to fill a vacancy following
which they will be elected by shareholders by ordinary resolution
at an Annual General Meeting or General Meeting of the Company.
Articles of Association
The Company's Articles of Association can only be amended by
Special Resolution at a shareholders meeting.
Continuation vote
The Directors are required to propose an ordinary resolution at
the Annual General Meeting following the fifth anniversary from its
initial public offering that the Company should continue as
presently constituted and at every fifth Annual General Meeting
thereafter.
In the event that a continuation resolution is not passed, the
Directors would be required to formulate proposals for the
voluntary liquidation, unitisation, reorganization or
reconstruction of the Company for consideration by shareholders at
a general meeting to be convened by the Board for a date note more
than six months after the date of the meeting at which such
continuation resolution was not passed.
Significant shareholders
The Directors have been notified of as at 30 September 2019, the
following shareholdings comprising 3% or more of the issued share
capital (excluding Treasury Shares) of the Company:
Shareholders Holding %
--------------------------------- ------------ -------
Close Asset Management Limited 18,213,732 10.65
Schroders plc 16,648,405 9.73
CG Asset Management Limited 15,000,000 8.77
Standard Life Aberdeen plc 9,972,480 5.83
VT Gravis Funds ICVC 9,049,470 5.29
Premier Fund Managers Limited 8,688,419 5.08
Since the year end, the Company has been formally notified that
the Close Asset Management Limited holding in the Company has
increased to 18,818,332 Ordinary Shares and the CG Asset Management
holding in the Company has decreased to 13,500,000 Ordinary
Shares.
There are no other significant changes since the year end of
which the Board is aware.
Settlement of ordinary share transactions
Ordinary share transactions in the Company are settled by the
CREST share settlement system.
Anti-bribery and corruption
It is the Company's policy to conduct all of its business in an
honest and ethical manner. The Company takes a zero-tolerance
approach to bribery and corruption and is committed to acting
professionally, fairly and with integrity in all its business
dealings and relationships wherever it operates. The Company's
policy and the procedures that implement it are designed to support
that commitment.
Environmental, social and governance ('ESG') matters
To fulfil our long term financial objectives it is essential
that we incorporate environmental and social considerations into
our business model. The Company always seeks to work with
well-regarded partners to ensure that our investments are fit for
purpose and maintained at a high standard in order to meet the
needs of our lessees and occupiers as well as sustaining their
value over the long term.
We perform detailed property due diligence on all of our
acquisitions to minimise fire and other risks to our tenants and
provide safe and secure accommodation. By supporting our
development partners we aim to benefit local communities by
increasing the provision of affordable housing.
Through ReSI Housing we are able to keep assets within the
social housing regulatory environment, which emphasises good
governance and financial viability.
The Company has no greenhouse gas emissions to report from its
operations, nor does it have responsibility for any other emissions
producing sources under the Companies Act 2006 (Strategic Report
and Directors' Reports) Regulations 2013.
The Company aims to quantify its social impact and has
commissioned the Social Profit Calculator to assess the overall
impact of ReSI's investment (see page 10).
Employees
The Company has no employees and no share schemes. The Board's
policy on diversity is contained in the Corporate Governance Report
(see page 35).
Social, community and human rights issues
The Company aims to deliver a positive impact on social,
community and human rights issues through its investment in the UK
Housing Sector. The Company's approach to measuring social impact
is discussed on page 10.
Modern Slavery Act 2015, Bribery Act 2010 and Criminal Finances
Act 2017
The Directors are satisfied that, to the best of their
knowledge, the Company's principal suppliers, as listed on page 31,
comply with the provisions of Modern Slavery Act 2015 and maintain
adequate safeguards in keeping with the provisions of the Bribery
Act 2010 and Criminal Finances Act 2017.
Annual General Meeting
The Annual General Meeting ('AGM') of the Company will be held
on 15 January 2020 at 11 a.m. The Notice convening the AGM is
contained in this Annual Report and can be found on the Company's
website at https://www.resi-reit.com/ The Directors consider that
all of the resolutions to be proposed are in the best interests of
the Company and it is their recommendation that shareholders
support these proposals as they intend to do so in respect of their
own shareholdings.
Political Donations
No political donations were made during the year under review
and no political donations will be paid during the forthcoming
year.
Outlook
The outlook for the Company is discussed in the Chairman's
Statement on pages 11 to 13.
Independent Auditor
BDO LLP have expressed their willingness to continue in office
as Independent Auditor and a resolution to re-appoint them will be
put to shareholders at the AGM.
Disclosure of information to the Independent Auditor
Each of the Directors at the date of the approval of this report
confirms that:
(i) so far as the Directors are aware, there is no relevant
audit information of which the Company's Independent Auditor are
unaware; and
(ii) the Directors have taken all steps that ought to have been
taken as Directors to make themselves aware of any relevant
information and to establish that the Company's Independent Auditor
are aware of that information.
This confirmation is given and should be interpreted in
accordance with the provisions of Section 418 of the Companies Act
2006. In accordance with Section 489 of the Companies Act 2006, a
resolution to re-appoint BDO LLP as the Company's Independent
Auditor will be put forward at the forthcoming Annual General
Meeting.
Regulatory Disclosures - Information to be disclosed in
accordance with Listing Rule 9.8.4
The disclosures below are made in compliance with the
requirements of Listing Rule 9.8.4.
9.8.4(1) The company has not capitalised any interest in the
year under review.
9.8.4(2) The company published its Half Yearly Financial Report
on 20 May 2019 which contained unaudited financial information.
9.8.4(3) The company has no incentive schemes in operation.
9.8.4(4) and (5) No director of the company has waived or agreed
to waive any current or future emoluments from the company.
9.8.4(6), (7) and (8) The company has not allotted any equity
securities during the year under review within the meaning of
Listing Rule 9.8.4(6), (7) and (8).
9.8.4(9) During the year under review, there were no contracts
of significance subsisting to which the company is a party and in
which a director of the company is or was materially interested: or
between the company and a controlling shareholder.
9.8.4(10) This provision is not applicable to the company.
9.8.4(11) and (12) During the year under review, there were no
arrangements under which a shareholder has waived or agreed to
waive any dividends or future dividends.
9.8.4(13) This provision is not applicable to the company.
By order of the Board
For and on behalf of
PraxisIFM Fund Services (UK) Limited
Company Secretary
20 November 2019
Corporate governance statement
The Board is committed to high standards of corporate
governance.
The Board of the Company has considered the principles and
recommendations of the AIC Code by reference to the AIC Guide. The
AIC Code, as explained by the AIC Guide, addresses all the
principles set out in the UK Corporate Governance Code, as well as
setting out additional principles and recommendations on issues
that are of specific relevance to the Company as an investment
company. A copy of the AIC Code can be viewed on the AIC's website.
An updated AIC code was published in February 2019, reflecting
changes made in 2018. The 2019 AIC Code will be applicable to the
Company for the year ending 30 September 2020.
The Board considers that reporting against the principles and
recommendations of the AIC Code, and by reference to the AIC Guide
(which incorporates all applicable principles of the UK Corporate
Governance Code), will provide more relevant information to
Shareholders.
The Financial Reporting Council ("FRC"), the UK's independent
regulator for corporate reporting and governance responsible for
the UK Corporate Governance Code, has endorsed the AIC Code and the
AIC Guide. The terms of the FRC's endorsement mean that AIC members
who report against the AIC Code and the AIC Guide meet fully their
obligations under the UK Corporate Governance Code and the related
disclosure requirements contained in the Listing Rules.
From Admission, the Company has complied with the AIC Code of
Corporate Governance, which complements the UK Corporate Governance
Code and provides a framework of best practice for listed
investment companies.
The UK Corporate Governance Code includes provisions relating
to: the role of the chief executive; executive Directors'
remuneration; and the need for an internal audit function. For the
reasons set out in the AIC Guide, the Board considers these
provisions are not relevant to the position of the Company, being
an externally managed investment company. In particular, all of the
Company's day-to-day management and administrative functions are
outsourced to third parties. As a result, the Company has no
executive directors, employees or internal operations. The Company
has therefore not reported further in respect of these
provisions.
The Company has a robust corporate governance framework with
oversight provided by a highly experienced, fully independent
Board. The Board is currently composed of four non-executive
Directors who are collectively responsible for determining the
Investment Policy and strategy, and who have overall responsibility
for the Company's activities. A list of Directors is shown on pages
28 and 29.
The Board of Directors
Composition
At the date of this report, the Board consists of four
non-executive Directors including the Chairman. All the Directors
have served during the entire year.
The Board believes that during the year ended 30 September 2019
its composition was appropriate for an investment company of the
Company's nature and size. All of the Directors are independent of
the Fund Manager. All of the Directors are able to allocate
sufficient time to the Company to discharge their responsibilities
effectively.
The Directors have a broad range of relevant experience to meet
the Company's requirements and their biographies are shown in the
Board of Directors section of this Annual Report.
The Board recognises the benefits to the Company of having
longer serving Directors together with progressive refreshment of
the Board. The Board does not believe that length of service in
itself necessarily disqualifies a Director from seeking
reappointment but, when making a recommendation, the Board will
take into account the requirements of the AIC Code. The Board has
adopted corporate governance best practice and has a succession
plan in place. No Director of the Company has served for nine years
or more and all directors remain independent of the Company's Fund
Manager.
The Board has formulated a succession plan which promotes
regular refreshment and diversity, whilst maintaining stability and
continuity of skills and knowledge on the Board.
In accordance with the Company's Articles of Association,
Directors may be appointed by the Company by ordinary resolution or
by the Board. If appointed by the Board, a Director shall hold
office only until the next annual general meeting and shall not be
taken into account in determining the number of Directors who are
to retire by rotation. One third of the Board retired by rotation
and were subject to re-election at the Company's Annual General
Meeting on 29 January 2019. However, in line with best practice,
all the Directors have agreed to retire and stand for re-election
on a voluntary basis at the Annual General Meeting in January
2020.
The Directors have appointment letters which do not provide for
any specific term. Copies of the Directors' appointment letters are
available on request from the Company Secretary. Upon joining the
Board, any new Directors receive an induction and relevant training
is available to Directors on an ongoing basis.
A policy of insurance against Directors' and officers'
liabilities is maintained by the Company.
Audit Committee
The Board delegates certain responsibilities and functions to
the Audit Committee as set out in its written terms of reference.
The Audit Committee is chaired by Robert Gray and consists of all
the Directors. The Committee meets at least twice a year to review
the interim and annual financial statements. The Committee also
reviews the scope and results of the external audit, its cost
effectiveness and the independence and objectivity of the external
auditors, including the provision of non-audit services. A report
of the Audit Committee is included in this Annual Report as set out
on pages 38 and 39.
Other Committees
The Board additionally fulfils the responsibilities of the
Nomination Committee and Remuneration Committee. It has not been
considered necessary to establish separate nomination or
remuneration committees given the size of the Board and the size
and nature of the Company.
In addition, the Board as a whole fulfils the functions of a
Management Engagement Committee to review the actions and
judgements of management in relation to the interim and annual
financial statements and the Company's compliance with statutory
and regulatory matters. In addition, in this capacity, the Board
reviews the terms of the Fund Management Agreement and examines the
effectiveness of the Company's internal control systems and the
performance of the Fund Manager, Depositary, Administrator, Company
Secretary and the Registrar.
Meeting attendance
Quarterly
Directors Board Audit Committee
----------------- ----------- -----------------
Rob Whiteman 4 2
Robert Gray 4 2
John Carleton* 3 1
Mike Emmerich 4 2
*Whilst John Carleton was unable to attend one Board meeting and
one Audit Committee meeting (held on the same day) due to other
commitments, the Board and Fund Manager regard his experience and
knowledge as invaluable both within and outside meetings and are
strongly recommending that shareholders vote in favour of his
re-election.
There were also a number of other Board and committee meetings
to deal with administrative matters and approval of
documentation.
Board diversity
The Board considers diversity and the Company's policy is that
the Board should have an appropriate level of diversity in the
boardroom, taking into account relevant skills, gender, social and
ethnic backgrounds, cognitive and personal strengths. Consideration
is given to the recommendations of the AIC Code and the Company
supports the recommendations of the Hampton-Alexander Review.
The Board appraises its collective set of cognitive and personal
strengths, independence and diversity on annual basis, and
especially during the recruitment process, so as to ensure it is
aligned with the Company's strategic priorities. The Board is
satisfied with its current composition. However, should the
strategic priorities change, the Board will review and adjust its
composition.
Performance appraisal
A formal annual performance appraisal process is performed on
the Board, the committees, the individual Directors and the
Company's main service providers.
A programme consisting of open and closed ended questions was
used as the basis for the appraisal. The results were reviewed by
the Chairman and discussed with the Board. A separate appraisal of
the Chairman has been carried out by the other members of the Board
and the results reported back to the Chairman. The results of the
performance evaluation were positive and demonstrated that the
Directors showed the necessary commitment and expertise for the
fulfilment of their duties.
The Board has the discretion to monitor the performance of the
Fund Manager and believes the continuing appointment of the Fund
Manager to be in the best interests of shareholders as a whole (see
page 31).
Internal control
The AIC Code requires the Board to review the effectiveness of
the Company's system of internal controls. The Board recognises its
ultimate responsibility for the Company's system of internal
controls and for monitoring its effectiveness. The system of
internal controls is designed to manage rather than eliminate the
risk of failure to achieve business objectives. It can provide only
reasonable assurance against material misstatement or loss. The
Board has undertaken a review of the Company's internal controls
framework. The Board believes that the existing arrangements
represent an appropriate framework to meet the internal control
requirements. By these procedures the Directors have kept under
review the effectiveness of the internal control system throughout
the year and up to the date of this report.
Financial aspects of internal control
The Directors are responsible for the internal financial control
systems of the Company and for reviewing their effectiveness. These
aim to ensure the maintenance of proper accounting records, the
reliability of the financial information upon which business
decisions are made and which is used for publication and that the
assets of the Company are safeguarded. As stated above, the Board
has contractually delegated to external agencies the services the
Company requires, but it is fully informed of the internal control
framework established by the AIFM, the Fund Manager, the
Administrator and the Company's Depositary to provide reasonable
assurance on the effectiveness of internal financial controls.
The key procedures include review of management accounts,
monitoring of performance at quarterly Board meetings, segregation
of the administrative function from investment management,
maintenance of appropriate insurance and adherence to physical and
computer security procedures.
The Statement of Directors' Responsibilities in respect of the
accounts is on page 42 and a Statement of Going Concern is on page
25. The Report of the Independent Auditor is on pages 43 to 47.
Other aspects of internal control
The Board holds quarterly meetings, plus additional meetings as
required. Between these meetings there is regular contact with the
Fund Manager and other service providers.
The Board has agreed policies on key operational issues. The
Company's key service providers report to the Board on operational
and compliance issues. The Fund Manager and the Depositary provide
reports, which are reviewed by the Board.
The Administrator prepares management accounts, which enable the
Board to assess the financial position of the Company. Additional
ad hoc reports are received as required and Directors have access
at all times to the advice and services of the Corporate Company
Secretary, which is responsible to the Board for ensuring that
Board procedures are followed.
This contact with the key service providers enables the Board to
monitor the Company's progress towards its objectives and
encompasses an analysis of the risks involved.
The effectiveness of the Company's risk management and internal
controls systems is monitored and a formal review has been
completed. There are no significant findings to report from the
review.
The Board meet formally at least quarterly with additional ad
hoc calls when appropriate. A typical agenda of a formal Board
meeting includes a review of the financial and portfolio
performance in that period, distributable income and dividend yield
compared to forecast, an update regarding the investment pipeline,
statutory and regulatory matters and governance obligations. The
Directors are independent of the Fund Manager. The Board review
investment activity and performance and exercise appropriate
control and supervision to ensure acquisitions are made in
accordance with agreed investment parameters. The Fund Manager has
been given responsibility for the day-to-day management of the
Company's assets in accordance with the Investment Policy subject
to the control and directions of the Board.
Matters reserved for the Board and delegated authorities
To retain control of key decisions and ensure there is a clear
division of responsibilities between the running of the Board and
the running of the business, the Board has identified 'reserved
matters' that only it can approve. The Board has delegated a number
of responsibilities and authorities to the Fund Manager. These
responsibilities include the level of borrowing, which is based on
the characteristics of the relevant property and asset class and
identifying new investment opportunities for the Company,
performing due diligence in relation to potential investments,
approving and executing such investments and monitoring existing
investments. The Fund Manager presents potential transactions to
the Board at regular Board meetings. The Board and the Committee
receive sufficient, reliable and timely information in advance of
meetings and are provided with or given access to all necessary
resources and expertise to enable them to fulfil their
responsibilities and undertake their duties in an effective
manner.
