Earlsway, Macclesfield
CONTENTS
Company Overview
6
At a Glance
8
The Year in Brief
10
Key Highlights
12
Will’s Story Case Study
Strategic Report
18
Chair’s Statement
26
Strategy and Business Model
30
Key Performance Indicators
32
EPRA Performance Measures
34
The Investment Manager
36
Investment Manager’s Report
47
Portfolio Summary
48
Our Retrofit Approach
54
Sustainability Report
58
Stakeholder Engagement
62
Risk Management
68
Going Concern and Viability
71
Board Approval of the Strategic Report
Governance
74
Chair’s Letter
76
Board of Directors
78
Corporate Governance
84
Audit Committee Report
88
Management Engagement Committee Report
90
Nomination Committee Report
92
Directors’ Remuneration Report
98
Directors’ Report
103
Directors’ Responsibilities Statement
105
Independent Auditor’s Report
Financial Statements
116
Group Statement of Comprehensive Income
117
Group Statement of Financial Position
118
Group Statement of Changes in Equity
119
Group Statement of Cash Flows
120
Notes to the Group Financial Statements
140
Company Statement of Financial Position
141
Company Statement of Changes in Equity
142
Notes to the Company Accounts
Other Information
148
Unaudited Performance Measures
150
Glossary and Definitions
152
Shareholder Information
3
Company Overview
Strategic Report
Financial Statements
Other Information
Governance
2021 Annual Report
Company Overview
What We Do
We seek to optimise the opportunities available to vulnerable
people across the UK. The properties we invest in provide
sustainable, high-quality accommodation for people with specific
care and support requirements. These needs often result from
mental health problems, learning disabilities, or physical and
sensory impairment.
Our accommodation differentiates itself by being a home within
a community rather than the care facilities that have historically
been the mainstay for vulnerable people whose care needs are
similar to our residents. We also seek to provide value-for-money
to local authorities by offering housing that is both more suitable
and cost-effective than traditional alternatives.
Our ability to forward fund the development of custom-built
properties allows us to bring high-quality new housing stock
to market, unlocking additional homes for vulnerable adults
and enabling local authorities to reduce their social housing
waiting lists.
Our
portfolio
benefits
from
generally
long-term
leases
to Approved Providers, who are bodies that receive their
funding from central or local government to provide long-
term homes for people in need of housing. Through these
leases we offer our shareholders an attractive level of generally
inflation-linked income.
At a Glance
HE
OF
Who We Are
Triple Point Social Housing REIT plc invests in social housing
properties in the United Kingdom (UK), focusing on homes in
the Supported Housing sector which have been adapted for
vulnerable people with care and support needs.
We believe our residents deserve a home
in a community setting that offers greater
independence than traditional institutional
accommodation, at the same time as meeting
their specialist care needs.
Our ambition is to be the leading Supported Housing investor
in the UK helping guarantee a secure future for people in need
across the country whilst ensuring that our shareholders have an
ethical, attractive, long-term income source which creates social
impact.
THE
OF
6
Company Overview
Strategic Report
Financial Statements
Other Information
Governance
Triple Point Social Housing REIT plc
E VALUE
HOME
E VA
HO
7
2021 Annual Report
Company Overview
Strategic Report
Financial Statements
Other Information
Governance
THE
YEAR
IN
BRIEF
During
2021,
the
Group
deployed a further £60.0 million
into
Supported
Housing
in
the UK,
acquiring on average
four properties each month.
The Group received 99.8% of rent
due during the year despite the
ongoing challenges of Covid-19
and resultant pressures on the
social care system.
A timeline of the key events that
took place during the year is
outlined on pages 8 and 9.
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
Church Street, Gildersome
The
Company
declared
an
interim
dividend of 1.295 pence per Ordinary
Share for the period from 1 October
to 31 December 2020 resulting in a
aggregate total dividend of 5.18 pence
per Ordinary Share for the year ended
30 December 2020.
04-MAR-21
17-MAY-21
The Company
declared
an interim dividend
of 1.30 pence per Ordinary Share for the
period from 1 January to 31 March 2021.
The Group announced it had put in place
£195 million of long dated, fixed-rate,
interest only sustainability-linked loan notes
through a private placement with MetLife
Investment Management and Barings.
In addition, Fitch Ratings assigned the
Group an Investment Grade Long-Term
Issuer Default Rating of ‘A-’ with a stable
outlook, and a senior secured rating of ‘A’
for the Group’s new loan notes.
27-AUG-21
The Company declared an interim dividend
of 1.30 pence per Ordinary Share for the
period from 1 July to 30 September 2021.
04-NOV-21
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Triple Point Social Housing REIT plc
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Strategic Report
Financial Statements
Other Information
Governance
The
Group
acquired
seven
Supported
Housing properties, comprising 68 units in
total. The aggregate consideration for the
properties was approximately £12.1 million.
1
09-MAR-21
The Company declared an interim dividend of
1.30 pence per Ordinary Share for the period
from 1 April to 30 June 2021.
03-SEP-21
The Group acquired a portfolio of 19 properties
and exchanged contracts on a further two
properties, comprising 185 units in total.
In addition, the Group acquired a further five
properties, comprising 38 units in total. The
aggregate consideration for the properties was
approximately £29.9 million.
1
15-NOV-21
The Group acquired ten supported housing
properties and exchanged contracts on a
further two properties, comprising 56 units
in total. The aggregate consideration for the
properties was approximately £14 million.
1
06-JUL-21
Since the period end the Group has acquired eight
properties comprising 57 units, for £10.0 million
2
at net initial yields in line with the Company’s
existing portfolio.
On 21 February 2022, the £160.0 million RCF with
Lloyds was reduced to £50.0 million in order to
reduce commitment fees, but maintain flexibility
around upcoming deployment opportunities, and
remains undrawn.
On 3 March 2022, the Company declared an
interim dividend of 1.30 pence per Ordinary Share
for the period from 1 October to 31 December
2021 resulting in an aggregate dividend of
5.20 pence per Ordinary Share for the year.
POST PERIOD EVENTS
Malthouse Mews, Wakefield
1
Excluding acquisition costs
2
Including acquisition costs
School Street, Wakefield
Old Woolcombers, Halifax
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2021 Annual Report
EPRA NIY was 5.20% as at 31 December
2021. EPRA NIY is equal to an annualised
rental income based on the cash rents
passing at the balance sheet date, less
non-recoverable
property
operating
expenses, divided by the market value of
the property, increased with (estimated)
purchasers’ costs.
As at 31 December 2021, 100% of
contracted rental income was either CPI
or RPI linked.
Total return since IPO to 31 December
2021 was 31.1%.
5.20%
100%
index linked
31.1%
4
3
Including acquisition costs
4
Key highlight is a performance measure that has been added for the year ended 31 December 2021 in
response to developing guidance from European Markets and Security Authority
(December 2020: 5.27%)
(December 2020: 100%)
(December 2020: 23.89%)
EPRA NET
INITIAL YIELD (NIY)
RENTAL UPLIFTS
As at 31 December 2021 the contracted
rental income was £35.8 million per
annum.
Dividend cover on an EPRA earnings run-
rate basis at 31 December 2021 was 0.99x.
The EPRA Net Tangible Assets was equal
to the IFRS NAV and was 108.27 pence
per share as at 31 December 2021.
£35.8m
0.99x
108.27
p
(December 2020: £31.6 million)
(December 2020: 0.98x)
(December 2020: 106.42 pence)
CONTRACTED RENTAL
INCOME
DIVIDEND COVER
EPRA NET TANGIBLE
ASSETS
As at 31 December 2021, the market
capitalisation of the Company was £389.9
million.
£389.9m
(December 2020: £449.1 million)
Dividends paid or declared in respect
of the year ending 31 December 2021
totalled 5.20 pence.
5.20
p
(December 2020: 5.18 pence)
DIVIDEND PER
ORDINARY SHARE
MARKET
CAPITALISATION
As at 31 December 2021, the portfolio was
independently valued at £642.0 million on
an IFRS basis, an uplift of 8.7% against total
invested funds of £590.4 million.
The Group’s properties were valued at
£692.0 million on a portfolio valuation
basis, reflecting a portfolio premium of
7.8% or a £49.9 million uplift against the
IFRS valuation.
£642.0m
3
(December 2020: £571.5 million)
PORTFOLIO
VALUATION
TOTAL RETURN
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Governance
Triple Point Social Housing REIT plc
5
One asset within the existing portfolio is being held for sale
6
Key highlight is a performance measure that has been added for the year ended 31 December 2021 in response to developing
guidance from European Markets and Security Authority
During the year the Group purchased
44 properties with an aggregate purchase
price of £60.0 million bringing the total
portfolio to 488 properties.
5
488
(December 2020: 445)
TOTAL INVESTMENT
PORTFOLIO
As at 31 December 2021, the WAULT was
26.2 years (including put/call options and
reversionary leases).
26.2 years
(December 2020: 26.2 years)
WAULT
As at 31 December 2021, the Group had
entered into 22 Forward Funding Agreements
all of which have reached practical completion.
22
(December 2020: 22)
FORWARD FUNDING
AGREEMENTS
As at 31 December 2021, the portfolio
comprised 3,424 units.
3,424
(December 2020: 3,124)
UNITS
As at 31 December 2021, the portfolio had
382 leases.
382
(December 2020: 341)
LEASES
As at 31 December 2021, the Group had
leases with 24 Approved Providers.
24
(December 2020: 20)
APPROVED
PROVIDERS
Net Profit for the year ended 31 December
2021 was £28.4 million.
£28.4m
6
(December 2020: £24.6 million)
NET PROFIT
The ongoing charges ratio was 1.54%
as at 31 December 2021 and is a ratio of
annualised ongoing charges expressed as
a percentage of average net asset value
throughout the year.
1.54%
ONGOING CHARGES
RATIO
As at 31 December 2021, the portfolio’s blended
weighted average net initial yield at purchase was
5.90% compared to the blended valuation net
initial yield of 5.25%, reflecting our ability to buy
high quality properties at attractive off-market
prices.
65
basis points
YIELD
COMPRESSION
(December 2020: 1.57%)
(December 2020: 63 basis points)
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2021 Annual Report
A PLACE WILL
IS PROUD TO
CALL HOME
Will’s Story
12
Triple Point Social Housing REIT plc
Company Overview
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Other Information
Governance
Brunswick Gardens is a new build specialised
Supported Housing property funded by the Group.
Located in the heart of the village of Brunswick near
Newcastle, Brunswick Gardens opened in 2017
and provides 16 high specification one-bedroom
apartments for people with mental health needs,
helping them to live independently with 24-hour on-
site support.
Each apartment has an open-plan kitchen, a living
room, and a wet room-style bathroom with a shared
secure garden, CCTV, and plenty of on-site parking.
Brunswick Gardens is close to convenience stores
and neighbouring Gosforth provides access to
larger amenities such as high-street shops, banks,
restaurants and cafés. Inclusion Housing provides the
housing management services.
Residents benefit from a network of staff support
which helps them to manage their daily lives.
It is a place where he feels peaceful, calm, safe and which
Will is proud to call home. It has also meant the creation
of new friendships.
Will said:
“I find it hard to make friends but when I came
here, I started to make some and we watch films together
on Netflix, and that’s all helped me a lot with my mental
health.”
“My first Christmas here was brilliant. I had my friends
around, put my tree up and had a little bit of a party.”
Originally from Northumberland, Will had been in four
different hospitals over a period of 10 years. Describing
the moment he found out that there was a flat for him at
Brunswick Gardens, he said:
“I had been in hospital for eight months and the social
worker came and told me about this flat. When I heard
about it, I was over the moon.”
For 56-year-old wildlife lover and film
fan Will, moving into Brunswick Gardens
a
fortnight
before
Christmas
2020
represented “a new start in life”.
The UK needs more social housing.
Thousands of disabled people are living in accommodation
that does not meet their needs. Across the social housing
sector, 1 in 10 households on housing waiting lists have
been stuck there for more than five years and demand is
growing every year
7
. It’s a systemic challenge, and one
that the public sector cannot do alone.
Triple Point Social Housing REIT plc focuses on delivering
specialised Supported Housing.
More than that we aim to provide homes – homes that
people can make their own where they receive the
support to live life on their terms.
7
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2021 Annual Report
Before arriving, Will was not sure what
moving to Brunswick Gardens would feel
like, but seeing the flat, and furnishing it
to reflect his love of animals and nature,
helped him to make it “his own”.
House-proud Will describes his flat as
“spacey, bright and homely”.
He added:
“I furnished it all myself and I’m pretty
proud of what I’ve got – I’ve put my own
stamp on things, and it makes it feel a lot
like home to me.”
An array of gorilla, tiger and bear
ornaments decorate his flat with a huge
black panther poster taking proud centre
stage. On Will’s kitchen unit doors is a
kaleidoscope of butterflies, reflecting
Will’s nature-loving side.
Will’s home is illuminated with colour when
he flicks on the colour-changing LED wall
lights, which he has complemented with
LED light branches placed in a vase. In
the opposite corner of the room, another
vase proudly and poignantly displays an
assortment of artificial flowers – which
Will’s late mum gave to him 20 years ago.
Living in Brunswick Gardens is also a
sanctuary for Will and has given him a
peaceful, supportive environment to
call home.
“I really do like it here because it feels
safe,”
explains Will.
“The staff are brilliant
and are here 24 hours, there are cameras,
and the garden is fenced off. It means I’m
not so panicky. Living here has given me
a peaceful home.
I like to go out on the swings in the
garden, listening to the birds tweeting
and watching the clouds go by.
It’s so peaceful and there’s no noise.
I’ve also been down to the park at Big
Waters Lake which is only five minutes
away. I like to see the swans there.”
Living in Brunswick Gardens is
also a sanctuary for Will and has
given him a peaceful, supportive
environment to call home.
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Triple Point Social Housing REIT plc
Will regularly welcomes his family at Brunswick Gardens.
He said:
“Living here means my family can come to see
me. My brother, brother-in-law, two sisters and nephews
and nieces visit, and my brother Victor also takes me
shopping.”
And it was Victor who taught him how to play chess at
the age of eight, a hobby which Will still loves to play – a
chess set sits on the side of his dining table.
“My brother was 10 years older than me and I was beating
him when I was 10,”
he says with a smile.
“I also beat a
chess master at the age of 13. Always think four moves
ahead on the chess board is my tip.”
Will also shares his passion for films with his friends living
at Brunswick Gardens and enjoys playing his array of Xbox
games with staff.
“A few of us sometimes watch films together. I like horrors,
action films with Arnold Schwarzenegger and Marvel
films like Superman, Batman and Ironman, and watching
boxsets on Netflix,”
he said.
“I have a few favourite games
on the Xbox – Call of Duty and Tomb Raider.”
For Will, living at Brunswick Gardens in his own
“peaceful”
home, where he has made friends and his family can visit
him. In his own words, his life now
“is a lot better”.
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2021 Annual Report
Strategic Report
CHAIR’S
STATEMENT
CHRIS PHILLIPS
,
Chair
18
Triple Point Social Housing REIT plc
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Other Information
Governance
8
9
Centre for Workforce Intelligence (2011). Report. The Adult Social Care Workforce in England: Key facts
10
White Paper: “People at the Heart of Care”
11
12
We entered 2021 with cautious optimism. While the
challenges of the pandemic were still being laid bare
on the centre stage, the global economic outlook was
brightening. Countries across the world began vaccinating
their citizens, lockdowns came to an end in the spring
and as a global community, we embarked on a journey
of learning to live with Covid-19. Despite the numerous
challenges that the virus continued to pose to all of our
stakeholders, this year was different.
We tackled 2021 armed with experience, knowledge
and collective resilience. First and foremost we would
like to recognise the work of our housing and care
provider partners who continued to ensure the safety and
wellbeing of our residents
throughout a prolonged
lockdown;
during
times
when
social
distancing,
restrictions,
and
staffing
shortages posed significant
challenges. On our part
we aimed to ensure that
our Approved Providers
and
care
providers
were supported, where
possible
helping
them
continue to operate effectively and ensure minimal
disruption. We continued to collaborate with local
authorities and Commissioners to ensure referrals to our
properties were made as efficiently and, most importantly,
as safely as possible.
As I wrote to you this time last year I reported that despite
all of its challenges, 2020 had been another year of strong
performance for us. I am pleased to tell you that 2021
was more of the same. It has been another year where
we have met our dividend targets and another year in
which we continued to execute our investment strategy,
working with our partners to provide homes to some of
the most vulnerable members of society. Continuing to
build upon our proven track record is something we strive
for, but not something we take for granted. Each and
every one of our stakeholders plays a vital role in allowing
us to deliver our investment strategy and without them I
would not be able to write to you today to report on this
continued strong performance.
In December, the Department of Health & Social Care
published its White Paper on Adult Social Care Reform
“People at the Heart of Care”
8
. The paper highlighted
the important role that wider Supported Housing plays,
and must continue to play in delivering better resident
outcomes within our social care system. Demand for
social care continues to grow year on year. Estimates
predict that at least 1.7 million more adults will require
social care over the next 15 years. Recent analysis found
that among those aged 18-64, requests for support
rose from 500,000 in 2015-16 to 560,000 in 2019-20
9
.
There are more than 650,000 supported homes in the
UK, of which approximately a quarter are specialised
Supported Housing. The UK is lagging behind its peers in
supporting people to live
in Supported Housing
generally.
The
United
States,
New
Zealand
and
Australia
each
provide over 5% of their
total
populations
with
Supported
Housing,
compared with the UK’s
0.6%
10
.
Over 10 years on from
the Winterbourne View scandal, reports continue to come
to light of vulnerable people remaining in inappropriate
and expensive institutional care settings
11
. These reports
continue to highlight not only the urgent need for more
specialised Supported Housing to be provided throughout
the UK, but for greater awareness of the benefits this
type of accommodation has for residents, as well as their
families and wider communities. Since our IPO in 2017,
we have provided 3,424 new units of accommodation.
Our properties provide value for money for the UK
tax-payer when compared with traditional institutional care
settings which cost the Government as much as £3,500
per resident, per week. This is compared with specialised
Supported Housing which costs the Government on
average £1,569 per resident, per week
12
.
Growing demand inevitably puts pressure on the
wider social care delivery system as well as families
and
communities.
I
welcome
the
Government’s
acknowledgement in the Adult Social Care White
Our stakeholders play a vital role in
allowing us to deliver our investment
strategy and without them we would
not be able to report on our continued
strong performance.
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Paper that as a country we must increase the supply of
Supported Housing and that private capital, exactly such
as ours, is vital to meeting this goal alongside our public
sector partners.
As I remarked earlier in my statement, we are committed
to continually applying what we have learnt as a Company
on our journey so far. We learn every day, from listening
to the needs of Commissioners, local authorities, our
Approved Providers, care providers, residents and
shareholders. Our investment strategy is predicated on
doing good by doing well.
Environmental considerations have been at the forefront
of our minds this year, brought further into focus as
nations around the world gathered in Glasgow for the
COP 26 summit. Over 72% of our portfolio already meets
the Government’s target
Energy Performance Certificate
(“EPC”) level of ‘C’ but we know we can and must do more.
In September we announced the launch of an ambitious
initiative to fund the upgrade of all remaining properties
within our portfolio to a minimum EPC rating of ‘C’ over
the next few years.
Further detail on implementing the
new initiative can be found on
pages 48 to 53
.
The Investment Manager will provide a more detailed
overview of our business and performance this year in
its report. In the meantime, I have summarised some
highlights from both our financial performance and
our social impact performance before finishing with a
reflection on the outlook for our business.
Clock Tower, Liverpool
20
Triple Point Social Housing REIT plc
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FINANCIAL PERFORMANCE
During the year, we invested £60.0 million in acquiring
44 new properties providing 345 new homes. Our
acquisitions during the year were all in line with the existing
portfolio’s net initial yield. Covid-19 restrictions caused
delays at times, but we worked with Commissioners and
our Approved Providers to ensure residents were able to
move in safely and as quickly as possible.
The final
two of our 22 forward funding projects
successfully completed this year. Since IPO, we have
invested £53.7 million in total in these types of construction
projects, which have provided 318 new, high quality
and much needed homes in community settings for our
residents. The numerous obstacles caused by Covid-19
and the associated lockdowns have caused delays on
some of these developments, however, these have not
come at a material financial cost to our shareholders. We
hope to commence work on new forward funding projects
over the course of 2022 as local authorities continue to
signal demand for more of these long-term homes for
people with care and support needs.
Since IPO, we have delivered cumulative total returns of
approximately 31.1% representing an annualised return
of 7.07% per annum.
Our acquisitions during the year were funded from
existing cash and debt balances. We were delighted with
the outcome of the debt refinancing reported earlier in
the year which enabled us to put in place a new long-
term debt facility, which locks in competitive interest
rates for 10 to 15 years at a time of rising inflation. The
refinancing also provided £65.0 million of further capital
for investment into new specialised Supported Housing
homes.
We were pleased to report that, as part of the refinancing,
the Group received an Investment Grade Issuer Default
Rating from Fitch of ‘A-’ (Stable Outlook) with a senior
secured rating of ‘A’. This is a positive endorsement of
both the Group’s investment thesis and the sector, that
enabled the Group to pursue a broader strategy in
relation to debt financing. The Group’s new long-term,
attractively priced, fixed-rate loan notes are reflective of
this. Further detail on both the new debt facility and the
rating can be found in the Investment Manager’s report
on page
41
.
SOCIAL IMPACT
Social Impact is engrained in our decision making
processes and is central to our business model. This
set of results demonstrates our conviction that financial
performance and social impact are mutually reinforcing.
The independent Impact Report prepared by The Good
Economy this year incorporates a new and enhanced
monetisation methodology. This new methodology
verifies that our properties have delivered £2.74
of
Total Social Value for every £1.00 invested in the year
to 31 December 2021. You can read more on the social
value and impact that our properties create in the Impact
Report prepared by the Good Economy, available
separately on our website.
Each property we acquire is assessed to ensure it
meets our ESG standards, provides value-for-money
to local authorities, enhances resident outcomes and
delivers a positive overall social impact. Integration of
ESG standards at the core of our diligence processes
means that we identify ESG risks early in the acquisition
process, giving us an opportunity to engage on these
issues early along with our stakeholders.
As focus has grown on social impact investing so too
has the framework around it. We were early adopters of
the Sustainability Reporting Standard for Social Housing
(a metric we monitor our Approved Providers against)
and we are a member of the Equity Impact Project. We
were also a participant of the Green Lease Working
Group for the Green Finance Institute. We look forward
to continuing to contribute to these projects and to
helping to shape the sector’s impact framework along
with other market stakeholders in the years to come.
You can read more on our outlook for initiating “green”
leases in our future pipeline in the Investment Manager’s
Report on pages 36
to 44
.
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PROPOSED AMENDMENTS TO THE GROUP’S INVESTMENT POLICY
Today, alongside announcing our results, we have also
published in our Notice of Annual General Meeting
(AGM) and circular, proposed changes to the Company’s
investment policy and investment restrictions.
The Company was one of the first listed investment trusts
to invest equity directly into specialised Supported Housing
in 2017. During that time, the sector has evolved, and as
a responsible investor, we have moved forward alongside
it. We have developed our leases to reflect the collective
learnings of the sector and maximise their effectiveness. In
2019, we introduced a change in law clause into our new
leases which facilitated proportionate risk sharing with
Approved Providers if there was to be a material future
change in housing benefit policy. We have also consistently
increased the reporting onus on our Approved Providers,
strengthened the Group’s right to assign leases if an
Approved Provider is underperforming and introduced
“green” lease provisions. Collectively these changes have
helped ensure that the Group’s investments generate stable
and sustainable financial returns for investors and deliver
social impact.
The Company operates in a regulated sector and the
Investment Manager maintains
an ongoing dialogue with
the Regulator of Social Housing alongside our Approved
Providers. The Regulator has publicly commented on the
risks associated with leases in the specialised Supported
Housing sector. Increasingly, Approved Providers are
looking to evolve the terms of the leases they enter into
going forward, in part, to address the observations made by
the Regulator. Simultaneously, over the last six months the
Investment Manager has seen an increasing prevalence of
new lease structures in the sector and the endorsement of
those new lease structures by other investors.
The Company is proposing to change its investment policy
and investment restrictions at this time to ensure it has
the requisite flexibility to continue to be at the forefront
of this evolving sector, allow our Approved Providers to
accommodate points raised by the Regulator, and thereby
remain an attractive partner.
Full details of the proposed changes are outlined in full in
the Notice of AGM and in summary focus on:
•
Removing the Company’s minimum lease term restriction.
•
Allowing the Company to selectively take on the cost of
funding planned maintenance.
•
Giving the Company the ability to enter into leases which
are subject to upward only adjustments, tracking either
inflation or central housing benefit policy.
Our mission remains clear. We remain determined to deploy
our capital into good quality homes, leased to the best
quality Approved Providers in the sector. These changes will
enable us to do just that.
In formulating these changes the Company has carefully
considered the impact that implementing them will have
on its performance, income and capital return targets going
forward. An initial pipeline of opportunities in excess of £15
million has been identified which incorporate lease terms
compatible with the proposed changes. These opportunities
are consistent with the Group’s income and capital return
targets and will be supported by formal valuation advice
from the Group’s independent valuer, JLL.
A resolution will be proposed at the Company’s 2022 Annual
General Meeting to approve these changes. If passed by
shareholders, we will, as ever, be focused on the quality of
our assets, the duration of our revenue streams and ensuring
the Company continues to build on its success to date.
At the year end:
we owned 488 properties,
comprising 3,424 units, having
cumulatively deployed £590.4
million since IPO. Page
47
contains a map of all our
properties
we had 24 Approved Providers,
and a portfolio weighted
average unexpired lease term
of 26.2 years
the portfolio was valued at
£642.0 million on an IFRS
basis, 8.7% above our total
investment cost and reflecting
an EPRA NIY of 5.20%
I am pleased to continue to report this year that we have paid
all target dividends in full as we have done since inception.
Following continued deployment, at 31 December 2021
our dividend cover on a look through EPRA run rate basis
was 0.99x. We expect to announce our dividend target for
2022 in May as we have done in previous years.
Our EPRA earnings per share was 4.82 pence in the year
(adjusted EPRA earnings on a cash basis was 5.14 pence)
while IFRS earnings per share was 7.05 pence. Finally, the
EPRA NTA and audited IFRS NAV per share was 108.27
pence, an increase of 1.7% since 31 December 2020.
All in all, we are proud of another set of strong financial
results which builds on our performance to date.
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Strategic Report
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Other Information
Governance
Lillydale Road, Stoke-on-Trent
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2021 Annual Report
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Other Information
Governance
Earlsway, Macclesfield
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Company Overview
Strategic Report
Financial Statements
Other Information
Governance
Outlook
If the pandemic has taught us anything it is that the
intersections of health, economic and societal factors are
more profound than ever. We cannot tackle these issues
alone, but we can be a responsible participator in the wider
system. By delivering on our investment strategy we seek
to make a positive contribution to society while delivering
sustainable financial returns for our shareholders.
I look forward to engaging with our Shareholders in the weeks
to come on the proposed changes to the investment policy
and investment restrictions as we embark upon an exciting
new chapter of continued growth for the Group in 2022.
Sadly, I cannot end without mentioning the deeply upsetting
and ongoing situation in Ukraine. The Company is fortunate
that its investment strategy is resilient and not directly
impacted by the current conflict, however, the impending
refugee and humanitarian crisis cannot escape our minds.
We would like to take this opportunity to offer any support
which we can to the wider sector in the coming months as
the human impact of the conflict takes its toll.
I would like to thank all our advisers, and the Investment
Manager, for their continued hard work and dedication to our
investment strategy. Our corporate broker and joint financial
adviser, Stifel Nicolaus Europe Limited, and our joint financial
adviser, Akur Limited, as always have provided valuable and
high-quality advice during the year. Alongside the Investment
Manager, they have been instrumental in designing ways for
the Group to continue to build upon its success so far and
helping us to navigate plans for the Group’s growth as I have
announced today.
Finally, I would like to thank our shareholders for their
continued support, as well as my fellow Board members for
their ongoing commitment and assistance this year.
Chris Phillips
Chair
24 March 2022
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2021 Annual Report
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Governance
Strategy and Business Model
The Board is responsible for the Group’s investment objective and investment policy
and has overall responsibility for ensuring the Group’s activities are in line with
such overall strategy. The Group’s investment policy and investment objective are
published below.
As noted in the Chair’s statement, the Company is proposing a resolution at the upcoming AGM in respect of a
change to its investment policy and investment restrictions. Further details can be found in the Notice of Meeting and
combined circular. A copy of the Group’s existing investment policy is set out below.
Investment Objective
The Group’s investment objective is to provide shareholders with stable, long-term, inflation-linked income from a portfolio
of social housing assets in the United Kingdom with a focus on Supported Housing assets. The portfolio comprises
investments in operating assets and the forward funding of pre-let development assets, the Company seeks to optimise
the mix of these assets to enable it to pay a covered dividend increasing in line with inflation and so generate an attractive
risk-adjusted total return.
