Residential Secure Income REIT (RESI) has published its annual results for the year ended 30 September 2020 in which it shows resilience in its performance. The announcement provides a summary of the key highlights in a number of areas, and these are reproduced below.
Financial highlights – Resilient performance from existing portfolio
- Robust performance through COVID-19; Operating profit before property disposals and change in fair value up 10.3% to £9.9 million (FY19: £9.0 million)
- 99% of rent collected during the year to September 2020, demonstrating defensive characteristics of the portfolio
- Retirement occupancy average of 91% compared to 93% in prior year
- Shared ownership delayed but now 64% occupied with further 21% reserved
- IFRS Net Asset Value Total Return of 1.4 pence per share for the year, comprising 4.9 pence recurring income, less 3.5 pence of one-off valuation reduction and shared ownership debt setup costs (FY19: total return of 7.7 pence)
- IFRS Net Asset Value of £179.6 million, or 105.0 pence per share (FY19 108.6p)
- Investment property valuations remained relatively stable despite COVID-19, with marginal 0.3% like for like reduction
- Adjusted earnings per share of 2.9 pence, up 3.5% (FY19: 2.8 pence per share)
- Total dividends for the year of 5.0 pence per share, in line with target (FY19: 5.0 pence per share)
- Gross rental income up 5.1%, to £20.6 million (FY19: £19.6 million)
- Weighted average debt maturity now 23 years (up from 19 years at 30 September 2019)
- LTV ratio stands at 43%
- Average cost of debt is now 2.7%, from 3.3% on 30 September 2019
- New shared ownership debt supported £66m of shared ownership acquisitions in year (including first tranche stakes)
Strong foundation for growth
- COVID-19 delayed deployment and increased retirement voids, restricting the ability for ReSI to generate additional income in the year, however a strong platform has been built for future growth
- Good visibility and plan to fully cover dividend:
- Deploy remaining £32m to get to target leverage of 50%
- Occupy remaining shared ownership homes
- Address retirement portfolio voids
- Unique ultra-long-term 45-year debt facility of £300 million successfully arranged in July 2020 in the midst of the COVID-19 pandemic with Universities Superannuation Scheme, one of the UK’s largest pension schemes
- £34 million drawn in the period, secured against ReSI’s shared ownership portfolio
- RPI-linked principal matches RPI-linked rent in ReSI’s shared ownership leases with 0.46% coupon delivering 300bps yield pick up on shared ownership
- Investment Partner of Homes England (achieved in year) and Greater London Authority
- Two new Partnership Directors joining origination team
- Operating Expenses savings from Gresham robust central platform
Deployment and operational highlights
- £302m portfolio of 2,708 homes comprising: 196 (£58 million, 19% by value) shared ownership homes, 289 (£34 million, 11% by value) Local Authority housing units and 2,223 (£210 million, 70% by value) Retirement Rental homes
- Acquisition of 162 shared ownership homes, including:
- 132 homes at Clapham Park in London, which ReSI committed to purchase in FY19
- 30 homes acquired across Cheshire, West Yorkshire, Greater Manchester, Lancashire and Cambridgeshire
- Occupation of new shared ownership homes is progressing well, with 85% of ReSI’s 196 shared ownership now occupied or reserved and moving towards completion.
- Utilised £5 million (in addition to £1 million in FY19) of government grant funding to deliver 138 homes that would not otherwise have been used as affordable housing as shared ownership.
- Appointed Elaine Bailey, former Chief Executive of Hyde Group, as a non-executive Director
- ReSI’s fund manager, ReSI Capital Management Limited, acquired in March 2020 by Gresham House, benefiting from centralised platform and buying power to reduce costs
Environmental and Social impact
- Developed Shared Ownership Customer and Environmental Charter, with intention to improve practices across the shared ownership sector, providing benefits to both shared owners and ReSI’s investors
- Gresham House and ReSI pleased to become early adopters of The Good Economy’s (TGE) Sustainable Reporting Standard for Social Housing – encouraging best practice ESG reporting
- Reported energy efficiency of housing portfolio for the first time and acquired 196 shared ownership homes with an EPC rating of ‘B’, the second highest of the 7 categories A-G, while committing to improve its small number of ‘D’ rated homes
- ReSI Housing’s status as a for-profit Registered Provider wholly owned by ReSI enables it to benefit from a best in class governance process, combining the financial rigour and checks and balances of the corporate world with the regulatory framework for Registered Providers
- Strong social impact aligned with UK areas of most acute housing needs:
- Shared ownership model quadruples access to home ownership, which remains beyond reach for middle and lower earners in the UK[i]
- Retirement Rental provides fit-for-purpose homes for the over-55s, maintaining residents’ independence as well as with security of tenure
- Local Authority Housing provides homes to individuals and families who are otherwise homeless
Outlook
- ReSI’s defensive portfolio is positioned to weather economic stress, having used FY20 to build a platform of resilient cash-generative assets and long term debt to produce future income
- Focus on covering dividend through deployment, occupation and reducing voids
- Inflation protection, with 96% of rental income backed by contractual inflation-linked rental uplifts
- Higher unemployment remains unlikely to materially impact ReSI’s income, with rental income rents underpinned by pensions, housing welfare, below market rents and shared owner stakes
- Significant shortfall in UK affordable housing remains, regardless of COVID-19