Principal risks
The Directors confirm that they have carried out a robust
assessment of the principal risks facing the Company, including
those that would threaten its business model, future performance,
solvency or liquidity. The principal risks and how they are being
managed is set out in the Strategic Report.
Annual General Meeting
At least twenty-one days' notice shall be given to all the
members and to the auditors of an Annual General Meeting. All other
general meetings shall also be convened by not less than twenty-one
days' notice to all those members and to the auditors unless the
Company offers members an electronic voting facility and a special
resolution reducing the period of notice to not less than fourteen
days prior to the general meeting, in which case a general meeting
may be convened by not less than fourteen days' notice in writing.
A special resolution will be proposed at the Annual General Meeting
to reduce the period of notice for general meetings, other than the
Annual General Meeting, to not less than fourteen days.
Shareholder relations
The Company encourages all shareholders to attend the Annual
General Meeting and seeks to provide a minimum of twenty working
days' notice of that meeting. The Notice of Meeting sets out the
business of the AGM and any item not of an entirely routine nature
is explained in the Directors' Report. Separate resolutions are
proposed for each substantive issue. The Fund Manager has a
programme of meetings with shareholders and reports back to the
Board on its findings. The Chairman and the Board welcome direct
feedback from shareholders.
Exercise of voting powers and stewardship code
The principles of best practice of the Stewardship Code are not
applicable to the Company's operations, being a REIT that does not
hold the shares of other companies.
Social and environmental policy
The Company has no staff, premises, manufacturing or other
operations. Any emissions from the Company's property are the
responsibility of the tenant under the principle of operational
control. The Group has no greenhouse gas emissions to report from
its operations, nor does it have responsibility for any other
emissions producing sources under the Companies Act 2006 (Strategic
Report and Directors' Reports) Regulations 2013.
Report of the Audit Committee
Role of the Audit Committee
The AIC Code of Corporate Governance (the "Code") recommends
that Boards should establish audit committees consisting of at
least three, or in the case of smaller companies, two independent
non-executive directors. The Board is required to satisfy itself
that the audit committee has recent and relevant experience. The
main role and responsibilities of the audit committee should be set
out in written terms of reference covering certain matters
described in the AIC Corporate Governance Code. The terms of
reference of the Audit Committee can be found on the Company's
website at https://www.resi-reit.com/
The Audit Committee meets formally at least twice a year for the
purpose, amongst other things, of considering the appointment,
independence and objectivity, and remuneration of the auditor and
to review the annual accounts and half-yearly financial report. The
Audit Committee also reviews the Company's internal financial
controls and its internal control and risk management systems.
Non-Audit Services
Where non-audit services are provided by the auditor, full
consideration of the financial and other implications on the
independence of the auditor arising from any such engagement are
considered before proceeding. The Audit Committee has considered
the non-audit work of the auditor during the year ended 30
September 2019 and does not consider that this compromises its
independence.
BDO LLP were paid fees of GBP30,000 in respect of non-audit
services in the year ended 30 September 2019. These services were
in respect of the interim review of the Half-yearly Report and this
service is typically performed by a company's auditor. The
independence of the Auditor was considered prior to the provision
of this service.
Composition
All of the Directors of the Company are members of the Audit
Committee. The Audit Committee has formal written terms of
reference and copies of these are available on request from the
Company Secretary and can be downloaded from the Company's website
at https://www.resi-reit.com/ The Audit Committee as a whole has
recent and relevant financial experience. The Audit Committee has
considered the need for an internal audit function and considers
that this is not appropriate given the nature and circumstances of
the Company. The Audit Committee keeps the needs for an internal
function under periodic review. The chairman of the Company is a
member of the Audit Committee. The Board and the Audit Committee
believe that this is appropriate as he has recent and relevant
financial experience and he is independent.
Meetings
There have been two Audit Committee meetings in the year ended
30 September 2019. Attendance is included in the corporate
governance statement.
Financial statements and significant accounting matters
The Audit Committee considered the following significant
accounting issues in relation to the Company's Financial Statements
for the year ended 30 September 2019:
Investment property valuation
The valuation of investment property is the most material matter
in the production of the financial statements. Savills Advisory
Services Limited has been appointed to value the Company's property
investments in accordance with the RICS requirements on a quarterly
basis. The Audit Committee reviewed a copy of the valuation once it
had been completed and has received a presentation from the valuer.
Investment properties are valued at their fair value in accordance
with IFRS 13 which recognises a variety of fair value inputs
depending upon the nature of the investment. The Audit Committee
has reviewed the assumptions underlying the property valuations and
concluded that the valuation at the Company's year end is
appropriate.
Revenue recognition
There is a risk that the Group's rental income may not be
accounted for correctly in accordance with accounting standards.
The Audit Committee has reviewed the Company's procedures in place
for revenue recognition and has concluded that revenue has been
appropriately recognised.
Conclusion with respect to the Annual Report and financial
statements
The Audit Committee has concluded that the Annual Report for the
year ended 30 September 2019, taken as a whole, is fair, balanced
and understandable and provides the information necessary for
Shareholders to assess the Company's business model, strategy and
performance. The Audit Committee has reported its conclusions to
the Board of Directors. The Audit Committee reached this conclusion
through a process of review of the document and enquiries to the
various parties involved in the production of the annual
report.
Audit tenure
BDO LLP has been appointed as the Company's auditor since the
Company's launch, following a competitive process and review of the
Auditor's credentials. The appointment of the external auditor is
reviewed annually by the Audit Committee and the Board and is
subject to approval by Shareholders. In accordance with the FRC
guidance, the audit will be put out to tender within ten years of
the initial appointment of BDO LLP.
Effectiveness of external audit
The Audit Committee is responsible for reviewing the
effectiveness of the external audit process. The Audit Committee
received a presentation of the audit plan from the external auditor
prior to the commencement of the audit and a presentation of the
results of the audit following completion of the main audit
testing. The Audit Committee performed a review of the external
auditor following the presentation of the results of the audit. The
review included a discussion of the audit process and the ability
of the external auditor to fulfil its role. Following the above
review, the Audit Committee has agreed that the re-appointment of
the Auditors should be recommended to the Board and the
Shareholders of the Company.
Provision of non-audit services
The Audit Committee has put a policy in place on the supply of
any non-audit services provided by the external auditor. Such
services are considered on a case-by-case basis and may only be
provided to the Company if the provision of such services is at a
reasonable and competitive cost and does not constitute a conflict
of interest or potential conflict of interest which would prevent
the auditor from remaining objective and independent.
Robert Gray
Chairman of the Audit Committee
20 November 2019
Directors' Remuneration Implementation Report
This report has been prepared in accordance with Schedule 8 of
the Large and Medium-sized Companies and Groups (Accounts and
Reports) (Amendment) Regulations 2013. An ordinary resolution for
the approval of this report will be put forward at the forthcoming
Annual General Meeting.
Remuneration Policy
The provisions of the policy which was approved at the AGM on 29
January 2019 have continued to apply. A copy of the policy is
included in the Company's Annual Report for the period from 12 July
2017 to 30 September 2018.
The Directors' Remuneration Policy was last put forward at the
Annual General Meeting held on 29 January 2019. The resolution was
passed with proxies representing 99.99% of the shares voted being
in favour of the resolution. The Directors' Remuneration Policy
will next be put forward for approval at the Annual General Meeting
to be held in 2022.
Directors' Remuneration Implementation Report
The Directors' Remuneration Implementation Report is put forward
for approval by shareholders on an annual basis. The result of the
shareholder resolution on the Implementation Report is non-binding
on the Company, although it gives shareholders an opportunity to
express their views, which will be taken into account by the
Board.
The law requires the Company's auditor to audit certain
disclosures provided in the Directors' Remuneration Implementation
Report. Where disclosures are audited they are indicated as such.
The auditor's opinion is on page 46.
Remuneration
The Company currently has four non-executive Directors.
Directors are entitled to receive a fee linked to the Net Asset
Value of the Company in respect of their position as a director of
the Company. Fees are currently payable at the rates set out in the
remuneration policy.
The Board believes that these fees appropriately reflect
prevailing market rates for the Company's complexity and size, and
will also enable the Company to attract appropriately experienced
additional Directors in the future.
The Board reviews the fees payable to the Directors on an annual
basis.
Directors' service contracts
The Directors do not have service contracts with the Company.
The Directors are not entitled to compensation on loss of office.
The Directors have appointment letters which do not provide for any
specific term but are subject to re-election by shareholders at a
maximum interval of three years. However, in line with best
practice, all the Directors have agreed to retire and stand for
re-election on a voluntary basis at the Annual General Meeting in
January 2020.
There are no restrictions on transfers of the Company's shares
held by the Directors or any special rights attached to such
shares.
Director search and selection fees
No Director search and selection fees were incurred during the
year ended 30 September 2019.
Directors' emoluments for the year ended 30 September 2019
(audited)
The Directors who served during the year received the following
remuneration for qualifying services.
Fees from 1 Fees from 12
October 2018 July 2017 to
to
30 September 30 September
2019 2018
GBP'000 GBP'000
------------------------------- --------------- ---------------
Robert Whiteman 50 52
Robert Blackburn
Gray 35 43
John Carleton 35 43
Mike Emmerich* 35 2
Rt Hon Baroness
Dean of Thornton-le-Fylde** - 47
------------------------------- --------------- ---------------
155 187
------------------------------- --------------- ---------------
*Appointed on 13 September 2018
**Ceased to be a director on 14 March 2018
There are no other taxable benefits payable by the Company other
than certain expenses which may be deemed to be taxable. None of
the above fees was paid to third parties.
A non-binding ordinary resolution to approve the Directors'
Remuneration Implementation Report contained in the Annual Report
for the period ended 30 September 2018 was put forward at the
Annual General Meeting held on 29 January 2019. The resolution was
passed with proxies representing 100% of the shares voted being in
favour of the resolution.
Relative importance of spend on pay
The following table sets out the total level of Directors'
remuneration compared to Net Property Income, Directors' fees,
Operating expenses, and Dividends paid and payable to
shareholders.
2019 2018
GBP'000 GBP'000
Net Property Income 12,059 5,699
Directors' fees 155 187
Operating expenses 3,100 3,350
Dividends paid and payable to
shareholders 8,551 5,286
Performance
The following chart shows the performance of the Company's share
price by comparison to the principal relevant indices. The Board
believes this Index is the most representative comparator for the
Company, given the Company's investment objective.
Directors' holdings (Audited)
There are no requirements pursuant to the Company's Articles of
Association for the Directors to own shares in the Company. The
Directors' beneficial shareholdings are detailed below:
2019 2018
------------------------ --------- ---------
Robert Whiteman 5,000 5,000
Robert Blackburn Gray 75,000 75,000
John Carleton 4,850* 5,000
Mike Emmerich - -
------------------------ --------- ---------
*restated from previously reported position of 5,000.
The shareholdings of the Directors are not significant and
therefore do not compromise their independence as non-executive
Directors.
Statement
On behalf of the Board and in accordance with Part 2 of Schedule
8 of the Large and Medium-sized Companies and Groups (Accounts and
Reports) (Amendment) Regulations 2013, I confirm that the above
Report on Remuneration Policy and Remuneration Implementation
summarises, as applicable, for the financial year ended 30
September 2019.
(a) the major decisions on Directors' remuneration;
(b) any substantial changes relating to Directors' remuneration
made during the financial year ended 30 September 2019; and
(c) the context in which the changes occurred and decisions have
been taken.
Robert Whiteman
Chairman of the Board of Directors
20 November 2019
Directors' Responsibilities
Directors' Responsibilities
The Directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law and
regulation.
Company law requires the directors to prepare Group and parent
Company financial statements for each financial year. The Group
financial statements have been prepared in accordance with
International Financial Reporting Standards ("IFRSs") as adopted by
the European Union and the Company financial statements have been
prepared in accordance with Financial Reporting Standard 100
Application of Financial Reporting Requirements ("FRS 100") and
Financial Reporting Standard 101 Reduced Disclosure Framework ("FRS
101"), subject to any material departures disclosed and explained
in the Company financial statements; and United Kingdom Generally
Accepted Accounting Practice (United Kingdom Accounting Standards
and applicable law).
Under company law the directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Group and Company and of the
Group's and Company's profit or loss for that period.
In preparing the financial statements, the directors are
required to:
-- select suitable accounting policies and then apply them consistently
-- make judgements and estimates that are reasonable, relevant, reliable and prudent
-- for the Group financial statements, state whether they have
been prepared in accordance with IFRSs as adopted by the EU
-- for the parent Company financial statements, state whether
applicable UK accounting standards have been followed, subject to
any material departures disclosed and explained in the parent
company financial statements; and
-- prepare the financial statements on a going concern basis
unless it is inappropriate to presume that the Group and the
Company will continue in business.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group and
Company's transactions and disclose with reasonable accuracy at any
time the financial position of the Group and Company and enable
them to ensure that its financial statements comply with the
Companies Act 2006 and as regards the Group financial statements,
Article 4 of the IAS Regulation.
They are responsible for such internal control as they determine
is necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error,
and have general responsibility for taking such steps as are
reasonably open to them to safeguard the assets of the Group and to
prevent and detect fraud and other irregularities.
Under applicable law and regulations, the directors are also
responsible for preparing a Strategic Report, Directors' Report,
Directors' Remuneration Implementation Report and Corporate
Governance Statement that complies with that law and those
regulations. These can be found on pages 14, 30, 40 and 34
respectively.
The directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
company's website. Legislation in the UK governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
The directors are responsible for ensuring that the Annual
report and accounts, taken as a whole, are fair, balanced and
understandable and provide the information necessary for
shareholders to assess the Group and Company's performance,
business model and strategy.
Directors' responsibility statement
We confirm that to the best of our knowledge:
-- the financial statements have been prepared in accordance
with International Financial Reporting Standards ("IFRS") as
adopted by the European Union and Article 4 of the IAS Regulation
and, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company and the
undertakings included in the consolidation as a whole
-- the Strategic Report includes a fair review of the
development and performance of the business and the financial
position of the Company and the undertakings included in the
consolidation taken as a whole, together with a description of the
principal risks and uncertainties that they face; and
-- the Annual Report and accounts taken as a whole is fair,
balanced and understandable and provides the information necessary
for Shareholders to assess the Company's performance, business
model and strategy.
For and on behalf of the Board
Rob Whiteman
Chairman
20 November 2019
Financials
Consolidated Statement of Comprehensive Income
For the year ended 30 September 2019
Year 12 July
ended 2017 to
30 Sept
Note 30-Sep-19 2018
GBP'000 GBP'000
Income 6 21,621 10,418
Cost of sales 6 (9,562) (4,719)
-----------
Net income 12,059 5,699
Operating expenses
Fund management fee 7 (1,843) (2,160)
General and administrative expenses 8 (1,030) (1,190)
Aborted acquisition costs (227) -
-----------
Total operating expenses (3,100) (3,350)
Operating profit before property disposals
and change in fair value 8,959 2,349
Profit on disposal of investment properties 56 -
Change in fair value of investment
properties 11 8,656 14,825
Operating profit before finance costs 17,671 17,174
Finance income 12 98 237
Finance costs 12 (4,444) (1,300)
Change in fair value of interest rate
swap derivative contracts 12 (89) -
Profit for the period before taxation 13,236 16,111
----------- ----------
Taxation 13 - -
Profit for the period after taxation 13,236 16,111
----------- ----------
Other comprehensive income:
Cashflow hedge - (383)
Recycling of cashflow hedge reserve 383
- -
----------- ----------
Total comprehensive income for the
period attributable to the shareholders
of the Company 13,236 16,111
----------- ----------
Earnings per share - basic and diluted
- pence 14 7.7 9.0
All of the activities of the Group are classified as
continuing.
The notes on pages 54 to 72 form part of these financial
statements.