Investment Policy
To achieve its investment objective, the Group invests in a diversified portfolio of freehold or long leasehold social housing
assets in the UK. Supported Housing assets account for at least 80% of the Group’s gross asset value. The Group acquires
portfolios of social housing assets and single social housing assets, either directly or via SPVs. Each asset is subject to a lease
or occupancy agreement with an Approved Provider for terms primarily ranging from 20 years to 30 years, with the rent
payable thereunder subject to adjustment in line with inflation (generally CPI). Title to the assets remains with the Group
under the terms of the relevant lease. The Group is not responsible for any management or maintenance obligations under
the terms of the lease or occupancy agreement, all of which are serviced by the Approved Provider lessee. The Group is not
responsible for the provision of care to residents of Supported Housing assets.
The social housing assets are sourced in the market by the Investment Manager.
The Group intends to hold its portfolio over the long-term, taking advantage of long-term upward-only inflation-linked
leases. The Group will not be actively seeking to dispose of any of its assets, although it may sell investments should
an opportunity arise that would enhance the value of the Group as a whole.
The Group may forward fund the development of new social housing assets when the Investment Manager believes
that to do so would enhance returns for shareholders and/or secure an asset for the Group’s portfolio at an attractive
yield. Forward funding will only be provided in circumstances in which:
(a)
there is an agreement to lease the relevant property upon completion in place with an Approved Provider;
(b)
planning permission has been granted in respect of the site; and
(c)
the Group receives a return on its investment (at least equivalent to the projected income return for the completed
asset) during the construction phase and before the start of the lease.
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For the avoidance of doubt, the Group will not acquire land
for speculative development of social housing assets.
In addition, the Group may engage third party contractors
to renov
ate or customise existing social housing assets as
necessary.
GEARING
The Group uses gearing to enhance equity returns. The
Directors will employ a level of borrowing that they
consider prudent for the asset class and will seek to
achieve a low cost of funds while maintaining flexibility in
the underlying security requirements and the structure of
both the Company’s portfolio and the Group.
The Directors intend that the Group will target a level
of aggregate borrowings over the medium-term equal
to approximately 40% of the Group’s gross asset value.
The aggregate borrowings will always be subject to an
absolute maximum, calculated at the time of drawdown,
of 50% of the Group’s gross asset value.
Debt will typically be secured at the asset level, whether
over a particular property or a holding entity for a particular
property (or series of properties), without recourse to
the Company and having consideration for key metrics
including lender diversity, cost of debt, debt type and
maturity profiles.
USE OF DERIVATIVES
The Group may use derivatives for efficient portfolio
management. In particular, the Group may engage in full or
partial interest rate hedging or otherwise seek to mitigate
the risk of interest rate increases on borrowings incurred
in accordance with the Investment Policy as part of the
Group’s portfolio management. The Group will not enter
into derivative transactions for speculative purposes.
INVESTMENT RESTRICTIONS
The following investment restrictions apply:
• the Group will only invest in social housing assets
located in the United Kingdom;
• the Group will only invest in social housing assets where
the counterparty to the lease or occupancy agreement
is an Approved Provider. Notwithstanding that, the
Group may acquire a portfolio consisting predominantly
of social housing assets where a small minority of such
assets are leased to third parties who are not Approved
Providers. The acquisition of such a portfolio will remain
within the Investment Policy provided that at least 90%
(by value) of the assets are leased to Approved Providers
and, in aggregate, all such assets within the Group’s
total portfolio represent less than 5% of the Group’s
gross asset value at the time of acquisition;
• at least 80% of the Group’s gross asset value will be
invested in Supported Housing assets;
• the unexpired term of any lease or occupancy agreement
entered into (or in the case of an acquisition of a portfolio
of assets, the average unexpired term of such leases or
occupancy agreements) shall not be less than 15 years,
unless the Investment Manager reasonably expects the
term of such shorter lease or occupancy agreement (or
in the case of an acquisition of a portfolio of assets, the
average term of such leases or occupancy agreements) to
be extended to at least 15 years;
• the maximum exposure to any one asset (which, for
the avoidance of doubt, will include houses and/or
apartment blocks located on a contiguous basis) will not
exceed 20% of the Group’s gross asset value;
• the maximum exposure to any one Approved Provider will
not exceed 30% of the Group’s gross asset value, other
than in exceptional circumstances for a period not to
exceed three months;
• the Group may forward fund social housing units in
circumstances where there is an agreement to lease
in place and where the Group receives a coupon (or
equivalent reduction in the purchase price) on its
investment (generally slightly above or equal to the
projected income return for the completed asset)
during the construction phase and before entry into
the lease. Forward funding equity commitments will be
restricted to an aggregate value of not more than 20%
of the Group’s net asset value, calculated at the time of
entering into any new forward funding arrangement;
• the Group will not invest in other alternative investment
funds or closed-ended investment companies (which,
for the avoidance of doubt, does not prohibit the
acquisition of SPVs which own individual, or portfolios
of, social housing assets);
• the Group will not set itself up as an Approved Provider;
and
• the Group will not engage in short selling.
The investment limits detailed above apply at the time of
the acquisition of the relevant asset in the portfolio. The
Group will not be required to dispose of any investment
or to rebalance its portfolio as a result of a change in the
respective valuations of its assets or a merger of Approved
Providers.
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Governance
Investment Strategy
The Group specialises in investing in UK social housing,
with a focus on Supported Housing. The strategy is
underpinned by strong local authority demand for more
social housing, which is reflected in the focus on acquiring
recently developed and refurbished properties across the
United Kingdom. The assets within the portfolio have
typically been developed for pre-identified residents
and in response to demand specified by local authorities
or NHS commissioners. On acquisition, to date the
properties are subject to inflation-adjusted, long-term
(typically from 20 years to 30 years), fully repairing and
insuring leases with specialist Approved Providers in
receipt of direct payment from local government (usually
Registered Providers regulated by the Regulator of Social
Housing). The existing portfolio comprises investments
made into properties already subject to a fully repairing
and insuring lease as well as forward funding of pre-let
developments. The portfolio will not include any direct
development or speculative development investments.
The Group is proposing amendments to its investment
policy and investment restrictions, which if approved
by shareholders, will enable the Group to enter into
more flexible lease structures going forward. These
more flexible lease structures may include entering into
leases for shorter terms and, in certain cases, the Group
may, selectively, take on the cost of funding planned
maintenance on some properties.
Business Model
The Group owns and manages social housing properties
that are leased to experienced housing managers (typically
Registered Providers, which are often referred to as
housing associations) through long-term, inflation-linked,
fully repairing and insuring leases. The vast majority of the
portfolio and future deal pipeline is made up of Supported
Housing homes which are residential properties that have
been adapted or built such that care and support can easily
be provided to vulnerable residents who may have mental
health issues, learning difficulties or physical disabilities. We
are focused on acquiring specially or recently developed
properties in order to help local authorities meet increasing
demand for suitable accommodation for vulnerable residents
(the drivers of this demand are discussed in the Investment
Manager’s report on pages 36
to 44
). Local authorities are
responsible for housing these residents and for the provision
of all care and support services that are required.
The Supported Housing properties owned by the Group
are leased to Approved Providers which are usually not-for-
profit organisations focused on developing, tenanting and
maintaining housing assets in the public (and private) sectors.
Approved Providers are approved and regulated by the
Government through the Regulator of Social Housing (or in
rare instances, where the Group contracts with care providers,
the Care Quality Commission). The majority of the Group’s
existing leases with Approved Providers are linked to inflation,
have a duration of 20 years or longer, and are fully repairing
and insuring – meaning that the obligations for management,
repair and maintenance of the property under those leases
are passed to the Approved Provider. The Group closely
monitors the long term risks to its portfolio, both physical
risk, as well as the regulatory risks associated with climate
change. In spite of the fact that the majority of the Group’s
existing leases are fully repairing and insuring, during the year
the Group announced its sector-first retrofit programme to
fund the upgrade of all properties in the Group to a minimum
EPC of ‘C’
over the next few years. This commitment is a
demonstration of the Group’s commitment to the long-
term continued performance and strength of its portfolio.
As mentioned above, the Group has also now proposed
amendments to its investment policy and investment
restrictions, which if approved by shareholders, will enable
the Group to enter into more flexible lease structures going
forward. If approved by shareholders, the Group’s future
pipeline of assets may include opportunities on shorter lease
terms and, in a continuation of the Group’s commitment to
the physical strength of its portfolio, would allow the Group
takes on the cost of funding planned maintenance on newly
acquired assets in certain circumstances. In each of these
opportunities, the Group will ensure that these assets are
consistent with its income and capital return targets. The
Approved Provider is also responsible for tenanting the
properties. Typically, the Government funds both the rent
of the individuals housed in Supported Housing and the
maintenance costs associated with managing the property. In
addition, because of the vulnerable nature of the residents,
the rent and maintenance costs are paid directly from the
local authority to the Approved Provider. The rent received
from the local authority by the Approved Provider is then
paid to the Group via the lease. Ultimate funding for the rent
and maintenance comes from the Department for Work and
Pensions in the form of housing benefit.
The majority of residents housed in Supported Housing
properties require support and/or care. This is typically
provided by a separate care provider regulated by the Care
Quality Commission. The agreement for the provision of
care for the residents is between the local authority and the
care provider. The care provider is paid directly by the local
authority. Usually the Group has no direct financial or legal
relationship with the care provider and the Group never has
any responsibility for the provision of care to the residents
in properties the Group owns. The care provider will often
be responsible for nominating residents into the properties
and, as a result, will normally provide some voids cover to the
Approved Provider should they not be able to fill the asset
(i.e. if occupancy is not 100% it is often the care provider
rather than the Approved Provider that will cover the
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Other Information
Governance
cost). The Group receives full rent regardless of underlying
occupancy, but monitors occupancy levels and the payment
of voids cover by care providers, to ensure that Approved
Providers are appropriately protected.
Many assets that the Investment Manager sources for
the Group have been recently developed and are either
specifically designed new build properties or renovated
existing houses or apartment blocks that have been adapted
for Supported Housing. The benefit of buying recently-
developed stock is that it has been planned in response to
local authority demand and is designed to meet the specific
requirements of the intended residents. In addition, it
enables the Group to work with a select stable of high-quality
developers on pipelines of deals rather than being reliant
on acquiring portfolios of already-built assets on the open
market. This has two advantages: firstly, it enables the Group
to source the majority of its deals off-market through trusted
developer partners and, secondly, it ensures the Group has
greater certainty over its pipeline with visibility over the long-
term deal flow of the developers it works with and knows it
will not have to compete with other funders.
As well as acquiring recently developed properties, the
Group can provide forward funding to developers of new
Supported Housing properties. Being able to provide forward
funding gives the Group a competitive advantage over other
acquirers of Supported Housing assets as it enables the
Group to offer developers a single funding partner for both
construction and the acquisition of the completed property.
This is often more appealing to developers than having to
work with two separate funders during the build of a new
property as it reduces practical and relationship complexity.
As well as strengthening developer relationships, forward
funding enables the Group to have a greater portion of
new build properties in its portfolio which typically attract
higher valuations, are modern and have been custom-built
to meet the needs of the residents they house, helping to
achieve higher occupancy levels. The Group benefits from
the Investment Manager’s long track record of successfully
forward funding a range of property and infrastructure
assets. The Group will only provide forward funding when
the property has been pre-let to an Approved Provider
and other protections, such as fixed-priced build contracts
and deferred developer profits, have been put in place to
mitigate construction risk.
Since the Company’s IPO, the Group has set out to build a
diversified portfolio that contains assets leased to a variety
of Approved Providers, in a range of different counties,
and serviced by a number of care providers. This has been
possible due to the Investment Manager’s 18-year track
record of asset-backed investments, its active investment in
the Supported Housing sector since 2014, and the strong
relationships it has enjoyed with local authorities for over
a decade. These relationships have enabled the Group,
in a relatively short space of time, to work with numerous
Approved Providers, care providers and local authorities to
help deliver new Supported Housing assets that provide
homes to some of the most vulnerable members of society.
29
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Governance
Key Performance Indicators
In order to track the Group’s progress the following key performance indicators are monitored:
KPI AND DEFINITION
RELEVANCE TO STRATEGY
PERFORMANCE
COMMENT
1. DIVIDEND
Dividends paid to shareholders
and declared during the year.
Further information is set out in
Note 27.
The
dividend
reflects
the
Company’s ability to deliver a low
risk but growing income stream
from the portfolio.
Total dividends of 5.20 pence per
share were paid or declared in
respect of the period 1 January
2021 to 31 December 2021.
(2020: 5.18 pence)
The
Company
has
declared
a dividend of 1.30 pence per
Ordinary
share
in
respect
of
the period 1 October 2021 to
31 December 2021, which will
be paid on 25 March 2022. Total
dividends
paid
and
declared
for the year are in line with the
Company’s target.
2. EPRA NET TANGIBLE ASSETS (NTA)
The EPRA NTA is equal to IFRS
NAV as there are no deferred tax
liabilities or other adjustments
applicable to the Group under the
REIT regime.
Further information is set out
in Note 5 of the Unaudited
Performance Measures.
EPRA NTA measure that assumes
entities
buy
and
sell
assets,
thereby crystallising certain levels
of deferred tax liability.
108.27 pence at 31 December 2021.
(31 December 2020: 106.42 pence)
The EPRA NTA per share at IPO
was 98 pence.
This represents an increase of
10.48% since IPO driven primarily
by
yield
compression
in
the
subsector.
3. LOAN TO VALUE (LTV)
A proportion of our portfolio is
funded through borrowings. Our
medium to long-term target LTV is
35% to 40% with a maximum
of
50%.
Further information is set out in
Note 20.
The Company uses gearing to
enhance equity returns.
The LTV covenant on the revolving
credit facility with Lloyds is < 50%.
37.6 % LTV at 31 December 2021.
(31 December 2020: 31.5% LTV)
Borrowings comprise two private
placements of loan notes totalling
£263.5 million provided by MetLife
Investment
Management
and
Barings. The £160 million revolving
credit
facility
with
Lloyds
and
NatWest was completely undrawn
as at 31 December 2021. Since the
year end, the Group cancelled a
portion of this facility such that it has
been reduced £50.0 million.
4. EPRA EARNINGS PER SHARE
EPRA Earnings per share (EPRA
EPS) excludes gains from fair value
adjustment on investment property
that are included in the IFRS
calculation for Earnings per share.
Further information is set out in
Note 36.
A measure of a Group’s underlying
operating results and an indication
of the extent to which current
dividend payments are supported
by earnings.
4.82 pence per share for the year
ended 31 December 2021, based
on earnings excluding the fair value
gain on properties, calculated on
the weighted average number of
shares in issue during the year.
(31 December 2020: 4.61 pence)
EPRA EPS increased by 4.53%.
5. ADJUSTED EARNINGS PER SHARE
Adjusted
earnings
per
share
includes adjustments for non-cash
items. The calculation is shown in
Note 36.
A key measure which reflects
actual
cash
flows
supporting
dividend payments.
5.14 pence per share for the year
ended 31 December 2021, based
on earnings after deducting the
fair value gain on properties,
amortisation of loan arrangement
fees and adding back capitalised
interest;
calculated
on
the
weighted
average
number
of
shares in issue during the year.
(31 December 2020: 4.90 pence)
This demonstrates the Group’s
ability to meet dividend payments
from net cash inflows. It represents
a dividend cover for the year to
31 December 2021 of 0.99x.
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KPI AND DEFINITION
RELEVANCE TO STRATEGY
PERFORMANCE
COMMENT
6. WEIGHTED AVERAGE UNEXPIRED LEASE TERM (WAULT)
The
average
unexpired
lease
term of the investment portfolio,
weighted by annual passing rents.
The WAULT is a key measure of
the quality of our portfolio. Long
lease terms underpin the security
of our income stream.
26.2 years at 31 December 2021
(includes put and call options).
(31 December 2020: 26.2 years)
As at 31 December 2021, the
portfolio’s
WAULT
stood
at
26.2 years.
7. ADJUSTED PORTFOLIO EARNINGS PER SHARE
The post-tax earnings adjusted
for the market portfolio valuation
including portfolio premium.
Further information is set out
in Note 2 of the unaudited
performance measures.
The
Adjusted
Portfolio
EPS
reflects the application of using
the portfolio value and reflects
the potential increase in value the
Group could realise if assets are
sold on a portfolio basis.
19.46 pence per share for the
period ended 31 December 2021,
as shown on page
148.
(31 December 2020: 17.94 pence)
The Adjusted Portfolio EPS shows
the value per share on a long-term
basis.
The increase in the Adjusted
Portfolio EPS from the previous
period is reflective of the larger
portfolio size.
8. PORTFOLIO NAV
The
IFRS
NAV
adjusted
for
the market portfolio valuation
including portfolio premium.
Further information is set out
in Note 1 of the unaudited
performance measures.
The Portfolio NAV measure is to
highlight the fair value of net assets
on an ongoing, long-term basis
and reflects the potential increase
in value the Group could realise
under the special assumption of a
hypothetical sale of the underlying
property investment portfolio in
one single transaction.
The
Portfolio
NAV
of
£486.1
million equates to a Portfolio NAV
of 120.68 pence per Ordinary
Share, as shown on page
148
.
(31 December 2020: Portfolio NAV
£468.8 million equated to 116.39
pence per Ordinary Share)
The Portfolio NAV per share
shows a good market growth in
the underlying asset value of the
investment properties.
9. EXPOSURE TO LARGEST APPROVED PROVIDER
The percentage of the Group’s
gross assets that are leased to the
single largest Approved Provider.
The
exposure
to
the
largest
Approved
Provider
must
be
monitored to ensure that we
are not overly exposed to one
Approved Provider in the event of
a default scenario.
28.3% at 31 December 2021.
(31 December 2020: 29.8%)
Our
maximum
exposure
limit
is 30%.
10. TOTAL RETURN
Change in EPRA NTA plus total
dividends paid during the period.
The
Total
Return
measure
highlights the gross return to
investors including dividends paid
since the prior year.
EPRA NTA per share was 108.27
pence at 31 December 2021.
Total dividends paid during the
year ended 31 December 2021
were 5.195 pence per share.
Total return was 6.62% for the year
to 31 December 2021.
(31 December 2020: 5.9%)
The EPRA NTA per share at
31 December 2021 was 108.27
pence. Adding back dividends
paid during the year of 5.195
pence per Ordinary Share to the
EPRA NTA at 31 December 2021
results in an increase of 4.80%.
The Total Return since the IPO is
31.1% at 31 December 2021.
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EPRA Performance Measures
The table shows additional performance measures,
calculated in accordance with the Best Practices
Recommendations of the European Public Real Estate
Association (EPRA). We provide these measures to aid
comparison with other European real estate businesses.
Full reconciliations of EPRA Earnings and NAV are included
in Note 36 of the consolidated financial statements and
Notes 3 to 5 of the Unaudited Performance Measures,
respectively. A full reconciliation of the other EPRA
performance measures are also included in the Unaudited
Performance Measures section of the Annual Report.
Hirstlands Drive, Ossett
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KPI AND DEFINITION
PURPOSE
PERFORMANCE
1. EPRA EARNINGS PER SHARE
EPRA Earnings per share excludes gains from
fair value adjustment on investment property
that are included in the IFRS calculation for
Earnings per share.
A measure of a Group’s underlying operating
results and an indication of the extent to which
current dividend payments are supported by
earnings.
4.82
pence
per
share
for
the
year
to
31 December 2021.
(31 December 2020: 4.61 pence)
Full dividend cover on a look-through EPRA
earnings run-rate basis including committed
funds was 0.99x as at 31 December 2021.
2. EPRA NET REINSTATEMENT VALUE (NRV) PER SHARE
The EPRA NRV adds back the purchasers’ costs
deducted from the IFRS valuation.
A measure that highlights the value of net
assets on a long-term basis.
£475.4 million/118.08 pence per share as at
31 December 2021.
£463.3 million/115.02 pence per share as at
31 December 2020.
3. EPRA NET TANGIBLE ASSETS (NTA) PER SHARE
The EPRA NTA is equal to IFRS NAV as
there are no deferred tax liabilities or other
adjustments applicable to the Group under the
REIT regime.
A measure that assumes entities buy and sell
assets, thereby crystallising certain levels of
deferred tax liability.
£436.1 million/108.27 pence per share as at
31 December 2021.
£428.6 million/106.42 pence per share as at
31 December 2020.
4. EPRA NET DISPOSAL VALUE (NDV)
The EPRA NDV provides a scenario where
deferred tax, financial instruments, and certain
other adjustments are calculated as to the full
extent of their liability.
A measure that shows the shareholder value if
assets and liabilities are not held until maturity.
£434.0 million/107.76 pence per share as at 31
December 2021.
£420.9 million/104.50 pence per share as at 31
December 2020.
5. EPRA NET INITIAL YIELD (NIY)
Annualised rental income based on the cash
rents passing at the balance sheet date, less
non-recoverable property operating expenses,
divided by the market value of the property,
increased with (estimated) purchasers’ costs.
A comparable measure for portfolio valuations.
This measure should make it easier for investors
to judge for themselves how the valuation of a
portfolio compares with others.
5.20% at 31 December 2021.
5.27% at 31 December 2020.
6. EPRA “TOPPED-UP” NIY
This measure incorporates an adjustment to
the EPRA NIY in respect of the expiration of
rent-free periods (or other unexpired lease
incentives such as discounted rent periods and
step rents).
The topped-up net initial yield is useful
in that it allows investors to see the yield
based on the full rent that is contracted at
31 December 2021.
5.27% at 31 December 2021.
5.28% at 31 December 2020.
7. EPRA VACANCY RATE
Estimated Market Rental Value (ERV) of vacant
space divided by ERV of the whole portfolio.
A “pure” percentage measure of investment
property space that is vacant, based on ERV.
0.26% at 31 December 2021.
0.29% at 31 December 2020.
8. EPRA COST RATIO
Administrative and operating costs (including
and excluding costs of direct vacancy) divided
by gross rental income.
A
key
measure
to
enable
meaningful
measurement of the changes in a Group’s
operating costs.
20.91% at 31 December 2021.
23.27% at 31 December 2020.
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THE
INVESTMENT
MANAGER
Pictured above: Max Shenkman, James Cranmer, Ben Beaton, Anne-Britt Karunaratne,
Ralph Weichelt, Isobel Gunn-Brown and Justin Hubble
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Ben joined the Investment Manager in 2007 to lead the
sourcing and execution of a broad spectrum of investments
including renewable energy, long leased infrastructure and
property bridge lending. He has spent his career building
innovative products for investors and offering attractive
and flexible funding solutions to a range of businesses,
both in the public and private sector. Ben has a BSc (Hons)
in Biological Sciences from the University of Edinburgh. He
became Co-Managing Partner in 2016.
BEN BEATON,
Managing Partner
Max joined the Investment Manager in 2011 and has led
investments across the product range. He has arranged both
debt and equity funding for a number of property backed
transactions in the social housing, infrastructure and agricultural
sectors. Max has led over £500 million of investment into
Supported Housing assets for the Group. Prior to joining the
Investment Manager, Max was an Associate in the Debt Capital
Markets team at Lazard where he advised private equity
clients on both the buy and sell side. Max graduated from the
University of Edinburgh.
MAX SHENKMAN,
Partner & Head of Investment
Isobel joined the Investment Manager in 2010 and acts as
Finance Director to the Group leading the financial reporting
responsibilities of the Group. At the Investment Manager
Isobel is head of the Fund Management Services department.
Isobel is ACCA qualified with over 30 years’ experience in
the financial services sector. Her experience is wide-ranging
and includes managing the financial reporting for eight listed
venture capital trusts, managing the Investment Manager’s
FCA regulation and reporting requirements and monitoring
investee company compliance with HMRC regulation.
ISOBEL GUNN-BROWN,
Partner & REIT CFO
Ralph joined Triple Point in November 2017 and is Head of
Debt Capital Markets responsible for the debt strategies for all
Triple Point managed private and listed funds. Prior to joining
Triple Point, Ralph was a Partner in a pan-European debt
advisory and fixed income firm focusing on debt origination
via the debt capital markets for commercial real estate and
infrastructure. Prior to this, he held a number of senior positions
in pan-European real estate spanning from fund management,
transactional work to advisory. Ralph is also a member of the
Investment Committee.
RALPH WEICHELT,
Head of Debt Capital Markets
Justin joined the Investment Manager in 2017 as General
Counsel. He began his legal career as a barrister in New
Zealand before moving to the UK where he worked as a
private practice lawyer at City firm Ashurst during the dot-com
era. On leaving private practice he pursued in-house roles
as the General Counsel of several high growth, disruptive
tech businesses from start-up to float. Justin is qualified as a
barrister & solicitor in New Zealand and as a solicitor in the UK.
He is a graduate of Otago University, New Zealand and holds
a Master of Laws degree from University College London.
JUSTIN HUBBLE,
Partner & General Counsel
James joined the Investment Manager in 2006 to establish its
flagship leasing business, Triple Point Lease Partners, which has
grown to be one of the UK’s most active providers of operating
lease finance into local authorities and NHS Trust Hospitals. James
has over 20 years’ experience in structured, asset and vendor
finance, and has been responsible for in excess of £1 billion of
funding into UK Local Authorities, NHS Hospital Trusts, FTSE 100
and small and medium-sized companies. James is a graduate
of St. Andrews University. He became Co-Managing Partner in
2016.
JAMES CRANMER,
Managing Partner
Anne-Britt joined Triple Point in August 2021 and is the
Housing Operations Director in the Housing team.
She has
over 35 years’ social housing experience, and is responsible
for looking after our portfolio of social housing homes. Anne-
Britt is passionate about delivering great quality homes and
excellent services that make a difference to peoples’ lives
and the communities they live in.
ANNE-BRITT KARUNARATNE,
Housing Operations Director
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INVESTMENT
MANAGER’S
REPORT
MAX SHENKMAN
,
Head of Investment
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Introduction
At the onset of the pandemic few could have predicted the
devastating toll it has had or its prolonged impact. We have
endured a second year of restrictions and the emergence of
new variants posed continual risks. As we shifted our focus
to learning how to live with Covid-19, important lessons
emerged. It is critical that new ways are found to support the
increasing burden on our National Health Service which was
already operating under sustained pressure. With demand for
adult social care services exacerbated by the pandemic, along
with rising population growth, demand across the country for
new specialised Supported Housing properties such as those
provided by the Group has never been more pressing.
The Group’s investment strategy is underpinned by important
fundamentals, increasing the supply of affordable housing
in areas of demand and providing shareholders with stable,
generally
inflation-linked
income.
Delivering
on
these
fundamentals has positive tangible benefits. Our properties
provide specialist adapted homes with appropriate care
for our residents. This in turn continues to be recognised as
contributing to improving resident outcomes by providing
greater independence and placing residents within their
communities, close to friends and families.
Demonstrating our commitment to continual evolution and
growth, in August we welcomed our new Director of Housing,
Anne-Britt Karunaratne, who was previously an Executive
Director of Housing & Customer Services of a large Registered
Provider that provides over 20,000 social homes, mostly in the
South East of England. She has brought a wealth of knowledge,
experience and valuable insights to the team, and she further
enhances our relationships with our Approved Providers. The
team has now grown to over 25 people, each with a unique
skill set and background. The team brings together expertise
from a range of disciplines and backgrounds including finance,
surveying, local authorities, Registered Providers, lawyers and
accountants. With such a breadth of experience, the Group has
continued to invest in new relationships, beginning relationships
with 4 new Approved Providers. This year reflects another year of
sustained strong performance for the Group which is illustrated
in the results set out below.
As mentioned in our Chair’s Statement, during 2021 the
Group bought 44 new schemes for a total investment cost of
£60.0 million (including acquisition costs) funded from existing
cash and debt balances. These schemes provided 345 new units
of accommodation to the Group’s portfolio in 2021 alone, and
meant that at 31 December 2021 the Group had 488 properties
in total, comprising 3,424 units, leased to 24 Approved Providers,
across 156 different local authorities with support in these homes
provided by 114 care providers. The Group’s deployment was
slightly slowed at times due to construction delays, supply chain
issues and the rising cost of materials impacting development
costs. However, the Group was able to weather these challenges
alongside its stakeholders and worked hard to deploy its capital
into new, much needed, high-quality properties across the UK
throughout the year.
The Group continues to focus on its robust due diligence
processes and enhanced asset management programme,
which together ensures that it safeguards the financial and
operational resilience of its portfolio. Insights from every
opportunity the Group assesses and every stakeholder it is
engaged with are factored into these processes and they are
constantly evolving to ensure that they represent best practice.
Since the Group’s IPO in 2017 over half of the deals that have
been considered have been rejected. This demonstrates the
Group’s commitment to acquiring good quality homes and
working with trusted counterparties to deliver its investment
strategy.
Our investments continue to create positive social impact.