Consolidated Statement of Financial Position
As at 30 September 2019
Note 30 September 30 September
2019 2018
GBP'000 GBP'000
Non-current assets
Investment properties 16 290,162 252,875
Total non-current assets 290,162 252,875
Current assets
Inventories - properties available
for sale 15 2,633 -
Trade and other receivables 17 2,652 2,747
Deposits paid for acquisition 18 6,334 -
Cash and cash equivalents 19 26,205 11,796
------------------------------
Total current assets 37,824 14,543
Total assets 327,986 267,418
-------------- ------------------------------
Current liabilities
Trade and other payables 20 4,459 4,544
Borrowings 21 373 257
Interest rate swap derivative contracts 22 - -
Obligations under finance leases 30 934 886
Total current liabilities 5,766 5,687
Non-current Liabilities
Borrowings 21 107,819 51,303
Interest rate swap derivative contracts 22 89 -
Obligations under finance leases 30 28,598 26,829
Total non-current liabilities 136,506 78,132
Total liabilities 142,272 83,819
-------------- ------------------------------
Net assets 185,714 183,599
-------------- ------------------------------
Equity
Share capital 23 1,803 1,803
Share premium 24 108 108
Own shares reserve 25 (8,622) (5,199)
Retained earnings 26 192,425 186,887
Total interests 185,714 183,599
Total equity 185,714 183,599
-------------- ------------------------------
Net asset value per share - basic and
diluted (pence) 31 108.6 105.1
The financial statements were approved and authorised for issue
by the Board of Directors on 20 November 2019 and signed on its
behalf by:
Robert Whiteman
Chairman
Date: 20 November 2019
The notes on pages 54 to 72 form part of these financial
statements.
Consolidated Statement of cash flows
As at 30 September 2019
12 July
Year to 2017 to
30 September
Note 30-Sep-19 2018
GBP'000 GBP'000
Cash flows from operating activities
Profit for the period 13,236 16,111
Adjustments for items that are not
operating in nature:
Gain in fair value of investment properties 11 (8,656) (14,825)
Loss in fair value of interest rate
swap 12 89 -
Profit on disposal of investment properties (56) -
Shares issued in lieu of management
fees 461 540
Finance income (98) (237)
Finance costs 4,444 1,300
Operating result before working capital
changes 9,420 2,889
Changes in working capital
Increase in trade and other receivables 94 (2,697)
Increase in inventories (2,633) -
(Decrease)/increase in trade and other
payables (344) 4,466
Net cash flow generated from operating
activities 6,537 4,658
----------- --------------
Cash flow from investing activities
Purchase of investment properties 16 (28,536) (210,335)
Grant received 16 952 -
Disposal of investment properties 826 -
Deposits paid for acquisition 18 (6,334) -
Interest received 12 98 237
Amounts transferred into restricted
cash deposits 19 (63) (1,110)
Net cash flow from investing activities (33,057) (211,208)
----------- --------------
Cash flow from financing activities
Proceeds from shares issued in the
period 23 - 180,000
Formation and issue costs paid 23 - (3,600)
Purchase of own shares 25 (3,884) (5,421)
New borrowings raised (net of expenses) 21 56,972 51,624
Bank loans repaid (504) (78)
Finance costs 12 (4,020) (1,286)
Dividend paid 29 (7,698) (4,003)
Net cash flow generated from financing
activities 40,866 217,236
----------- --------------
Net increase in cash and cash equivalents 14,346 10,686
Cash and cash equivalents at the beginning
of the period 19 10,686 -
Cash and cash equivalents at the end
of the period 19 25,032 10,686
----------- --------------
The notes on pages 54 to 72 form part of these financial
statements.
Consolidated Statement of Changes in Equity
For the year ended 30 September 2019
Own
Share Share shares Retained
Total
capital premium reserve earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 11 July 2017 - - - (28) (28)
--------- ----------- --------- ---------- ---------
Profit for the period - - - 16,111 16,111
Other comprehensive income - - - - -
Total comprehensive income - - - 16,111 16,111
Contributions by and distributions
to shareholders
Ordinary shares issued on IPO 1,800 178,200 - - 180,000
Share issue costs capitalised - (3,600) - - (3,600)
Issue of management shares 3 315 222 (540) -
Change in fair value of financial
instruments 540 540
Cancellation of share premium - (174,807) - 174,807 -
Purchase of own shares - - (5,421) - (5,421)
Dividends paid - - - (4,003) (4,003)
Balance at 30 September 2018 1,803 108 (5,199) 186,887 183,599
--------- ----------- --------- ---------- ---------
Profit for the period - - - 13,236 13,236
Other comprehensive income - - - - -
Total comprehensive income - - - 13,236 13,236
Contributions by and distributions
to shareholders
Issue of management shares - - 461 (461) -
Share based payment charge - - - 461 461
Purchase of own shares - - (3,884) - (3,884)
Dividends paid - - - (7,698) (7,698)
Balance at 30 September 2019 1,803 108 (8,622) 192,425 185,714
--------- ----------- --------- ---------- ---------
The notes on pages 54 to 72 form part of these financial
statements.
Notes to the Financial Statements
1. General information
Residential Secure Income plc ("the Company") was incorporated
in England and Wales under the Companies Act 2006 as a public
company limited by shares on 21 March 2017. The Company's
registration number is 10683026. The registered office of the
Company is located at Mermaid House, Puddle Dock, London EC4V
3DB.
The Company achieved admission to the premium listing segment of
the main market of the London Stock Exchange on 12 July 2017.
The Company and its subsidiaries (the "Group") invests in
residential asset classes that comprise the stock of registered UK
social housing providers, Housing Associations and Local
Authorities.
2. Basis of preparation
The financial information contained in this results announcement
has been prepared on the basis of the accounting policies set out
in the financial statements for the period ended 30 September 2018
except for the adoption of IFRS 9 and IFRS 15 during the year ended
30 September 2019 which have not had a material impact on the
results. Whilst the financial information included in this
announcement has been computed in accordance with the recognition
and measurement requirements of IFRS, as adopted by the European
Union, this announcement does not itself contain sufficient
disclosures to comply with IFRS. The financial information does not
constitute the Group's financial statements for the periods ended
30 September 2019 or 30 September 2018, but is derived from those
financial statements. Financial statements for the period ended 30
September 2018 have been delivered to the Registrar of Companies
and those for the year ended 30 September 2019 will be delivered
following the Company's Annual General Meeting. The auditors'
reports on both the 30 September 2018 and 30 September 2019
financial statements were unqualified; did not draw attention to
any matters by way of emphasis; and did not contain statements
under section 498 (2) or (3) of the Companies Act 2006.
These financial statements for the year ended 30 September 2019
have been prepared in accordance with International Financial
Reporting Standards ("IFRS") and interpretations issued by the
International Accounting Standards Board ("IASB") as adopted by the
European Union and in accordance with the Companies Act 2006.
The financial statements have been prepared on a historical cost
basis, except for investment properties and derivative financial
instruments which have been measured at fair value.
The comparatives presented are for the period from 12 July 2017
to 30 September 2018 due to it being the Company's first accounting
period following admission to the London Stock Exchange. As a
result the amounts presented in the financial statements are not
entirely comparable.
The financial statements have been rounded to the nearest
thousand and are presented in Sterling, except when otherwise
indicated.
a) Going concern
The Directors have made an assessment of the Group's ability to
continue as a going concern and are satisfied that the Group has
the resources to continue in business for the foreseeable future.
Furthermore, the Directors are not aware of any material
uncertainties that may cast significant doubt upon the Group's
ability to continue as a going concern. Therefore, the financial
statements have been prepared on the going concern basis.
b) Changes to accounting standards and interpretations
New standards adopted during the year
The following new accounting standards, interpretations and
amendments, endorsed by the EU were effective for the first time
for the Group's 30 September 2019 year end and had no material
impact on the financial statements:
-- IFRS 9 Financial Instruments (effective from 1 October 2018)
- the standard applies to classification and measurement of
financial assets and financial liabilities, impairment provisioning
and hedge accounting.
The Group adopted the expected credit loss model when
calculating impairment losses on its financial assets measured at
amortised cost (such as trade and other receivables). This resulted
in greater judgement due to the need to factor in forward looking
information when estimating the appropriate amount of provisions.
To measure expected credit losses the Group considered the
probability of a default occurring over the contractual life of its
trade receivables. Historically the Group has not had to provide
for or write off any significant debt balances from tenants. The
Group concludes that this had no material impact on its financial
statements. This is due to the Company having a majority of tenants
with strong covenants and generally tenant receipts are received in
advance or on the due date, therefore the Group considers the
probability of default to be low.
-- IFRS 15 Revenue From Contracts With Customers (effective from
1 October 2018) - the standard is applicable to trading property
sales proceeds and proceeds from the sale of investment properties,
but not rental income arising from the Group's leases with tenants.
The Group has completed its assessment of IFRS 15 and concludes
that its adoption had no material impact on the Group's financial
statements.
Standards in issue but not yet effective
The following standards, interpretations and amendments were in
issue at the date of approval of these financial statements but
were not yet effective for the current accounting year and have not
been adopted early.
-- IFRS 16 Leases (effective from 1 October 2019) - the Group
continues to assess the impact of IFRS 16 Leases, effective from 1
October 2019. The Group has conducted an initial impact assessment,
considering a sample of leases and the associated accounting
treatment and disclosure. Where the Group is a lessor there will be
no material change in accounting treatment or disclosure. Where the
Group is a lessee the liability will be remeasured when the
cashflows relating to the lease change due to a rent review or
indexation. The remeasurement will not have any impact on the net
profit as the remeasurement will affect only the right of use
assets and finance lease liabilities in the statement of financial
position.
3. Significant accounting policies
The significant accounting policies applied in the preparation
of the financial statements are set out below. The policies have
been consistently applied throughout the period.
a) Basis of consolidation
The consolidated financial statements incorporate the financial
statements of the Company and the entities controlled by the
Company (its subsidiaries) at the period end date.
Subsidiaries are all entities over which the Group has control.
The Group controls an entity when the Group:
-- is exposed to, or has rights to, variable returns from its involvement with the entity; and
-- has the ability to affect those returns through its power to
direct the activities of the entity.
All intra-group transactions, balances, income and expenses are
eliminated on consolidation. The financial information of the
subsidiaries is included in the financial statements from the date
that control commences until the date that control ceases.
If an equity interest in a subsidiary is transferred but a
controlling interest continues to be held after the transfer then
the change in ownership interest is accounted for as an equity
transaction.
Accounting policies of the subsidiaries are consistent with the
policies adopted by the Company.
b) Acquisitions and business combinations
The Directors assess whether each acquisition is a business or
asset acquisition. Under IFRS 3, a business is defined as an
integrated set of activities and assets that is capable of being
conducted and managed for the purpose of providing a return in the
form of dividends, lower costs or other economic benefits directly
to investors or other owners, members or participants. A business
will usually consist of inputs, processes and outputs.
Business acquisitions are accounted for using the acquisition
method. To date the Group has not acquired any businesses.
Acquisitions that do not meet the definition of a business are
accounted for as asset acquisition. Asset acquisitions are
accounted for by applying the Group's relevant accounting policy
relating to the assets being acquired.
c) Investment properties
Investment properties, which are properties held to earn rentals
and/or for capital appreciation, are initially measured at cost,
being the fair value of the consideration given, including
expenditure that is directly attributable to the acquisition of the
investment property. After initial recognition, investment property
is stated at its fair value at the Statement of Financial Position
date adjusted for the carrying value of leasehold interests. Gains
and losses arising from changes in the fair value of investment
property are included in profit or loss for the period in which
they arise in the Statement of Comprehensive Income.
Investment property is recognised as an asset when it is
probable that the economic benefits that are associated with the
property will flow to the Group and it can measure the cost of the
investment reliably. This is usually on legal completion.
Subsequent expenditure is capitalised only when it is probable
that future economic benefits are associated with the
expenditure.
An investment property is derecognised upon disposal or when the
investment property is permanently withdrawn from use and no future
economic benefits are expected to be obtained from the asset. Any
gain or loss arising on de-recognition of the property (calculated
as the difference between the net disposal proceeds and the
carrying amount of the asset) is recorded in profit or loss in the
period in which the property is derecognised.
Significant accounting judgements, estimates and assumptions
made for the valuation of investment properties are discussed in
note 16.
d) Inventories
Inventories relate to properties held for delivery as to Shared
Ownership which provides an affordable homes ownership through a
part-buy, part-rent model where Shared Owners buy a stake in the
home (with a lower deposit requirement as it is only required as a
percentage of this stake) and pay a discounted rent on the portion
of the property that the Shared Owner(s)does not own. In accordance
with IAS 2 Inventories, they are held at the lower of cost and net
realisable value.
e) Shared ownership
Shared ownership is where initially a long lease on a property
is granted through a sale to the occupier, in return for an initial
payment (the First Tranche).
First Tranche sales are included within turnover and the related
proportion of the cost of the asset recognised as cost of
sales.
Shared ownership properties are split proportionately between
Inventories and Investment properties based on the current element
relating to First Tranche sales. The assumptions on which the First
Tranche proportion has been based include, but are not limited to,
matters such as the affordability of the shared ownership
properties, local demand for shared ownership properties, and
general experience of First Tranche shared ownership sales within
ReSI Housing and the wider the social housing sector.
Shared Owners have the right to acquire further tranches and any
surplus or deficit on such subsequent sales are recognised in the
Statement of Comprehensive Income as a part disposal of Investment
properties.
Where a grant is receivable from government and other bodies as
a contribution towards the capital cost of shared ownership
investment property, it is recognised as a deduction in arriving at
the cost of the property. Prior to satisfying any performance
obligations related to grant, such grants are held as a liability
on the Statement of Financial Position.
In some circumstances, typically when a Shared Owner staircases,
there arises an obligation to recycle the grant into the purchase
of new affordable properties within three years or to repay the
grant to the relevant government body. Where such an obligation
exists the grant will be held as a liability on the Statement of
Financial Position.
f) Share issue costs
The costs of issuing or reacquiring equity instruments (other
than in a business combination) are accounted for as a reduction to
share premium to the extent that share premium has arisen on the
related share issue.
g) Revenue
The Group recognises revenue on an accruals basis, and when the
amount of revenue can be reliably measured and it is probable that
future economic benefits will flow to the Group. Revenue comprises
rental income and First Tranche sales of Shared Ownership
properties.
Gross rental income is rental income, recognised on a
straight-line basis over the term of the underlying lease and is
included in the Group Statement of Comprehensive Income. Lease
incentives granted are recognised as an integral part of the net
consideration for the use of the property and are therefore
recognised on the same, straight-line basis over the term of the
lease.
Amounts received from tenants to terminate leases or to
compensate for dilapidations are recognised in the Group Statement
of Comprehensive Income when the right to receive them arises.
Gross ground rental income is recognised on a straight-line
basis over the term of the underlying lease.
Income from property sales is recognised when performance
conditions are fulfilled which is usually at the point of legal
completion.
h) Cost of sales
Included within First Tranches cost of sales are costs relating
to the first tranche sale portion of newly acquired shared
ownership properties. These costs include a share of expenditure
incurred for acquisition of those properties in proportion to the
First Tranche percentage sold, direct overheads and other
incidental costs incurred during the course of the sale of those
properties.
i) Expenses
The Group recognises all expenses on an accruals basis.
j) Finance income and expense
Finance income comprises interest receivable on funds invested.
Financing expenses comprise interest payable, interest charged on
head lease liabilities, amortisation of loan fees and the
reclassification of amounts to profit or loss from the cash flow
hedge.
Interest income and interest payable are recognised in profit
and loss as they accrues, using the effective interest method.
k) Taxation
Taxation on the profit or loss for the period not exempt under
UK REIT regulations comprises current and deferred tax. Tax is
recognised in the Statement of Comprehensive Income except to the
extent that it relates to items recognised as direct movement in
equity, in which case it would be recognised as a direct movement
in equity. Current tax is expected tax payable on any non-REIT
taxable income for the period, using tax rates enacted or
substantively enacted at the balance sheet date.
Deferred tax is provided in full using the balance sheet
liability method on timing differences between the carrying amounts
of assets and liabilities for financial reporting purposes and the
amounts used for taxation purposes. Deferred tax is determined
using tax rates that have been enacted or substantively enacted by
the reporting date and are expected to apply when the asset is
realised or the liability is settled.
No provision is made for timing differences (i) arising on the
initial recognition of assets or liabilities, other than on a
business combination, that affect neither accounting nor taxable
profit and (ii) relating to investments in subsidiaries to the
extent that they will not reverse in the foreseeable future.
l) Dividend payable to shareholders
Equity dividends are recognised when they become legally payable
which for the final dividend is the date of approval by the
members. Interim dividends are recognised when paid.
m) Financial instruments
Financial assets
Recognition of financial assets
All financial assets are recognised on a trade date which is the
date when the Group becomes a party to the contractual provisions
of the instrument.
Initial measurement and classification of financial assets
Financial assets are classified into the following categories:
'financial assets at fair value through profit or loss' and
'financial assets at amortised cost'. The classification depends on
the business model in which the asset is managed and on the
cashflows associated with that asset.
Financial assets are initially measured at fair value, plus
transaction costs, except for those financial assets classified as
at fair value through profit or loss, which are initially measured
at fair value.
Fair value through profit or loss
This category comprises in-the-money derivatives and
out-of-money derivatives where the time value offsets the negative
intrinsic value (see "Financial liabilities" section for
out-of-money derivatives classified as liabilities). They are
carried in the Consolidated Statement of Financial Position at fair
value with changes in fair value recognised in the Group Statement
of Comprehensive Income in the finance income or expense line.
At 30 September 2019 the Group had the following non-derivative
financial assets which are held at amortised cost:
Cash and cash equivalents
Cash and short-term deposits on the balance sheet comprise cash
at bank (including investments in money-market funds) and
short-term deposits with an original maturity of three months or
less.
Trade and other receivables
Trade and other receivables are recognised at their original
invoiced value. Where the time value of money is material,
receivables are discounted and then held at amortised cost, less
provision for expected credit loss.
Impairment of financial assets
The Group applies the IFRS 9 simplified approach to measuring
the expected credit losses for trade and other receivables whereby
the allowance or provision for all trade receivables is based on
the lifetime expected credit losses ("ECLs").
The Group applies the general approach for initial recognition
and subsequent measurement of expected credit loss provisions for
the loan receivable and other receivables which have maturities of
12 months or more and have a significant finance component.
This approach comprises of a three-stage approach to evaluating
expected credit losses. These stages are classified as follows:
Stage 1
Twelve-month expected credit losses are recognised in profit or
loss at initial recognition and a loss allowance is established.
For financial instruments that have not deteriorated significantly
in credit quality since initial recognition or that have low credit
risk at the reporting date, the loss allowance for 12-month
expected credit losses is maintained and updated for changes in
amount. Interest revenue is calculated on the gross carrying amount
of the asset (i.e. without reduction for expected credit
losses).
Stage 2
If the credit risk increases significantly and the resulting
credit quality is not considered to be low credit risk, full
lifetime expected losses are recognised and include those financial
instruments that do not have objective evidence of a credit loss
event. Interest revenue is still calculated on the gross carrying
amount of the asset.
Stage 3
If the credit risk of a financial asset increases to the point
that it is considered credit impaired (there is objective evidence
of impairment at the reporting date), lifetime expected credit
losses continue to be recognised. For financial assets in this
stage, lifetime expected credit losses will generally be
individually assessed. Interest revenue is calculated on the
amortised cost net carrying amount (amortised cost less
impairment).
De-recognition of financial assets
The Group derecognises a financial asset when the contractual
rights to the cash flows from the asset expire, or it transfers the
financial asset and substantially all the risks and rewards of
ownership to another entity. If any interest in a transferred asset
is retained then the Group recognises its retained interest in the
asset and associated liabilities.
Financial liabilities
Recognition of financial liabilities
All financial liabilities are recognised on the date when the
Group becomes a party to the contractual provisions of the
instrument.
Initial measurement and classification of financial
liabilities
Financial liabilities are classified into the following
categories: 'financial liabilities at fair value through profit or
loss' and 'other financial liabilities'. The classification depends
on the nature and purpose of the financial liabilities and is
determined at the time of initial recognition.
Financial liabilities are initially measured at fair value, net
of transaction costs, except for those financial liabilities
classified as at fair value through profit or loss, which are
initially measured at fair value.
Fair value through profit or loss
This category comprises out-of-the-money derivatives where the
time value does not offset the negative intrinsic value (see
"Financial assets" section for in-the-money derivatives and
out-of-money derivatives where the time value offsets the negative
intrinsic value). They are carried in the Consolidated Statement of
Financial Position at fair value with changes in fair value
recognised in the Group Statement of Comprehensive Income in the
finance income or expense line.
At 30 September 2019 the Group had the following non-derivative
financial liabilities which are classified as other financial
liabilities:
Trade and other payables
Trade and other payables are initially recognised at fair value
and subsequently held at amortised cost.
Borrowings
Borrowings are recognised initially at fair value less
attributable transaction costs. Subsequent to initial recognition,
borrowing costs are stated at amortised cost with any difference
between the amount initially recognised and the redemption value
being recognised in profit or loss in the Statement of
Comprehensive Income over the period of the borrowings using the
effective interest method.
De-recognition of financial liabilities
The Group derecognises a financial liability when its
contractual obligations are discharged, cancelled or expire.
n) Derivative instrument and hedge accounting
Derivative financial instruments, comprising interest rate swaps
held for hedging purposes, are initially recognised at fair value
and are subsequently measured at fair value being the price that
would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at a
measurement date.
When a derivative is designated as the hedging instrument in a
hedge of the variability in cash flows attributable to a particular
risk associated with a recognised asset or liability or a highly
probable forecast transaction that could affect profit or loss, the
effective portion of changes in the fair value of the derivative is
recognised in other comprehensive income and presented in the
hedging reserve in equity. Any ineffective portion of changes in
the fair value of the derivative is recognised immediately in
profit or loss.
At the time the hedged item affects profit or loss, any gain or
loss previously recognised in other comprehensive income is
recycled through Other Comprehensive Income.
o) Leases
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.
Leases - the Group as lessor
Rentals receivable under operating leases are recognised in the
income statement on a straight-line basis over the term of the
relevant lease. In the event that lease incentives are granted to a
lessee, such incentives are recognised as an asset. The aggregate
cost of the incentives is recognised as a reduction in rental
income on a straight-line basis over the term of the relevant
lease.
Leases - the Group as lessee
Where a property is held under a head lease classified as a
finance lease, the head lease is initially recognised at the lower
of the fair value of the property and the present value of the
minimum lease payments, and a corresponding liability is recorded
within borrowings. Each lease payment is allocated between
repayment of the liability and a finance charge to achieve a
constant rate on the outstanding liability.
p) Share based payments
The fair value of payments made to the Fund Manager that are to
be settled by the issue of shares is determined on the basis of the
Net Asset Value of the Group. The estimated number of shares to be
issued in satisfaction of the services provided is calculated using
the daily closing share price of the Company at the date of
calculation.
4. Significant accounting judgements and estimates
The preparation of financial statements in accordance with the
principles of IFRS required the Directors of the Group to make
judgements, estimates and assumptions that affect the reported
amounts recognised in the financial statements. However,
uncertainty about these assumptions and estimates could result in
outcomes that require a material adjustment to the carrying amount
of the asset or liability in the future. Estimates and underlying
assumptions are reviewed on an ongoing basis. Revisions to
accounting estimates are recognised in the period in which the
estimates are revised and in any future periods affected.
Estimates:
Investment properties
The Group uses the valuation carried out by its independent
valuers as the fair value of its property portfolio. The
assumptions on which the property valuation reports have been based
include, but are not limited to, matters such as the tenure and
tenancy details for the properties, ground conditions at the
properties, the structural condition of the properties, prevailing
market yields and comparable market transactions. Further
information is provided in note 16.
The Group's properties have been independently valued by Savills
(UK) Limited ("Savills" or the "Valuer") in accordance with the
definitions published by the Royal Institute of Chartered
Surveyors' ("RICS") Valuation - Professional Standards, July 2017,
Global and UK Editions (commonly known as the "Red Book"). Savills
is one of the most recognised professional firms within residential
and social housing property valuation, has sufficient current local
and national knowledge and has the skills and understanding to
undertake the valuations competently.
If the assumptions upon which the external valuer has based its
valuations prove to be inaccurate, this may have an impact on the
value of the Group's investment properties, which could in turn
have an effect on the Group's financial position and results.
Further information is provided in note 16.
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.
Level 3 - Inputs not based on observable market data (that is,
unobservable inputs).
The Group's investment properties are included in Level 3 as the
inputs to the valuation are not based on observable market
data.
Shared Ownership Properties
First Tranche Sales
The Group estimates the proportion of Shared Ownership
properties that will be sold as First Tranche sales and therefore
classified as inventory rather than investment property. The
assumptions on which the proportion has been based include, but are
not limited to, matters such as the affordability of the shared
ownership properties, local demand for shared ownership properties,
and general experience of First Tranche shared ownership sales in
the social housing sector. The first tranche sales percentage used
is consistent with values used by the valuers. As at 30 September
2019 the average first tranche sales percentage assumed for vacant
shared ownership properties is 25%. If there is a change in
percentage used, this will affect the proportion of inventory and
investment property recognised with a higher assumed first tranche
sale percentage resulting in a higher inventory value and lower
investment property value.
5. Operating segments
IFRS 8, Operating Segments, requires operating segments to be
identified on the basis of internal financial reports about
components of the Group that are regularly reviewed by the chief
operating decision maker (which in the Group's case is the Board of
Directors) in order to allocate resources to the segments and to
assess their performance.
The Group's reporting to the chief operating decision maker does
not differentiate by property type or location as the Group is
considered to be operating in a single segment of business and in
one geographical area.
No customers have revenue that is greater than 10% of the total
Group revenue.
The internal financial reports received by the Board of
Directors contain financial information at a Group level and there
are no reconciling items between the results contained in these
reports and the amounts reported in the Financial Statements.
6. Income less cost of sales
12 July
2017
Year ended to 30
30 Sept Sept
2019 2018
First
Net property tranche
income sales Total Total
GBP'000 GBP'000 GBP'000 GBP'000
Gross Rental income 19,621 - 19,621 10,418
First tranche property
sales - 2,000 2,000 -
-------------- ---------- ------------ ---------
Total income 19,621 2,000 21,621 10,418
-------------- ---------- ------------ ---------
Service charge expenses (4,253) - (4,253) (2,575)
Property operating expenses (3,249) - (3,249) (2,127)
Impairment of receivables (2) - (2) (17)
First tranche cost of
sales - (2,058) (2,058) -
----------
Total cost of sales (7,504) (2,058) (9,562) (4,719)
-------------- ---------- ------------ ---------
Gross profit/(loss)
before ground rents 12,117 (58) 12,059 5,699
Ground rents disclosed as finance
lease interest (883) - (883) (432)
-------------- ---------- ------------ ---------
Gross profit/(loss)
after ground rents disclosed
as finance lease asset 11,234 (58) 11,176 5,267
-------------- ---------- ------------ ---------
The gross profit/(loss) after ground rents disclosed as finance
lease interest is presented to provide what the Board believes is a
more appropriate assessment of the Group's net property income.
Ground rent costs are an inherent cost of holding certain leasehold
properties and are taken into consideration by Savills when valuing
the Group's properties.
7. Fund management fee
Year 12 July
ended 2017 to
30 Sept 30 Sept
2019 2018
GBP'000 GBP'000
Cash portion 1,382 1,620
Equity 461 540
1,843 2,160
---------- ----------
ReSI Capital Management Limited acts as Alternative Investment
Fund Manager (the "Fund Manager"), in compliance with the
provisions of the AIFMD, pursuant to the Fund Management
Agreement.
The Fund Manager is entitled to an annual management fee (the
"Fund Manager Fee") under the Fund Management Agreement with effect
from the date of Admission, as follows:
a) On that part of the Net Asset Value up to and including
GBP250 million, an amount equal to 1% p.a. of such part of the Net
Asset Value;
b) on that part of the Net Asset Value over GBP250m and
including GBP500m, an amount equal to 0.9% p.a. of such part of the
Net Asset Value;
c) on that part of the Net Asset Value over GBP500m and up to
and including GBP1,000m, an amount equal to 0.8% p.a. of such part
of the Net Asset Value;
d) on that part of the Net Asset Value over GBP1,000m, an amount
equal to 0.7% p.a. of such part of the Net Asset Value.
The Fund Management Fee is paid quarterly in advance. 75% of the
total Fund Management Fee is payable in cash and 25% of the total
Fund Management Fee (net of any applicable tax) is payable in the
form of Ordinary Shares rather than cash.
8. General and administrative expenses
12 July
Year ended 2017 to
30 Sept 30 Sept
2019 2018
GBP'000 GBP'000
Professional fees 640 679
Directors' fees and
expenses (Note 9) 222 262
Fees paid to the Company's
auditor (Note 10) 158 217
Other expenses 10 32
1,030 1,190
------------ ----------
Total expenses ratio
Management fee 1,843 2,160
General and administrative expenses 1,030 1,190
Adjusted earnings 2,873 3,350
------------ ----------
Net Asset Valuation 185,714 183,599
------------ ----------
Annualised total expenses
ratio 1.5% 1.8%
------------ ----------
9. Directors' fees and expenses
12 July
Year ended 2017 to
30 Sept 30 Sept
2019 2018
GBP'000 GBP'000
Fees 155 187
Taxes 14 19
Expenses 1 9
170 215
------------ ----------
Fees paid to directors
of subsidiaries 52 47
222 262
------------ ----------
The Group had no employees during the year (2018: Nil) other
than the Directors and Directors of subsidiaries.
The Chairman is entitled to receive a fee linked to the Net
Asset Value of the Group as follows:
Each of the Directors, save the Chairman, is entitled to receive
a fee linked to the Net Asset Value of the Group as follows:
None of the Directors received any advances or credits from any
Group entity during the year (2018: Nil).
10. Fees paid to the Company's auditor
12 July
Year ended 2017 to
30 Sept 30 Sept
2019 2018
GBP'000 GBP'000
Audit fees
Parent and consolidated
financial statements 42 34
Audit of subsidiary
undertakings 80 98
----------
Total audit fees 122 132
------------ ----------
Audit related services
Review of interim
report 36 25
Non-audit services
Reporting accountant
services - 60
Total audit related and non-audit
services 36 85
------------ ----------
Total fees 158 217
------------ ----------
11. Change in fair value
12 July
Year ended 2017 to
30 Sept 30 Sept
2019 2018
GBP'000 GBP'000
Gain on fair value adjustment of
investment properties 8,656 14,825
------------ ----------
8,656 14,825
------------ ----------
12. Net finance costs
12 July
2017
Year ended to 30
30 Sept Sept
2019 2018
GBP'000 GBP'000
Finance income
Interest income 98 237
------------ ---------
98 237
------------ ---------
Finance expense
Interest payable on
borrowings (3,394) (471)
Other interest (3) -
Amortisation of loan
costs (164) (14)
Loss on cash flow
hedge - (383)
Finance lease interest (883) (432)
(4,444) (1,300)
------------ ---------
Movement in fair value of derivative
contracts
Interest rate swaps (89) -
------------ ---------
Net finance costs (4,435) (1,063)
------------ ---------
The Group's interest income during the year relates to cash
invested in a money market fund, which is invested in short-term
AAA rated Sterling instruments.
Ground rents paid in respect of leasehold properties have been
recognised as a finance cost in accordance with IAS 17
"Leases".
Movement in fair value of derivative contracts arises from
interest rate swaps entered into in February 2019 to partially fix
the GBP14m of debt secured on the Local Authority portfolio.
13. Taxation
12 July
Year ended 2017 to
30 Sept 30 Sept
2019 2018
GBP'000 GBP'000
Current tax - -
Deferred tax - -
- -
------------ ----------
The tax charge for the period varies from the standard rate of
corporation tax in the UK applied to the profit before tax. The
differences are explained below:
12 July
Year ended 2017 to
30 Sept 30 Sept
2019 2018
GBP'000 GBP'000
Profit before tax 13,236 16,111
------------ ----------
Tax at the UK corporation tax rate
of 19% (2018: 19%) 2,532 3,061
Tax effect of:
UK tax not payable due
to REIT exemption (1,008) (778)
Investment property revaluation
not taxable (1,645) (2,817)
Expenses that are not deductible
in taxable profit 121 534
Tax charge for the
period - -
------------ ----------
As a UK REIT the Group is exempt from corporation tax on the
profits and gains from its property rental business provided it
meets certain conditions set out in the UK REIT regulations.
The Government has announced that the corporation tax standard
rate is to be reduced from 19% to 17% with effective date from 1
April 2020.
14. Earnings per share
Basic earnings per share ('EPS') is calculated as profit
attributable to Ordinary Shareholders of the Company divided by the
weighted average number of shares in issue throughout the relevant
period.