The Group’s third Impact Report, available separately, was
commissioned to independently verify how the Group is
delivering on these fundamentals. The report shows that, in
2021 alone, the Group delivered £84.8 million of direct fiscal
savings and £105.8 million of social value (which is the monetary
value ascribed to improving the wellbeing of residents). This
year the report has been calculated using a new and established
Wellbeing Valuation methodology developed by Simetrica-
Jacobs which has been endorsed in HM Treasury Green Book
and associated guidance. This new metric uses a new and
enhanced monetisation methodology and is therefore not
comparable to historic reports. The report confirms that for
every £1.00 invested, the Group generates £2.74 in social value
annually over the duration of the investment. The report also
shows that 86% of residents sampled reported feeling satisfied
with the quality of their home and 66% of residents sampled
reported an improvement in their confidence since moving into
their home. For further information, please see the Company’s
website for a copy of the full report.
As outlined in the Chair’s statement we are announcing planned
changes to the Group’s investment policy and investment
restrictions. On page 22, the Chair has noted the reasons behind
the proposed changes. The Chair also noted that, having been
one of the first listed investors in the sector in 2017 we have
witnessed the evolution of both the sector and its stakeholders.
As a manager we first undertook due diligence on the specialised
Supported Housing sector in 2013 before making our initial
investment in 2015. Over the last 9 years we have seen the
structures through which we make investment constantly iterate
and develop, reflecting combined learnings and the evolution of
a nascent asset class. Whilst this latest iteration requires a change
of the Group’s investment policy and investment restrictions we
see it as a continuation of this process.
Most importantly it will enable us to remain focused on working
with the best Approved Providers in the sector and investing
into good homes for vulnerable adults.
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Rathmell, Leeds
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Market Review
High levels of demand remained a central theme during
2021. The need for more adapted homes within communities
is well known and is enshrined in both the Care Act 2014
as well as the Transforming Care Programme 2015. With
the publication of the Department of Health’s White Paper
“
People at the Heart of Care
”
13
the urgent need for the type
of properties that the Group provides could not be clearer.
This message was reinforced directly during the year through
conversations with Commissioners, local authorities and care
providers.
As the Chair reported in his statement, we are members of
the Equity Impact Project which is being run by The Good
Economy and Big Society Capital. The Equity Impact Project
published its own White Paper on the standardisation of
impact metrics for equity investors in social housing in July
2021
14
. With the rise of impact investing in social housing
we welcome the initiative to provide a consistent approach
for investors to assess and report on how they are able to
deliver social value through their investments. We have been
working closely with The Equity Impact Project to test and
pilot these metrics and are pleased to play a role in ensuring
responsible stewardship of investing in the sector.
ESG considerations have dominated the wider housing
market in the shadow of the Grenfell tragedy. Much
attention has been focused on the Government’s response
and it is clear that there is still more to be done to provide
a comprehensive solution to tackle rising building safety
remediation costs, particularly for social housing. There has
also been a spotlight on emissions data, highlighted following
renewed commitments at COP 26 to the UK achieving its
2030 net zero target. As a responsible investor involved in
the provision of social housing we are actively taking steps
to ensure that our portfolio is as environmentally efficient
as it can be. We have signed our first “green” lease which
commits Approved Providers to reporting on and driving
energy efficiency in our homes and we hope to sign more in
the year ahead.
In September we announced a sector-first retrofit programme
to fund the upgrade of all properties in the Group to a
minimum EPC rating of ‘C’
over the next few years.
72% of
the Group’s portfolio already meets this target and since our
announcement in September 2021 we have made good
progress to design the scope and the programme of works
required to get to 100%. We have launched an initial
pilot programme targeting 12 properties in the South
East where we hope to begin work within the next
2 months. While environmental performance and
energy efficiency is at the front of our minds in this
endeavour, we are ensuring at all times that the needs
and safety of residents is prioritised to make certain
the right outcomes are delivered. Once the pilot
has been completed, the outcomes and learnings
evaluated, the Group will commence by rolling out
a phased programme of works across our remaining
targeted properties. You can read more about our
approach to retrofit at pages 48 to 53
.
During the year, the Regulator continued to review
Registered Providers which focus on managing
specialised Supported Housing. As part of its
ongoing strategy of reactive engagement, Pivotal
Housing Association (0.6% of the Group’s rent
roll as at 31 December 2021), Hilldale Housing
Association Limited (8.5% of the Group’s rent roll as
at 31 December 2021), Auckland Home Solutions
C.I.C (4.7% of the Group’s rent roll as at 31 December
2021), Parasol Homes Limited (9.6% of the Group’s
rent roll as at 31 December 2021) and Falcon Housing
CIC (9.7% of the Group’s rent roll as at 31 December
2021) each received non-compliant judgements or
notices at one point during the year. The reasons for
these notices generally cited concerns with respect
to the providers’ compliance with the Regulator’s
Economic Standards. The Group has been in regular
contact with each of these Approved Providers since
they received their regulatory notices. The Group is
supportive of each of their active engagement with
the Regulator in addressing the concerns it has raised.
These judgements have not had a material impact on
valuations, nor have they impacted rent collection. We
continue to speak directly to the Regulator to ensure
our investments reflect the latest regulatory guidance,
but as a whole our Approved Providers continue to
perform well, with growing financial strength and
operational depth.
13
14
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Financial Review
We are pleased to present another strong set of financial results as highlighted earlier on page
s 10 to 11. The Group’s
continued strong financial performance is underpinned by an increase of annualised rental income leading to a look
through dividend cover of 0.99x at the year end.
Touching on some of the key highlights:
The annualised rental income of
the Group was £35.8 million as at
31 December 2021 compared to
£31.6 million as at 31 December
2020. The Group is a UK REIT for
tax purposes and is exempt from
corporation tax on its property
rental business.
A fair value gain of £9.0 million
was recognised during the
year on the revaluation of the
Group’s properties.
IFRS Earnings per share was
7.05 pence for the year,
compared to 6.82 pence
in 2020.
The EPRA EPS excludes the
fair value gain on investment
property and is measured on
the weighted average number
of shares in issue during the
period. EPRA EPS was 4.82
pence for the year compared to
4.61 pence in 2020. Adjusted
portfolio earnings per share
were 19.46 pence for the year
compared to 17.94 pence for
2020, where post-tax earnings
were adjusted for a valuation on
a portfolio basis (as opposed to
individual property IFRS basis).
The EPRA NTA per share as
at 31 December 2021 was
108.27 pence per share, the
same as the IFRS NAV per share.
The IFRS NAV adjusted for the
portfolio valuation (including
portfolio premium) was
£486.1 million, which equates to
a Portfolio NAV of 120.68 pence
per share compared to the 31
December 2020 figure of £468.8
million which equated to a
Portfolio NAV of 116.39 pence
per share.
At the year end, the portfolio
was independently valued at
£642.0 million on an IFRS basis
compared to £571.5 million
in 2020, reflecting a valuation
uplift of 8.7% against the
portfolio’s aggregate purchase
price (including acquisition
costs). This reflects an EPRA
net yield of 5.25%, against the
portfolio’s blended net initial
yield of 5.90% at the point of
acquisition. This equates to a
yield compression of 65 basis
points, reflecting the quality of
the Group’s asset selection and
off-market acquisition process.
The EPRA ongoing charges ratio
is calculated as a percentage of
the average net asset value for
the period under review. The
ongoing charges ratio for the
year was 1.5
4
% compared to
1.57% in 2020.
The Group’s properties were
valued at £692.0 million on
a portfolio valuation basis,
reflecting a portfolio premium of
7.8%, or £49.9 million, against
the IFRS valuation. The portfolio
valuation assumes a single sale
of the property-holding SPVs to
a third-party on an arm’s length
basis with purchaser’s costs of
2.3%.
The Group held cash and cash
equivalents of £52.5 million at
31 December 2021 of which
£0.6 million was restricted,
compared to £53.7 million in
2020, of which £0.8 million was
restricted, leaving available
cash of £51.9 million as at
31 December 2021. During
the year cash from operating
activities increased by
£0.2 million from £24.5 million to
£24.7 million.
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Debt Financing
As announced in the Interim Results, during 2021 the
Group secured £195.0 million of new long-term, fixed-
rate, interest only, sustainability linked loan notes through
a private placement with MetLife Investment Management
and Barings. The loan notes are divided into two
tranches. Tranche-A has a value of £77.5 million, a tenure
of 10 years and an all-in coupon of 2.403%. Tranche-B
has a value of £117.5 million, a tenure of 15 years and
an all-in coupon of 2.786%. Across both tranches, as at
31 December 2021, the weighted average term is 12.7
years and the weighted average coupon is 2.63%. The
loan notes require the Group to maintain an asset cover
ratio of 1.67x and an interest cover ratio of 1.75x.
The loan notes enabled the Group to refinance the
full £130.0 million of debt that had been drawn under
its £160.0 million revolving credit facility provided by
NatWest and Lloyds. This means that all of the Group’s
drawn debt is now fixed-price (with a weighted average
coupon of 2.74%) and long term, and so offers strong
protection against the ongoing risk of rising inflation and
interest rates. In addition the loan notes were secured
against a portfolio of properties at a day one LTV of
50% (compared to the 40% day one LTV of the revolving
credit facility) which has enabled the Group to draw an
additional £65.0 million of capital. As at 31 December, the
Group’s LTV was 37.6%, in line with the medium to long-
term gearing target of 35% to 40% and the Group had
£29.7 million of capital remaining for deployment.
As part of the re-financing all of the Group’s loan notes have
been rated. The Group obtained a first-time Investment
Grade Long-Term Issuer Default Rating (IDR) of ‘A-’ with
a Stable Outlook and a senior secured rating of ‘A’ from
Fitch Ratings. This is a great endorsement of the Group’s
strategy and financial position. The new loan notes are also
linked to sustainability targets agreed with the lenders that
are to be maintained at all times by the Group.
Following the refinancing, the revolving credit facility has
remained in place and was undrawn at the year end. The
facility runs until 20 December 2023 and has an unhedged,
floating interest rate of 185bps over 3 month SONIA. For
undrawn debt under the revolving credit facility the Group
pays a commitment fee of 40% of the margin. Since the
year end,
the Group has cancelled a portion of its existing
revolving credit facility, reducing from £160 million to £50
million in order to reduce commitment fees, but maintain
flexibility around upcoming deployment opportunities
.
The facility remains undrawn and the Group continues to
review the revolving credit facility in light of its current
capital requirements.
In addition to the undrawn revolving credit facility and the
new £195.0 million facility, the Group has a long-term,
fixed-rate facility with MetLife Investment Management
providing £68.5 million of loan notes secured against a
defined portfolio of the Group’s properties at a Day-1
LTV of 40%. The loan notes are divided into two tranches
of £41.5 million and £27.0 million with maturities in
2028 and 2033 respectively. Across both tranches as at
31 December 2021, the weighted average term was 11.6
years and the weighted average coupon was 2.74%. The
facility requires the Group to maintain an asset cover ratio
of 2.00x and an interest cover ratio of 1.75x. At all times,
the Group has complied with these debt covenants.
Further information is set out in note 20 of the
financial statements.
Strategic Alignment and Asset
Selection
Despite the continuing challenges presented by Covid-19
during the year, the Group continued to execute on its
investment strategy by utilising its remaining equity and
recently secured debt funding, allowing it to continue
delivering inflation-protected income underpinned by
a careful selection of secure, long-let and index-linked
properties. During the year, the Group bought 44
properties for a total investment cost of £60.0 million
(including acquisition costs). These schemes provide 345
new units of accommodation and saw the Group lease to
four new Approved Providers.
In addition, as at 31 December 2021 the Group had
outstanding commitments of £4.2 million (including
acquisition
costs)
for
contracts
exchanged
on
three properties.
Committed
Capital
Total Funds (m)
Total Invested since IPO
£590.4
Exchanges
£4.2
Total Invested and Committed Capital
£594.6
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Property Portfolio
As at 31 December 2021, the portfolio comprised 488 properties with 3,424 units and showed a broad geographic
diversification across the UK. The four largest concentrated areas by market value were the North West (21.4%),
the West Midlands (16.7%), Yorkshire (14.2%) and the East Midlands (11.5%). The IFRS value of the portfolio at
31 December 2021 was £642.0 million, compared to £571.5 million in 2020. The table below sets out the Group’s
portfolio at the year end:
31 December 2021
31 December 2020
Change in 2020
NUMBER OF ASSETS
488
445
+43
15
NUMBER OF LEASES
382
341
+41
NUMBER OF UNITS
3,424
3,124
+300
16
NUMBER OF APPROVED PROVIDERS
24
20
+4
NUMBER OF FORWARD FUNDING AGREEMENTS
22
22
0
WAULT (YEARS)
26.2
26.2
+0.3
15
One asset within the existing portfolio has been held for sale.
16
Unit adjustments have been made to assets within the existing portfolio as a result of ongoing asset management activities and one asset within the existing portfolio being currently held
for sale.
In total since IPO, the Group has committed £53.7 million to forward funding schemes providing homes to 318 residents.
Scotland
Yo
rkshir e
North
East
North
West
West
Midland
s
Norther n
Irelan
d
Wales
East
Midland
s
East
South
East
London
South
West
Low percentage
of properties
High percentage
of properties
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Rental Income
In total, the Group had 382 fully repairing and insuring
leases (excluding agreement for leases on exchanged
properties). The Group had a total annualised rental
income of £35.8 million on its standing investments,
compared to £31.6 million in 2020.
During 2021, the Group entered into leases with another
4 Approved Providers, increasing its total to 24. This
enhanced the Group’s counterparty diversification. The
Group’s three largest Approved Providers by rental
income and units were Inclusion (£10.7 million and
932 units), Falcon (£3.5 million and 364 units) and Parasol
Homes (£3.4 million and 247 units).
As at 31 December 2021, the portfolio had a WAULT of
26.2 years in line with 2020 with 92.5% of the portfolio’s
rental income showing an unexpired lease term above
20 years. The WAULT includes the initial lease term upon
completion as well as any reversionary leases and put/call
options available to the Group at expiry of the initial term.
Rents under the leases are indexed against either CPI
(92.6%) or RPI (7.4%), which provides investors with the
comfort that the rental income will increase in line with
inflation. Some leases have an index ‘premium’ under
which the standard rental increase is based upon CPI or
RPI plus a further percentage point, reflecting top-ups by
local authorities. These account for 7.9% of the Group’s
leases. For the purposes of the portfolio valuation, JLL
assumed CPI and RPI to increase at 2% per annum and
2.5% per annum respectively over the term of the relevant
leases.
0 - 20 yrs 7.5%
20-30 yrs 76.1%
30-40 yrs 6.3%
40-50 yrs 0.1%
50+ yrs 10.0%
Rental income by lease length
Bespoke Care
and Support 0.8%
Wings Care 0.8%
IHL 1.2%
Sandwell 1.2%
Blue Square 3.0%
Highstone 3.4%
Sunnyvale 1.5%
Chrysalis 5.6%
Care Housing
Association 3.4%
AHS 4.7%
BeST 5.4%
Parasol Homes 9.6%
Hilldale 8.5%
My Space 7.9%
Falcon 9.7%
Inclusion 29.9%
IKE 0.7%
Lifeways 0.7%
Pivotal 0.6%
Encircle
Housing 0.5%
Forge House Care
Ltd 0.3%
Keys 0.2%
Partners Foundation 0.4%
Rental income by approved provider
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Outlook and Pipeline
We hope that the worst of Covid-19 is behind us but the after
effects of the virus still continue to be felt across the housing,
health and social care sectors. The recent government
Adult Social Care White Paper places a clear emphasis on
putting people at the heart of care. We are firm believers in
stakeholder capitalism and people remain at the heart of all
that we do. Our focus remains on investing into properties
which provide our residents with good homes in their
community. Resident wellbeing remains at the forefront of our
minds and permeates all aspects of our investment lifecycle,
from property selection to counterparty evaluation and our
robust asset management programme.
Our pipeline has over £100 million of live investment
opportunities which will enable us to deploy the Group’s
remaining cash and debt balances. Should we obtain
shareholder approval in amending the Group’s investment
policy and investment restrictions, £10 million of this £100
million will be allocated to an identified pipeline of more
flexible lease terms which would be compatible with the
proposed changes to the Group’s investment policy and
investment restrictions.
As we learn to live with Covid-19 we remain committed to
our goal of providing high-quality properties in community
settings, providing shareholders with a resilient investment as
inflationary pressures persist and, importantly, creating social
impact through our properties.
We echo the Chair’s remarks on the devastating situation
in Ukraine. As the humanitarian crisis inevitably, and sadly,
worsens, we emphasise our commitment to support in any
way that we can in the coming months.
Finally,
we
look
forward
to
deepening
our
existing
relationships in the sector, working with new partners and
providing additional much needed new homes for residents
in 2022.
Max Shenkman
Head of Investment
24 March 2022
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Earlsway, Macclesfield
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Lillydale Road, Stoke-on-Trent
Walkers Lane, Leeds
Dray King, Wigan
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* calculated excluding acquisition costs
Portfolio Summary
by Location
Scotland
Properties: 2
% of Funds Invested
*
: 1.0
Wales
Properties: 2
% of Funds Invested
*
: 0.4
East Midlands
Properties: 56
% of Funds Invested
*
: 11.3
Yorkshire
Properties: 60
% of Funds Invested
*
: 14.2
East
Properties: 20
% of Funds Invested
*
: 4.2
London
Properties: 27
% of Funds Invested
*
: 8.7
South East
Properties: 60
% of Funds Invested
*
: 9.2
South West
Properties: 29
% of Funds Invested
*
: 4.9
West Midlands
Properties: 83
% of Funds Invested
*
: 16.3
North West
Properties: 104
% of Funds Invested
*
: 21.5
North East
Properties: 45
% of Funds Invested
*
: 8.3
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Our Retrofit
Approach
With energy requirements of the built environment
accounting for 40% of the UK’s carbon footprint, the
housing sector must lead the way in green initiatives.
17
This is something we are already undertaking with
our commitment to retrofit our portfolio and bring all
properties to at least an EPC rating of ‘C’. This sector
leading initiative will reduce carbon emissions and
improve living comfort. This we feel is an example of
striking the right balance between providing both social
and environmental benefits. To fund this programme, the
Group has calculated the cost of the pilot programme
and has set aside up to £3.4 million to be spent on the
work alongside available grant funding.
The Company has decided to launch the initiative well
ahead of upcoming environmental regulations in order
to combat climate change, reduce fuel poverty and
improve living comfort, all of which is expected to be
reflected in property valuations in time.
17
18
Energy White Paper, December 2020, p.98
~ M
ax Shenkman,
Head of Investment at Triple Point Investment Management LLP
“With the impact of climate change increasing every year, we want to
proactively invest in these environmental upgrades to benefit our residents,
wider society and, in time, our investors. Although our existing portfolio’s
EPC rating compares favourably to the wider market, we want to push the
sector even further forwards to ensure that we stay well ahead of tightening
environmental regulations and move closer towards Net Zero.”
The Group’s EPC portfolio
The current composition of the EPC ratings of the Group’s
properties is shown in the chart below:
72% of the Group’s portfolio has already achieved an EPC
rating of ‘C’ or above. This compares favourably to the
wider UK residential market, where only 34% of homes
are ‘C’ or above.
18
None of the properties within the portfolio are rated a F
or G.
A
C
B
D
E
38.5%
33%
22.1%
6%
0.4%
!
+
&
+
6
+
+
1
+
A
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19
that%20deep,gases%20could%20stabilise%20rising%20temperatures.
20
21
Keeping our partners and
residents at the forefront
We know a retrofit needs to be fit for purpose and that
it is not a one size fits all project, therefore we plan
to work closely with our partners through the whole
process to make sure their needs and the needs of our
residents are always front of mind.
BENEFITING EVERYONE
Wider Society
- A report issued on 9 August
2021 by the UN’s Intergovernmental Panel
on Climate Change warned of a “code red
for humanity” as a result of carbon emissions,
describing how the effects of climate change
are widespread, rapid and intensifying.
19
Residents
- In some of our
properties, our
residents have to pay the cost of energy bills
themselves using their other benefits (e.g.
Universal Credit). Reducing energy bills will
help reduce the risk of fuel poverty amongst
our residents.
Investors
- Research already shows that
improving the EPC of an average residential
house from a ‘G’ to an ‘E’, or from a ‘D’ to
‘B’, can add £16,000 to its final sale price (or
£8,000 per band).
20
This is because a more
energy efficient property is more comfortable
to live in and cheaper to run.
Housing Associations & Care Providers
–
The government’s current consultation would
require all new private tenancies to have an
EPC of ‘C’ by 1 April 2025 and all existing
private tenancies to have an EPC of ‘C’ by
1 April 2028.
21
Communication is key the whole
way through the process
In future –
repairs and maintenance
Before the works start
Whilst the works are going on
Following the works
Doing the right thing
by the
people,
doing the right thing
by the
property
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What does a sustainable
home look like?
Improving existing homes can help us meet
the climate change challenge.
Insulation
in lofts and walls to
keep the warm air in
Highly water efficient devices
with low-flow showers and taps,
insulated tanks and hot water
thermostats
Double Glazing
so less heat is
lost through windows
Highly energy efficient
appliances
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Low carbon heating
with
heat pumps or connections
to district heat networks
Green space (e.g. gardens
and trees)
to help reduce
the risk and impacts of
flooding and overheating
Solar panels
to generate
renewable energy
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The Group completed the acquisition of a specialised Supported Housing
property in Telford for £1.37 million in December 2021. The property is a detached
three-storey building which has been adapted to accommodate eight adults with
learning and physical difficulties. The property includes wet rooms, accessible
ground floor units, a lift, wheelchair ramps and widened door-ways.
The property is highly energy efficient, with an EPC rating ‘A’. This has been
achieved through several measures including solar panels, air source heat
pumps, a mechanical ventilation heat with recovery system and insulated timber
frame panels. The property is also the first to include the Group’s “green lease”
provisions - a tailor-made partnership between the landlord and the tenant
which encourages cooperation in working towards improving the environmental
performance of the property. This includes the consumption of energy and
water as well as the associated generation of greenhouse
gases. It also includes waste generation and management and
any other environmental impact that may arise from the use of
the property. Staying ahead of fast-rising regulatory standards
should be reflected in the long-term property valuation.
Looking
Ahead
EPC
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Low carbon heating
Double Glazing
Insulation in walls and roof
The property is highly energy efficient, with an EPC rating ‘A’. The property
is also the first to include a Green Schedule in the lease agreement -
a tailor-made partnership between the landlord and tenant which encourages
cooperation in working towards improving the environmental performance of
the property.
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Our ambition to be the leading UK Supported Housing
investor, is to ensure that we embed and drive
sustainability across the business.
Our business model (pages 28 to 29) seeks to ensure
that our properties are suitable to meet residents’
evolving needs and assist local authorities in meeting
these demands for the benefit of the wider community.
Our social impact is therefore at the heart of what we do,
and we focus on investing where there is clear long-term
social need. How we do this is summarised below and
set out in further detail in the independent Impact Report
available separately on the website. We maintain a robust
corporate governance framework, and this is set out in
further detail within our corporate governance report
on pages 78 to 83. We recognise the importance of
environmental efficiency, which is becoming increasingly
integral to our investment strategy, and we have set out
how we execute this strategy in practice in further detail
below and on pages 36
to 44
of the Investment Manager’s
Report.
An important aspect of the Investment Manager’s approach
to ESG is the adoption of the Principles for Responsible
Investment (‘PRI’), which they signed up to in 2019. The
PRI are designed to guide and demonstrate best practice
ESG integration, and to promote alignment between the
objectives of investors and wider society. The principles,
which are voluntary, are intended to be actionable and
measurable, are detailed in the table below.
Sustainability Report
Principle
Summary of investment manager action
1
We will incorporate ESG issues into investment analysis and
decision-making processes.
As evidenced through our detailed approach to ESG due diligence
and laid out in our ESG Integration Policy.
2
We will be active owners and incorporate ESG issues into our
ownership policies and practices.
As evidenced through engagement with RPs and developers on
processes that would benefit from improved ESG performance.
For example, seeking developers to become signatories of the
Considerate Code of Constructors.
3
We will seek appropriate disclosure on ESG issues by the entities in
which we invest.
As evidence through our increasing expectations on those we work
with, for example requesting developers to become signatories to
the Considerate Contractors Code.
4
We will promote acceptance and implementation of the Principles
within the investment industry.
As evidence through our involvement in the Sustainability Reporting
Standard for Social Housing and the Equity Impact Project, and
participation in the Green Lease Working Group for the Green
Finance Institute initiatives which seek to drive industry best practice
in respectively, ESG and impact.
5
We will work together to enhance our effectiveness in implementing
the Principles.
As evidenced by the ongoing participation of the investment
manager in collaborative initiatives, and in ESG innovation, such as
our work towards improved energy efficiency.
6
We will each report on our activities and progress towards
implementing the Principles.
As evidenced through the detail we publish in our Annual Report,
our ESG Integration Policy, our Impact Report and the Investment
Manager’s Group Sustainable Business Objectives report.
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In conjunction with the Board’s endorsement, and in line
with these principles, the Investment Manager has an
ESG integration policy in place, directly relating to the
Company’s investments with the aim of ensuring value for
investors, coupled with creating value for society and the
environment. Within this policy, the Investment Manager
has set out principles which it will seek to incorporate
throughout its business, for example, to consider the
impact of operations on local communities and to uphold
high standards of business integrity and honesty.
Policy presents new challenges and opportunities for the
real estate industry and the social housing market, with
potentially profound implications for both owners and
occupiers. A good investment strategy must incorporate
environmental and social issues alongside traditional
economic considerations. Impact assessment is central to
our investment process and is further strengthened by the
environmental, social and governance assessments in our
due diligence.
Environment
When acquiring assets, we look closely at their
environmental impact, and encourage a sustainable
approach for new development as well as the maintenance
and upgrading of existing properties.
For example, we require every property we acquire to have
a minimum energy performance rating of at least a ‘C’ on
an EPC for renovated properties and at least a ‘B’ on an
EPC for new-build properties, notwithstanding the legal
requirement for any privately rented properties to have a
minimum energy performance rating of ‘E’ on an EPC. A
retrofit programme
has also commenced to increase all
our properties EPC ratings to a minimum of ‘C’.
Through our rigorous due diligence process, the high
standards we expect from developers and significant
investment in the Supported Housing sector, we have been
able to provide capital and expertise that has enabled
parties in the industry to professionalise and to lead to
further high-quality housing. Offering residents resource-
efficient and adapted living areas is critical to ensure our
investments are fit-for-purpose and sustain their value over
the long term. As a landlord, we consider the opportunities
we have to help reduce running costs for our lessees and
occupiers, increase resident well-being and contribute
to the prosperity of a location through supporting new
building design and development. Ignoring these issues
when considering property management and investments
would risk the erosion of income and value as well as
missing opportunities to enhance investment returns.
Climate Change
The Investment Manager, in accordance with the FCA’s
ESG Sourcebook, is committed to the implementation of
disclosures consistent with the recommendations of the
Taskforce on Climate-related Financial Disclosures (TCFD)
by 30 June 2024.
Social and Social Impact
Our
properties
provide
multiple
benefits
to
local
communities. They provide residents with safe and secure
accommodation, tailored to meet their individual care
needs. They provide Approved Provider lessees with a
way of growing sustainably, allowing them to expand the
number of individual lives they support and improve and
they provide employment for local carers, housing managers
and builders. While development and refurbishment can
cause some minor short-term disruption to an area, these
activities help create employment and, at the same time,
help alleviate the UK’s housing crisis.
Further information on the impact and benefits to the
community of our properties is set out in the Market Review
section of the Investment Manager’s Report on pages
34
to 44
.
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Governance
The Group encourages best practice governance among
all counterparties in order to minimise operational risks
and encourage them to continually assess how they can
contribute more to employees, residents, wider society
and the environment, through compliance with legislation
and regulations, and the adoption and implementation of
issue-specific policies. Details on the Group’s corporate
governance practices are set out on pages 78 to 83.
Wider Governance and sustainable
business behaviours of the Group
and Investment Manager
Business Relationships
The Group has a set of corporate providers that ensure
the smooth running of the Group’s activities. The Group’s
key service providers are listed on page 152, and the
Management Engagement Committee annually reviews
the effectiveness and performance of these service
providers, taking into account any feedback received. The
Group also benefits from the commitment and flexibility
of its corporate lenders for its debt facilities and works
with a selection of high-quality trusted developer partners
to source the majority of its deals off market and to who
forward funding is provided. Each of these relationships
is important to the long-term success of the business.
Therefore, the Group and the Investment Manager
maintain high standards of business conduct by acting in a
collaborative and responsible manner with all its business
partners that protects the reputation of the Group as a
whole.
Employees
The Group has no employees and accordingly no
requirement to separately report on this area.
The Investment Manager is an equal opportunities employer
who respects and seeks to empower each individual and
the diverse cultures, perspectives, skills and experiences
within its workforce. The Investment Manager places great
importance on company culture and the wellbeing of its
employees and considers various initiatives and events to
ensure a positive working environment.
Health and Safety
The Group is committed to fostering the highest standards in
health and safety. Before the Group acquires a property, we
ensure it includes all installations necessary to minimise the
risk to the vulnerable people who will live in it. Day-to-day
responsibility for health and safety in our properties is then shared
by the Approved Providers and care providers who manage
the housing and provide care. Nonetheless, our Investment
Manager still requests confirmation from
Approved Providers
that all properties remain compliant and visit properties to verify
this. Every quarter the Board is provided with updates on the
health and safety of our residents.
Diversity
We are an externally managed business and do not have
any employees or office space. As such the Group does not
operate a diversity policy with regards to any administrative,
management and supervisory functions. A description of
the Board’s policy on diversity can be found on pages 90
to 91.
The Investment Manager has an Inclusion and Diversity
Policy which outlines commitments including compulsory
training for all employees on equality and diversity in
the workplace and unconscious bias training. All staff are
expected to conduct themselves to help the organisation
provide equal opportunities in employment, and prevent
bullying, harassment, victimisation and discrimination.
Behaviours contrary to those outlined in the policy result in
disciplinary procedures.
The Investment Manager are members of the Diversity
Project, an initiative championing a more inclusive culture
within the Savings and Investment profession and this
further informs our approach to Inclusion and Diversity.
Some of the Diversity Project’s Five Year Goals include:
• All member firms to support one or more graduate/
school leaver recruitment programmes focused on socio-
economic diversity.
• Gender pay gaps reduced by one third from their 2019
figures.
• 50:50 male:female graduate and school leaver recruitment.
Some of the initiatives used by Triple Point to support these
goals are the 100 Black Intern Programme, Investment 2020
and Girls are Investors Programme.
Human Rights
The Group is not within the scope of the Modern Slavery Act
2015 because it has not exceeded the turnover threshold
and is therefore not obliged to make a slavery and human
trafficking statement.
The Board are satisfied that, to the best of their knowledge,
the Company’s principal advisers, which are listed in the
Shareholder Information section on page 152 comply with
the provisions of the UK Modern Slavery Act 2015.
The investment manager takes the risk of Modern Slavery
extremely seriously. The manager’s responsibilities as both
an employer and investor are laid out in a separate and
public Modern Slavery Act Statement available on the Triple
Point website https://www.triplepoint.co.uk/approach-to-
sustainability/116/.
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Church Street, Gildersome
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This section describes how the Board engages with its key stakeholders, how it considers their interests and the
outcome of the engagement when making its decisions, the likely consequences of any decision in the long term,
and further ensures that it maintains a reputation for high standards of business conduct. The Group is committed
to continual stakeholder engagement and implements a cycle of constant engagement at all stages of the Group’s
investment lifecycle.
Section 172(1) Statement
Stakeholder
Why is it important to engage?
How the Investment Manager/
Directors engaged?
SHAREHOLDERS
Investment
from
our
shareholders
plays
an
important role by providing capital to ensure we
can deliver of high-quality new housing into the
Supported Housing market.
Through the investment of private capital into an
under-funded sector, we can achieve a positive
social impact whilst ensuring our shareholders
receive a long-term inflation-linked return.
The way in which we engage with our shareholders
is set out on page 83 in our Corporate Governance
Report.
RESIDENTS
Our strategy is centred on providing Supported
Housing for our residents. We remain focused
on providing homes to our residents which offer
them greater independence than institutional
accommodation, as well as meeting their specialist
care needs.
The Investment Manager monitors resident welfare
through engagement with Approved Providers.
The
Investment
Manager
receives
quarterly
reports from Approved Providers to ensure
compliance with health and safety standards. Any
concerns are raised to the Board.
We do not generally engage with residents
directly since they are vulnerable. Instead, day-to-
day engagement is done by care providers and, to
a lesser extent, Approved Providers.
INVESTMENT
MANAGER
The
Investment
Manager
is
responsible
for
executing the Investment Objective within the
Investment Policy of the Company.
The Board maintains regular and open dialogue
with the Investment Manager at Board meetings
and has regular contact on operational and
investment matters outside of meetings.
APPROVED
PROVIDERS
Our relationship with Approved Providers is integral
to ensuring rent received from the Local Authority is
paid to the Group and that properties are managed
appropriately to safeguard tenants.
All of the Group’s leases with Approved Providers
are fully repairing and insuring – meaning
that Approved Providers are responsible for
management, repair and maintenance, in addition
to tenanting the properties.
The
Investment
Manager
maintains
strong
relationships with Approved Providers, having
meetings every six months and are in regular
dialogue on a variety of matters. Quarterly key
performance indicator reporting is also provided.
Stakeholder Engagement
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What were the key topics
of engagement?
What was the feedback obtained and the outcome
of the engagement?
1. Financial and operational performance.
2. The regulatory environment of the Supported Housing
sector.
3. Environmental, social and governance considerations.
4. The Company’s key service provider appointments,
including the AIFM and broker arrangements.
1. The Board and Investment Manager consider shareholder concerns
when speaking to the Regulator and agreed to keep shareholders
updated of any developments. We understand the importance of,
and are committed to, working with Registered Providers to address
the concerns of the Regulator. Refer to the Market Review in the
Investment Manager’s Report on pages 36
to 44
.
2. The Investment Manager has enhanced environmental, social and
governance considerations within its investment process, and within
its own business. Refer to Investment Manager’s Report on pages 36
to 44
, and the
sustainability report on pages 54 to 55
.
We provide oversight of resident welfare by ensuring
properties are safe and secure before residents move
in by: monitoring compliance with health and safety
standards; ensuring residents are looked after by
competent counterparties; and requesting updates on
any health and safety issues every quarter.
The Investment Manager actively engaged with care providers to ensure
plans and processes were in place in respect of the Covid-19 pandemic,
for the health and safety of the tenants, and that those plans continued
to be fit for purpose.
Resident issues raised as a result of engagement through care providers
were addressed.
Compliance issues have been remedied and any necessary works have
been undertaken.
The Group’s investment decisions are informed by the long-term needs
of our residents.
In addition to all matters related to the execution of the
Company’s Investment Objective, the Board engaged
with the Investment Manager on the structure of the
Group, developments in the market and updates from
the Regulator.
As a result of the engagement between the Board and the Investment
Manager the Group has been able to execute its investment strategy and
has considered what adjustments can be made to the Group’s model that
will uphold financial and governance standards while attracting further
private investment long term.
Additionally, the Investment Manager produces reports to the Board
every quarter on various governance and operational matters at the
Board’s request. Capital allocation is also considered with regard to the
views of the Board.
The Investment Manager discussed a number of topics
with Approved Providers including the policies and
plans that were implemented in 2020 in response to
the operational and financial risks associated with the
Covid-19 pandemic, and that those plans continued
to be fit for purpose: that properties are managed in
accordance with their leases; financial reporting and
governance; and specific property-related issues such
as occupancy, health and safety issues, rent levels,
management accounts and governance.
Refer to the Investment Manager’s Report on pages 36
to 44
.
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Stakeholder
Why is it important to engage?
How the Investment Manager/
Directors engaged?
CARE
PROVIDERS
Our residents receive care from care providers. It is
important to ensure that our vulnerable residents
receive the best possible care. In addition, the care
providers share the cost of voids with Approved
Providers so we engage with care providers to
ensure our Approved Providers are able to pay our
rent in the event of empty units.
Therefore, care providers play an essential role in
the occupancy levels of our properties and strong
engagement with the Group ensures the best
possible care for our residents.
The Investment Manager engages with care
providers as part of its due diligence process and
regularly meets and engages with our provider
representatives when inspecting the Group’s
portfolio
and
looking
at
occupancy
figures
every quarter.
LOCAL
AUTHORITIES
Local authorities are responsible for locating
housing for the residents.
The properties are assessed to ensure they meet
high quality social and safety standards in order
to ensure that referrals are made as efficiently and
safely as possible from the local authorities.
The Investment Manager engages with various
departments within local authorities including
Commissioners and Housing Benefit officers
during its initial due diligence on a scheme as well
as on an ongoing basis.
THE
REGULATOR
OF SOCIAL
HOUSING
The Regulator regulates Registered Providers of
social housing to ensure providers are financially
viable and properly governed. It is important to
ensure that the Regulator does not object to the
way the Group invests and the way Approved
Providers operate.
The Investment Manager is in regular contact with
the Regulator through telephone calls and regular
meetings to ensure new investments reflect the
latest regulatory guidance.
LENDERS
The Group’s investments in social housing assets
are partly funded by debt. Prudent debt financing
is critical to achieve the target return promised to
shareholders and to meet full dividend cover once
equity proceeds have been fully deployed.
Further, engagement with debt funders is also a
significant signal to the sector that they are aligned
with shareholders’ interests e.g. long-term support
of the social housing sector.
The support of our lenders has ensured that we are
in a strong financial position.
The Investment Manager engages with the existing
lenders mainly via the reporting of financial and
information covenants under the existing loan
agreements on a quarterly basis.
In addition, there are regular ad-hoc engagements
in relation to general topics relating to the social
housing sector as well as specific topics arising
from the financial and operational performance
of the Group’s activities and future opportunities,
and any other general matters affecting the
relationship between the Group and the lenders.
Principal Decisions
Principal decisions have been defined as those that have a material impact to the Group and its key stakeholders.
In taking these decisions, the Directors considered their duties under section 172 of the Act.
Issue of Loan Notes and refinance of existing revolving credit facility.
During the year the Group issued £195 million of long dated, fixed-rate, interest only sustainability-linked loan
notes through a private placement with MetLife Investment Management clients and Barings.
The issue of loan notes enabled the Group to refinance the full £130 million drawn under its existing £160 million
debt facility
. The Board believed that the issue of loan notes and refinance of the existing debt facility was in
the best interest of shareholders as it would provide additional capital and would allow the Group to continue
to acquire further income-producing, specialised Supported Housing properties from the Group’s pipeline and
achieve a fully covered dividend. The Group maintained an active dialogue for the lender to appraise the Group’s
business model and its portfolio. The Board also considered that further funds available to be deployed into the
Supported Housing sector would benefit the wider community.
Section 172(1) Statement
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What were the key topics
of engagement?
What was the feedback obtained and the outcome
of the engagement?
The Investment Manager engages with care providers
on: the specific care and support requirements of
residents including health and safety compliance
(refer to Investment Manager’s Report on pages 36
to 44
); property management by Approved Providers;
financial and operational capacity for new schemes;
occupancy levels; and financial performance.
The Investment Manager rejected deals where care providers did not
meet the high-quality standards expected or where care providers were
unable to demonstrate the financial strength to meet its obligations
under a Service Level Agreement.
Following engagement, scope of works were agreed with care providers
to produce high quality, fit for purpose properties that meet the specific
care needs of residents.
To maintain the Group’s reputation for high standards of business conduct,
care providers were changed where the standard of care expected by the
Group were not met or where engagement identified care providers in
financial difficulties.
The Investment Manager has ongoing engagement with
local authorities at each stage of the investment lifecycle,
particularly during due diligence to assess demand,
commissioning requirements and rent levels.
Following acquisition, the Investment Manager retains
an ongoing dialogue with local authorities to ensure they
continue to meet ongoing commissioning requirements.
The Investment Manager listens to feedback from the local authorities
in order to improve and upgrade properties and ensure that they meet
ongoing commissioning requirements. In particular, the Investment
Manager engages with Commissioners to ensure that properties meet
the Government’s target EPC level of ‘C’.
An initial pilot programme to commence upgrades across 12 initial
properties has commenced.
Discussions with the regulator are focused on ensuring
the market evolves in line with its requirements, how
standards of Registered Providers can be improved and
how to best address its concerns.
The Investment Manager is working with Registered Providers to ensure
the standards of the Regulator are met. Refer to the Investment Manager’s
Report on pages 36
to 44
for more detail.
The Group engaged on the following topics: financial
and information covenant reporting and; active asset
management activities undertaken by the Group e.g.
any other portfolio performance enhancing activity that
requires lenders’ consent.
The Group also engaged with the lenders in relation to
the issue of £195 million of loan notes and a refinance
of the existing Revolving Credit Facility to make sure
sufficient debt capital is available into 2022 to meet
deployment and dividend cover targets.
There was also frequent liaison with lenders’ rates desks in
order to monitor the movement of the 3M SONIA forward
curve as part of the Group’s monitoring of interest rates
for the unhedged Revolving Credit Facility.
The Group is fully compliant with its debt covenants.
The Investment Manager’s pro-active engagement with the Group’s
lenders is welcome by its lenders and to date no concerns in relation to the
performance of its loans have been raised by the lenders.
The Investment Manager successfully refinanced the existing Revolving
Credit Facility.
The Investment Manager successfully issued £195 million of loan notes.
The Board continues to monitor compliance with debt covenants and keeps
liquidity under constant review to make certain the Group will always have
sufficient headroom in its debt facilities.
In August 2021, Fitch Ratings Limited assigned the Group an Investment
Grade Long-Term Issuer Default Rating of ‘A-‘ with a stable outlook, and a
senior secured rating of ‘A’ for the Group’s new issued loan notes.
In considering whether to approve the transaction the Board had regard to the interests of the Group’s shareholders,
lenders and the community.
Further details of the Group’s debt financing are detailed on pages
36
to 44
of the Investment Manager’s Report.
Initiative to upgrade EPC ratings of properties
During the year the Board considered a wide range of Environmental, Social and Governance matters and the
Group’s social impact.
The Board approved an initiative to upgrade all existing renovated properties within the Group to a minimum EPC
rating of ‘C’. 72% of the Group’s portfolio already meets this target and since our announcement in September 2021
we have made good progress in kickstarting the programme of works required to get to 100%. We have launched
an initial pilot programme targeting 12 properties in the South East where we hope to begin works within the next
two months. Further detail is on page 39.
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Governance
We operate in a low-risk environment, focusing on a single
sub-sector of the UK real estate market to deliver an attractive,
growing and secure income for shareholders. We have a specific
investment policy, as outlined on pages 26 to 27, which we
adhere to and for which the Board has overall responsibility.
As our risk appetite is low, we do not undertake speculative
development. Furthermore, we have experienced lessees in our
properties and we possess a portfolio of high-quality assets with
a robust WAULT.
As an externally managed investment company, we outsource key
services to the Investment Manager and other service providers
and rely on their systems and controls. The Board undertakes a
formal risk review, with the assistance of the audit committee,
twice a year to assess and challenge the effectiveness of our risk
management and internal control systems. The Board regularly
review the control reports of the key service providers and the
external auditors note any deficiencies in internal controls and
processes that have been identified during the course of the
audit. A description of the key internal controls of the Group can
be found on page 85.
The Investment Manager has responsibility for identifying
potential risks at an early stage, escalating risks or changes to
risk and relevant considerations and implementing appropriate
mitigations which are recorded in the Group’s risk register.
Where relevant the financial model is stress tested to assess
the potential impact of recorded risks against the likelihood of
RISK MANAGEMENT
occurrence and graded suitably. The principal risks that have
been subject to this methodology are noted in the Risk Heat
Matrix below. The Board regularly reviews the risk register to
ensure gradings and mitigating actions remain appropriate.
As part of this risk management evaluation the Board has
identified and undertaken a robust assessment of the Group’s
emerging risks by assessing upcoming or potential changes in
the market or regulatory environment. The Board considers the
likelihood of the emerging risk materialising and its potential
impact on the Group. Emerging risks are regularly monitored,
and to the extent possible or practicable, mitigating actions are
implemented.
Our risk management process is designed to identify, evaluate
and mitigate (rather than eliminate) the significant and emerging
risks we face and continues to evolve to reflect changes in the
business and operating environment. The process can therefore
only provide reasonable, and not absolute, assurance. It does
however ensure a defined approach to decision making that
decreases uncertainty surrounding anticipated outcomes,
balanced against the objective of creating value for shareholders.
The Board has not identified or been advised of any failings
or weaknesses in our risk management and internal control
systems.
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.
Risk Impact
High
Moderate
to High
Moderate
Low to
Moderate
Low
Low
Low to
Moderate
Moderate
Moderate
to High
High
Likelihood
Risk
1
Expensive or lack of debt finance may limit our ability to grow and achieve a fully covered
dividend
2
Floating rate debt exposes the business to underlying interest rate movements
3
Unable to operate within debt covenants
4
Default of one or more Approved Provider lessees
5
Higher than proj
ected levels of infl
ation may impact Approved Providers
6
Forward funding properties involves a higher degree of risk than that associated with
completed investments
7
Risk of an Approved Provider receiving a non-compliant financial viability or governance
rating by the Regulator
8
Risk of changes to the social housing regulatory regime
9
Risk of not being qualified as REIT
10
Reliance on the Investment Manager
11
Property valuations may be subject to change over time
12
Non-payment of voids cover by care providers
Risk Heat Matrix
8
3
1
5
9
2
6
4
7
10
12
12
11
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Principal Risks and Uncertainties
The table below sets out what we believe to be the principal risks and uncertainties facing the Group. The table
does not cover all of the risks that the Group may face. Additional risks and uncertainties not presently known to
management or deemed to be less material at the date of this report may also have an adverse effect on the Group.
The Board has proposed amendments to the Company’s Investment Policy and Investment Restrictions which, if
approved by shareholders at the AGM, will enable the Group to enter into a broader range of lease structures, including:
shorter leases; selectively taking on the cost of planned maintenance; and leases where upward only rent reviews are
linked to either inflation or central housing benefit policy. The Board is currently considering the impact these proposed
changes will have on the Company’s principal risks and uncertainties and will provide an update at the time of the
Company’s interim results. However, given the limited amount of cash available for deployment in immediate term, the
Board does not expect these changes will have a material impact on the Group’s risks and KPIs, particularly its WAULT.
1. RISK CATEGORY – FINANCIAL
Expensive or lack of debt finance may limit our ability to grow and achieve a fully covered dividend
RISK IMPACT
RISK MITIGATION
Impact
Without sufficient debt funding at
sustainable rates, we will be unable
to pursue suitable investments in line
with our investment policy. This would
significantly impair our ability to pay
dividends to shareholders at the
targeted rate.
When raising debt finance the Investment Manager adopts a flexible
approach involving speaking to multiple funders offering various
rates, structures and tenors. Doing this allows the Investment Manager
to maintain maximum competitive tension between funders. After
proceeding with a funder, the Investment Manager agrees heads
of terms early in the process to ensure a streamlined, transparent
fundraising process. The Board also keeps liquidity under constant
review to ensure that we have a level of protection in the event of
adverse fundraising conditions.
Likelihood
Change in Year
STABLE
2. RISK CATEGORY – FINANCIAL
Floating rate debt exposes the business to underlying interest rate movements
RISK IMPACT
RISK MITIGATION
Impact
The Group’s Revolving Credit Facility
is currently non-hedged and therefore
interest is payable based on a margin
over SONIA.
Any adverse movements
in the SONIA forward curve could
significantly impair our profitability
and ability to pay dividends.
The Group considers cash flow forecasts and ensures sufficient
cash balances are held within the Group to meet future needs.
Prudent liquidity risk management implies maintaining sufficient
cash and marketable securities, the availability of financing through
appropriate and adequate credit lines, and the ability of customers to
settle obligations within normal terms of credit. The Group ensures,
through forecasting of capital requirements, that adequate cash is
available to fund the Group’s operating activities.
Following the refinancing of the Revolving Credit Facility, all drawn
debt is fixed price with the Group’s 10-year and 15-year
MetLife
Investment Management tranches and the new Loan Notes having
a fixed-rate coupon meaning they are insulated from interest rate
fluctuations. In addition, the Board regularly reviews potential
hedging arrangements which can be put in place at any time during
the duration of the Revolving Credit Facility.
Likelihood
Change in Year
DECREASE
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3. RISK CATEGORY – FINANCIAL
Unable to operate within debt covenants
RISK IMPACT
RISK MITIGATION
Impact
The borrowings the Group currently
has and which the Group uses in
the future may contain loan to value
and interest covenants ratios. If
property valuations and rental income
decrease, such covenants could be
breached, and the impact of such an
event could include: an increase in
borrowing costs; a requirement for
additional cash collateral; payment of
a fee to the lender; a sale of an asset
or assets or a forfeit of any asset to a
lender.
This may result in the Group selling
assets to repay drawn loan amounts
resulting in a decrease on Group’s Net
Asset Value.
The Investment Manager monitors loan to value and interest
covenants ratios on an ongoing basis. In the unlikely event that
an event of default occurs under these covenants the Group has a
remedy period during which it can cure the covenant breach by either
injecting cash collateral or equity funded assets in order to restore
covenant compliance.
During the year to 31 December 2021, no debt covenants have been
breached.
Likelihood
Change in Year
STABLE
4. RISK CATEGORY – PROPERTY
Default of one or more Approved Provider lessees
RISK IMPACT
RISK MITIGATION
Impact
The default of one or more of our
lessees could impact the revenue
gained from relevant assets. If the
lessee cannot remedy the default
or no support is offered to the
lessee by the Regulator of Social
Housing, we may have to terminate
or negotiate the lease, meaning a
sustained reduction in revenues while
a replacement is found. Additionally,
were a care provider not to renew the
service level agreement with a lessee,
this may result in a lessee having to
cover rental payment on void units
without receiving the corresponding
housing benefit payment from the
care provider.
Under the terms of our investment policy and restrictions, no more
than 30% of the Group’s gross asset value may be exposed to one
lessee, to mitigate against the risk of significant rent loss. Were a
lessee to default or were the Group to believe it likely that a lessee
would default the Group would look to move the affected properties
to another Approved Provider with whom the Group have a good
relationship to ensure that both the provision of housing to vulnerable
individuals and the income stream associated with the properties
were preserved. In addition, the lessees are predominantly regulated
by the Regulator of Social Housing, meaning that, if a lessee was
to suffer financial difficulty, it is likely that the Regulator of Social
Housing would look to ensure that the vulnerable residents did not
have to be rehoused. However, an Approved Provider may seek to
renegotiate the lease.
The Investment Manager has continued to monitor the implications
of the pandemic with regards to the Group’s Registered Providers
and care providers. The Investment Manager has remained in regular
communication with counterparties and monitored financial strength,
occupancy and referrals closely.
Likelihood
Change in Year
STABLE
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6. RISK CATEGORY – PROPERTY
Forward funding properties involves a higher degree of risk than that associated with completed investments
RISK IMPACT
RISK MITIGATION
Impact
Our forward funded developments
are likely to involve a higher degree
of risk than is associated with standing
investments.
This
could
include
general construction risks, delays in
the development or the development
not being completed, cost overruns or
developer/contractor default. If any of
the risks associated with our forward
funded developments materialised,
this could reduce the value of these
assets and our portfolio.
Before entering into any forward funding arrangements, the
Investment Manager undertakes substantial due diligence on
developers and their main subcontractors, ensuring they have a strong
track record. We enter into contracts on a fixed price basis and then,
during the development work, we typically defer development profit
until work has been completed and audited by a chartered surveyor.
We are limited by our investment policy which restricts us to forward
funding a maximum of 20% of the Group’s net asset value at any one
time. Ultimately, with these mitigating factors in place, the flexibility
to forward fund allows us to acquire assets and opportunities which
will provide prime revenues in future years.
As at 31 December 2021, all forward funding agreements had
reached practical completion.
Likelihood
Change in Year
DECREASE
7. RISK CATEGORY – REGULATORY
Risk of an Approved Provider receiving a non-compliant financial viability or governance rating by the Regulator
RISK IMPACT
RISK MITIGATION
Impact
Should an Approved Provider with
which the Group has one or more
leases in place receive a non-compliant
rating by the Regulator, in particular in
relation to viability, depending on the
further actions of the Regulator, it is
possible that there may be a negative
impact on the market value of the
relevant properties which are the
subject of such lease(s). Depending
on the exposure of the Group to
such Approved Provider, this in turn
may have a material adverse effect
on the Group’s Net Asset Value until
such time as the matter is resolved
through an improvement in the
relevant Approved Provider’s rating or
a change in Approved Provider.
As part of the Group’s acquisition process, the Investment Manager
conducts a thorough due diligence process on all Registered Providers
with which the Company enters into lease agreements, which takes
account of their financial strength and governance procedures.
The Investment Manager has established relationships with the
Approved Providers with whom it works. The Approved Providers
keep the Investment Manager informed of developments surrounding
the regulatory notices.
The Group has leases in place with five Approved Providers that have
been deemed non-compliant by the Regulator. These assets did not
suffer from an impairment in value as part of the Q4 valuation by the
Group’s independent Valuer.
More detail on this risk can be found on page 39.
Likelihood
Change in Year
STABLE
5. RISK CATEGORY – FINANCIAL RISK (NEW)
Higher than projected levels of inflation may impact Approved Providers
RISK IMPACT
RISK MITIGATION
Impact
The Group’s leases contain upward
only rent reviews, generally linked to
inflation (typically CPI).
Annual rental uplifts will be higher
than projected as a result of increased
inflation in 2022.
The Investment Manager closely monitors inflation levels. There has
been a strong historical correlation between inflation and central
housing benefit policy which has generally tracked CPI + 1%.
The annual rental increases in the Group’s leases are linked to
increases in central government housing benefit allocations. These
tend to increase in line with CPI, and so the inflationary risk is largely
mitigated.
Likelihood
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8. RISK CATEGORY – REGULATORY
Risk of changes to the social housing regulatory regime
RISK IMPACT
RISK MITIGATION
Impact
Future governments may take a
different approach to the social
housing regulatory regime, resulting
in changes to the law and other
regulation
or
practices
of
the
Government with regard to social
housing.
As demand for social housing remains high relative to supply, the
Board and the Investment Manager is confident there will continue
to be a viable market within which to operate, notwithstanding any
future change of Government. Even if Government funding was to
reduce, the nature of the rental agreements the Group has in place
means that the Group will enjoy continued lessee rent commitment
for the term of the agreed leases.
Likelihood
Change in Year
STABLE
9. RISK CATEGORY – REGULATORY
Risk of not being qualified as a REIT
RISK IMPACT
RISK MITIGATION
Impact
If the Group fails to remain in
compliance with the REIT conditions,
the members of the Group will be
subject to UK corporation tax on
some or all of their property rental
income and chargeable gains on the
sale of properties which would reduce
the funds available to distribute to
investors.
The Group intends to continue to operate as a REIT and work within
its investment objective and policy. The Group will retain legal and
regulatory advisers and consult with them on a regular basis to ensure
it understands and complies with the requirements. In addition,
the Board oversees adherence to the REIT regime, maintaining
close dialogue with the Investment Manager to ensure we remain
compliant with legislation.
Likelihood
Change in Year
STABLE
10. RISK CATEGORY – CORPORATE
Reliance on the Investment Manager
RISK IMPACT
RISK MITIGATION
Impact
We continue to rely on the Investment
Manager’s services and its reputation
in the social housing market. As a
result, our performance will, to a large
extent, depend on the Investment
Manager’s abilities in the property
market. Termination of the Investment
Management
Agreement
would
severely affect our ability to effectively
manage our operations and may have
a negative impact on the share price
of the Company.
Unless there is a default, either party may terminate the Investment
Management Agreement by giving not less than 12 months’ written
notice. The Board regularly reviews and monitors the Investment
Manager’s performance. In addition, the Board meets regularly
with the Manager to ensure that we maintain a positive working
relationship.
Likelihood
Change in Year
STABLE
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Governance
11. RISK CATEGORY – FINANCIAL
Property valuations may be subject to change over time
RISK IMPACT
RISK MITIGATION
Impact
Property
valuations
are
inherently
subjective
and
uncertain.
Market
conditions, which may impact the
creditworthiness
of
lessees,
may
adversely
affect
valuations.
The
portfolio is valued on a Market Value
basis, which takes into account the
expected rental income to be received
under the leases in the future. This
valuation methodology provides a
significantly higher valuation than the
Vacant Possession value of a property.
In the event of an unremedied default
of an Approved Provider lessee, the
value of those assets in the portfolio
may be negatively affected.
Any changes could affect the Group’s
net asset value and the share price of
the Group.
All of the Group’s property assets are independently valued quarterly
by Jones Lang LaSalle, a specialist property valuation firm, who are
provided with regular updates on portfolio activity by the Investment
Manager. The Investment Manager meets with the external valuers
to discuss the basis of their valuations and their quality control
processes. Default risk of lessees is mitigated in accordance with the
lessee default principal risk explanation provided above. In order
to protect against loss in value, the Investment Manager’s property
management team seeks to visit each property in the portfolio at
least every two years since it has been acquired, and works closely
with lessee to ensure, to the extent reasonably possible, their
financial strength and governance procedures remain robust through
the duration of the relevant lease.