12 July
Year ended 2017 to
30 Sept 30 Sept
2019 2018
GBP'000 GBP'000
Profit attributable
to Ordinary shareholders 13,236 16,111
Deduction of fair value movement on investment
properties and interest rate swap unwinding
cost (8,567) (14,442)
Deduction of first tranche
sales & cost of sales 58 -
Deduction of aborted acquisition costs 227 -
Deduction of profit on disposal
of investment properties (56) -
Adjusted earnings 4,898 1,669
------------- -------------
Weighted average number
of ordinary shares 171,320,263 178,542,456
------------- -------------
Basic earnings per
share (pence)
- 2019 (pence) 7.7
- 2018 (pence 9.0
Adjusted earnings
per share (pence)
- 2019 (pence) 2.9
- 2018 (pence) 0.9
The adjusted earnings are presented to provide what the Board
believes is a more appropriate assessment of the operational income
accruing to the Group's activities. Hence, the Group adjusts basic
earnings for income and costs which are not of a recurrent nature
or
which may be more of a capital nature.
15. Inventories - properties available for sale
2019 2018
GBP'000 GBP'000
Shared Ownership properties 2,633 -
2,633 -
--------- ---------
16. Investment properties
2019 2018
GBP'000 GBP'000
At beginning of period 252,875 -
Property acquisitions
at cost 27,941 210,335
Grant receivable (952) -
Capital expenditure 595 -
Property disposals (770) -
Finance lease asset
movement 1,817 27,715
Change in fair value
during the period 8,656 14,825
At end of period 290,162 252,875
--------- ---------
Valuation provided
by Savills 260,630 225,160
Adjustment to fair value
- finance lease asset 29,532 27,715
Total investment properties 290,162 252,875
--------- ---------
The table below shows the total value of the Group's investment
properties including committed properties with purchase contracts
exchanged. Consistent with the valuation provided by Savills, the
adjustment to fair value in respect of finance lease assets for
ground rents receivable has been excluded to show the value of the
asset net of all payments to be made (including ground rent
payments). Committed properties with purchase contracts exchanged
have been included to provide an indication of the value of all
properties to which the Group is contractually committed.
2019 2018
GBP'000 GBP'000
Total investment properties 290,162 252,875
Adjustment to fair value
- finance lease asset (29,532) (27,715)
Committed properties
with purchase contracts
exchanged 60,600 -
Total investment properties
including committed
properties with purchased
contracts exchanged 321,230 225,160
---------- ----------
The investment properties are divided into:
2019 2018
GBP'000 GBP'000
Leasehold properties 218,215 182,628
Freehold properties
* 42,415 42,532
Finance lease asset 29,532 27,715
Total investment properties 290,162 252,875
--------- ---------
*Includes Feuhold properties, the Scottish equivalent of
Freehold.
The historical cost of investment properties at 30 September
2019 was GBP237,090,923 (2018: GBP210,354,683).
In accordance with "IAS 40: Investment Property", the Group's
investment properties have been independently valued at fair value
by Savills (UK) Limited ("Savills"), an accredited external valuer
with recognised and relevant professional qualifications.
The carrying values of investment property as at 30 September
2019 agree to the valuations reported by external valuers, except
that the valuations have been increased by the amount of finance
lease liabilities recognised in respect of investment properties
held under leases of GBP29,532,243 (GBP27,715,195 at 30 September
2018), representing the present value of ground rents payable for
the properties held by the Group under leasehold - further
information is provided in note 30. This is because the independent
valuations are shown net of all payments expected to be made.
However, for financial reporting purposes in accordance with IAS
40, "Investment Property", the carrying value of the investment
properties includes the present value of the minimum lease payments
in relation to these finance leases. The related finance lease
liabilities are presented separately on the Statement of Financial
Position.
The Group's investment objective is to provide shareholders with
an attractive level of income, together with the potential for
capital growth, from acquiring portfolios of homes across
residential asset classes that comprise the stock of statutory
registered providers.
The Group intends to hold its investment property portfolio over
the long term, taking advantage of upward-only inflation linked
leases. The Group will not be actively seeking to dispose of any of
its assets, although it may dispose of investments should an
opportunity arise that would enhance the value of the Group as a
whole.
The Group has pledged certain of its investment properties to
secure loan facilities granted to the Group (see note 21).
In accordance with IFRS 13, the Group's investment property has
been assigned a valuation level in the fair value hierarchy. The
fair value hierarchy gives the highest priority to quoted prices in
active markets for identical assets (Level 1) and the lowest
priority to unobservable inputs (Level 3). The Group's investment
property as at 30 September 2019 is categorised as Level 3.
ReSI's Shared Ownership properties are valued by Savills using a
discounted cashflow methodology applying a discount rate to
estimated future cashflows. The discount rate applied, house price
growth and staircasing rates are considered to be unobservable
inputs.
Everything else being equal, there is a negative relationship
between the discount rate and the property valuation, such that an
increase in the discount rate will decrease the valuation of a
property and vice versa. Conversely there is a positive
relationship between future house price growth and the property
valuation, such that an increase in future house price growth will
increase the valuation of a property and vice versa. The
relationship between future staircasing rates and property
valuation may be either positive or negative depending on the
discount rate and house price growth assumptions used for a given
property. If a zero rate of staircasing is assumed this would
result in an increase in the valuation of ReSI's Shared Ownership
properties as Savills apply a higher discount rate to staircasing
cashflows as compared to rental cashflows. Equally, if it assumed
that a property staircases immediately this would also result in
increase in the valuation of ReSI's Shared Ownership properties as
these properties are valued at a discount to their Open Market
Value (the price at which Shared Owners staircase). The valuation
movement is not materially sensitive to changes in each of these
inputs.
ReSI's other investment properties are valued by Savills using a
capitalisation methodology applying a yield to current and
estimated rental income subject to certain adjustments for
estimated vacant possession value and head lease length. Yields and
rental values are considered to be unobservable inputs.
Everything else being equal, there is a positive relationship
between rental values and the property valuation, such that an
increase in rental values will increase the valuation of a property
and vice versa. However, the relationship between capitalisation
yields and the property valuation is negative; therefore an
increase in capitalisation yields will reduce the valuation of a
property and vice versa. There are interrelationships between these
inputs as they are determined by market conditions, and the
valuation movement in any one period depends on the balance between
them. If these inputs move in opposite directions (i.e. rental
values increase and yields decrease) valuation movements can be
amplified, whereas if they move in the same direction they may be
offset, reducing the overall net valuation movement. The valuation
movement is materially sensitive to changes in yields and rental
values however it is impractical to quantify these changes as the
valuation is unique to each property and the outcome is dependent
in interdependent factors including yields, recent market
transactions, head lease length and other relevant information.
17. Trade and other receivables
2019 2018
GBP'000 GBP'000
Rent receivable 283 86
Prepayments 2,321 1,821
Other debtors 48 840
2,652 2,747
--------- ---------
The Group applies the IFRS 9 simplified approach to measuring
expected credit losses using a 12 month expected loss provision for
rent receivables. To measure expected credit losses on a collective
basis, rent receivables are grouped based on similar credit risk
and ageing.
The expected loss rates are based on the Group's historical
credit losses experienced since inception to the period end. The
historical loss rates are then adjusted for current and
forward-looking information on macroeconomic factors affecting the
Group's customers. Both the expected credit loss provision and the
incurred loss provision in the current and prior years are
immaterial. No reasonably possible changes in the assumptions
underpinning the expected credit loss provision would give rise to
a material expected credit loss.
There is no significant difference between the fair value and
carrying value of trade and other receivables at the Statement of
Financial Position date.
18. Deposits paid for acquisitions
2019 2018
GBP'000 GBP'000
Deposit paid for acquisitions 6,334 -
6,334 -
--------- ---------
The deposit relates to the Clapham Park development in which
ReSI exchanged contracts to acquire 132 new build apartments, in
the London Borough of Lambeth, for a total acquisition cost of
GBP60 million. The apartments are being purchased from Metropolitan
Thames Valley Housing, one of the UK's largest Housing
Associations, who will retain management of the apartments. ReSI
expects to complete on the acquisition in Q1 2020.
19. Cash and cash equivalents
2019 2018
GBP'000 GBP'000
Cash at bank 25,030 10,685
Cash held as investment
deposit 2 1
25,032 10,686
Restricted cash 1,173 1,110
26,205 11,796
--------- ---------
Included within cash at the period end was an amount totalling
GBP1,172,990 (2018: GBP1,110,033) held by the managing agent of the
RHP Portfolio in respect of tenancy rental deposits. The cash was
placed in a separate bank account to which the Group has restricted
access. Other funds were held by the management agent in an
operating account to pay service charges in respect of the RHP
Portfolio due on 1 October 2019.
Cash held as investment deposit relates to cash invested in a
money market fund, which is invested in short-term AAA rated
Sterling Investments. As the fund has a short maturity period, the
investment has a high liquidity. The fund has GBP26.8 billion AUM,
hence the Group's investment deposit represents an immaterial
proportion of the fund.
20. Trade and other payables
2019 2018
GBP'000 GBP'000
Trade payables 1,475 1,489
Accruals 1,109 1,277
VAT payable 3 3
Corporation tax payable - 185
Deferred income 699 454
Deferred consideration - 26
Other creditors 1,173 1,110
4,459 4,544
--------- ---------
Trade payables and accruals principally comprise amounts
outstanding for trade purchases and ongoing costs. For most
suppliers interest is charged if payment is not made within the
required terms. Thereafter, interest is chargeable on the
outstanding balances at various rates. The Company has financial
risk management policies in place to ensure that all payables are
paid within the agreed credit timescale.
There is no significant difference between the fair value and
carrying value of trade and other payables at the Statement of
Financial Position date.
Corporation tax payables relate to liabilities in respect of
pre-acquisition accounting periods of entities acquired in the
course of an acquisition accounted for as an asset acquisition.
21. Borrowings
2019 2018
GBP'000 GBP'000
Loans 110,868 52,922
Unamortised borrowing
costs (2,676) (1,362)
108,192 51,560
--------- ---------
Current liability 373 257
Non-current liability 107,819 51,303
108,192 51,560
--------- ---------
The loans are repayable
as follows:
Within one year 373 257
Between one and two
years 388 265
Between three and
five years 15,831 844
Over five years * 91,600 50,194
108,192 51,560
--------- ---------
*GBP77.6m of this is due at the maturity date of the loan in
2043.
Movements in borrowings are analysed as follows:
2019 2018
GBP'000 GBP'000
At beginning of period 51,560 -
Drawdown of facility 58,450 53,000
Loan costs (1,478) (1,376)
Amortisation of loan
costs 164 14
Repayment of borrowings (504) (78)
--------- ---------
At end of period 108,192 51,560
--------- ---------
The table below lists the Group's borrowings:
Original Outstanding Maturity Annual interest
Lender facility debt date rate
GBP'000 GBP'000 %
Scottish Widows Ltd 53,000 52,610 Jun-43 3.4507 Fixed
Scottish Widows Ltd 40,000 39,820 Jun-43 3.4877 Fixed
Scottish Widows Ltd 4,000 3,988 Jun-43 3.2872 Fixed
National Westminster 1.50 over 3 month
Bank Plc 14,450 14,450 Feb-22 GBP LIBOR
111,450 110,868
----------- -------------
The Scottish Widows facility is secured by a first charge over
retirement properties with a fair value of GBP213.86m.
The NatWest facility is secured by a first charge over Local
Authority Housing properties with a fair value of GBP34.9m.
The fair value of borrowings held at amortised cost at 30
September 2019 was GBP124.9m (2018: GBP52.6m).
22. Derivative financial instruments
2019 2018
GBP'000 GBP'000
Interest rate swap
derivative contracts 89 -
--------- ---------
The derivative contracts arise from interest rate swaps entered
into in February 2019 to partially fix the GBP14.5m of debt secured
on the Local Authority portfolio.
The notional principal amount of the interest rate swaps is
GBP9,537,000 and the expiry date is 20 August 2021.
The contract rate the Group are paying for its interest rate
swaps is 1.0580%.
The valuations of all derivatives held by the Group are
classified as Level 2 in the IFRS 13 fair value hierarchy as they
are based on observable inputs. There have been no transfers
between levels of the fair value hierarchy during the year.
23. Share capital account
Number
of Ordinary
1 p GBP'000
shares
At 30 September 2018 and 30 September
2019 180,324,377 1,803
-------------- ---------
The share capital account relates to amounts subscribed for
share capital.
The Company has issued, at market value, nil (2018: 324,277) new
Ordinary shares of 1p each to the Fund Manager.
Rights, preferences and restrictions on shares
All Ordinary Shares carry equal rights, and no privileges are
attached to any shares in the Company. All the shares are freely
transferable, except as otherwise provided by law. The holders of
Ordinary Shares are entitled to receive dividends as declared from
time to time and are entitled to one vote per share at meetings of
the Company. All shares rank equally with regard to the Company's
residual assets.
Treasury shares do not hold any voting rights.
24. Share premium account
GBP'000
At 30 September 2018 and 30 September
2019 108
---------
The share premium account relates to amounts subscribed for
share capital in excess of nominal value.
25. Own shares reserve
GBP'000
At 30 September 2018 (5,199)
Purchase of own shares (3,884)
Transferred as part of
Fund Management fee 461
At 30 September 2019 (8,622)
---------
The own shares reserve relates to the value of shares purchased
by the Company in excess of nominal value.
During the year ended 30 September 2019, the Company purchased
4,156,873 of its own 1p ordinary shares at a total gross cost of
GBP3,904,714 (GBP3,884,837 cost of shares and GBP19,877 associated
costs).
During the year, 503,814 1p Ordinary Shares were transferred
from the own shares reserve to the Fund Manager, in lieu of the
management fee in accordance with the Fund Management
Agreement.
As at 30 September 2019, 9,304,729 (2018: 5,651,670) 1p Ordinary
Shares are held by the Company.
26. Retained earnings
GBP'000
At 30 September 2018 186,887
Profit for the period 13,236
Share based payment
charge 461
Issue of management
shares (461)
Dividends (7,698)
At 30 September 2019 192,425
---------
Retained earnings incorporate all gains and losses and
transactions with shareholders (e.g. dividends) not recognised
elsewhere.
27. Group entities
The Group entities which are owned either directly by the
Company or indirectly through a subsidiary undertaking are:
Principal
Percentage Country place
Name of entity of ownership of incorporation of business Principal activity
RHP Holdings Limited 100% UK UK Holding company
The Retirement Housing
Limited Partnership 100% UK UK Property investment
ReSi Retirement Rentals
Limited 100% UK UK Property investment
Social housing Registered
ReSi Housing Limited 100% UK UK Provider
Wesley House (Freehold)
Limited 100% UK UK Property investment
Eaton Green (Freehold)
Limited 100% UK UK Property investment
Name of entity Registered address
RHP Holdings Limited 21-26 Garlick Hill, London, EC4V 2AU
The Retirement Housing Glanville House, Frobisher Way, Taunton,
Limited Partnership Somerset, TA2 6BB
ReSi Retirement Rentals 21-26 Garlick Hill, London,
Limited EC4V 2AU
21-26 Garlick Hill, London,
ReSi Housing Limited EC4V 2AU
Wesley House (Freehold) 21-26 Garlick Hill, London,
Limited EC4V 2AU
Eaton Green (Freehold) 21-26 Garlick Hill, London,
Limited EC4V 2AU
All group entities are UK tax resident.
The Company's subsidiaries Gaynes Hill Holdings Limited and
Rayleigh Park Limited were dissolved on 5 April 2019.
28. Notes to the cash flow statement
The liabilities arising from financing activities are reconciled
below:
Borrowings
Borrowings due in Fair value
due within more than of interest Lease
one year one year rate swaps liabilities
(note (note (note (note
21) 21) 12) 30) Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 October 2018 257 51,303 - 27,715 79,275
Cash flows
Borrowings advanced 783 57,668 - - 58,451
Borrowings repaid (504) - - - (504)
Loan arrangement fees
paid (163) (1,316) - - (1,479)
Ground rent paid - - - (883) (883)
Non-cash flows
Amortisation of loan
arrangement fees - 164 - - 164
Change in fair value
of interest rate swaps (89) (89)
Recognition of headlease
liabilities acquired - - - 2,700 2,700
At 30 September 2019 373 107,819 (89) 29,532 137,635
------------- ------------ -------------- -------------- ---------
29. Dividends
2019 2018
GBP'000 GBP'000
Amounts recognised as distributions to shareholders
in the period:
1st interim dividend for the period ended
30 September 2018 of 0.75p per share - 1,352
2nd interim dividend for the period ended 30 September
2018 of 0.75p per share - 1,329
3rd interim dividend for the period ended
30 September 2018 of 0.75p per share - 1,322
4th interim dividend for the year ended 30 September 1,284 -
2018 of 0.75p per share
1st interim dividend for the year ended 30 September 2,138 -
2019 of 1.25p per share
2nd interim dividend for the year ended 30 September 2,138 -
2019 of 1.25p per share
3rd interim dividend for the year ended 30 September 2,138 -
2019 of 1.25p per share
7,698 4,003
--------- ---------
Amounts not recognised as distributions to shareholders
in the period:
4th interim dividend for the year ended
30 September 2018 of 0.75p per share - 1,283
4th interim dividend for the year ended
30 September 2019 of 1.25p per share 2,138 -
Categorisation of dividends for
UK tax purposes:
Amounts recognised as distributions to shareholders
in the period:
Property Income Distribution
(PID) 4,810 661
Non-PID 2,888 3,342
7,698 4,003
--------- ---------
On 15 November 2018, the Company declared a fourth interim
dividend of 0.75 pence per share for the period 1 July 2018 to 30
September 2018.