Likelihood
Change in Year
STABLE
12. RISK CATEGORY – FINANCIAL RISK (NEW)
Non-payment of voids cover by care providers
RISK IMPACT
RISK MITIGATION
Impact
If a care provider gets into financial
difficulty
and
is
unable
to
pay
contracted
voids
cover
to
an
Approved Provider this could have
a negative impact on the financial
performance
of
the
Approved
Provider
which
ultimately
could
impact its ability to pay the Group its
rent. This risk is compounded if there
is low occupancy in a property.
The Investment Manager closely monitors the performance of the
care providers to ensure that they are financially viable and performing
well. Should a care provider get into financial difficulty, the Group
works with a wide range of care providers who could provide services
and therefore meet the voids payment.
Occupancy is also closely monitored and the Investment Manager
works with Approved Providers and care providers to ensure
occupancy.
Likelihood
Emerging Risks
CHANGE IN SOCIAL HOUSING LEGISLATION
In November 2020, the UK Government released the Social Housing
White Paper which set out a number of measures intended to provide
residents with a greater voice and influence, to improve the quality
of social housing, with a particular focus on building and resident
safety. The sentiment of these proposals is welcomed by the Board
and the Investment Manager. There is currently no timetable from the
Government to deliver on the measures.
The Regulator of Social Housing has committed to engage with all
stakeholders on the proposed reforms outlined in the White Paper
in preparation for any future legislation that could be implemented.
The Board will continue to monitor the potential changes in
legislation. The Investment Manager engages regularly with the
Regulator of Social Housing to ensure that it is informed as soon as
possible of any likely changes to the regulatory regime.
UKRAINE-RUSSIA CONFLICT
In late February 2022, Russia began an invasion of Ukraine with
devastating consequences for the country’s citizens and
major
implications for wider humanity, the global economy and capital
markets. Whilst the full impact of the conflict is yet to be fully
understood, the possibility
of
increased fuel inflation and rising gas
prices is highly probable. The Group has no direct exposure to Russia
or eastern European territories and would not be directly impacted
by increased energy prices given both the inflation linked nature
of its rental income and the FRI nature of its leases. The Board will
continue to monitor any impact this could have on the Group and our
stakeholders.
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Governance
Newall Green Farm, Wythenshawe
GOING
CONCERN
AND
VIABILITY
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Going Concern
The Strategic Report and financial statements have set
out the current financial position of the Group and Parent
Company. The Board has regularly reviewed the position of
the Company and its ability to continue as a going concern in
Board meetings throughout the year. The Group has targeted
high-quality properties in line with yield expectations and will
continue to analyse investment opportunities to ensure that
they are the right fit for the Group.
The Group has invested £590.4 million up to 31 December
2021, and £10.0 million (including acquisition costs) since
the year end. The cash balance of the Group at year end
was £52.5 million, of which £29.7million was readily available
for use. This is the cash balance at 31 December 2021
less any funds that are committed for future deployment,
retentions, or working capital requirements. As stated in the
Strategic Report, the Investment Manager has identified a
visible pipeline of over £150 million of attractive investment
opportunities for acquisition over the next 12 months.
The
Board has evaluated the financial position of the Group
and plans in order to fund the Group’s investments to 31
March 2023. Income generated from the Group’s portfolio
of assets is expected to substantially facilitate the payment
of dividends to shareholders at the targeted rate. Based on
this, the Board believes that the Group is in a position to
manage its financial risks for the foreseeable future.
Impact of Covid-19
To date, Covid-19 has not impacted the Group’s ability to
continue as a going concern for reasons discussed below.
As a result, the Directors believe that the Group is still well
placed to manage its financing and other business risks and
that the Group will remain viable, continuing to operate and
meet its liabilities as they fall due despite the risk of Covid-19.
The Directors have performed an assessment of the ability of
the Company to continue as a going concern, which includes
the impact of Covid-19, for a period of at least 12 months
from the date of signing these financial statements. The
Directors have considered the expected obligations of the
Company and its subsidiaries for the next 12 months and are
confident that all will be met.
In considering the ability of the Group to continue as a
going concern, the Directors also considered the impact
of Covid-19 on their tenants. Tenants of the Group are
Approved Providers who receive their housing benefit from
local authorities, before it is passed to subsidiaries in the form
of rental income. Local authorities have confirmed they will
not stop helping vulnerable people or paying for essential
services during this time, and therefore the Directors do not
foresee any issues in rent collection, however in the event of
a downturn in revenue, variable costs would be reduced to
enable the Group to meet its future liabilities. 99.8% of rental
income due and payable for the period ended 31 December
2021 has been collected.97.16% of all rent due and payable
at 28 February 2022 has been collected.
The Directors have also considered reverse stress testing and
the circumstances that would lead to a covenant breach. The
property portfolio valuation at 31 December 2021 is based on
a blended net initial yield of 5.21% for Norland Estates Limited,
and 5.87% for TP REIT Propco 2 Limited. Yields would have to
move by 239bps for Norland Estates Limited and 142bps for TP
REIT Propco 2 Limited before valuations fell to a level at which
the asset cover ratio covenant was breached. The interest cover
ratio would need rental income collection to fall to 36% before
the covenant is breached. For TP REIT Propco 2 Limited, the
interest cover ratio would need rental income collection to fall
to 59% before the covenant is breached.
The Board believes that there are currently no material
uncertainties in relation to the Group’s and Company’s ability
to continue for a period of at least 12 months from the date
of the approval of the Group and Parent Company’s financial
statements and, therefore, has adopted the going concern
basis in the preparation of the financial statements, please
see Note 2 of the financial statements for more information.
Viability Statement
In accordance with Principle 21 of the AIC Code, the Board
has assessed the prospects of the Group over a period longer
than 12 months required by the relevant ’Going Concern’
provisions. The Board has considered the nature of the
Group’s assets and liabilities, and associated cash flows, and
has determined that five years, up to 31 December 2026, is
the maximum timescale over which the performance of the
Group can be forecast with a material degree of accuracy and
therefore is the appropriate period over which to consider
the viability.
In determining this timescale the Board has considered the
following:
• That the business model of the Group assumes the future
growth in its investment portfolio through the acquisition of
Supported Housing assets which are intended to be held for
the duration of the viability period.
• The length of the service level agreements between Approved
Providers and care providers.
• The future growth of its investment portfolio of properties is
achieved through long-term, inflation linked, fully repairing
and insuring leases.
• The Group’s property portfolio has a WAULT of 26.2 years to
expiry, representing a secure income stream for the period
under consideration.
• The Group’s Loan Notes have a weighted average term of 12
to 13 years.
In assessing the Company’s viability, the Board has carried
out a robust assessment of the emerging risks and principal
risks facing the Group, including those that would threaten
its business model, future performance, solvency, liquidity
and dividend cover for a five year period.
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The business model was subject to a sensitivity analysis, which involved flexing a number of key assumptions
underlying the forecasts. The sensitivities performed were designed to provide the Directors with an
understanding of the Group’s performance in the event of a severe but plausible downturn scenario, taking
full account of mitigating actions that could be taken to avoid or reduce the impact or occurrence of the
underlying risks outlined below:
The Directors’ assessment has been made with reference to the principal risks and uncertainties and emerging risks summarised
on pages 63 to 67 and how they could impact the prospects of the Group and Company both individually and in aggregate.
The following risks in particular have been addressed in the assessment:
1. Default of one or more Approved Provider lessees
2. Risk of changes to the social housing regulatory regime
3. Non-payment of voids cover by care providers
The outcome in the downturn scenario on the Group’s covenant testing is that there are no breaches and the Group
can maintain a covenant headroom on existing facilities.
In the downturn scenario mitigating actions to reduce variable costs such as marketing, PR and any other non-critical
spend would be required to enable the Group to meet its future liabilities.
The remaining principal risks and uncertainties, whilst having an impact on the Group’s business, are not considered by
the Directors to have a reasonable likelihood of impacting the Group’s viability over the five year period.
Based on the results of this analysis, the Directors have a reasonable expectation that the Group and Company will be
able to continue in operation and meet its liabilities as they fall due for the next five years.
RENTAL INCOME:
8% decrease in rent received. This assumes that some care providers do not cover voids and this causes
Approved Providers to default under 8% of SOHO’s leases.
PROPERTY VALUATIONS:
It is assumed that the 8% of leases that Approved Providers default under will be valued at 20% below
their vacant possession value. This leads to a 15.4% drop in value of the Company’s portfolio. We
believe that this is a severe downside case given that the valuation yields have not been affected by
Covid-19 and we have collected 99.8% of rent due throughout the pandemic.
INFLATION:
No inflation uplift on rental income but costs and dividends increase in line with inflation. We believe
this is a severe downside assumption as we have been successful in collecting inflation linked uplifts on
all leases to date.
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Board Approval of the
Strategic Report
The Strategic Report has been approved by the
Board of Directors and signed on its behalf by:
Chris Phillips
Chair
24 March 2022
Clock Tower, Liverpool
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Governance
Dear Shareholder,
I am pleased to introduce the Corporate Governance
Report for the year ended 31 December 2021. The Board
recognises that a strong governance framework underpins
our purpose and strategy.
As set out in the Strategic Report, in spite of the covid-19
pandemic continuing to dominate the year, we entered
2021 with cautious optimism.
At the Company’s financial
year end, 71.7%
22
of UK citizens had received two doses of
the vaccine. The challenges imposed from social distancing
restrictions and staff shortages continued to impact our
homes, however, continued resilience has been shown
from all our stakeholders. Care providers and Registered
Providers now have robust policies and plans in place to
insulate themselves from the potential operational and
financial risks associated with the Covid-19 pandemic.
Our relationship with our stakeholders has been critical
during the year, and this engagement has been set out
more fully within the s172(1) statement on pages 58 to 61.
Stakeholder engagement
Our engagement and relationships with our stakeholders
are critical to our long-term success and sustainability
of our business. At each quarterly Board meeting, we
consider stakeholder views through Board reports
from the Investment Manager, in particular on their
engagement with the Group’s Approved Providers and
care providers. The views and concerns of all stakeholders
were communicated to and fed into all of the Board’s
decisions. We will continue to engage openly with all our
stakeholders to understand their views on governance and
performance.
Board focus
The Board’s focus this year has been on a broad range
of matters. During this period the Board drew on the
significant experience in the social housing sector of both
the Investment Manager and the Directors, with a focus on
potential risks to the future success of the business. The
Board has continued to focus on sustainability and this year
completed a further debt raise via the issuance of £195
million of loan notes. The Board was pleased to receive an
Investment Grade Long-Term Issue Default Rating of ‘A-‘
with a stable outlook, and a senior secured rating of ‘A’
from Fitch Ratings Limited. This year has demonstrated the
robustness of our business model as we have continued
to perform well, with nearly 100% of rent collected for
the year allowing us to pay the expected dividends to
shareholders totalling 5.20 pence per Ordinary Share for
the year.
External Board Evaluation
The Board conducted the first external Board evaluation
in 2020 to enhance the objectivity, impartiality and
independence of the Board evaluation process, to ensure
that the composition, skills and experience of the Board,
Chairs, Committees and individual Directors remain
appropriate for the Group. The results of the Board
evaluation were illustrated in 2020 and the Board has
now had 12 months to develop and implement changes
to improve efficiency. Further details on identified areas of
development and actions that were undertaken are set out
on pages 78 to 83 of the Corporate Governance report.
Chair’s Letter
CHRIS PHILLIPS
,
Chair
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Governance
Impact
The Board is pleased to publish its third Impact Report
that details its impact objectives against outcomes of the
Group. The Report calculated the Group’s social impact
by the value of improved personal outcomes for residents
resulting from improved wellbeing, health, confidence and
aspirations against the savings generated for the public
budget by residents moving into the Group’s homes.
This
resulted in a Total Social Value of £105.8 million. Further
details can be found on pages
34 to 44
and in the Impact
Report available separately on the Company’s website.
The Group has leases in place with 24 Approved Providers,
of which five Approved Providers were deemed non-
compliant with the Regulator with regards to elements
of Governance and Financial Viability Standard during
the year. The fundamentals of the Group’s model remain
strong and the majority of Registered Providers continue to
perform well. The Investment Manager has liaised with the
Group’s valuer, JLL, to discuss the valuation methodology
of the Group’s portfolio and examine the suitability of the
value of assets leased to Registered Providers that had
received non-compliant ratings. The Board were satisfied
that there was no material impact on the Group’s valuation
and the strength of our income stream remains robust.
The Investment Manager has maintained its relationship
with its Registered Providers and is in regular dialogue
with them, in particular regarding regulatory reviews.
The Group notes that Registered Providers are actively
engaged with the Regulator and are taking steps to
address the Regulator’s concerns. The Board recognises
the importance of the work of the Regulator’s ongoing
review of the specialist Supported Housing sector to
bring higher levels of accountability and transparency.
Annual General Meeting
We are planning to hold our Annual General Meeting
on 27 May 2022. This will be our first AGM to be held
in person in two years due to Government restrictions
previously in place as a result of the Covid-19 pandemic.
This year also marks five years of the Group’s existence
and in line with the Company’s articles of association, we
will propose a resolution to members that the Company
continues in existence which we hope will be supported
by all shareholders.
Compliance Statement
Throughout the year to 31 December 2021, The Board
has considered the Principles and Provisions of the AIC
Code of Corporate Governance (AIC Code). The AIC
Code addresses the Principles and Provisions set out in
the UK Corporate Governance Code (the UK Code), as
well as setting out additional Provisions on issues that are
of specific relevance to Triple Point Social Housing REIT
plc.
The Board considers that reporting against the Principles
and Provisions of the AIC Code, which has been endorsed
by the Financial Reporting Council, provides more relevant
information to shareholders.
The Company has complied with the Principles and
Provisions of the AIC Code. The AIC Code is available on
the AIC website (www.theaic.co.uk).
Looking ahead to 2022
The Board remains focused on building upon our high
standards of governance in order to support the strategic
direction of the Group and deliver sustainable long-term
value for shareholders and stakeholders. In this section of
the Annual Report, we report on our compliance with the
principles of corporate governance and highlight the key
governance events which have taken place in the year.
Chris Phillips
Chair
24 March 2022
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BOARD OF
DIRECTORS
Left to right: Paul Oliver, Peter Coward, Tracey Fletcher-Ray, Chris Phillips and Ian Reeves CBE
CHRIS PHILLIPS,
Chair (71)
Appointed
17 July 2017
Committee
memberships
Management engagement committee (Chair)
Nomination committee
Skills and
experience
Chris has extensive experience of real estate and listed companies. He was Managing Director of PB Securities, the UK subsidiary of
Prudential Bache, for three years, before joining Lombard Odier as the Managing Director of its London broking business. He then
joined Colliers International and after heading its residential consultancy business, became the first Managing Director of Colliers
Capital UK Limited (Colliers commercial real estate property fund). Having served on the Board of Places for People for 14 years, 10
of them as Chair, Chris stood down from the role in January 2021.
Principal external
appointments
London & Newcastle 2010 Holdings Limited (Chair)
Shetland Space Centre (Director)
Nova Innovations Ltd (Chair)
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IAN REEVES CBE,
Senior Independent Director (77)
Appointed
17 July 2017
Committee
memberships
Audit committee
Management engagement committee
Nomination committee (Chair)
Skills and
experience
Ian is co-founder and CEO of Synaps International Limited. He is visiting Professor of infrastructure investment and construction at
The Alliance Manchester Business School, Chair of GCP Infrastructure Investments Limited, Chair of The Estates and Infrastructure
Exchange (EIX) and a director of Xinous Inc.
He was appointed as a Non-executive Director and Chair of Geiger Counter Limited on
13 December 2021 and 9 March 2022 respectively.
Ian was founder and Chair of High-Point Rendel Group a pioneering management and engineering consultancy company with a
global network of offices. He has been president and CEO of Cleveland Bridge, Chairman of McGee Group, Chairman of Constructing
Excellence and Chair of the London regional council of the CBI.
Ian was awarded his CBE in 2003 for services to business and charity.
Principal external
appointments
GCP Infrastructure Investments Limited (Chair)
Synaps International Limited (Co-founder and CEO)
The Estates and Infrastructure Exchange (Chair)
Geiger Counter Limited (Chair)
Xinous Inc (Director)
PETER COWARD,
Non-executive Director (65)
Appointed
17 July 2017
Committee
memberships
Audit committee (Chair)
Management engagement committee
Nomination committee
Skills and
experience
Peter is a chartered accountant with international commercial and corporate finance experience. He has over 25 years’ experience
as a Senior Tax Partner at PricewaterhouseCoopers specialising in property, and has worked with a wide range of firms to develop a
knowledge and understanding of tax regimes worldwide and of organisational and project structuring to optimise the tax position.
Principal external
appointments
Bradda Capital Ltd (Director)
True Potential Group Limited (Director)
Chancery Gate Limited (Director)
Matfen Hall Ltd (Director)
PAUL OLIVER,
Non-executive Director (66)
Appointed
17 July 2017
Committee
memberships
Audit committee
Management engagement committee
Nomination committee
Skills and
experience
Paul has over 40 years’ experience in real estate development and investment management in both the UK and Europe. He has
led commercial real estate development teams and has been at the forefront of the establishment of property funds since 1988.
In 2002 he launched Teesland PLC on the LSE building funds under management to €6.5 billion before sale to Valad in June 2007.
Paul founded Curlew Capital in 2010 to pursue ‘Operational’ real estate markets focussing on ‘Beds’ – two funds in UK Purpose Built
Student Accommodation and a portfolio for Young Urban residents in the Netherlands.
Principal external
appointments
Curlew Capital Ltd (CEO)
TRACEY FLETCHER-RAY,
Non-executive Director (57)
Appointed
1 November 2018
Committee
memberships
Audit committee (appointed 24 January 2019)
Management engagement committee (appointed 24 January 2019)
Skills and
experience
Tracey has considerable expertise as an executive and non-executive director in the care and support sectors. Tracey previously was
a non-executive director to L&Q Group, one of the UK’s largest Housing Associations and developers, and is currently Managing
Director of Caring Homes, a leading provider of care homes for the elderly.
She spent nearly two years as Managing Director at Berendsen PLC developing the company’s healthcare business, strategy and
growth and eight years at Bupa UK, holding Managing Director roles in the Care Home business which involved contracting with and
providing services on behalf of local authorities and the NHS, and Bupa Health Clinics.
Principal external
appointments
Caring Homes (Managing Director)
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CORPORATE
GOVERNANCE
Newall Green Farm, Wythenshawe
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Governance Framework
THE BOARD
The Board is responsible for leading and controlling the Group and has overall responsibility for the Group’s activities. It has
oversight over the management and conduct of the Group’s business, strategy and development. The Board determine the
Group’s Investment Objective and Investment Policy, and reviews investment activity and performance. The Board’s main
focus is to promote the sustainable long-term success of the Group, to deliver value for shareholders and contribute to wider
society cognisant of its duties under s172(1) of the Companies Act 2006.
The Board is also responsible for the control and supervision of the Investment Manager and compliance with the principles and
provisions of the AIC Code. The Board ensures the maintenance of a sound system of internal controls and risk management
(including financial, operational and compliance controls) and reviews the overall effectiveness of systems in place. They are
responsible for approval of any changes to the capital, corporate and/or management structure of the Group.
The Board does not routinely involve itself in day-to-day business decisions, but it has a formal schedule of matters that
requires the Board’s specific approval, as well as decisions which can be delegated to the Board committees or the Investment
Manager. The Board retains responsibility for all such delegated matters.
ALTERNATIVE INVESTMENT FUND MANAGER
Triple
Point
Investment
Management
LLP
is
the
Company’s AIFM, and as such is responsible for portfolio
management and risk management of the Group pursuant
to AIFMD. The Investment Manager also provides certain
property management services to the Group, including
the preparation of budgets for the properties and co-
ordinating with third parties providing services to the
Group. Further information on the AIFM arrangements
can be found on pages 88 to 89.
COMPANY SECRETARY
Responsible for ensuring that Board procedures are
complied with, advising the Board on all governance
matters, supporting the Chair, the Board and its Committees
to function effectively.
NOMINATION COMMITTEE
Responsible for leading the process
for appointments, ensuring plans
are in place for orderly succession
to the Board and oversee the
development of a diverse pipeline.
AUDIT COMMITTEE
Responsible
for
reviewing
and
reporting to the Board on the Group’s
financial reporting, maintaining an
appropriate relationship with the
Group’s auditor and monitoring the
internal control systems.
MANAGEMENT
ENGAGEMENT
COMMITTEE
Responsible
for
reviewing
the
contractual relationships of the
Investment Manager and holding
to account the performance of the
Investment Manager.
This Governance Framework represents the key groups which provide the framework for which the Group can provide
the highest governance standards. It is not an exhaustive list of every organisation or service provider which the Group
has engaged with on governance matters.
SHAREHOLDERS
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Establishing the overall control framework, Stock
Exchange related matters, including the approval
of communications to the Stock Exchange, and
communications
with
shareholders,
other
than
announcements of a routine nature.
Key commercial matters, including review of all
investments and divestments, and any significant
changes in lease terms.
The approval of the budget and financial models.
The approval of the net asset value calculation prepared
by the Administrator on a quarterly basis at 31 March,
30 June, 30 September and 31 December each year.
The review of significant estimates and judgements of
the Group.
Approval of changes to the Group’s capital structure,
dividend policy, treasury policy, borrowing facilities
and any banking relationships, hedging strategy,
cash management, the Group’s business strategy,
acquisitions and disposals and capital expenditure.
Oversight
of
the
Group’s
operations
ensuring
compliance with statutory and regulatory obligations.
Board membership and powers including the
appointment and removal of Board members.
The appointment, termination, and regular assessment
of the performance of the principal advisers, including
the AIFM, the Investment Manager, Tax Advisers,
Legal Advisers, Financial Adviser, Administrator and
Company Secretary, Broker, Registrar, PR Adviser and
Auditor.
The approval of annual and half yearly financial
reports, to 31 December and 30 June respectively,
dividends, accounting policies and significant changes
in accounting practices.
The review of the adequacy of corporate governance
procedures.
The review of the risk inventory and the effectiveness
of internal controls.
Approval of any related party transactions subject to
further regulatory requirement.
Key matters reserved
for the Board
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Board Membership and Meeting
Attendance
During the year to 31 December 2021, the number of
scheduled Board meetings attended by each Director was
as follows:
Director
Attendance
23
CHRIS PHILLIPS (CHAIR)
5/7
24
IAN REEVES CBE
7
/
7
PETER COWARD
7
/
7
PAUL OLIVER
6
/
7
TRACEY FLETCHER-RAY
7/7
Composition
The Group has a non-executive Chair and four other non-
executive Directors, including a Senior Independent Director,
all of whom were considered independent on and since their
appointment. All of the Directors are independent of the
Investment Manager.
Chris Phillips is the Chair of the Board. The Chair leads the
Board and is responsible for the Board’s overall effectiveness
in directing the Group. The Chair, in conjunction with the
Company Secretary, ensures that accurate, timely and clear
information is circulated to the Directors, and sufficient time
is given in meetings to review all agenda items thoroughly
in preparation for and during Board meetings, following
up any issues arising in the Board meetings effectively. He
promotes a culture of openness and constructive debate to
ensure the effective contribution of all Directors, facilitating a
co-operative environment between the Investment Manager
and the Directors, and encourages Directors to critically
examine information and reports to constructively challenge
the Investment Manager and hold third party service
providers to account where appropriate.
The Chair has put mechanisms in place to ensure effective
communication between shareholders and the Board, to
ensure that their views, issues and concerns are considered
as part of the decision-making process.
Ian Reeves is the Senior Independent Director and, if
required, will act as a sounding board and intermediary for
the other Directors and shareholders. In addition to the Chair,
engages with shareholders or Directors if they have any
issues or concerns, or if there are any unresolved matters that
shareholders or other Directors believe should be brought to
his attention.
The Directors hold or have held senior positions in industry
and commerce and contribute a wide range of skills,
experience and objective perspective to the Board. The
Board committees allow the Directors to focus in greater
detail and depth on key matters such as strategy, governance,
internal controls and risk management.
The current gender split of the Board is 80% male and 20%
female.
Time Commitment
The Directors’ other principal commitments are listed on
pages 76 to 77
. During the year, the Board was satisfied that
all Directors were and remain able to commit sufficient time
to discharge their responsibilities effectively having given
due consideration to their other significant commitments.
Changes in any Director’s commitments outside the Group
are required to be, and have been, disclosed and approved
prior to the acceptance of any such appointment. During the
year, Ian Reeves was appointed as a Non-executive Director in
Geiger Counter Limited. The Board, taking into consideration,
the expected time commitment of the role, approved the
external appointment. There were no external appointments
accepted during the year which were considered to be
significant for the relevant directors, taking into account the
expected time commitment and nature of these roles.
Board Committees
The Board has established a management engagement
committee, an audit committee and a nomination committee.
Given that the Company has no executive Directors or other
employees, the Board does not consider it necessary to
establish a separate remuneration committee. The functions
and activities of each of the committees are described in
their respective reports.
Board Meetings
The Board meets formally at least on a quarterly basis with
additional meetings as they may decide are required from
time to time. During 2021, the Board held four scheduled
meetings and one extra Board meeting including two
strategy meetings attended by those Directors available at
the time, to deal with transactional and specific events such as
property management strategies and further debt financing.
The Chair sets the agenda for the meetings, and ensures
in conjunction with the Company Secretary prior to each
meeting that the Directors receive accurate, clear and timely
information to help them to discharge their duties. For
this purpose, the Board receives periodic reports from the
Investment Manager detailing the performance of the Group.
The meetings focus on a review of portfolio performance
and associated matters such as pipeline, gearing, asset
management, occupancy, marketing/investor relations, peer
group comparisons, regulatory matters, environmental and
social matters and the continued impact of the Covid-19
pandemic.
23 Number of scheduled meetings attended/maximum number of meetings that the Director could have attended
24
Chris Phillips was unable to attend two meetings during the year due to a close family bereavement
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Key decisions of the Board 2021
During the year the Board considered the following matters:
• the Group’s longer-term strategy;
• initiating a retrofit programme to upgrade the properties to
a minimum EPC rating of ‘C’;
• the placement of £195 million Loan Notes and the terms
of refinance on the Group’s existing £160 million Revolving
Credit Facility in August 2021;
• the continued impact of the Covid-19 pandemic;
• reviewing recommendations of its nomination committee
with respect to Board diversity and balance of skills,
experience and knowledge;
• potential changes to and analysis of the Group’s current
and future lease terms;
• potential changes to the Company’s Investment Policy;
• the valuation methodology of the Group’s portfolio;
• the risks and related mitigations of the Group’s lease
counterparties;
• the standards of Registered Providers that had received
a non-compliant rating by the Regulator and updates on
regulatory developments within the social housing sector;
• the declaration of the Company’s interim dividends;
• the Group’s due diligence process;
• the risk profile of the Group and its counterparties;
• capital deployment, investment pipeline and review of
rejected deals;
• the Group’s compliance with the REIT regime;
• the Group’s financial public relations and communication
strategy;
• the Group’s property insurance;
• the key performance indicators by which the Group
measures success;
• review of quarterly management accounts;
• half yearly broker report regarding the Company’s
share price rating, performance and trading and NAV
performance;
• analysis of the Company’s shareholder register;
• a quarterly review of corporate governance compliance,
Group subsidiary activity and depositary report; and
• the Group’s social impact including environmental and
governance matters.
Performance Evaluation
The Directors recognise that the evaluation process is
a significant opportunity to review the practices and
performance of the Board, its committees and its individual
Directors and to implement actions to improve the Board’s
effectiveness and contribute to the Group’s success.
The 2020 Board evaluation was undertaken by an independent
third-party evaluator, Satori Board Review (“Satori”) and the
Board has made good progress on its development points.
Specifically, the Board updated their diversity policy and
approved the threshold at which to review transactions. The
Board have closely reviewed the Company’s strategic agenda
and regularly discusses what adjustments could be made to
the investment policy and model ensuring any changes are
aligned to the Company’s purpose.
Satori will revisit the Board to provide further external
validation of progress in making the changes outlined and
agreed by the Board.
A full performance evaluation of the Board, its committees
and the individual Directors will continue to be conducted
annually. The Chair will regularly consider an externally
facilitated Board evaluation.
In respect of the year ended 31 December 2021, the Board
conducted a performance evaluation by completing a
written questionnaire to appraise and gather useful learnings
on the functioning of the Board, the Group’s committees and
individual Directors.
The Chair, supported by the Company Secretary, acted on
the results of the evaluation. The results of the questionnaire
demonstrated that there is consensus that the performance
and functioning of the Board remains effective.
There were however areas of improvement that were
identified. The key challenges and recommendations of next
steps are outlined below.
Challenges
Recommendations of next steps
Shareholder
engagement
A shareholder engagement programme
should be agreed for the financial year ending
31 December 2022 and further opportunities
coordinated with the Board to engage with
its shareholders proactively and directly.
Service provider
review
A further in depth review of the Company’s
service providers should take place to
ensure that the scope and cost of providers
remains appropriate from the time of initial
appointment.
Remuneration
review
A formal annual review that the Company’s
remuneration policy should be undertaken
in conjunction with a benchmarking exercise
to ensure remuneration remains at a level to
retain high calibre Directors with the skills
and experience necessary for their role.
Training and
development
To dedicate more time to enhance the
professional development of the Directors to
continuously improve knowledge and skills.
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Conflicts of Interests
The Group operates a conflict of interest policy that has been
approved by the Board and sets out the approach to be
adopted and procedures to be followed where a Director, or
such other persons to whom the Board has determined the
policy applies, has an interest which conflicts, or potentially
may conflict, with the interests of the Group. Under the policy
and the Company’s Articles of Association, the Board may
authorise potential matters of conflict that may arise, subject
to imposing limits or conditions when giving authorisation, if
this is appropriate.
The Group reserves the right to withhold information
relating, or relevant, to a conflict matter from the Director
concerned and/or to exclude the Director from any Board
information, discussions or decisions which may or will relate
to that matter of conflict or where the Chair considers that
it would be inappropriate for such Director to take part in
the discussion or decision or to receive such information.
Procedures have been established to monitor actual and
potential conflicts of interest on a regular basis and the Board
is satisfied that these procedures are working effectively.
The Investment Manager maintain conflicts of interest policies
to avoid and manage any conflicts of interest that may
arise between themselves and the Group. The Investment
Manager has established a clear and robust framework
to ensure that any conflicts of interest are appropriately
governed that includes:
• potential conflicts where the Investment Manager is party
to the transaction;
• the Investment Manager’s obligation to, as far as reasonably
practical, exclusively offer all new investment opportunities
to the Group; and
• other conflict matters, in particular regarding the value,
quality or other terms relating to the acquisition or disposal
of assets from or to the Group or provision of debt funding
by the Investment Manager to the Group.
Professional Development
The
Directors
received
a
comprehensive
induction
programme on joining the Board that covered the Group’s
investment activities, the role and responsibilities of a Director
and guidance on corporate governance and applicable
regulatory and legislative landscape. The Directors’ training
and development was assessed as part of the annual
effectiveness evaluation and, in any event, the Chair regularly
reviews and discusses the development needs with each
Director. Each Director is fully aware that they should take
responsibility for their own individual development needs
and take the necessary steps to ensure they are wholly
informed of regulatory and business developments.
During the year, the Directors received periodic guidance on
technical, regulatory and compliance changes at quarterly
Board meetings, and on an ad hoc basis where necessary.
Shareholder Engagement
The Group encourages active interest and contribution from
both its shareholders and responds promptly to all queries
received by the Group.
The Board recognises the importance
of maintaining strong relationships with shareholders and the
Directors place a great deal of importance on understanding
shareholder sentiment.
The Investment Manager and the Group’s Joint Financial
Advisers regularly speak to discuss, amongst other things,
the views of the Company’s shareholders. The Company’s
Corporate Broker speaks to shareholders regularly and
ensures shareholder views are clearly communicated to the
Board. The Board take responsibility for, and have a direct
involvement in, the content of communications regarding
major corporate matters.
Due to the government guidance in force during the Covid-19
pandemic which did not allow for gathering of individuals,
the AGM during the period was held as a closed meeting.
Nevertheless, the Board encouraged shareholders to vote
on the resolutions at the meeting, and further, encouraged
shareholders to submit any questions that they may have
with the Board in advance of the meeting.
The Chair makes himself available, as necessary, to speak to
shareholders, equally the Chairs of the Board’s committees
make themselves available, as necessary, on significant
matters related to their areas of responsibility when required.
The Board is committed to providing investors with regular
announcements of events affecting the Group. The Group
publish quarterly factsheets that are available to download,
along with all other investor documentation, from the Group’s
website https://www.triplepointreit.com.
During the year, the Company had regular engagement with
shareholders. These interactions have included discussing
the impact of non-compliant regulatory judgements
against the Group’s Registered Providers, engaging with
shareholders about remuneration of the Investment Manager
and engaging with Pensions and Investment Research
Consultants (PIRC) ahead of the 2021 AGM.
As detailed in the Chair’s Statement, we have announced
proposed changes to the Company’s investment policy and
investment restrictions, following consultation with a number
of shareholders.
The Board welcomes feedback from all shareholders because
understanding the views of its Shareholders is a fundamental
principle of good corporate governance. Strong engagement
with shareholders and stakeholders is vital to achieving this.
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•
review the Group’s internal financial controls and the
Group’s internal control and risk management systems;
• make recommendations to the Board to put to the
shareholders for their approval in general meeting in
relation to the appointment, re-appointment and removal
of the external auditor and to approve the remuneration
and terms of engagement of the external auditor;
•
review and monitor the external auditor’s independence
and objectivity and the effectiveness of the audit process,
taking into consideration relevant UK professional and
regulatory requirements;
•
liaise with the Company’s Tax Adviser in relation to
ensuring continuing compliance with the REIT regime;
• develop and implement policy on the engagement of the
external auditor to supply non-audit services, taking into
account relevant ethical guidance regarding the provision
of non-audit services by the external audit firm;
• report to the Board, identifying any matters in respect of
which it considers that action or improvement is needed
and make recommendations as to the steps to be taken;
and
• report to the Board on how it has discharged its
responsibilities.
The audit committee’s Terms of Reference can be found on
the Group’s website.
Audit Committee Report
25
Number of scheduled meetings attended/maximum number of meetings that the Director
could have attended
PETER COWARD
,
Audit Committee
Chair
Audit Committee Members
Attendance
25
PETER COWARD (CHAIR)
3/3
IAN REEVES CBE
3/3
PAUL OLIVER
3/3
TRACEY FLETCHER-RAY
3/3
Responsibilities
The audit committee has the primary responsibility of
reviewing the financial statements and the accounting
principles and practices underlying them, liaising with the
external auditors and reviewing the effectiveness of the
Group’s internal controls.
The main role of the audit committee is to:
• provide formal and transparent arrangements for
considering how to apply the financial reporting and
internal control principles set out in the AIC Code and
to maintain an appropriate relationship with the external
auditors;
• where requested, provide advice to the Board on whether
the annual report and accounts, taken as a whole, is
fair, balanced and understandable and provides the
information necessary for shareholders to assess the
Group’s position and performance, business model and
strategy;
•
monitor the integrity of the financial statements of the
Group and any formal announcements relating to the
Group’s financial performance and reviewing significant
financial reporting judgements contained in them;
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Governance
Committee Membership
The Board is satisfied that at least one member of the audit
committee has recent and relevant financial experience.
Peter Coward is qualified as a Chartered Accountant and
was, until the end of June 2016, a Senior Tax Partner at PwC
specialising in property. The Board is also satisfied that the
committee as a whole have competence relevant to the
sector in which the Group operates.
Activities
The audit committee meets at least twice a year to
consider the annual report, interim report, any other
formal
financial
performance
announcements
and
any other matters as specified under the committee’s
terms of reference and reported to the Board on how it
discharged its responsibilities. During the year, the audit
committee discussed and considered the external audit
performance, objectivity and independence, the external
auditor re-appointment, accounting policies and alternative
accounting treatments, significant accounting judgements
and estimates, and the risk register.
Performance Evaluation
Refer to the Corporate Governance for further details on
the performance evaluation.
Internal Control and Risk
Management
The Company has an ongoing process in place for
identifying, evaluating and managing the principal and
emerging risks faced by the Group.
During the year, the Board carried out a robust assessment
of the Group’s emerging and principal risks, further
reviewed by the audit committee, and satisfied itself that
the procedures for identifying the information needed to
monitor and manage these risks were robust. The Group
has in place the following key internal controls:
• a risk register identifying risks and controls to mitigate
their potential impact and/or likelihood is maintained by
the Investment Manager subject to the supervision and
oversight of the committee;
• a procedure to ensure that the Group can continue to
operate as a REIT;
• internal control reports of the Investment Manager,
Administrator and Depositary are reviewed by the Board;
• the Investment Manager and Administrator prepare
forecasts and management accounts which allow the
Board to assess performance; and
• there is an agreed and defined investment policy,
specified levels of authority and exposure limits in relation
to investments, leverage and payments.
The Board also receives a quarterly depositary report. INDOS
Financial Limited are responsible for cash monitoring, asset
verification and oversight of the Group and the Investment
Manager in performing its function under the AIFMD.
The Depositary reports its findings on a quarterly basis
during which it monitors and verifies all new acquisitions,
share issues, loan facilities, shareholder distributions and
other key events. In addition, on an ongoing basis, the
Depositary tests the quarterly management accounts, bank
reconciliations and performs a quarterly review of the Group
when discharging its duties.
Taking into account the review of the reports provided
and its knowledge of the business, the audit committee
has reviewed and approved any statements included in
the annual report concerning internal controls and risk
management and has determined that the effectiveness
of the internal controls was satisfactory. The principal risks
and uncertainties identified from the risk register and a
description of the Group’s risk management procedures can
be found on pages 62 to 67.
Significant Issues Considered by
the Audit Committee
The audit committee considered the key accounting
judgements underlying the preparation of the financial
statements focusing specifically on:
Viability and Going Concern
The Board is required to consider and report on the
longer-term viability of the business as well as assess the
appropriateness of applying the going concern assumption.
The audit committee have taken account of the solvency and
liquidity position of the Group from the financial statements
and the information provided from the Investment Manager
on the forecasted cash flow for the Group, expected
pipeline and expected fund raising plans through a fund
raise or debt finance over the period to December 202
6. As
a result, the audit committee consider that it is appropriate
to adopt the going concern basis of preparation of the
financial statements.
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Valuation of Property Portfolio
The valuation of the Group’s property portfolio is
fundamental to the Group’s statement of financial position
and reported results.
The valuations of the properties at the end of the financial
period were performed by JLL, whom the audit committee
consider to have sufficient local and national knowledge of
social housing and Supported Housing and has the skills
and knowledge to undertake the valuations competently.
The audit committee met with the Group’s Valuer to discuss
the valuation methodology of the Group’s portfolio and
examine the suitability of the value of assets leased to
Registered Providers that had received non-compliant
ratings.
The external auditor met with the valuer separately from
the audit committee and reported back to the audit
committee. The audit committee considered the underlying
assumptions of IFRS valuation basis and portfolio valuation
and gains comfort from the valuer’s methodology and other
supporting market information. The audit committee have
considered the subjectivity of the property valuations which
could affect the NAV and share price of the Group and
these were discussed with the Investment Manager and
external auditor.
Revenue Recognition
The Group’s revenue solely comprises of rental income
from investment property assets, and therefore it is integral
that the underlying assumptions for determining rental
income are appropriate. Rental income is recognised on
a straight-line basis over the lease term, thereby relying
on the Investment Manager’s determination of the lease
term, based on whether they are reasonably certain the
option to extend the lease term will be exercised. The
audit committee gained comfort of these assumptions by
reviewing the external auditor’s analysis including a review
of the lease documentation, investigation of differences
to actual revenue recognised in the year compared to
expectations, rental uplift against external market data, and
how they challenged any significant assumptions made by
the Investment Manager.
Internal Audit
The Board has considered the appropriateness of
establishing an internal audit function and, having regard
to the structure and nature of the Group’s activities, has
concluded that the function is unnecessary. The audit
committee will review on an annual basis the need for
this function and make appropriate recommendations to
the Board.
External Auditors, Audit Fees
and Non-Audit Services
BDO were appointed as the external auditors of the Group
on 18 July 2017, with Edward Goodworth as the audit
partner and a formal external audit tender process was
undertaken in 2019. BDO were recommended by the audit
committee for re-appointment at the 2021 AGM and the
resolution was duly passed.
It is the committee’s responsibility to monitor the
performance, objectivity and independence of the external
auditors and this is assessed by the committee each year.
In evaluating BDO’s performance, the committee examine
effectiveness of the audit process, independence and
objectivity of the auditor, taking into consideration the
length of tenure of the external auditors, the non-audit
services undertaken during the year and relevant UK
professional and regulatory requirements, and the quality
of delivery of its services.
The auditors attend all audit committee meetings and the
audit committee Chair also has separate meetings with
the auditors to discuss relevant matters. The auditors work
with the management of the Investment Manager and
discuss their findings and recommendations with the audit
committee.
The audit committee has approved a non-audit services
policy that determines the services that BDO can provide
and the maximum fee that may be raised for non-audit
services in comparison to the statutory audit fee, in line with
the FRC Ethical Standards for Auditors.
In accordance with the policy, and to ensure that
independence and objectivity is satisfactorily safeguarded,
the approval of the audit committee must be obtained before
the external auditor is engaged to provide any permitted
non-audit services above a fee threshold of £5,000. The
audit committee has also agreed that the role of reporting
accountant, where necessary, would be undertaken by a
firm other than BDO to ensure best practice compliance
with the non-audit service policy.
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Governance
BDO are prohibited from providing services to the
Group that would be considered to jeopardise their
independence, such as tax services, bookkeeping and
preparation of accounting records, financial systems design
and implementation, valuation services, internal audit
outsourcing and services linked to the financing, capital
structure and asset allocation. The Company’s non-audit
services policy is reviewed annually to ensure it continues to
be in line with best practice.
The audit committee annually reviews the level of non-audit
fees to ensure that the provision of non-audit services does
not impair the auditor’s independence or objectivity, taking
into account the relevant regulations and the FRC’s Ethical
Standard. The policy provides that total fees for non-audit
services provided by the auditor to the Group shall be
limited to no more than 70% of the average of the statutory
audit fee for the Group paid to the auditor in the last three
consecutive financial years.
The total audit fee in relation to the year ended 31 December
2021 for audit of the Group and subsidiaries was £213,000
(net of VAT) The total non-audit fees received in the year
ended 31 December 2021 was £29,000 (net of VAT). The
ratio of non-audit services fees to audit fees in the year was
13.6%.
Peter Coward
Audit Committee Chair
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The management engagement committee considered the
terms of the Investment Management Agreement, to ensure
it continues to reflect properly the commercial arrangements
agreed between the Company and the Investment Manager
and were satisfied that this was the case.
Performance Evaluation
One of the development points identified by the Board
following the external board evaluation in 2020, was a
review of Committee membership. The Board have agreed
that following the Company’s year end, Tracey Fletcher-
Ray would be appointed as Chair of the Management
Engagement Committee and that the frequency of
meetings be increased to two meetings per year to ensure
thorough scrutiny of the contractual relationships of the
Investment Manager.
Management Arrangements
AIFM AGREEMENT
The Company operates as an externally managed
alternative investment fund for the purposes of the AIFMD.
In its role as AIFM, the Investment Manager is responsible
for portfolio management and risk management of the
Group pursuant to the AIFMD.
The
Company
AIFM
is
Triple
Point
Investment
Management LLP.
Management Engagement
Committee Report
26
Number of scheduled meetings attended/maximum number of meetings that the Director could have attended
27
Chris Phillips was unable to attend one meeting during the year due to a close family bereavement
CHRIS PHILLIPS
,
Management
Engagement Committee Chair
Management
Engagement
Committee Members
Attendance
26
CHRIS PHILLIPS (CHAIR)
0/1
27
IAN REEVES CBE
1/1
PETER COWARD
1/1
PAUL OLIVER
0/1
TRACEY FLETCHER-RAY
1/1
Responsibilities
The main function of the management engagement
committee is to review and make recommendations on
any proposed amendment to the Investment Management
Agreement and keep under review the performance of the
Investment Manager. The committee will regularly review
the composition of the key executives performing the
services on behalf of the Investment Manager and monitor
and evaluate the performance of other key service providers
to the Group.
The management engagement committee’s Terms of
Reference can be found on the Group’s website.
Activities
During the year, the management engagement committee
conducted a comprehensive review of the key agreements
with its service providers, and a detailed review of the
performance, composition, personnel, processes and
internal control systems of the Investment Manager, a
review of all of the Group’s other corporate advisers and key
service providers. The discussion included an assessment of
performance and suitability of the services provided in the
context of the fees paid to each provider, and a review of
the termination period of each agreement.
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Governance
For the performance of the risk management function,
which is set out within the AIFM Agreement, and excludes
the portfolio management aspect of the role, the Investment
Manager receives an annual fee which equates to 3.5 basis
points on net assets of up to £300 million, and 3.0 basis
points for net assets above £300 million.
The AIFM Agreement is terminable by the Investment
Manager on giving the Group not less than 12 months’
written notice and using its reasonable endeavours to assist
with the appointment of a successor alternative investment
fund manager of the Company or the Company giving to
the Investment Manager not less than 12 months’ written
notice. The AIFM Agreement may be terminated earlier by
either party with immediate effect in certain circumstances,
including, if an order or resolution for liquidation is passed
for the other party or the other party has committed a
breach of its obligations under the AIFM Agreement that is
material in the context of the AIFM Agreement.
The Group has given certain market standard indemnities
in favour of the Investment Manager in respect of the
Investment Manager’s potential losses in carrying on its
responsibilities under the AIFM Agreement.
The annual fee paid under the AIFM Agreement for the year
ended 31 December 2021 was £145,567.32 (net of VAT).
No performance fee is payable to the Investment Manager.
INVESTMENT MANAGEMENT AGREEMENT
Under the Investment Management Agreement, which
governs the portfolio management aspects of the AIFM
role, the Investment Manager is entitled to receive an
annual management fee which is calculated quarterly in
arrears based upon a percentage of the NAV of the Group
(not taking into account uncommitted cash balances
excluding debt) as at 31 March, 30 June, 30 September and
31 December in each year on the following basis:
Company Basic NAV
(excluding cash
balances)
Annual management
fee (percentage of Basic
NAV)
Up to and including
£250 million
1.0%
Above £250 million and
up to and including
£500 million
0.9%
Above £500 million
and up to and
including £1 billion
0.8%
Above £1 billion
0.7%
The annual fee paid to the Investment Manager under the
Investment Management Agreement for the year ended
31 December 2021 was £4.1 million (exclusive of VAT).
On a semi-annual basis, once the Group’s half year or year
end NAV has been announced, the Investment Manager
shall procure that 25% of the management fee (net of any
applicable tax) for the relevant six month period immediately
preceding the date of that NAV shall be applied by
subscribing for, or acquiring, Ordinary Shares (’Management
Shares’). The Investment Manager subscribes for or acquires
Management Shares on a semi-annual basis as anticipated
under the Investment Management Agreement.
The Investment Manager is also entitled to be reimbursed
for all disbursements, fees and costs payable to third parties
properly incurred by the Investment Manager on behalf of
the Group pursuant to provision of the services under the
Investment Management Agreement.
There are no performance, acquisition, exit or property
management fees.
The
Investment
Management
Agreement
may
be
terminated by the Investment Manager or the Group by
not less than 12 months’ written notice. In the event of
termination, fees will be calculated to the date of expiry
or termination payable pro rata on the day of such expiry
or termination.
Continuing Appointment of the
Investment Manager
The management engagement committee has reviewed
the continuing appointment of the Investment Manager
and based on the Group’s strong investment performance,
deep sector expertise and counterparty relationships, the
committee are satisfied that their appointment remains in
the best interests of shareholders as a whole.
Chris Phillips
Management Engagement Committee Chair
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Governance
Responsibilities
The nomination committee’s main function is to lead the
process for appointments, ensuring plans are in place for
orderly succession to the Board, overseeing the development
of a diverse pipeline for succession and any other matters
as specified under the committee’s terms of reference. This
includes ensuring that any appointments and succession
plans are based on merit and objective criteria, and, within
this context, promotes diversity of gender, social and ethnic
backgrounds, cognitive and personal strengths.
The nomination committee’s Terms of Reference can be
found on the Group’s website.
Activities
The committee met during the year to review the balance
of skills and experience, the size and structure of the Board,
and policies on tenure and diversity. The committee also
focused on its long-term succession plan for all Directors
and on the emergency succession planning for the Board
and committee chairs. The committee also reviewed the
time and significant commitments of the Board and satisfied
themselves that the Directors were able to commit sufficient
time to discharge their responsibilities effectively having
given due consideration of external appointments.
Performance Evaluation
Refer to the Corporate Governance for further details on
the performance evaluation.
Re-election of Directors
All Directors will submit themselves for election or re-
election on an annual basis. Therefore, all Directors in
office as at the date of this report are to be proposed for
re-election at the 2022 AGM.
Tenure Policy
The Board considers that the length of time each Director,
including the Chair, serves on the Board should not be
limited and has not set a finite tenure policy. Continuity, self-
examination and ability to do the job are the relevant criteria
on which the Board assesses a Director’s independence.
Length of service of current Directors and future succession
planning will be reviewed each year as part of the Board
evaluation process.
Diversity Policy
At the nomination committee in 2021, the Committee
recommended to the Board adoption of a new Diversity
Policy which is detailed below:
The Board’s objective is to maintain effective decision-
making, including the impact of succession planning. The
Board recognises the benefits of all types of diversity and
Nomination Committee
Report
28
Number of scheduled meetings attended/maximum number of meetings that the Director could have attended
29
Chris Phillips was unable to attend one meeting during the year due to a close family bereavement
IAN REEVES
,
Nomination Committee
Chair
Nomination
Committee
Members
Attendance
28
IAN REEVES CBE (CHAIR)
1/1
CHRIS PHILLIPS
0/1
29
PETER COWARD
1/1
PAUL OLIVER
1/1
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Governance
supports the recommendations of the Hampton-Alexander
Review and the Parker Review. All Board appointments
will be made on merit, and promote diversity of gender,
social and ethnic backgrounds, cognitive and personal
strengths, ensuring that such appointment will develop
and enhance the operation of the Board to best serve the
Company’s strategy.
The Board recognises the importance of diversity in the
boardroom which introduces different perspectives to the
Board debate and considers, it to be in the interests of
the Group and its shareholders to take into consideration
diversity criteria when appointing a new individual to
the Board. In line with the Company’s succession plan,
when undertaking the appointment of a new Director,
the nomination committee will instruct an external search
consultancy to undertake an open and transparent process
that includes potential candidates from different social and
ethnic backgrounds.
Members of the Board should collectively possess a diverse
range of skills, expertise, industry knowledge and business.
The Board will continue to monitor diversity, taking such
steps as it considers appropriate to maintain its position as
a meritocratic and diverse business.
External Search Consultancy
In identifying suitable candidates for an appointment to the
Board, the nomination committee may use open advertising
or the services of external advisers to facilitate the search.
There were no appointments during the year and therefore
an external search consultancy was not required during
2021.
Company’s Succession Plans
The nomination committee has given full consideration to
succession planning as part of the Board’s formal annual
evaluation to ensure progressive refreshing of the Board,
taking into account the challenges and opportunities facing
the Board and the balance of skills and expertise, factoring
in the benefits of a diverse Board that are required in the
future.
The nomination committee considered emergency and
medium to long-term succession planning arrangements
including the process for the appointment and retirement
of directors and a formal succession plan was agreed.
Ian Reeves CBE
Nomination Committee Chair
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Annual Statement
Dear shareholder,
I am pleased to present the Directors’ Remuneration Report
on behalf of the Board for the year ended 31 December
2021. It is set out in two sections in line with legislative
reporting regulations:
• Directors’ Remuneration Policy (on pages
93 to 94
) –
This sets out our Remuneration Policy for Directors of
the Company that has been in place since 14 May 2021
following approval by shareholders.
• Annual Report on Directors’ Remuneration (on pages 92
to 94
) – This sets out how the Directors were paid for the
year ended 31 December 2021. There will be an advisory
shareholder vote on this section of the report at our
2022 AGM.
Prior to our IPO in August 2017, the Group introduced a
remuneration framework to ensure that remuneration was
aligned with best market practice whilst attracting and
securing the right non-executive Directors to deliver our
investment objectives.
The scale and structure of the Directors’ remuneration
was determined by the Company in consultation with
the Group’s Financial Adviser having been benchmarked
against companies of a similar size in the sector and having
regard to the time commitment and expected contribution
to the role.
The Group does not have any executive Directors or
employees, and, as a result, operates a simple and
transparent
remuneration
policy
with
no
variable
element, that reflects the non-executive Directors’ duties,
responsibilities and time spent.
Directors’
Remuneration Report
DISCRETION EXERCISED UNDER THE
DIRECTORS’ REMUNERATION POLICY
At the date of this report, no discretion is intended to be
exercised under the Directors’ Remuneration Policy.
We value engagement with our shareholders and for the
constructive feedback we receive and look forward to your
support at the forthcoming AGM.
Chris Phillips
Chair
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Governance
Approval of Remuneration Policy
Our Directors’ Remuneration Policy was last approved by shareholders at the Annual General Meeting of the Group held
on 14 May 2021 and became effective from the conclusion of the Annual General Meeting. In accordance with section
439A of the Companies Act 2006, the provisions of the policy will apply until they are next put to shareholders for renewal
of that approval, which must be at intervals of not more than three years, or if the Remuneration Policy is varied, in which
event shareholder approval for the new Remuneration Policy will be sought.
The policy applies to the non-executive Directors; the Company has no executive Directors or employees.
Remuneration Policy Overview
The Group’s objective is to have a simple and transparent remuneration structure, aligned with the Group’s strategy.
The Group aims to provide remuneration packages with no variable element which will retain non-executive Directors with
the skills and experience necessary to maximise shareholder value on a long-term basis. The remuneration packages for the
recruitment of non-executive Directors will be set with reference to the remuneration packages of comparable businesses.
Policy Table
The Directors are entitled only to the fees as set out in the table below from the date of their appointment. No element of
Directors’ remuneration is subject to performance factors.
Component
Operation
Link to strategy
ANNUAL FEE
Each Director receives a basic fee which is
paid on a monthly basis.
The total aggregate fees that can be paid
to the Directors in any given financial year
will be calculated in accordance with the
Company’s Articles of Association.
The level of the annual fee has been set
to attract and retain high calibre Directors
with the skills and experience necessary
for the role.
The fee has been benchmarked against
companies of a similar size in the sector,
having regard to the time commitment
and expected contribution to the role.
ADDITIONAL FEES
The Directors are each entitled to an
additional fee of £7,500 in connection
with the production of every prospectus
by the Group.
A Director who performs services, which
in the opinion of the Board are outside
the scope of the ordinary duties of a
non-executive director, may also be paid
such extra remuneration or may receive
such other benefits as the Board may
determine.
The additional fee in connection with
the production of every prospectus
has been included in recognition of
the additional time commitment and
contribution required in the preparation
of a prospectus by the Company.
The additional fee for services outside
of the scope of ordinary duties offers
flexibilities for a Director to be awarded
additional remuneration to adequately
compensate a Director where this is
considered appropriate for the effective
functioning of, or in furtherance of, the
Company’s aims.
Directors’
Remuneration Policy
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Governance
Component
Operation
Link to strategy
OTHER BENEFITS
Article 18.5 of the Company’s Articles of
Association permits for any Director to
be repaid expenses incurred in attending
or returning from meetings of the Board,
committees of the Board or shareholder
meetings or otherwise in connection
with the performance of their duties as
Directors of the Company.
The Board has the power to pay and
agree to pay gratuities, pensions or other
retirement, superannuation, death or
disability benefits to (or to any person
in respect of) any Director or ex-Director
and for the purpose of providing any such
gratuities, pensions or other benefits to
contribute to any scheme or fund or to
pay premiums.
In line with market practice, the Company
will reimburse the Directors for expenses
to ensure that they are able to carry out
their duties effectively.
The Directors do not currently receive
any additional benefits; however the
Board has included the power to offer
the additional benefits as specified to
create flexibility in the approach to retain
or attract high calibre Board members.
Service Contracts
The Directors are engaged under letters of appointment and do not have service contracts with the Company.
Directors’ Term of Office
Under the terms of the Directors’ letters of appointment, each directorship is for an initial period of 12 months and thereafter
terminable on three months’ written notice by either the Director or the Company. Each Director will be subject to annual
re-election by shareholders at the Company’s Annual General Meeting in each financial year.
Policy on Payment for Loss of Office
The Directors are entitled to payment of the fees as specified above, notwithstanding termination of their appointment,
for the initial period of 12 months from the date of their appointment. Thereafter, there is no compensation payable upon
termination of office as a Director of the Company.
Consideration of Shareholder Views
The Company is committed to ongoing shareholder dialogue and takes an active interest in voting outcomes. Where there
are substantial votes against resolutions in relation to Directors’ remuneration, the Company will seek the reasons for any
such vote and will detail any resulting actions in the Directors’ Remuneration Report.
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Governance
Consideration of Remuneration Matters
The Board does not consider it necessary to establish a separate remuneration committee as it has no executive Directors.
The Board as a whole considers the remuneration of the Directors.
Single Total Figure (Audited table)
Non-executive Directors
Annual Fee
1
Additional Fee
2
Other taxable
benefits
3
Total
2021
Total
2020
Other taxable
benefits
2020
3
Chris Phillips
£75,000
-
-
£75,000
£82,500
N/A
Ian Reeves CBE
£50,000
-
-
£50,000
£57,500
N/A
Peter Coward
£50,000
-
-
£50,000
£57,500
N/A
Paul Oliver
£50,000
-
-
£50,000
£57,500
N/A
Tracey Fletcher-Ray
£50,000
-
-
£50,000
£57,500
N/A
1
The Directors are paid a fixed annual fee. The fees do not have any variable or performance related elements, however, the Directors are entitled to an additional fee of £7,500 in connection with
the production of every prospectus prepared with a fundraising by the Group. Refer to Directors’ Fees section below.