On 30 January 2019, the Company declared its first interim
dividend of 1.25 pence per share for the period 1 October 2018 to
31 December 2018.
On 29 April 2019, the Company declared its second interim
dividend of 1.25 pence per share for the period 1 January 2019 to
31 March 2019.
On 1 August 2019, the Company declared its third interim
dividend of 1.25 pence per share for the period 1 April 2019 to 30
June 2019.
On 21 November 2019, the Company announced the declaration of a
fourth interim dividend of 1.25 pence per share for the period 1
July 2019 to 30 September 2019 which will be payable on 10 January
2020 to Shareholders on the register at the close of business on 12
December 2019.
The Company intends to continue to pay dividends to shareholders
on a quarterly basis in accordance with the REIT regime.
Dividends are not payable in respect of Treasury shares
held.
30. Lease arrangements
The Group as lessee
At 30 September 2019, the Group had outstanding commitments for
future minimum lease payments under non-cancellable finance leases,
which fall due as follows:
As at 30 September 2019 Less Two to
than five More than
one year years five years Total
GBP'000 GBP'000 GBP'000 GBP'000
Minimum lease payments 934 3,736 123,432 128,102
Interest - (273) (98,297) (98,570)
Present value at 30
September 2019 934 3,463 25,135 29,532
----------- --------- ------------- ----------
As at 30 September 2018 Less Two to
than five More than
one year years five years Total
GBP'000 GBP'000 GBP'000 GBP'000
Minimum lease payments 886 3,542 110,757 115,185
Interest - (258) (87,212) (87,470)
Present value at 30
September 2018 886 3,284 23,545 27,715
----------- --------- ------------- ----------
The above commitment is in respect of ground rents payable for
properties held by the Group under leasehold. There are 2,189
properties (2018: 1,979 properties) held under leasehold with an
average unexpired lease term of 130 years (2018:126 years).
The majority of restrictions imposed are the covenants in place
limiting tenancies to people of retirement age.
The Group as lessor
The Group leases some of its investment properties under
operating leases. At the balance sheet date, the Group had
contracts with tenants for the following future aggregate minimum
rentals receivable under non-cancellable operating leases:
2019 2018
GBP'000 GBP'000
Within one year 4,039 3,584
Between one and five
years 8,252 7,604
More than five years 17,404 5,485
29,695 16,673
--------- ---------
The total of contingent rents recognised as income during the
period was GBPnil (2018: GBPnil).
The majority of leases are assured tenancy or assured shorthold
tenancy agreements. The table above shows the minimum lease
payments receivable under the assumption that all tenants terminate
their leases at the earliest opportunity. However, assured
tenancies are long-term agreements providing lifetime security of
tenure to residents.
The leases in the licensed retirement homes portfolio are
indefinite and would only be terminated in the event that the
leaseholders of the relevant retirement development vote to no
longer have a resident house manager living at their
development.
The Group's Shared Ownership properties are let to Shared Owners
on leases with an initial 130 year lease term.
Two of the Group's properties are let out on more traditional
leases which account for approximately 10% of total rental
income.
The table below shows our expected lease receivables, excluding
future rent reviews, from existing leases based on historical
turnover rates consistent with our assumptions for valuing the
properties:
2019 2018
GBP'000 GBP'000
Within one year 19,893 16,851
Between one and five
years 52,606 44,680
More than five years 65,090 44,532
137,589 106,063
--------- ---------
31. Net asset value per share
The net asset value ('NAV') per share is calculated as the net
assets of the Group attributable to shareholders divided by the
number of Ordinary Shares in issue at the year end.
2019 2018
GBP'000 GBP'000
Net assets 185,714 183,599
Ordinary shares in issue at period end (excluding
shares held in treasury) 171,019,648 174,672,707
------------- -------------
Basic NAV per share
(pence) 108.6 105.1
------------- -------------
32. Contingent liabilities and commitments
Commitments
On 30 March 2019, ReSI exchanged contracts to acquire 132 new
build apartments, located at Clapham Park, in the London Borough of
Lambeth, for a total acquisition cost of GBP60 million. The
apartments are being purchased from Metropolitan Thames Valley
Housing, one of the UK's largest Housing Associations, who will
retain management of the apartments.
Contingent Liabilities
ReSI has received government grant funding of GBP0.95 million
from the Greater London Authority (GLA) to support the delivery of
Shared Ownership homes at Totteridge Place. In some circumstances,
typically when a Shared Owner staircases, ReSI will be required to
recycle the grant into the purchase of new properties within three
years or to repay it to the GLA.
33. Related party disclosure
As defined by IAS 24 Related Party Disclosures, parties are
considered to be related if one party has the ability to control
the other party or exercise significant influence over the other
party in making financial or operational decisions.
For the year ended 30 September 2019, the Directors of the Group
are considered to be the key management personnel. Details of
amounts paid to Directors for their services can be found within
note 9, Directors' fees and expenses.
ReSI Capital Management Limited acts as alternative investment
fund manager (the "Fund Manager"), in compliance with the
provisions of the AIFMD, pursuant to the Fund Management Agreement.
The Fund Manager has responsibility for the day-to-day management
of the Company's assets in accordance with the Investment policy
subject to the control and directions of the Board.
The Fund Management agreement is terminable on not less than 12
months' notice, such notice not to expire earlier than 12 July 2022
(the fifth anniversary of admission to the Official List of the
UKLA and traded on the London Stock Exchange main market).
Details regarding the Fund Manger's entitlement to a management
fee are shown in note 7.
For the year ended 30 September 2019, the Company incurred
GBP1,842,505 (period ended 30 September 2018: GBP2,159,911) in
respect of fund management fees and no amount was outstanding as at
30 September 2019 (2018: GBPnil). The above fee was split between
cash and equity as per the Fund Management Agreement with the cash
equating to GBP1,381,880 (2018: GBP1,619,838) and the equity fee of
GBP460,625 (2018: GBP540,074) being paid as 503,814 (2018: 567,858)
Ordinary Shares at an average price of GBP0.92 per share (2018:
GBP0.95 per share).
In addition, the Fund Manager was paid a fee, pursuant to the
Fund Management Agreement, of GBP263,024 (2018: GBP320,447) in
respect of its arrangement of borrowings for the Group.
During the period the Directors and the Fund Manager received
dividends from the Company of GBP3,825 (2018: GBP2,063) and
GBP8,437 (2018: GBP10,054) respectively.
34. Post balance sheet events
There are no post balance sheet events.
35. Financial instruments
The table below sets out the categorisation of the financial
instruments held by the Group as at 30 September 2019. Borrowings
held at amortised cost have a fair value of GBP124.9m. The carrying
amount of other financial instruments approximates to their fair
value.
2019 2018
GBP'000 GBP'000
Financial assets
Loans and receivables
Trade and other receivables 331 926
Cash and cash deposits 26,205 11,796
26,536 12,722
--------- ---------
Financial liabilities
At amortised cost
Obligations under
finance leases 29,532 27,715
Borrowings 108,192 51,560
Trade and other payables 3,757 4,356
141,481 83,631
--------- ---------
At fair value through
profit or loss
Interest rate swap
derivative contracts 89 -
--------- ---------
141,570 83,631
--------- ---------
The Group's activities expose it to a variety of financial
risks: market risk, interest rate and inflation risk, credit risk,
liquidity risk and capital risk management.
The Group's risk management policies are established to identify
and analyse the risks faced by the Group, to set appropriate limits
and controls, and to monitor risks and adherence to limits. When
considered appropriate the Group uses derivative financial
instruments to hedge certain risk exposures.
Risk management policies and systems are reviewed regularly by
the Board and Fund Manager to reflect changes in the market
conditions and the Group's activities.
The exposure to each financial risk considered potentially
material to the Group, how it arises and the policy for managing
the risk is summarised below:
a) Market risk
Market risk is the risk that changes in market prices will
affect the Group's income or the value of its holding of financial
instruments.
The Company's activities will expose it to the market risks
associated with changes in property and rental values.
Risk relating to investment in property
Investment in property is subject to varying degrees of risk.
Some factors that affect the value of the investment in property
include:
-- changes in the general economic climate;
-- changes in the general social environment;
-- competition from available properties;
-- obsolescence; and
-- Government regulations, including planning, environmental and tax laws.
Variations in the above factors can affect the valuation of
assets held by the Company and the rental values it can achieve,
and as a result can influence the financial performance of the
Company.
The Group mitigates these risks by entering into long term
management or rental/letting agreements to ensure any fall in the
property market should not result in significant impairment to
rental cashflows. In addition, the Group focuses on areas of the
market with limited and ideally countercyclical exposure to the
wider property market.
As the Group operates only in the United Kingdom it is not
exposed to currency risk.
b) Interest rate and inflation risks
Interest rate risk is the risk that the fair value or future
cash flows of a financial instrument will fluctuate because of
changes in market interest rates.
The interest rate exposure profile of the Group's financial
assets and liabilities as at 30 September 2019 and 30 September
2018 were:
Nil rate
assets Floating Fixed Floating
and liabilities rate assets rate liability rate liability Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
2019
Trade and other
receivables 331 - - - 331
Cash and cash
equivalents - 26,205 - - 26,205
Trade and other
payables (3,757) - - - (3,757)
Interest rate swap
derivative
contracts - - (89) - (89)
Bank borrowings - - (94,018) (14,175) (108,193)
Obligations under
finance
leases - - (29,532) - (29,532)
(3,426) 26,205 (123,639) (14,175) (115,035)
------------------ -------------- ----------------- ----------------- -----------
2018
Trade and other
receivables 926 - - - 926
Cash and cash
equivalents - 11,796 - - 11,796
Trade and other
payables (4,356) - - - (4,356)
Interest rate swap - - - - -
derivative
contracts
Bank borrowings - - (51,560) - (51,560)
Obligations under
finance
leases - - (27,715) - (27,715)
(3,430) 11,796 (79,275) - (70,909)
------------------ -------------- ----------------- ----------------- -----------
The Group has primarily financed its activities with fixed rate
debt, which reduces the Group's exposure to changes in market
interest rates. If market interest rates increased by 1% the
Group's finance costs for existing debt facilities would increase
by GBP49,130. Conversely, if market interest rates decreased by 1%
the Group's finance costs for existing debt facilities would
decrease by GBP49,130.
The Group intends to finance its activities with fixed, floating
rate or inflation-linked debt. Changes in the general level of
interest rates and inflation can affect the Group's profitability
by affecting the spread between, amongst other things, the income
on its assets and the expense of its interest-bearing liabilities,
the value of its interest-earning assets and its ability to realise
gains from the sale of assets should this be desirable.
The Fund Manager intends to match debt cash flows to those of
the underlying assets and therefore does not expect to utilise
derivatives. However, to the extent this is not possible, the Group
may utilise derivatives for full or partial inflation or interest
rate hedging or otherwise seek to mitigate the risk of inflation or
interest rate movements. The Group will closely manage any
derivatives, in particular with regard to liquidity and
counterparty risks. The Group will only use derivatives for risk
management and not for speculative purposes.
c) Credit risk
Credit risk is the risk of financial loss to the Group if a
counterparty fails to meet its contractual obligations and arises
principally from the Group's tenants (in respect of trade
receivables arising under operating leases), banks and money market
funds (as holders of the Group's cash deposits).
Exposure to credit risk
2019 2018
GBP'000 GBP'000
Trade and other receivables 331 926
Cash and cash equivalents 26,205 11,796
26,536 12,722
--------- ---------
The Group engages third parties to provide day-to-day management
of its properties including letting and collection of underlying
rent from residents or shared owners. The Group mitigates void risk
by acquiring residential asset classes with a demonstrable strong
demand or the tenants are part owners of the properties (as
exhibited by retirement, sub-market rental assets or shared
ownership properties).
The credit risk of cash and cash equivalents is limited due to
cash being held at banks or money market funds considered credit
worthy by the Group's fund manager, with high credit ratings
assigned by international credit rating agencies.
Note 30 details the Group's exposure as a lessor in respect of
future minimum rentals receivable.
d) Liquidity risk
Liquidity risk is the risk that the Group will encounter
difficulty in meeting the obligations associated with its financial
liabilities that are settled by delivering cash or another
financial asset.
The Group manages its liquidity and funding risks by considering
cash flow forecasts and ensuring sufficient cash balances are held
within the Group to meet future needs. Prudent liquidity risk
management implies maintaining sufficient cash and marketable
securities, the availability of financing through appropriate and
adequate credit lines, and the ability of customers to settle
obligations within normal terms of credit. The Company ensures,
through forecasting of capital requirements, that adequate cash is
available.
The following table details the Group's remaining contractual
maturity for its financial liabilities. The tables have been drawn
up based on the undiscounted cash flows of financial liabilities,
including future interest payments, based on the earliest date on
which the Group can be required to pay,
Less than Two to More than
one year five years five years Total
GBP'000 GBP'000 GBP'000 GBP'000
2019
Borrowings 373 16,219 91,600 108,192
Interest on borrowings 3,691 13,453 55,964 73,108
Obligations under finance
leases 934 3,736 123,432 128,102
Payables and accruals 4,459 - - 4,459
9,457 33,408 270,996 313,861
----------- ------------- ------------- ---------
2018
Borrowings 257 1,109 50,194 51,560
Interest on borrowings 1,821 7,176 32,183 41,180
Obligations under finance
leases 886 3,542 110,757 115,185
Payables and accruals 4,544 - - 4,544
7,508 11,827 193,134 212,469
----------- ------------- ------------- ---------
e) Capital risk management
The Group manages its capital to ensure the entities in the
Group will be able to continue as a going concern whilst maximising
the return to shareholders through the optimisation of the debt and
equity balance.
The capital structure of the Group consists of debt (note 21),
cash and cash equivalents (note 19) and equity attributable to the
shareholders of the Company (comprising share capital, retained
earnings and the other reserves as referred in notes 23 to 26).
The Group is not subject to externally imposed capital
requirements under the AIFMD regime.
The Group's management reviews the capital structure on a
regular basis in conjunction with the Board. As part of this review
management considers the cost of capital, risks associated with
each class of capital and debt and the amount of any dividends to
shareholders.
2019 2018
GBP'000 GBP'000
Obligations under
finance leases 29,532 27,715
Borrowings 108,192 51,560
Cash and cash equivalents (26,205) (11,796)
---------- ----------
Net debt 111,519 67,479
Equity attributable
equity holders 185,714 183,599
---------- ----------
Net debt to equity
ratio 0.60 0.37
---------- ----------
Borrowings excluding
finance lease liability 108,192 51,560
Total assets less
finance lease gross
up 298,454 239,703
---------- ----------
GAV leverage ratio 0.36 0.22
---------- ----------
The GAV leverage ratio has been presented to enable a comparison
of the Group's borrowings as a proportion of Gross Assets as at 30
September 2019 to its medium term target GAV leverage ratio of
0.50.
36. Supplemental financial information
Net rental yield
The net yield on the Group's historical cost of investment
property represents the unlevered rental income return on the
Group's capital deployed into acquisition of investment
properties.
2019 2018
GBP'm GBP'm
Annualised net rental
income at balance
sheet date 11.2 10.5
Historical cost of
investment property 237.1 210.4
Historical cost of
investments not yet
income producing (11.4) -
Historical cost of
income producing investment
properties 225.7 210.4
Net yield 5.0% 5.0%
Company Statement of Financial Position
As at 30 September 2019
Note 2019 2018
GBP'000 GBP'000
Non-current assets
Investment in subsidiary undertakings 8 170,586 133,420
Total non-current assets 170,586 133,420
Current assets -
Trade and other receivables 9 26,043 37,810
Cash and cash equivalents 10 21,491 9,415
Total current assets 47,534 47,225
Total assets 218,120 180,645
--------- ---------
Current liabilities
Trade and other payables 11 36,497 715
Total current liabilities 36,497 715
--------- ---------
Net assets/(liabilities) 181,623 179,930
--------- ---------
Equity
Share capital 12 1,803 1,803
Share premium 13 108 108
Own shares reserve 14 (8,622) (5,199)
Retained earnings 188,334 183,218
Total interests 181,623 179,930
Total equity 181,623 179,930
--------- ---------
The notes on pages 75 to 79 form part of these financial
statements.