2
The Company received no additional fees for the year end 31 December 2021.
3
The Company does not provide a pension, retirement or similar benefits.
Directors’ Fees
The Directors are each paid an annual fee of £50,000 other than the Chair who is entitled to receive an annual fee of
£75,000. In addition to the annual fee, each Director is entitled to an additional fee of £7,500 in connection with the
production of every prospectus prepared with a fundraising by the Group in recognition of the additional time contribution
and commitment required. Any Director who performs services, which in the opinion of the Board are outside the scope of
the ordinary duties of a non-executive director, may also be paid such extra remuneration or may receive such other benefits
as the Board may determine. The additional fees are treated as a cost of issue not included as an expense through the
Statement of Comprehensive Income. Directors are further entitled to recover all reasonable expenses properly incurred
in connection with performing their duties as a Director. Directors’ expenses for the year to 31 December 2021 totalled
£1,546.00. No other remuneration was paid or payable during the year to any Director.
Annual Report
on Directors’ Remuneration
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Governance
Statement of Directors’ Shareholding and Share Interests
(Audited table)
Outlined are details of the Directors’ shareholdings as at 31 December 2021; there has been no change in shareholding in
the period between 31 December 2021 and the date of this report.
The Directors are not required to hold any shares of the Company by way of qualification. A Director who is not a shareholder
of the Company shall nevertheless be entitled to attend and speak at shareholders’ meetings.
Director
Number of shares held as at
31 December 2020
Number of shares held as at
31 December 2021
Percentage of issued share
capital as at 31 December 2021
Chris Phillips
54,854*
54,854*
0.01%
Ian Reeves CBE
–
–
0.00%
Peter Coward
76,179
**
78,543
**
0.02%
Paul Oliver
77,967
77,967
0.02%
Tracey Fletcher-Ray
37,735
37,735
0.01%
*25,000 Ordinary Shares were subscribed through Chris Phillip’s self-invested personal pension with the balance subscribed by Centaurea Investments Limited
**53,543 Ordinary Shares were subscribed through Peter Coward’s self-invested personal pension
Total Shareholder Return
The graph below illustrates the total shareholder return of the Company’s Ordinary Shares over the period relative to a
return on a hypothetical holding over the same period in the FTSE All-Share Index and the FTSE EPRA/NAREIT UK Index.
These indices have been chosen as they are considered to be the most appropriate benchmarks against which to assess
the relative performance of the Company as the FTSE All Share represents companies of a similar capital size, and the
constituents of the FTSE EPRA/NAREIT UK Index are UK based real estate companies.
60
70
80
90
100
110
120
130
140
Aug-17
Oct-17
Dec-17
Feb-18
Apr-18
Jun-18
Aug-18
Oct-18
Dec-18
Feb-19
Apr-19
Jun-19
Aug-19
Oct-19
Dec-19
Feb-20
Apr-20
Jun-20
Aug-20
Oct-20
Dec-20
Feb-21
Apr-21
Jun-21
Aug-21
Oct-21
Dec-21
SOHO Total Shareholder Return
FTSE All Share Total Shareholder Return
FTSE NAREIT UK Total Shareholder Return
96
Triple Point Social Housing REIT plc
Company Overview
Strategic Report
Financial Statements
Other Information
Governance
Relative Importance of Spend
on Pay
The table below shows the total spend on remuneration
compared to the distributions to shareholders by way
of dividends, share buybacks and the management fees
incurred by the Company. As the Group has no employees
the total spend on remuneration comprises only the
Directors’ fees.
Director
2021
2020
Directors’ fees
£275,000
£312,500
Dividends paid
£20,924,889
£18,813,578
Share buybacks
–
–
Management fee
£4,546,596
£4,100,226
Consideration of Shareholder
Views
During the year, the Company did not receive any
communications from shareholders specifically regarding
Directors’ pay.
The resolution to approve the Directors’ Remuneration
Report (excluding the Directors’ Remuneration Policy) and
the Directors’ Remuneration Policy was passed on a poll at
the Annual General Meeting on 14 May 2021.
Voting
for
Voting
Against
Votes
Withheld
Remuneration
Report
98.22%
1.78%
504,233
Remuneration
Policy
97.87%
2.13%
504,233
On behalf of the Board:
Chris Phillips
Chair
24 March 2022
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Company Overview
Strategic Report
Financial Statements
Other Information
Governance
The Directors are pleased to present the annual report, including the Group’s and Company’s audited financial statements
as at, and for the year ended 31 December 2021.
The information that fulfils the requirements of the Corporate Governance statement in accordance with rule 7.2 of the DTR
can be found in this Directors’ report and in the Governance section on pages 78 to 102 all of which is incorporated into
this Directors’ report by reference.
Principal Activity
The Company is a closed-ended investment company and is a Real Estate Investment Trust which was incorporated in
England and Wales on 12 June 2017. The Company is a holding company of a number of subsidiaries. The Group invests
in properties in accordance with the Investment Policy and Investment Objective.
Directors
The names of the Directors who served from 1 January 2021 to 31 December 2021 are set out in the Board of Directors
section on pages 76 to 77
, together with their biographical details and principal external appointments.
The Articles govern the appointment and replacements of Directors.
AIFM and Investment Manager
The names of the partners and employees of the Group’s AIFM and Investment Manager are set out on pages
34 to 35
and a summary of the principal contents of the AIFM agreement and the Investment Management Agreement are set out
in the management engagement committee report on pages 88 to 89.
Financial Results and Dividends
The financial results for the year can be found in the Group Statement of Comprehensive Income which can be found on
page 116
. In line with the target for the financial year, the Company declared the following interim dividends in respect of
the year to 31 December 2021, amounting to 5.20 pence per share.
Relevant period
Dividend per share
(p)
Ex dividend date
Record date
Payment date
1 January to
31 March 2021
1.30
27 May 2021
28 May 2021
25 June 2021
1 April to
30 June 2021
1.30
16 September 2021
17 September 2021
30 September 2021
1 July to
30 September 2021
1.30
11 November 2021
12 November 2021
17 December 2021
1 October to
31 December 2021
1.30
10 March 2022
11 March 2022
25 March 2022
Directors’ Report
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Strategic Report
Financial Statements
Other Information
Governance
Powers of the Directors
The powers given to the Directors are contained within the current articles of association of the Company (the ’Articles’),
are subject to relevant legislation and, in certain circumstances (including in relation to the issuing or buying back by the
Company of its shares), are subject to the authority being given to the Directors by shareholders in general meetings.
The Articles govern the appointment and replacements of Directors.
Directors’ Indemnity
The Group has indemnified the Directors against certain liabilities which may be incurred in the course of their duties. This
indemnity remains in force as at the date of this report and will also indemnify any new directors that join the Board. The
Company maintains directors’ and officers’ liability insurance which gives appropriate cover for legal action brought against
the Directors.
Financial Risk Management
The information relating to the Group’s financial risk management and policies can be found in Note
33
of the financial
statements.
Post-Balance Sheet Events
Important events that have occurred since the end of the financial year can be found in Note 34 of the notes to the financial
statements.
Amendment to the Articles
The Articles may only be amended with shareholders’ approval in accordance with relevant legislation.
Share Capital
As at 31 December 2021, the Company had 403,239,002 Ordinary Shares in issue, 450,000 of which were held in treasury,
as can be found in Note 22
of the financial statements. The shares held in treasury do not carry any voting rights and
therefore the total number of voting rights in the Company is 402,789,002. There are no restrictions on voting rights of
securities in the Company.
There are no restrictions on the transfer of securities in the Company other than certain restrictions which may be impaired
by law, for example, Market Abuse Regulations, and the Group’s Share Dealing Code.
The Company is not aware of any agreements between holders of securities that may result in restrictions on transferring
securities in the Company. There are no securities of the Company carrying special rights with regards to the control of the
Company in issue.
As a REIT, the Company’s Ordinary Shares will be ’excluded securities’ under the FCA’s rules on non-mainstream pooled
investments. Accordingly, the promotion of the Ordinary Shares will not be subject to the FCA’s restriction on the promotion
of non-mainstream pooled investments.
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Governance
Purchase of Own Ordinary Shares
At the Company’s Annual General Meeting on 14 May 2021, the Company was granted authority to make market purchases
up to a maximum of 40,278,900 Ordinary Shares.
As at the date of this report, 450,000 Ordinary Shares were purchased in the market and held in treasury. A resolution to
renew the Company’s authority to purchase shares in accordance with the Notice of AGM will be put to the shareholders
at the Annual General Meeting on 27 May 2022.
Change of Control
Under the Group’s financing facilities, any change of control at the borrower or immediate parent company level may
trigger a repayment of the outstanding amounts to the lending banks. In certain facilities, the change of control provisions
also include a change of control at the ultimate parent company level.
The Directors do not receive compensation for loss of office occurring due to a change of control.
Greenhouse Gas Emissions, Energy Consumption and Energy
Efficiency
The Board is cognisant of the impact of the Group’s operations on emissions. In supporting the construction of new build
properties, we hope to encourage best practice, in turn helping to reduce the industry’s impact on emissions and the
consumption of depleting resources.
The Board has considered the requirements to disclose the annual quantity of emissions in tonnes of carbon dioxide
equivalent for activities for which the Group is responsible and believes that the Group has no reportable emissions for the
year ended 31 December 2021, and therefore has not included the information or methodologies for the calculation of
emissions, for the following reasons:
• emissions from the Group’s properties were the lessees’ responsibility rather than the Group’s;
• emissions produced from either the registered office of the Company or from the offices of other service providers are
deemed to fall under the responsibility of other parties; and
• the Group has not leased or owned any vehicles which fall inside the scope of the GHG Protocol Corporate Standard.
In relation to the Streamlined Energy and Carbon Reporting (SECR), implemented by The Companies (Directors’ Report)
and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018, for the year ended 31 December 2021
the Group is considered to be a low energy user.
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Strategic Report
Financial Statements
Other Information
Governance
Major Shareholdings
In accordance with DTR 5, the Company was advised of the following significant direct and indirect interests in the issued
ordinary share capital of the Company as at 31 December 2021.
Shareholder
Interests in Ordinary Shares
% holding disclosed
BlackRock, Inc.
56,868,233
14.11%
East Riding of Yorkshire Council
32,879,797
9.36%
Investec Wealth &
Management Limited
28,892,160
8.22%
Nottinghamshire County
Council Pension Fund
19,417,475
5.53%
Tilney Investment Management
Services Limited
19,892,781
4.93%
Smith and Williamsons
Holdings Limited
11,788,972
4.78%
Brewin Dolphin Limited
16,032,858
4.56%
South Yorkshire Pensions Authority
11,955,713
3.40%
Since the year end, the Company was most recently
notified on 28 February 2022 by BlackRock, Inc. that they hold
57,315,317 Ordinary Shares indirectly or through financial instruments, representing 14.21% of the Company’s issued share
capital.
Information provided to the Company pursuant to DTR 5 is available via the Regulatory News section on the Group’s website.
Contracts of Significance
There are no contracts of significance of the Company or a subsidiary in which a Director is or was materially interested or
to which a controlling shareholder was a party.
Disclosure of Information to the Auditors
So far as the Directors are aware, there is no relevant audit information of which the auditor is unaware.
The Directors have taken all the steps that they ought to have taken as Directors to make themselves aware of any relevant
audit information and to establish that the auditor is aware of that information.
Related Party Transactions
Related Party transactions for the period to 31 December 2021 can be found in Note 31
of the financial statements.
Research and Development
No expenditure on research and development was made during the year (2020: Nil).
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Governance
Donations and Contributions
No political or charitable donations were made during the year (2020: Nil).
Branches Outside the UK
There are no branches of the business located outside the UK.
Annual General Meeting
The Annual General Meeting of the Company will be held at the offices of Taylor Wessing LLP on 27 May 2022 at 10.00am
at 5 New Street Square, London, EC4A 3TW.
At the Annual General Meeting to be held in 2022, the Directors shall propose an ordinary resolution to members that
the Company continues in existence. If the resolution is passed at such Annual General Meeting, then the Directors shall
propose the same resolution at every fifth Annual General Meeting thereafter.
Information included in the Strategic Report
The information that fulfils the reporting requirements relating to the following matters can be found on the pages identified.
Subject matter
Page reference
Likely future
developments
18 to 25
Employee engagement
56
Employment of
disabled persons
56
Business relationships
56
On behalf of the Board:
Chris Phillips
Chair
24 March 2022
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Strategic Report
Financial Statements
Other Information
Governance
The directors are responsible for preparing the annual
report and the financial statements in accordance with UK
adopted international accounting standards and applicable
law and regulations.
Company law requires the directors to prepare financial
statements for each financial year. Under that law the
directors are required to prepare the Group financial
statements in accordance with UK adopted international
accounting standards and have elected to prepare the
Parent Company financial statements in accordance with
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 Parent Company and of the profit or loss for the Group
for that period.
In preparing these financial statements, the directors are
required to:
• select suitable accounting policies and then apply them
consistently;
• make judgements and accounting estimates that are
reasonable and prudent;
• state whether they have been prepared in accordance
with UK adopted international accounting standards,
subject to any material departures disclosed and
explained in the financial statements;
• prepare the financial statements on the going concern
basis unless it is inappropriate to presume that the
Group and the Company will continue in business; and
• prepare a Directors’ report, a strategic report and
Directors’ remuneration report which comply with the
requirements of the Companies Act 2006.
The Directors are responsible for keeping adequate
accounting records that are sufficient to show and explain
the company’s transactions and disclose with reasonable
accuracy at any time the financial position of the company
and enable them to ensure that the financial statements
comply with the Companies Act 2006.
Directors’
Responsibilities Statement
They are also responsible for safeguarding the assets of
the company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
The Directors are responsible for ensuring that the annual
report and accounts, taken as a whole, are fair, balanced, and
understandable and provides the information necessary for
shareholders to assess the Group’s performance, business
model and strategy.
Website publication
The directors are responsible for ensuring the annual report
and the financial statements are made available on a website.
Financial statements are published on the company’s
website in accordance with legislation in the United
Kingdom governing the preparation and dissemination of
financial statements, which may vary from legislation in other
jurisdictions. The maintenance and integrity of the company’s
website is the responsibility of the directors. The directors’
responsibility also extends to the ongoing integrity of the
financial statements contained therein.
Directors’ responsibilities
pursuant to DTR4
The Directors confirm to the best of their knowledge:
•
The financial statements have been prepared in accordance
with the applicable set of accounting standards, give a
true and fair view of the assets, liabilities, financial position
and profit and loss of the Group.
• The Annual Report includes a fair review of the
development and performance of the business and the
financial position of the Group and Company, together
with a description of the principal risks and uncertainties
that they face.
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Other Information
Governance
Approval
This Directors’ responsibilities statement was approved by the Board of Directors and signed on its behalf by:
Chris Phillips
Chair
24 March 2022
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Strategic Report
Financial Statements
Other Information
Governance
Independent Auditor’s Report
TO THE MEMBERS OF TRIPLE POINT SOCIAL
HOUSING REIT PLC
Opinion on the financial
statements
In our opinion:
• the financial statements give a true and fair view of the
state of the Group’s and of the Parent Company’s affairs
as at 31 December 2021 and of the Group’s profit for the
year then ended;
• the Group financial statements have been properly
prepared in accordance with UK adopted international
accounting standards;
• the Parent Company financial statements have been
properly prepared in accordance with UK adopted
international accounting standards and as applied in
accordance with the provisions of the Companies Act
2006; and
• the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006.
We have audited the financial statements of Triple
Point Social Housing REIT plc (the ‘Parent Company’)
and its subsidiaries (the ‘Group’) for the year ended
31 December 2021 which comprise the Group Statement
of Comprehensive Income, the Group and Company
Statements of Financial Position, the Group and Company
Statements of Changes in Equity, the Group Statement
of Cash Flows and notes to the financial statements,
including a summary of significant accounting policies. The
financial reporting framework that has been applied in their
preparation is applicable law and UK adopted international
accounting standards and as regards the Parent Company
financial statements, as applied in accordance with the
provisions of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable
law. Our responsibilities under those standards are further
described in the Auditor’s responsibilities for the audit of
the financial statements section of our report. We believe
that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion. Our audit
opinion is consistent with the additional report to the audit
committee.
INDEPENDENCE
Following the recommendation of the audit committee, we
were appointed by the Directors on 18 July 2017 to audit the
financial statements for the year ending 31 December 2017
and subsequent financial periods. Following a competitive
re-tender in May 2019 we were reappointed to audit the
financial statements for the year ended 31 December
2019 and subsequent financial periods. The period of
total uninterrupted engagement including retenders and
reappointments is five years, covering the years ending
31 December 2017 to 31 December 2021.
We remain independent of the Group and the Parent
Company in accordance with the ethical requirements that
are relevant to our audit of the financial statements in the
UK, including the FRC’s Ethical Standard as applied to listed
public interest entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements. The
non-audit services prohibited by that standard were not
provided to the Group or the Parent Company.
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Governance
Conclusions relating to going
concern
In auditing the financial statements, we have concluded that
the Directors’ use of the going concern basis of accounting
in the preparation of the financial statements is appropriate.
Our evaluation of the Directors’ assessment of the Group
and the Parent Company’s ability to continue to adopt the
going concern basis of accounting included:
• Obtaining the going concern model from the Directors,
and challenging the assumptions used by the Directors
in the going concern forecast. This included assumptions
around
expected
investment
property
acquisitions,
the movements in investment property valuations,
movements in the Group’s level of borrowings and the
associated interest, and rental income increases. We
obtained evidence, where available, to support inputs
into the model.
• Testing the arithmetical accuracy of the model.
• Challenging the sensitivities applied by the Directors to
the model, including a fall in revenue in the event lessees
are unable to meet rent payments in relation to vacant
units, as well as a corresponding fall in property valuations.
On these stress tested model we challenged assumptions
made by the Directors, specifically with regards to:
i. The expected impact on investment property valuations;
ii. The expected impact on rental income;
iii. The expected void period before suitable alternative
tenants could be found;
iv. The impact on the Group’s covenant compliance; and
v. The reasonableness of the assumptions used in the
stress test.
• Performing an analysis of the headroom of the Group’s
ability to meet their day-to-day operational costs in the
stress tested forecasts.
• Performing an analysis of the covenant compliance and
the headroom and considered these in light of our own
further stress tests.
• Considering the impact of Covid-19 by reviewing the post
year end rent receipts for trade debtors as at 31 December
2021, to assess the financial position of tenants.
Based on the work we have performed, we have not
identified any material uncertainties relating to events
or conditions that, individually or collectively, may cast
significant doubt on the Group and the Parent Company’s
ability to continue as a going concern for a period of at
least twelve months from when the financial statements are
authorised for issue.
In relation to the Parent Company’s reporting on how it
has applied the UK Corporate Governance Code, we have
nothing material to add or draw attention to in relation to
the Directors’ statement in the financial statements about
whether the Directors considered it appropriate to adopt
the going concern basis of accounting.
Our responsibilities and the responsibilities of the Directors
with respect to going concern are described in the relevant
sections of this report.
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Governance
Overview
Coverage
30
100% (2020: 100%) of Group revenue
100% (2020: 100%) of Group investment property
99.6% (2020: 99.9%) of Group total assets
99.8% (2020: 99.1%) of Group profit before tax
Key audit matters
2021
2020
KAM 1
Investment property
valuations
Investment property
valuations
KAM 2
Revenue recognition
Revenue recognition
Materiality
Group financial statements as a whole
We determined materiality for the Group financial statements as a whole to be £6,990,000
(2020: £6,300,000), which was set at 1% (2020: 1%) of Group total assets
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including the Group’s system
of internal control, and assessing the risks of material misstatement in the financial statements. We also addressed the risk
of management override of internal controls, including assessing whether there was evidence of bias by the Directors that
may have represented a risk of material misstatement.
The Group operates solely in the United Kingdom, and all audit procedures are performed by the Group audit team. We
identified three significant components, in addition to the Parent Company:
• Norland Estates Ltd
• TP REIT Propco 2 Limited
• TP REIT Propco 3 Limited
All components were subject to full scope audits.
KEY AUDIT MATTERS
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the
financial statements of the current period and include the most significant assessed risks of material misstatement (whether
or not due to fraud) that we identified, including those which had the greatest effect on: the overall audit strategy, the
allocation of resources in the audit, and directing the efforts of the engagement team. These matters were addressed in
the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide
a separate opinion on these matters.
30
These are areas which have been subject to a full scope audit by the Group engagement team
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Key audit matter
How the scope of our audit addressed the key audit matter
INVESTMENT PROPERTY VALUATIONS
Refer to notes 3 and 4 in
relation to significant estimates
and accounting policies.
Refer to note 14 in relation to
investment property.
The Group’s investment property portfolio
includes standing assets that are existing
properties that are currently let. They are valued
using the income capitalisation method. This
method is applied to income producing assets
and discounts the future value of rents by an
appropriate discount rate.
The Directors use an independent valuer to
assist them with the valuation of the property
portfolio. The valuation of investment property
requires significant judgement and estimates by
the Directors and the independent valuer and
is therefore considered a significant risk due to
the subjective nature of certain assumptions
inherent in each valuation.
Any input inaccuracies or unreasonable bases
used in the valuation judgements (such as in
respect of yield profile applied) could result
in a material misstatement of the financial
statements.
There is also a risk that the Directors may
influence
the
significant
judgements
and
estimates in respect of property valuations
in order to achieve property valuation and
other performance targets to meet market
expectations. This could be achieved through
manipulation of information provided to the
valuer.
Experience of valuer and relevance of its work
•
We obtained the valuation report prepared for
the Directors by the independent valuer and
discussed the basis of the valuations with the
independent valuer. We checked that the basis
of the valuations was in accordance with the
requirements of accounting standards.
•
We
assessed
the
external
valuer’s
qualifications, independence and objectivity.
•
We obtained a copy of the instructions
provided to the independent valuer and
reviewed for any limitations in scope or for
evidence of Management bias.
Data provided to the valuer
•
We checked 100% of the underlying data
provided to the valuer by Management. This
data included inputs such as current rent and
lease term, which we agreed to the executed
lease agreements as part of our audit work.
Assumptions and estimates used by the valuer
•
We developed yield expectations on all
properties in the Group’s portfolio using
available independent industry data and
reports around the year end.
•
We discussed the assumptions used and
the valuation movement in the year with
both Management and the independent
valuer. Where the valuation was outside of
our expected range we discussed with the
independent
valuer
specific
assumptions
and reasoning for the yields applied and
corroborated their explanations where relevant.
We also discussed with the valuer their views
on the impact on the valuations of Covid-19 as
well as the impact of the Registered Providers
having received non-compliant ratings from
the regulators. We compared their responses
against our own expectations based on our
sector knowledge and through inspection
of comparable market data. Further, we
discussed the appropriateness of the discount
rates applied to the valuations with the valuer
and obtained evidence to support these rates
applied.
KEY OBSERVATIONS:
Our testing indicated that the estimates and
assumptions used in the investment property
valuations were appropriate in the context of
the Group’s property portfolio.
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Key audit matter
How the scope of our audit addressed the key audit matter
REVENUE RECOGNITION
Refer to note 4 in relation to
accounting policies.
Refer to note 5 in relation to
rental income.
The Group’s revenue solely comprises of rental
income from investment property assets.
Lease incentives
Rental income is recognised on a straight-line
basis over the lease term based upon the rental
agreements that are in place. A rental adjustment
is recognised from the rent review date in relation
to unsettled rent reviews, where the Directors are
reasonably certain that the rental uplift will be
agreed. Tenant lease incentives are recognised
as a reduction of rental revenue on a straight-line
basis over the term of the lease.
Management
judgements
are
required
to
determine whether they are reasonably certain
whether options to extend the lease term, as
contained within a number of leases, will be
exercised. This has an impact in determining
the period over which the incentives should be
recognised.
Accuracy of lease incentives
There is a risk that lease incentives may not have
been recognised over the determined expected
lease term. The Group has multiple tenants and
leases with different terms and as such there
is a risk that revenue is either not supported
by the underlying tenancy agreement or is
inappropriately recognised.
Completeness of lease incentives
There is a risk over the completeness of lease
incentives recognised, both by error or fraud,
which could present favourable results through
the delay or non-recognition of rent free periods
or other forms of lease incentives. It could also
artificially increase the investment property
valuations if the valuers were not made aware of
such lease incentives.
Completeness of rent concessions and rent
free periods
Lease concessions and additional rent free
periods are commonly granted to lessees
to
provide
financial
assistance,
particularly
in the light of the Covid-19 pandemic which
disproportionately affected tenants in certain
industries.
There is a risk that Management may not
record or otherwise defer the recognition of
rent concessions and rent free periods granted
to tenants to obtain favourable results (i.e. the
delayed/non-recognition of rent concessions or
amortisation of rent concessions over a longer
lease term could overstate net rental income
recognised in the current period).
•
We obtained a copy of all new leases entered
into during the year and checked these for any
lease incentives. We checked the calculation
and recognition of rental income and agreed
this back to the tenancy schedule prepared by
Management.
•
For all leases that were in place at 31 December
2020, we set expectations for the rental
income based on information previously
extracted from the leases and compared this
to the actual revenue recognised in the year.
We investigated any differences above a set
threshold by obtaining an explanation from
Management for the difference along with
evidence to support their explanation.
•
We obtained a listing of all rent reviews in
the year and tested a sample by checking
the relevant Retail Price Index or Consumer
Price Index uplift to external market data and
checking the calculation of the rental uplift.
•
We checked the calculations for adjustments
to spread the minimum contracted rental
income over the expected lease term to
confirm that the adjustment has been made
in accordance with applicable accounting
standards and challenged any significant
assumptions that Management had made
in determining the expected lease term.
This included whether lease put and/or call
options had been included in the lease term
and whether this was reasonable in light of
the circumstances.
•
We
challenged
Management
over
the
expected lease term used for calculating the
recognition of rent on a straight line basis,
as per the point above. We checked that all
assumptions had been applied consistently
across all leases.
•
We enquired of Management of any rent
concessions or additional rent free periods
granted to tenants in the year and where
these were identified we obtained supporting
documentation to agree the new rent levels
to the tenancy schedule.
•
We traced a sample of rental income invoiced
through to bank statements to check that rent
recognised is not net of any lease concessions
or additional rent free periods granted not
previously identified.
KEY OBSERVATIONS
We did not identify any indicators to suggest
that
the
revenue
has
been
recognised
inappropriately.
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Our application of materiality
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements.
We consider materiality to be the magnitude by which misstatements, including omissions, could influence the economic
decisions of reasonable users that are taken on the basis of the financial statements.
In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use a lower
materiality level, performance materiality, to determine the extent of testing needed. Importantly, misstatements below
these levels will not necessarily be evaluated as immaterial as we also take account of the nature of identified misstatements,
and the particular circumstances of their occurrence, when evaluating their effect on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole and performance
materiality as follows:
Group financial statements
Parent Company financial statements
2021
£m
2020
£m
2021
£m
2020
£m
Materiality
7.0
6.3
3.98
3.97
Basis for determining
materiality
Materiality for the Group and Parent Company’s financial statement was set at 1% of
total assets (2020: 1%).
Rationale for the
benchmark applied
We determined that total assets would be the most appropriate basis for
determining overall materiality as we consider it to be one of the principal
considerations for the users of the financial statements in assessing the
financial performance of the Group and Parent Company.
Performance materiality
4.55
3.78
2.59
2.38
Basis for determining
performance materiality
On the basis of our risk assessment, together with our assessment of the Group’s
overall control environment, our judgement was that overall
performance materiality
for the Group should be 65% (2020: 60%) of materiality. A number of factors led to the
judgement to increase the performance materiality level from prior year. This
included
the fact that there was a low level of brought forward adjustments, with a minimal number
of adjustments raised in historic audits, as well as Management’s open consideration to
adjusting for misstatements raised. We determined that the same measure as the Group
was appropriate for the Parent Company.
SPECIFIC MATERIALITY
We also determined that for other account balances, classes of transactions and disclosures not related to investment
properties, that specifically impact the measurement of EPRA earnings, a misstatement of less than materiality for the
financial statements as a whole, specific materiality, could influence the economic decisions of users. As a result, we
determined that specific materiality for these areas should be £970,000 (2020: £830,000). This was set at 5% (2020: 5%)
of European Public Real Estate Association (“EPRA”) earnings. EPRA earnings excludes the impact of the net surplus
on revaluation of investment properties. Those items which may affect EPRA earnings include rental income, general
and administrative expenses, management fees, finance income and finance cost. We further applied a performance
materiality level of 65% (2020: 60%) of specific materiality to ensure that the risk of errors exceeding specific materiality
was appropriately mitigated.