The Company has taken advantage of the exemption allowed under
section 408 of the Companies Act 2006 and has not presented its own
profit and loss account in these financial statements. The profit
attributable to the Parent Company for the year ended 30 September
2019 amounted to GBP12.8 million (2018: GBP12.4 million).
These financial statements were approved and authorised for
issue by the Board of Directors on 20 November 2019 and signed on
its behalf by:
Robert Whiteman
Chairman
20 November 2019
Company Statement of Changes in Equity
For the year ended 30 September 2019
Own
Share Share shares Retained
Total
capital premium reserve earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 11 July 2017 - - - (28) (28)
--------- ----------- --------- ---------- ---------
Profit for the period - - - 12,442 12,442
Other comprehensive - - - - -
income
Total comprehensive
income - - - 12,442 12,442
Contributions by and
distributions to shareholders
Issue of shares 1,800 178,200 - - 180,000
Formation and issue
costs paid - (3,600) - - (3,600)
Issue of management
shares 3 315 222 (540) -
Share based payment
charge 540 540
Cancellation of share
premium - (174,807) - 174,807 -
Purchase of own shares - - (5,421) - (5,421)
Dividend paid - - - (4,003) (4,003)
Balance at 30 September
2018 1,803 108 (5,199) 183,218 179,930
--------- ----------- --------- ---------- ---------
Profit for the period - - - 12,814 12,814
Other comprehensive - - - - -
income
Total comprehensive
income - - - 12,814 12,814
Contributions by and
distributions to shareholders
Issue of management
shares - - 461 (461) -
Share based payment
charge - - - 461 461
Purchase of own shares - - (3,884) - (3,884)
Dividends paid - - - (7,698) (7,698)
Balance at 30 September
2019 1,803 108 (8,622) 188,334 181,623
--------- ----------- --------- ---------- ---------
The notes on pages 75 to 79 form part of these financial
statements.
Notes to the Company Financial Statements
1. Basis of preparation
The financial statements have been prepared in accordance with
Financial Reporting Standard 100 Application of Financial Reporting
Requirements ("FRS 100") and Financial Reporting Standard 101
Reduced Disclosure Framework ("FRS 101").
2. Disclosure exemptions adopted
In preparing these financial statements the Company has taken
advantage of all disclosure exemptions conferred by FRS 101.
Therefore these financial statements do not include:
-- Certain comparative information as otherwise required by EU endorsed IFRS;
-- Certain disclosures regarding the Company's capital;
-- A statement of cash flows;
-- The effect of future accounting standards not yet adopted;
-- The disclosure of the remuneration of key management personnel; and
-- Disclosure of related party transactions with other wholly
owned members of Residential Secure Income plc.
In addition, and in accordance with FRS 101, further disclosure
exemptions have been adopted because equivalent disclosures are
included in the Company's consolidated financial statements. These
financial statements do not include certain disclosures in respect
of:
-- Financial instruments; and
-- Fair value measurement other than certain disclosures
required as a result of recording financial instruments at fair
value
3. Changes to accounting standards and interpretations
New standards adopted during the year
The following new accounting standards, interpretations and
amendments, endorsed by the EU were effective for the first time
for the company's 30 September 2019 year end and had no material
impact on the financial statements:
-- IFRS 9 Financial Instruments (effective from 1 October 2018)
- the standard applies to classification and measurement of
financial assets and financial liabilities, impairment provisioning
and hedge accounting.
The company adopted the expected credit loss model when
calculating impairment losses on its financial assets measured at
amortised costs (such as loans to group companies). This resulted
in increased judgement being required in order to assess the
requirement for an impairment provision due to the need to factor
in forward looking information when estimating the appropriate
amount of provisions. No material impairment provisions were
recognised as a result of the adoption of IFRS 9.
4. Significant accounting policies
The significant accounting policies applied in the preparation
of the financial statements are set out below. The policies have
been consistently applied throughout the period.
a) Basis of accounting
These financial statements have been presented as required by
the Companies Act 2006 and have been prepared under the historical
cost convention and in accordance with applicable Accounting
Standards and policies in the United Kingdom ("UK GAAP").
b) Currency
The Company financial information is presented in Sterling which
is also the Company's functional currency and all values are
rounded to the nearest thousand (GBP000), except where otherwise
indicated.
c) Investments in subsidiary undertakings in the Company Financial Statements
Investments in subsidiary undertakings are stated at cost less
any provision for impairment in value.
d) Share issue costs
The costs of issuing or reacquiring equity instruments (other
than in a business combination) are accounted for as a reduction to
share premium to the extent that share premium has arisen on the
related share issue.
e) Finance income
Finance income comprises interest receivable on funds invested
and is recognised in profit and loss as it accrues, using the
effective interest method.
f) Taxation
Taxation on the profit or loss for the period not exempt under
UK REIT regulations would comprise of current and deferred tax. Tax
would be recognised in the Statement of Comprehensive Income except
to the extent that it relates to items recognised as direct
movement in equity, in which case it would be recognised as a
direct movement in equity. Current tax is expected tax payable on
any non-REIT taxable income for the period, using tax rates enacted
or substantively enacted at the balance sheet date. Deferred tax is
provided in full using the balance sheet liability method on timing
differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for taxation
purposes. Deferred tax is determined using tax rates that have been
enacted or substantively enacted by the reporting date and are
expected to apply when the asset is realised or the liability is
settled.
No provision is made for timing differences (i) arising on the
initial recognition of assets or liabilities, other than on a
business combination, that affect neither accounting nor taxable
profit and (ii) relating to investments in subsidiaries to the
extent that they will not reverse in the foreseeable future.
g) Dividend payable to shareholders
Equity dividends are recognised when they become legally payable
which for the final dividends is the date of approval by the
members. Interim dividends are recognised when paid.
h) Financial instruments
Financial assets
Recognition of financial assets
All financial assets are recognised on a trade date which is the
date when the Company becomes a party to the contractual provisions
of the instrument.
Initial measurement and classification of financial assets
Financial assets are classified into the following categories:
'financial assets at fair value through profit or loss' and
'financial assets at amortised cost'. The classification depends on
the business model in which the asset is managed and on the
cashflows associated with that asset.
Financial assets are initially measured at fair value, plus
transaction costs, except for those financial assets classified as
at fair value through profit or loss, which are initially measured
at fair value.
Fair value through profit or loss
This category comprises in-the-money derivatives and
out-of-money derivatives where the time value offsets the negative
intrinsic value (see "Financial liabilities" section for
out-of-money derivatives classified as liabilities). They are
carried in the Consolidated Statement of Financial Position at fair
value with changes in fair value recognised in the Group Statement
of Comprehensive Income in the finance income or expense line.
At 30 September 2019 the Company had the following
non-derivative financial assets which are classified as financial
assets at amortised cost:
Cash and cash equivalents
Cash and short-term deposits in the balance sheet comprise cash
at bank (including investments in money-market funds) and
short-term deposits with an original maturity of three months or
less.
Trade and other receivables
Trade and other receivables are recognised at their original
invoiced value. Where the time value of money is material,
receivables are discounted and then held at amortised cost.
Impairment of financial assets
The Company applies the IFRS 9 simplified approach to measuring
the expected credit losses for trade and other receivables whereby
the allowance or provision for all trade receivables is based on
the lifetime expected credit losses ("ECLs").
The Company applies the general approach for initial recognition
and subsequent measurement of expected credit loss provisions for
the loan receivable and other receivables which have maturities of
12 months or more and have a significant finance component.
This approach comprises of a three-stage approach to evaluating
expected credit losses. These stages are classified as follows:
Stage 1
Twelve-month expected credit losses are recognised in profit or
loss at initial recognition and a loss allowance is established.
For financial instruments that have not deteriorated significantly
in credit quality since initial recognition or that have low credit
risk at the reporting date, the loss allowance for 12-month
expected credit losses is maintained and updated for changes in
amount. Interest revenue is calculated on the gross carrying amount
of the asset (i.e. without reduction for expected credit
losses).
Stage 2
If the credit risk increases significantly and the resulting
credit quality is not considered to be low credit risk, full
lifetime expected losses are recognised and includes those
financial instruments that do not have objective evidence of a
credit loss event. Interest revenue is still calculated on the
gross carrying amount of the asset.
Stage 3
If the credit risk of a financial asset increases to the point
that it is considered credit impaired (there is objective evidence
of impairment at the reporting date), lifetime expected credit
losses continue to be recognised. For financial assets in this
stage, lifetime expected credit losses will generally be
individually assessed. Interest revenue is calculated on the
amortised cost net carrying amount (amortised cost less
impairment).
De-recognition of financial assets
The Company derecognises a financial asset when the contractual
rights to the cash flows from the asset expire, or it transfers the
financial asset and substantially all the risks and rewards of
ownership to another entity. If any interest in a transferred asset
is retained then the Company recognises its retained interest in
the asset and associated liabilities.
Financial liabilities
Recognition of financial liabilities
All financial liabilities are recognised on the date when the
Company becomes a party to the contractual provisions of the
instrument.
Initial measurement and classification of financial
liabilities
Financial liabilities are classified into the following
categories: 'financial liabilities at fair value through profit or
loss' and 'other financial liabilities'. The classification depends
on the nature and purpose of the financial liabilities and is
determined at the time of initial recognition.
Financial liabilities are initially measured at fair value, net
of transaction costs, except for those financial liabilities
classified as at fair value through profit or loss, which are
initially measured at fair value.
Fair value through profit or loss
This category comprises out-of-the-money derivatives where the
time value does not offset the negative intrinsic value (see
"Financial assets" section for in-the-money derivatives and
out-of-money derivatives where the time value offsets the negative
intrinsic value). They are carried in the Consolidated Statement of
Financial Position at fair value with changes in fair value
recognised in the Group Statement of Comprehensive Income in the
finance income or expense line.
At 30 September 2019 the Company had the following
non-derivative financial liabilities which are classified as other
financial liabilities:
Trade and other payables
Trade and other payables are initially recognised at fair value
and subsequently held at amortised cost.
De-recognition of financial liabilities
The Group derecognises a financial liability when its
contractual obligations are discharged, cancelled or expire.
5. Significant accounting judgements and estimates
The preparation of financial statements requires the Directors
of the Company to make judgements, estimates and assumptions that
affect the reported amounts recognised in the financial statements.
However, uncertainty about these assumptions and estimates could
result in outcomes that require a material adjustment to the
carrying amount of the asset or liability in the future.
Impairment of fixed asset investments
The Directors are required to review the carrying amounts of its
investments to determine whether there are any indicators for
impairment. After assessing the carrying amounts of the Company's
investments, it was determined that impairment indicators no longer
existed at the year-end for some of the investments and so a
reversal of impairment loss should be recognised.
6. Fees paid to the Company's auditor
2019 2018
GBP'000 GBP'000
Audit fees 42 34
Audit related services 36 25
Non-audit services - 60
Total fees 78 119
========= =========
7. Dividends paid
2019 2018
GBP'000 GBP'000
Amounts recognised as distributions to shareholders
in the period:
1st interim dividend for the period ended
30 September 2018 of 0.75p per share - 1,352
2nd interim dividend for the period ended 30 September
2018 of 0.75p per share - 1,329
3rd interim dividend for the period ended
30 September 2018 of 0.75p per share - 1,322
4th interim dividend for the period ended 30 September 1,284 -
2018 of 0.75p per share
1st interim dividend for the year ended 30 September 2,138 -
2019 of 1.25p per share
2nd interim dividend for the year ended 30 September 2,138 -
2019 of 1.25p per share
3rd interim dividend for the year ended 30 September 2,138 -
2019 of 1.25p per share
7,698 4,003
--------- ---------
Amounts not recognised as distributions to shareholders
in the period:
4th interim dividend for the period ended
30 September 2018 of 0.75p per share - 1,283
4th interim dividend for the year ended
30 September 2019 of 1.25p per share 2,138 -
Categorisation of dividends for
UK tax purposes:
Amounts recognised as distributions to shareholders
in the period:
Property Income Distribution
(PID) 4,810 661
Non-PID 2,888 3,342
7,698 4,003
--------- ---------
On 15 November 2018, the Company declared a fourth interim
dividend of 0.75 pence per share for the period 1 July 2018 to 30
September 2018.
On 30 January 2019, the Company declared its first interim
dividend of 1.25 pence per share for the period 1 October 2018 to
31 December 2018.
On 29 April 2019, the Company declared its second interim
dividend of 1.25 pence per share for the period 1 January 2019 to
31 March 2019.
On 1 August 2019, the Company declared its third interim
dividend of 1.25 pence per share for the period 1 April 2019 to 30
June 2019.
On 19 November 2019, the Company announced the declaration of a
fourth interim dividend of 1.25 pence per share for the period 1
July 2019 to 30 September 2019 which will be payable on 10 January
2020 to Shareholders on the register at the close of business on 12
December 2019..
The Company intends to continue to pay dividends to shareholders
on a quarterly basis in accordance with the REIT regime.
8. Investments
2019 2018
GBP'000 GBP'000
At beginning of period 133,420 -
Additions 35,218 167,476
Impairment reversal/(impairment) 1,948 (34,056)
At end of period 170,586 133,420
--------- ----------
Investments are subject to annual review for impairment
indicators.
The Company had the following subsidiary undertakings at 30
September 2019:
Principal
Percentage Country place
Name of entity of ownership of incorporation of business Principal activity
RHP Holdings Limited 100% UK UK Holding company
The Retirement Housing
Limited Partnership 100% UK UK Property investment
ReSi Retirement Rentals
Limited 100% UK UK Property investment
Social housing Registered
ReSi Housing Limited 100% UK UK Provider
Wesley House (Freehold)
Limited 100% UK UK Property investment
Eaton Green (Freehold)
Limited 100% UK UK Property investment
Name of entity Registered address
RHP Holdings Limited 21-26 Garlick Hill, London, EC4V 2AU
The Retirement Housing Glanville House, Frobisher Way, Taunton,
Limited Partnership Somerset, TA2 6BB
ReSi Retirement Rentals 21-26 Garlick Hill, London,
Limited EC4V 2AU
21-26 Garlick Hill, London,
ReSi Housing Limited EC4V 2AU
Wesley House (Freehold) 21-26 Garlick Hill, London,
Limited EC4V 2AU
Eaton Green (Freehold) 21-26 Garlick Hill, London,
Limited EC4V 2AU
All group entities are UK tax resident.
The Company's subsidiaries Gaynes Hill Holdings Limited and
Rayleigh Park Limited were dissolved 5 April 2019.
9. Trade and other receivables
2019 2018
GBP'000 GBP'000
Amounts due from group
undertakings 19,521 37,727
Prepayments 154 59
Other debtors 6,368 24
26,043 37,810
--------- ---------
Amounts due from subsidiary undertakings are unsecured, interest
free and repayable on demand.
All amounts fall due for repayment within one year.
10. Cash and cash equivalents
2019 2018
GBP'000 GBP'000
Cash at bank 21,489 9,414
Cash held as investment
deposit 2 1
21,491 9,415
--------- ---------
Cash held as investment deposit relates to cash invested in a
money market fund, which is invested in short-term AAA rated
Sterling Investments. As the fund has a short maturity period, the
investment has a high liquidity. The fund has GBP26.8 billion AUM,
hence the Group's investment deposit represents an immaterial
proportion of the fund.
11. Trade and other payables
2019 2018
GBP'000 GBP'000
Amounts due to group undertakings 36,150 -
Trade payables 157 198
Accruals 190 517
36,497 715
--------- ---------
Amounts due to group undertakings are unsecured, interest free
and repayable on demand.
12. Share capital
Number
of Ordinary
1 p GBP'000
shares
At 30 September 2018 and 30 September
2019 180,324,377 1,803
-------------- ---------
The share capital account relates to amounts subscribed for
share capital.
The Company has issued, at market value, nil (2018: 324,277) new
Ordinary shares of 1p each to the Fund Manager.
Rights, preferences and restrictions on shares
All Ordinary Shares carry equal rights, and no privileges are
attached to any shares in the Company. All the shares are freely
transferable, except as otherwise provided by law. The holders of
Ordinary Shares are entitled to receive dividends as declared from
time to time and are entitled to one vote per share at meetings of
the Company. All shares rank equally with regard to the Company's
residual assets.
Treasury shares do not hold any voting rights.
13. Share premium
GBP'000
At 30 September 2018 and 30 September
2019 108
---------
The share premium account relates to amounts subscribed for
share capital in excess of nominal value.
14. Own share reserve
GBP'000
At 30 September 2018 (5,199)
Purchase of own shares (3,884)
Transferred as part of
Fund Management fee 461
At 30 September 2019 (8,622)
---------
The own shares reserve relates to the value of shares purchased
by the Company in excess of nominal value.
During the year ended 30 September 2019, the Company purchased
4,156,873 of its own 1p ordinary shares at a total gross cost of
GBP3,904,714 (GBP3,884,837 cost of shares and GBP19,877 associated
costs).
During the year, 503,814 1p Ordinary Shares were transferred
from the own shares reserve to the Fund Manager, in lieu of the
management fee in accordance with the Fund Management
Agreement.
As at 30 September 2019, 9,304,729 (2018: GBP5,651,670) 1p
Ordinary Shares are held by the Company.
15. Related party transactions
The Company has taken advantage of the exemption not to disclose
transactions with other members of the Group as the Company's own
financial statements are presented together with its consolidated
financial statements. For all other related party transactions
please make reference to note 33 of the Group accounts.
Company Information
Directors
Robert Whiteman
(Non-executive Chairman)
Robert Blackburn Gray
(Non-executive Director)
John Carleton
(Non-executive Director)
Mike Emmerich
(Non-executive Director)
Registered Office
Mermaid House
Puddle Dock
London
ECV4 3DB
Company Information
Company Registration Number: 10683026
Incorporated in the United Kingdom
Fund Manager
ReSI Capital Management Limited
21 - 26 Garlick Hill
London
EC4V 2AU
Corporate Broker
Jefferies International Limited
100 Bishopsgate
London
EC2N 4JL
Legal and Tax Adviser
Norton Rose Fulbright LLP
3 More London Riverside
London
SE1 2AQ
Tax Adviser
Ernst & Young LLP
1 More London Riverside
London
SE1 2AF
Depositary
Thompson Taraz LLP
47 Park Lane
Mayfair
London
W1K 1PR
Notice of Annual General Meeting
Notice is hereby given that the Annual General Meeting of
Residential Secure Income PLC will be held at the offices of ReSI
Capital Management, 21-26 Garlick Hill, London EC4V 2AU on 15
January 2020 at 11.00 a.m. for the following purposes:
To consider and if thought fit pass the following resolutions of
which resolutions 1 to 10 will be proposed as ordinary resolutions
and resolutions 11 to 13 will be proposed as special
resolutions.
Ordinary Resolutions
To receive the Company's Annual Report and Accounts for the year
ended 30 September 2019, with the reports of the Directors and
Auditor thereon.
To approve the Directors' Remuneration Implementation Report
included in the Annual Report for the year ended 30 September
2019.
3. To re-elect Robert Whiteman as a Director of the Company.
4. To re-elect Robert Gray as a Director of the Company.
5. To re-elect Mike Emmerich as a Director of the Company.
6. To re-elect John Carleton as a Director of the Company.
7. To re-appoint BDO LLP as Auditor to the Company.
8. To authorise the Directors to fix the remuneration of the
Auditor until the conclusion of the next Annual General Meeting of
the Company.
9. To approve the Company's policy of paying quarterly interim
dividends.
10. That the Directors be and are hereby generally and
unconditionally authorised in accordance with section 551 of the
Companies Act 2006 (in substitution for all subsisting authorities
to the extent unused) to exercise all the powers of the Company to
allot up to 17,101,964 Ordinary Shares (excluding shares held in
Treasury) in the capital of the Company (equivalent to 10% of the
Ordinary Shares in issue at the date of the notice of this
meeting), such authority to expire (unless previously varied,
revoked or renewed by the Company in general meeting) at the
conclusion of the Annual General Meeting of the Company to be held
in 2021 or, if earlier, on the expiry of 15 months from the passing
of this resolution, save that the Company may, at any time prior to
the expiry of such authority, make an offer or enter into an
agreement which would or might require the allotment of shares in
pursuance of such an offer or agreement as if such authority had
not expired
Special Resolutions
11. That, subject to the passing of resolution 11, in
substitution for any existing power under sections 570 and 573 of
the Companies Act 2006 but without prejudice to the exercise of any
such power prior to the date hereof, the Directors be and are
hereby empowered (pursuant to sections 570 and 573 of the Companies
Act 2006) to allot Ordinary Shares and to sell Ordinary Shares from
treasury for cash at a price above prevailing Net Asset Value per
share, pursuant to the authority referred to in Resolution 10 above
as if section 561 of the Act did not apply to any such allotment or
sale, such power to expire (unless previously varied, revoked or
renewed by the Company in general meeting) at the conclusion of the
Annual General Meeting of the Company to be held in 2021 or, if
earlier, on the expiry of 15 months from the passing of this
resolution, save that the Company may, at any time prior to the
expiry of such power, make an offer or enter into an agreement
which would or might require equity securities to be allotted or
sold from treasury after the expiry of such power, and the
Directors may allot or sell from treasury equity securities in
pursuance of such an offer or an agreement as if such power had not
expired
12. That the Company be and is hereby generally and
unconditionally authorised in accordance with section 701 of the
Companies Act 2006 ("the Act") to make market purchases (within the
meaning of section 693(4) of the Act) of its Ordinary Shares of 1p
each, provided that:
(a) the maximum number of Ordinary Shares hereby authorised to
be purchased shall be 25,635,845 (representing 14.99% of the
Company's issued Ordinary Share capital (excluding shares held in
Treasury) at the date of the notice of this meeting);
(b) the minimum price (exclusive of any expenses) which may be
paid for an Ordinary Share is 1p;
(c) the maximum price (excluding expenses) which may be paid for
an Ordinary Share is not more than the higher of:
(i) 5% above the average of the middle market quotations for the
Ordinary Shares for the five business days immediately before the
day on which it purchases that share; and
(ii) the higher of the price of the last independent trade and
the highest current independent bid for the Ordinary Shares;
(d) the authority hereby conferred shall expire at the
conclusion of the Annual General Meeting of the Company in 2021 or,
if earlier, on the expiry of 15 months from the passing of this
resolution, unless such authority is renewed prior to such time;
and
e) the Company may make a contract to purchase Ordinary Shares
under the authority hereby conferred prior to the expiry of such
authority, which will or may be executed wholly or partly after the
expiration of such authority and may make a purchase of Ordinary
Shares pursuant to any such contract.
14. That a general meeting of the Company other than an Annual
General Meeting may be called on not less than 14 clear days'
notice, provided that this authority shall expire at the conclusion
of the Company's next Annual General Meeting after the date of the
passing of this resolution.
Registered office
Mermaid House
2 Puddle Dock
London
EC4V 3DB
By order of the Board
For and on behalf of PraxisIFM Fund Services (UK) Limited
Company Secretary
20 November 2019
Website address
1. Information regarding the meeting, including the information
required by section 311A of the Companies Act 2006, is available
from https://www.resi-reit.com/.
Entitlement to attend and vote
2. Only those holders of Ordinary Shares registered on the
Company's register of members at 6.00 p.m. on 13 January 2020 or,
if this meeting is adjourned, at close of business on the day two
days prior to the adjourned meeting, shall be entitled to attend
and vote at the meeting.
Appointment of Proxies
3. Members entitled to attend, speak and vote at the meeting (in
accordance with Note 2 above) are entitled to appoint one or more
proxies to attend, speak and vote in their place. If you wish to
appoint a proxy please use the Form of Proxy enclosed with this
document or follow the instructions at note 7 below if you wish to
appoint a proxy through the CREST electronic proxy appointment
service. In the case of joint members, only one need sign the Form
of Proxy. The vote of the senior joint member will be accepted to
the exclusion of the votes of the other joint members. For this
purpose, seniority will be determined by the order in which the
names of the members appear in the register of members in respect
of the joint shareholding. The completion and return of the Form of
Proxy will not stop you attending and voting in person at the
meeting should you wish to do so. A proxy need not be a member of
the Company. You may appoint more than one proxy provided each
proxy is appointed to exercise the rights attached to a different
share or shares held by you. If you choose to appoint multiple
proxies use a separate copy of this form (which you may photocopy)
for each proxy, and indicate after the proxy's name the number of
shares in relation to which they are authorised to act (which, in
aggregate, should not exceed the number of Ordinary Shares held by
you). Please also indicate if the proxy instruction is one of
multiple instructions being given. All forms must be signed and
returned in the same envelope.
4. You can appoint the Chairman of the Meeting, or any other
person, as your proxy. If you wish to appoint someone other than
the Chairman, cross out the words "the Chairman of the Meeting" on
the Form of Proxy and insert the full name of your appointee.
5. You can instruct your proxy how to vote on each resolution by
ticking the "For" and "Against" boxes as appropriate (or entering
the number of shares which you are entitled to vote). If you wish
to abstain from voting on any resolution please tick the box which
is marked "Vote Withheld". It should be noted that a vote withheld
is not a vote in law and will not be counted in the calculation of
the proportion of votes "For" and "Against" a resolution. If you do
not indicate on the Form of Proxy how your proxy should vote,
he/she can exercise his/her discretion as to whether, and if how so
how, he/she votes on each resolution, as he/she will do in respect
of any other business (including amendments to resolutions) which
may properly be conducted at the meeting.
A company incorporated in England and Wales or Northern Ireland
should execute the Form of Proxy under its common seal or otherwise
in accordance with Section 44 of the Companies Act 2006 or by
signature on its behalf by a duly authorised officer or attorney
whose power of attorney or other authority should be enclosed
with the Form of Proxy.
Appointment of Proxy using Hard Copy Form
6. The Form of Proxy and any power of attorney (or a notarially
certified copy or office copy thereof) under which it is executed
must be received by Link Asset Services, PXS1, 34 Beckenham Road,
Beckenham, BR3 4ZF at 11.00 a.m. on 13 January 2020 in respect of
the meeting. Any Forms of Proxy received before such time will be
deemed to have been received at such time. In the case of an
adjournment, the Form of Proxy must be received by Link Asset
Services no later than 48 hours before the rescheduled meeting. On
completing the Form of Proxy, sign it and return it to Link Asset
Services at the address shown on the Form of Proxy in the envelope
provided. As postage has been pre-paid no stamp is required.
Appointment of Proxy through CREST
7. CREST members who wish to appoint a proxy or proxies through
the CREST electronic proxy appointment service may do so for the
meeting to be held on the above date and any adjournment(s) thereof
by using the procedures described in the CREST Manual. CREST
Personal Members or other CREST sponsored members, and those CREST
members who have appointed a voting service provider(s), should
refer to their CREST sponsor or voting service provider(s), who
will be able to take the appropriate action on their behalf. In
order for a proxy appointment or instruction made using the CREST
service to be valid, the appropriate CREST message (a "CREST Proxy
Instruction") must be properly authenticated in accordance with
Euroclear UK & Ireland Limited's specifications and must
contain the information required for such instructions, as
described in the CREST Manual. The message, regardless of whether
it constitutes the appointment of a proxy or an amendment to the
instruction given to a previously appointed proxy, must, in order
to be valid, be transmitted so as to be received by the Company's
agent (ID: RA10) by the latest time(s) for receipt of proxy
appointments specified in the notice of meeting. For this purpose,
the time of receipt will be taken to be the time (as determined by
the timestamp applied to the message by the CREST Applications
Host) from which the Company's agent
is able to retrieve the message by enquiry to CREST in the
manner prescribed by CREST. After this time any change of
instructions to a proxy's appointee through CREST should be
communicated to the appointee through other means. CREST members
and, where applicable, their CREST sponsors or voting service
providers should note that Euroclear UK & Ireland Limited does
not make available special procedures in CREST for any particular
messages. Normal system timings and limitations will therefore
apply in relation to the input of CREST Proxy Instructions. It is
the responsibility of the CREST member concerned to take (or, if
the CREST member is a CREST personal member or sponsored member or
has appointed a voting service provider(s), to procure that his
CREST sponsor or voting service provider(s) take(s)) such action as
shall be necessary to ensure that a message is transmitted by means
of the CREST system by any particular time. In this connection,
CREST members and, where applicable, their CREST sponsors or voting
service providers are referred, in particular, to those sections of
the CREST Manual concerning practical limitations of the CREST
system and timings.
The Company may treat as invalid a CREST Proxy Instruction in
the circumstances set out in Regulation 35(5)(a) of the
Uncertificated Securities Regulations 2001.
All messages relating to the appointment of a proxy or an
instruction to a previously appointed proxy, which are to be
transmitted through CREST, must be lodged at 11.00 a.m. on 13
January 2020 in respect of the meeting. Any such messages received
before such time will be deemed to have been received at such time.
In the case of an adjournment, all messages must be lodged with
Link Asset Services no later than 48 hours before the rescheduled
meeting.
Termination of proxy appointments
8. In order to revoke a proxy instruction you will need to
inform the Company. Please send a signed hard copy notice clearly
stating your intention to revoke your proxy appointment to Link
Asset Services, PXS1, 34 Beckenham Road, Beckenham, BR3 4ZF. In the
case of a member which is a company, the revocation notice must be
executed under its common seal or otherwise in accordance with
section 44 of the Companies Act 2006 or by signature on its behalf
by an officer or attorney whose power of attorney or other
authority should be included with the revocation notice. If you
attempt to revoke your proxy appointment but the revocation is
received after the time specified in note 2 above then, subject to
the paragraph directly below, your proxy will remain valid.
Completion of a Form of Proxy will not preclude a member from
attending and voting in person. If you have appointed a proxy and
attend the meeting in person, your proxy appointment will be
automatically terminated. If you submit more than one valid proxy
appointment in respect of the same Ordinary Shares, the appointment
received last before the latest time for receipt of proxies will
take precedence.
Nominated Persons
9. If you are a person who has been nominated under section 146
of the Companies Act 2006 to enjoy information rights:
-- You may have a right under an agreement between
you and the member of the Company who has nominated you to have
information rights (Relevant Member) to be appointed or to have
someone else appointed as a proxy for the meeting.
-- If you either do not have such a right or if you have such a
right but do not wish to exercise it, you may have a right under an
agreement between you and the Relevant Member to give instructions
to the Relevant Member as to the exercise of voting rights.
-- Your main point of contact in terms of your investment in the
Company remains the Relevant Member (or, perhaps, your custodian or
broker) and you should continue to contact them (and not the
Company) regarding any changes or queries relating to your
personal details and your interest in the Company (including any
administrative matters). The only exception to this is where the
Company expressly requests a response from you.
If you are not a member of the Company but you have been
nominated by a member of the Company to enjoy information rights,
you do not have a right to appoint any proxies under the procedures
set out in the notes to the form of proxy.
Questions at the Meeting
10. Under section 319A of the Companies Act 2006, the Company
must answer any question you ask relating to the business being
dealt with at the meeting unless:
-- answering the question would interfere unduly with the
preparation for the meeting or involve the disclosure of
confidential information;
-- the answer has already been given on a website in the form of
an answer to a question; or
-- it is undesirable in the interests of the Company or the good
order of the meeting that the question be answered.
Issued Shares and total voting rights
11. As at the date of this Notice, the total number of shares in
issue is 180,324,377 Ordinary Shares of 1p each. The total number
of Ordinary Shares with voting rights is 171,019,648. On a vote by
a show of hands, every holder of Ordinary Shares who (being an
individual) is present by a person, by proxy or (being a
corporation) is present by a duly authorised representative, not
being himself a member, shall have one vote. On a poll every holder
of Ordinary Shares who is present in person or by proxy shall have
one vote for every Ordinary Share held by him.
Communication
12. Except as provided above, members who have general queries
about the meeting should use the following means of communication
(no other methods of communication will be accepted):
-- calling Link Asset Services' shareholder helpline (lines are
open from 9.00 a.m. to 5.30 p.m. Monday to Friday, excluding public
holidays):
(i) From UK: 0871 664 0300 (calls cost 12p per minute plus
network extras);
(ii) From Overseas: +44 371 664 0300 (calls from outside the UK
are charged at applicable international rates); or in writing to
Link Asset Services.
You may not use any electronic address provided either in this
notice of meeting or in any related documents (including the Form
of Proxy for this meeting) to communicate with the Company for any
purposes other than those expressly stated.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR URRRRKUAAUUA
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