The specific materiality for the Parent Company was capped at 40% (2020: 87%) of Group specific materiality being
£388,000 (2020: £722,000). The percentage of the cap applied compared to the prior year reduced due to changes in
the composition of the Group structure.
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COMPONENT MATERIALITY
We set materiality for each significant component of the Group based on a percentage of 1% (2020: 1%) of the total
assets of that component. Significant component materiality ranged from £388,000 to £3,980,000 (2020: ranged from
£339,300 to £3,340,000).
In the audit of each component, we further applied performance materiality levels of 65% (2020: 60%) of the component
materiality to our testing to ensure that the risk of errors exceeding component materiality was appropriately mitigated.
REPORTING THRESHOLD
We agreed with the Audit Committee that we would report to them all individual audit differences in excess of £140,000
(2020: £126,000) for items audited to financial statement materiality, and £19,000 (2020: £16,000) for items audited to
specific materiality. We also agreed to report differences below these thresholds that, in our view, warranted reporting
on qualitative grounds.
We agreed that the reporting threshold for the Parent Company would be £79,600 (2020: £79,400) for items audited
to financial statement materiality, and £7,800 (2020: £14,000) for items audited to specific materiality.
Other information
The Directors are responsible for the other information. The other information comprises the information included in the
Annual Report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements
does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express
any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the
course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent
material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial
statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this
other information, we are required to report that fact.
We have nothing to report in this regard.
Corporate governance statement
The Listing Rules require us to review the Directors’ statement in relation to going concern, longer-term viability and that
part of the Corporate Governance Statement relating to the parent company’s compliance with the provisions of the UK
Corporate Governance Code specified for our review.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the financial statements or our knowledge obtained during the audit.
Going concern and
longer-term viability
• The Directors’ statement with regards to the appropriateness of adopting the going
concern basis of accounting and any material uncertainties identified set out on page
s 69
to 70; and
• The Directors’ explanation as to their assessment of the Group’s prospects, the period
this assessment covers and why the period is appropriate set out on page 69.
Other Code provisions
• Directors’ statement on fair, balanced and understandable set out on page 103;
• Board’s confirmation that it has carried out a robust assessment of the emerging and
principal risks set out on pages 63 to 67;
• The section of the annual report that describes the review of effectiveness of risk
management and internal control systems set out on page 85; and
• The section describing the work of the audit committee set out on page
84
.
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Other Companies Act 2006 reporting
Based on the responsibilities described below and our work performed during the course of the audit, we are required by
the Companies Act 2006 and ISAs (UK) to report on certain opinions and matters as described below.
Strategic report and
Directors’ report
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the Strategic report and the Directors’ report for the financial
year for which the financial statements are prepared is consistent with the financial
statements; and
• the Strategic report and the Directors’ report have been prepared in accordance with
applicable legal requirements.
In the light of the knowledge and understanding of the Group and Parent Company
and its environment obtained in the course of the audit, we have not identified material
misstatements in the strategic report or the Directors’ report.
Directors’ remuneration
In our opinion, the part of the Directors’ remuneration report to be audited has been
properly prepared in accordance with the Companies Act 2006.
Matters on which
we are required to
report by exception
We have nothing to report in respect of the following matters in relation to which the
Companies Act 2006 requires us to report to you if, in our opinion:
• adequate accounting records have not been kept by the Parent Company, or returns
adequate for our audit have not been received from branches not visited by us; or
• the Parent Company financial statements and the part of the Directors’ remuneration
report to be audited are not in agreement with the accounting records and returns; or
• certain disclosures of Directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
Responsibilities of Directors
As explained more fully in the Directors’ responsibilities statement, the Directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors
determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether
due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group’s and the Parent Company’s
ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going
concern basis of accounting unless the Directors either intend to liquidate the Group or the Parent Company or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually
or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of
these financial statements.
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EXTENT TO WHICH THE AUDIT WAS CAPABLE
OF DETECTING IRREGULARITIES, INCLUDING
FRAUD
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line
with our responsibilities, outlined above, to detect material
misstatements in respect of irregularities, including fraud.
The extent to which our procedures are capable of detecting
irregularities, including fraud is detailed below:
We gained an understanding of the legal and regulatory
framework applicable to the Group and the industry in which
it operates, and considered the risk of acts by the Group that
were contrary to applicable laws and regulations, including
fraud.
We focused on laws and regulations that could give rise
to a material misstatement in the financial statements and
considered the significant laws and regulations to be the
Companies Act 2006, the UK Listing Rules, tax legislation,
housing association regulations, health and safety legislation
and the Equal Opportunity Act.
Our procedures included agreeing the financial statement
disclosures to underlying supporting documentation where
relevant, review of Board and Committee meeting minutes,
enquiries with Management and those charged with
governance as to the risks of non-compliance with laws and
regulations and any instances thereof and we obtained an
understanding of controls around procurement fraud.
We assessed the susceptibility of the financial statements
to material misstatement, including fraud and considered
the fraud risk areas to be revenue recognition, investment
property valuations and management override of controls.
Our procedures included those set out in the revenue
recognition key audit matter above as well as agreeing all
bank balances and loans to direct bank confirmations and
agreements.
In addressing the risk of management override of internal
controls, we tested a sample of journals and evaluated
whether there was evidence of bias by the Directors that
represented a risk of material misstatement due to fraud.
We identified what we considered to be the key risk
characteristics and targeted our sample testing to these areas.
We obtained an explanation for journals within the sample,
as well as supporting evidence. This included evaluating
any management bias within the valuation of investment
property, as mentioned in the investment property valuations
key audit matter above.
Our audit procedures were designed to respond to risks of
material misstatement in the financial statements, recognising
that the risk of not detecting a material misstatement due to
fraud is higher than the risk of not detecting one resulting
from error, as fraud may involve deliberate concealment by,
for example, forgery, misrepresentations or through collusion.
There are inherent limitations in the audit procedures
performed and the further removed non-compliance with
laws and regulations is from the events and transactions
reflected in the financial statements, the less likely we are to
become aware of it.
A further description of our responsibilities is available on
the Financial Reporting Council’s website at: www.frc.org.
uk/auditorsresponsibilities. This description forms part of our
auditor’s report.
Use of our report
This report is made solely to the Parent Company’s
members, as a body, in accordance with Chapter 3 of
Part 16 of the Companies Act 2006.
Our audit work has
been undertaken so that we might state to the Parent
Company’s members those matters we are required to state
to them in an auditor’s report and for no other purpose.
To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the Parent
Company and the Parent Company’s members as a body,
for our audit work, for this report, or for the opinions we
have formed.
Thomas Edward Goodworth
(Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London
United Kingdom
24 March 2022
BDO LLP is a limited liability partnership registered in
England and Wales (with registered number OC305127).
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Financial Statements
FINANCIAL STATEMENTS
Group Statement of Comprehensive Income
for the year ended 31 December 2021
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2021 Annual Report
Note
Year ended
31 December 2021
£’000
Year ended
31 December 2020
£’000
Income
Rental income
5
Other income
Total income
Expenses
Directors’ remuneration
6
(307 )
(307 )
General and administrative expenses
9
(2,067 )
(2,200 )
Management fees
8
(4,552 )
(4,100 )
Total expenses
(6,926 )
(6,607 )
Gain from fair value adjustment on investment property
14
Operating profit
Finance income
11
Finance costs
12
(6,823 )
(5,723 )
Profit for the year before tax
Taxation
13
Profit and total comprehensive income for the year
IFRS Earnings per share – basic and diluted
36
The accompanying notes on pages 120 to 139 form an integral part of these Group Financial Statements.
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FINANCIAL STATEMENTS
Group Statement of Financial Position
as at 31 December 2021
31 December 2021
31 December 2020
Note
£’000
£’000
Assets
Non-current assets
Investment properties
14
Trade and other receivables
15
Total non-current assets
Current assets
Assets held for sale
Trade and other receivables
16
Cash, cash equivalents and restricted cash
17
Total current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
18
Total current liabilities
Non-current liabilities
Other payables
19
Bank and other Borrowings
20
Total non-current liabilities
Total liabilities
Total net assets
Equity
Share capital
22
Share premium reserve
23
Treasury shares reserve
24
(378 )
(378 )
Capital reduction reserve
25
Retained earnings
26
Total Equity
IFRS Net asset value per share – basic and diluted
37
The Group Financial Statements were approved and authorised for issue by the Board on 24 March 2022 and signed on its behalf by:
Chris Phillips
Chair
24 March 2022
The accompanying notes on pages 120 to 139 form an integral part of these Group Financial Statements.
FINANCIAL STATEMENTS
Group Statement of Changes in Equity
for the year ended 31 December 2021
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Share
capital
£’000
Share
premium
reserve
£’000
Treasury
shares
reserve
£’000
Capital
reduction
reserve
£’000
Retained
earnings
£’000
Total
equity
£’000
Year ended 31 December 2021
Note
Balance at 1 January 2021
(378 )
Profit and total comprehensive income
for the year
Transactions with owners
Dividends paid
27
(5,760 )
(15,165 )
(20,925 )
Share issue costs capitalised
23
(23 )
(23 )
Balance at 31 December 2021
(378 )
Share
capital
£’000
Share
premium
reserve
£’000
Treasury
shares
reserve
£’000
Capital
reduction
reserve
£’000
Retained
earnings
£’000
Total
equity
£’000
Year ended 31 December 2020
Note
Balance at 1 January 2020
(378 )
Profit and total comprehensive income
for the year
Transactions with owners
Ordinary Shares issued in the year at
a premium
22,23
Share issue costs capitalised
23
(1,862 )
(1,862 )
Dividends paid
27
(18,814 )
(18,814 )
Balance at 31 December 2020
(378 )
The accompanying notes on pages 120 to 139 form an integral part of these Group Financial Statements.
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Year ended
31 December 2021
Year ended
31 December 2020
Note
£’000
£’000
Cash flows from operating activities
Profit before income tax
Adjustments for:
Gain from fair value adjustment on investment property
(8,998 )
(7,894 )
Finance income
(44 )
(102 )
Finance costs
Operating results before working capital changes
(Increase)/ Decrease in trade and other receivables
(1,237 )
(Decrease)/Increase in trade and other payables
(242 )
Net cash flow generated from operating activities
Cash flows from investing activities
Purchase of investment properties
(61,350 )
(95,609 )
Prepaid acquisition costs paid
(18 )
(
)
Disposal proceeds from sale of assets
Restricted cash – paid
(410 )
(2,862 )
Restricted cash – released
Interest received
Net cash flow used in investing activities
(61,374 )
(94,373 )
Cash flows from financing activities
Proceeds from issue of Ordinary Shares at a premium
Ordinary Share issue costs capitalised
(23 )
(1,862 )
Interest paid
(5,615 )
(4,645 )
Bank borrowings drawn
20
Bank borrowings repaid
20
(130,000 )
Loan arrangement fees paid
21
(2,728 )
(1,101 )
Dividends paid
27
(20,925 )
(18,814 )
Net cash flow generated from financing activities
Net decrease in cash and cash equivalents
(953 )
(11,880 )
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
17
The accompanying notes on pages 120 to 139 form an integral part of these Group Financial Statements.
FINANCIAL STATEMENTS
Group Statement of Cash Flows
for the year ended 31 December 2021
FINANCIAL STATEMENTS
Notes to the Group Financial Statements
for the year ended 31 December 2021
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1. CORPORATE INFORMATION
Investment Trust (“REIT”) incorporated in England and Wales under
the Companies Act 2006 as a public company limited by shares on
12 June 2017. The address of the registered office is 1 King William
investment company under section 833 of the Companies Act 2006
and is domiciled in the United Kingdom
2. BASIS OF PREPARATION
The financial statements of the Group have been prepared in
accordance with UK-adopted International Accounting Standards and
with the requirements of the Companies Act 2006 as applicable to
companies reporting under those standards. All accounting policies
have been applied consistently.
The Group’s Financial Statements have been prepared on a historical
cost basis, as modified for the Group’s investment properties, which
have been measured at fair value. Gains or losses arising from changes
in fair values are included in profit or loss.
On 31 December 2020, IFRS as adopted by the European Union at
that date was brought into UK law and became UK-adopted
international accounting standards, with future changes being subject
to endorsement by the UK Endorsement Board. The Company
transitioned to UK-adopted international accounting standards in its
consolidated financial statements on 1 January 2021. There was no
impact or changes in accounting policies from the transition. The
Group has applied the same accounting policies in these Financial
Statements as in its 2020 annual financial statements, except for those
that relate to new standards and interpretations effective for the first
time for periods beginning on or after 1 January 2021. The new
standards and amendments impacting the Group are:
•
Interest Rate Benchmark Reform
–
Phase 2 (Amendments to
IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16); and
•
Covid-19-Related Rent Concessions beyond 30 June 2021
(Amendment to IFRS 16).
The Directors have given due consideration to the impact on the
financial statements of the amendments as follows:
Interest Rate Benchmark Reform – Phase 2
The above is effective from 1 January 2021. The amendments state that
if a financial contract results in a substantial modification as a direct
result of IBOR reform, a practical expedient can be applied and the
changes will be accounted for by updating the effective interest rate.
The amendments also allow a series of exemptions from the regular
hedge accounting. During the year the Group renegotiated the
Revolving Credit Facility, setting pre agreed terms for the transition of
LIBOR to SONIA. Given that the original facility was repaid in August
2021, and the new facility remains undrawn at 31 December 2021,
there has been no material impact on the Group’s financial statements
from the amendments.
Covid-19-Related Rent Concessions beyond 30 June 2021
As a result of Covid-19 there was an amendment to IFRS 16, Leases,
for Covid-19-related rent concessions. The amendment to the standard
has been considered, however at the reporting date had not been
required to be applied. No material impact as a result of new standards
is expected, as the Group is the lessor.
Amendments to IAS 1 on Classification of liabilities as Current or Non-
Current are effective for the financial years commencing on or after
1 January 2023 and are to be applied retrospectively. It is not expected
that the amendments may have an impact on the presentation and
classification of liabilities in the Group Statement of Financial Position
based on rights that are in existence at the end of the reporting period.
There are other new standards and amendments to standards and
interpretations which have been issued that are effective in future
accounting periods, and which the Group has decided not to adopt
early. None of these are expected to have a material impact on the
condensed consolidated financial statements of the Group.
2.1. Going concern
The Group benefits from a secure income stream from long leases
which are not overly reliant on any one tenant and present a well-
diversified risk. The Directors have reviewed the Group’s forecast
which shows the expected annualised rental income exceeds the
expected operating costs of the Group. 99.82% of rental income due
and payable for the period ended 31 December 2021 has been
collected. 97.16% of all rent due and payable at 28 February 2022 has
been collected.
To date, Covid-19 has not impacted the Group’s ability to continue as
a going concern for reasons discussed below. As a result, the Directors
believe that the Group is still well placed to manage its financing and
other business risks and that the Group will remain viable, continuing
to operate and meet its liabilities as they fall due. During the year, Fitch
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Ratings Limited assigned the Company an Investment Grade Long-
Term Issuer Default Rating of ‘A-’ with a stable outlook, and a senior
secured rating of ‘A’. .
The Directors have performed an assessment of the ability of the
Group to continue as a going concern, which includes the impact of
Covid-19, for a period of at least 12 months from the date of signing
these financial statements. The Directors have considered the
expected obligations of the Group for the next 12 months and are
confident that all will be met.
In considering the ability of the Group to continue as a going concern,
the Directors also considered the impact of Covid-19 on their tenants.
Tenants of the Group are Registered Providers who receive their
housing benefit from Local Authorities, before it is passed to
subsidiaries in the form of rental income. To date, Covid-19 has not
had any impact on, and the Directors do not foresee any issues in, rent
collection, however in the event of a downturn in revenue, variable
costs would be reduced to enable the Group to meet its future
liabilities.
The Directors have also considered the financing provided to the
Group. Norland Estates Limited and TP REIT Propco 2 Limited have
bank facilities with MetLife Investment Management and Barings
respectively. TP REIT Propco 5 Ltd has a RCF with Lloyds and NatWest
however this was undrawn at the year end and remains so at date of
signing. The loan secured by Norland Estates Limited is subject to an
asset cover ratio covenant of x2.00 (amended from previous covenant
of x2.25 in August 2021 to bring more in line with the ACR covenant in
the new Note Purchase Agreement with MetLife Investment
Management and NatWest
). The latest external valuation was carried
out at 31 December 2021 and at that point the asset cover ratio was
x2.75. The loan is also subject to an interest cover ratio. The covenant
ratio is not less than x1.75 and at
31 December 2021 the interest
cover ratio was x4.90. The loan secured by TP REIT Propco 2 Limited
with MetLife Investment Management and Barings is subject to an
asset cover ratio covenant of x1.67. As at 31 December 2021, the asset
cover ratio was x2.01.The loan is also subject to an interest cover ratio.
The covenant ratio is not less than x1.75 and at 31 December 2021 the
interest cover ratio was x4.33.
The Directors have also considered reverse stress testing and the
circumstances that would lead to a covenant breach. For Norland
Estates Limited, the property portfolio valuation at 31 December 2021
is based on a blended net initial yield of 5.21%, and 5.34% for TP REIT
Propco 2 Limited. Yields would have to move by 179bps for Norland
Estates Limited and 101bps for TP REIT Propco 2 Limited before
valuations fell to a level at which the asset cover ratio covenant was
breached. The interest cover ratio would need rental income collection
to fall to 36% before the covenant is breached. And for TP REIT Propco
2 Limited, the interest cover ratio would need rental income collection
to 40% before the covenant is breached. Given the level of headroom,
the Directors are of the view that the risk of scenarios materialising that
would lead to a breach of the covenants are remote.
Under the downside model the forecasts have been stressed to show
the effect of Care Providers ceasing to pay their voids liability, and as a
result lessees being unable to pay rent on void units. It assumes that
the Registered Provider (the tenant) will not be able to pay the voids.
Under the downside model the Company and its subsidiaries will be
able to settle its liabilities for a period of at least 12 months from the
date of signing these financial statements. As a result of the above, the
Directors are of the opinion that the going concern basis adopted in
the preparation of the financial statements is appropriate.
The Group has no short or medium-
term refinancing risk given the
11.6 year average maturity of its long-term debt facilities with MetLife
Investment Management
and Barings, the first of which expires in June
2028, and which are fully fixed at an all-in weighted average rate of
2.74%.
Based on the forecasts prepared and the intentions of the parent
company, the Directors consider that the Company and its subsidiaries
will be able to settle its liabilities for a period of at least 12 months from
the date of signing these financial statements and therefore has
prepared these financial statements on the going concern basis.
2.2. Currency
The Group financial information is presented in Sterling which is also
the Company’s functional currency.
3. SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES
AND ASSUMPTIONS
In the application of the Group’s accounting policies, which are
described in note 4, the Directors are required to make judgements,
estimates and assumptions about the carrying amounts of assets and
liabilities that are not readily apparent from other sources. The
estimates and associated assumptions that have a significant risk of
causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial year are outlined below:
Estimates:
3.1. Investment properties (note 14)
The Group uses the valuation carried out by its independent valuers as
the fair value of its property portfolio. The valuation is based upon
assumptions including future rental income and the appropriate
discount rate. The valuers also make reference to market evidence of
transaction prices for similar properties. Further information is provided
in note 14.
The Group’s properties have been independently valued by Jones
Lang LaSalle Limited (“JLL” or the “Valuer”) in accordance with the
FINANCIAL STATEMENTS
Notes to the Group Financial Statements
for the year ended 31 December 2021
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definitions published by the Royal Institute of Chartered Surveyors’
(“RICS”) Valuation – Professional Standards, July 2020, Global and UK
Editions (commonly known as the “Red Book”). JLL is one of the most
recognised professional firms within social housing valuation and has
sufficient current local and national knowledge of both social housing
generally and specialist supported housing (“SSH”) and has the skills
and understanding to undertake the valuations competently.
With respect to the Group’s Financial Statements, investment
properties are valued at their fair value at each Statement of Financial
Position date in accordance with IFRS 13 which recognises a variety of
fair value inputs depending upon the nature of the investment.
Specifically:
Level 1 – Unadjusted, quoted prices for identical assets and liabilities
in active (typically quoted) markets;
Level 2 – Quoted prices for similar assets and liabilities in active
markets; and
Level 3 – External inputs are “unobservable”. Value is the Directors’
best estimate, based on advice from relevant knowledgeable experts,
use of recognised valuation techniques and a determination of which
assumptions should be applied in valuing such assets and with
particular focus on the specific attributes of the investments themselves.
Given the bespoke nature of each of the Group’s investments, all of the
Group’s investment properties are included in Level 3.
Judgements:
3.2. Asset acquisitions
The Group acquires subsidiaries that own investment properties. At
the time of acquisition, the Group considers whether each acquisition
represents the acquisition of a business or the acquisition of an asset.
The Directors consider whether a set of activities and assets which
include an input and a substantive process that together significantly
contribute to the ability to create outputs has been acquired in
determining whether the acquisition represents the acquisition of a
business. An optional concentration test is also performed which
assesses whether substantially all of the fair value of the gross assets
acquired is concentrated in a single asset or group of similar assets. If
such a concentration exists, the transaction is not viewed as an
acquisition of a business and no further assessment of the business
combination guidance is required. The Group has not purchased, and
does not intend to purchase, any subsidiaries which incorporate any
assets other than investment property.
Where such acquisitions are not judged to be the acquisition of a
business, they are not treated as business combinations. Rather, the
cost to acquire the corporate entity is allocated between the
identifiable assets and liabilities of the entity based upon their relative
fair values at the acquisition date. Accordingly, no goodwill or deferred
tax arises.
All corporate acquisitions during the period have been treated as asset
purchases rather than business combinations because the optional
concentration test has been performed which has determined that the
fair value of the gross asset acquired is concentrated into a single
asset, investment property and therefore is not a business combination.
3.3. The Group as lessor (note 28)
The Group has determined, based on an evaluation of the terms and
conditions of the arrangements, that it retains all the significant risks
and rewards of ownership of its properties and so accounts for the
leases as operating leases. This evaluation involves judgement and the
key factors considered include comparing the duration of the lease
terms compared to the economic life of the underlying property asset,
or in the case of sub-leased properties, the remaining life of the right-
of-use asset arising from the head lease, and the present value of
minimum lease payments compared to the fair value of the asset at
acquisition.
3.4. Lease term (note 5)
Rental income is recognised on a straight-line basis over the expected
lease term. A judgement has to be made by the Directors as to the
expected term of each lease. The judgement involves determining
whether put and call options on certain leases will be exercised. This
judgement impacts the length of time over which lease incentives are
recognised. The key element of this judgement is whether the Directors
can be “reasonably certain” that any options or breaks in place to
extend the lease term will be exercised at the expiry of the current
lease, which is typically some 20 years in the future. In particular,
consideration was given to the future regulatory environment,
government policy on social housing and future alternative uses for
the property. The Directors concluded that it was impossible to say
with reasonable certainty that an option will be exercised. The Directors
concluded that lease terms should be restricted to the initial leases of
the lease, or to the break date, except where reversionary lease have
already been executed or where options to extend have already been
exercised.
The principal accounting policies applied in the preparation of the
financial statements are set out below.
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4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
4.1. Basis of consolidation
The financial statements comprise the financial information of the
Group as at the year end date.
Subsidiaries are all entities over which the Group has control. The
Group controls an entity when the Group is exposed to, or has rights
to, variable returns from its involvement with the entity and 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 are included in the financial statements from the date
that control commences until the date that control ceases.
If an equity interest in a subsidiary is transferred but a controlling
interest continues to be held after the transfer then the change in
ownership interest is accounted for as an equity transaction.
Accounting policies of the subsidiaries are consistent with the policies
adopted by the Company.
4.2. Investment property
Investment property, which is property held to earn rentals and/or for
capital appreciation, is initially measured at cost, being the fair value of
the consideration given, including expenditure that is directly
attributable to the acquisition of the investment property. The Group
recognises asset acquisitions on completion. After initial recognition,
investment property is stated at its fair value at the Statement of
Financial Position date. Gains and losses arising from changes in the
fair value of investment property are included in profit or loss for the
period in which they arise in the Statement of Comprehensive Income.
Subsequent expenditure is capitalised only when it is probable that
future economic benefits are associated with the expenditure.
An investment property is derecognised upon disposal or when the
investment property is permanently withdrawn from use and no future
economic benefits are expected to be obtained from the disposal. Any
gain or loss arising on de-recognition of the property (calculated as the
difference between the net disposal proceeds and the carrying amount
of the asset) is recorded in profit or loss in the period in which the
property is derecognised.
Investment properties under construction are financed by the Group
where the Group enters into contracts for the development of a pre-let
property under a forward funding agreement. The Group does not
expose itself to any speculative development risk as the proposed
property is pre-let to a tenant under an agreement for lease and the
Group enters into a fixed price development agreement with the
Developer. Investment properties under construction are initially
recognised in line with stage payments made to the developer. The
properties are revalued at fair value at each reporting date in the form
of a work-in-progress value. The work-in-progress value of investment
properties under construction is estimated as fair value of the
completed asset less any costs still payable in order to complete,
which includes the Developer’s margin.
During the period between initial investment and the lease commencement
date (practical completion of the works) a coupon interest due on the
funds paid in the range of 6-6.75% per annum is payable by the Developer.
The accrued coupon interest is considered as a discount on the fixed
contract price. It does not result in any cash ows during the development
but reduces the outstanding balance payable to the developer on
practical completion. When practical completion is reached, the
completed investment property is transferred to operational assets at the
fair value on the date of completion.
Significant accounting judgements, estimates and assumptions made
for the valuation of investment properties are discussed in note 3.
4.3. Leases
Lessor
Leases are classified as finance leases whenever the terms of the lease
transfer substantially all the risks and rewards of ownership to the
lessee. All other leases are classified as operating leases.
The Group has determined that it retains all the significant risks and
rewards of ownership of the properties it has acquired to date and
accounts for the contracts as operating leases as discussed in note 3.
Properties leased out under operating leases are included in investment
property in the Statement of Financial Position. Rental income from
operating leases is recognised on a straight-line basis over the term of
the relevant leases.
Lessee
As a lessee the Group recognises a right-of-use asset within investment
properties and a lease liability for all leases, which is included within
other payables (note 18). The lease liabilities are measured at the
present value of the remaining lease payments, discounted using an
appropriate discount rate. The discount rate applied by the Group is
the incremental borrowing rate at which a similar borrowing could be
obtained from an independent creditor under comparable terms and
conditions. Subsequent to initial measurement lease liabilities increase
as a result of interest charged at a constant rate on the balance
outstanding and are reduced for lease payments made.
As leasehold properties meet the definition of investment property,
the right-of-use assets are presented within investment property (note
14), and after initial recognition are subsequently measured at
fair value.
FINANCIAL STATEMENTS
Notes to the Group Financial Statements
for the year ended 31 December 2021
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Sub-leases
Leases are classified as finance leases whenever the terms of the lease
transfer substantially all the risks and rewards of ownership of the
underlying property asset to the lessee. Sub-leases of leasehold
properties are classified with reference to the right-of-use asset arising
from the head lease. All other leases are classified as operating leases.
4.4. Rent and other receivables
Rent and other receivables are amounts due in the ordinary course of
business. If collection is expected in one year or less, they are classified
as current assets.
Rent receivables are initially recognised at fair value plus transaction
costs and are subsequently carried at amortised cost, less provision for
impairment.
Impairment provisions for current and non-current rent receivables are
recognised based on the simplified approach within IFRS 9 using a
provision matrix in the determination of the lifetime expected credit
losses. During this process the probability of the non-payment of the
rent receivables is assessed. This probability is then multiplied by the
amount of the expected loss arising from default to determine the
lifetime expected credit loss for the rent receivables. For rent
receivables, which are reported net, such provisions are recorded in a
separate provision account with the loss being recognised in the
consolidated statement of comprehensive income. On confirmation
that the rent receivable will not be collectable, the gross carrying value
of the asset is written off against the associated provision.
Impairment provisions for all other receivables are recognised based
on a forward-looking expected credit loss model using the general
approach. The methodology used to determine the amount of the
provision is based on whether there has been a significant increase in
credit risk since initial recognition of the financial asset. For those
where the credit risk has not increased significantly since initial
recognition of the financial asset, 12
-
month expected credit losses
along with gross interest income are recognised. For those for which
credit risk has increased significantly, lifetime expected credit losses
along with the gross interest income are recognised. For those that are
determined to be credit impaired, lifetime expected credit losses
along with interest income on a net basis are recognised.
4.5. Cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash include cash in hand, cash
held by lawyers and liquidity funds with a term of no more than three
months that are readily convertible to a known amount of cash, and
which are subject to an insignificant risk of changes in value.
Cash held by lawyers is money held in escrow for expenses expected
to be incurred in relation to investment properties pending completion.
These funds are available immediately on demand.
Restricted Cash represents cash held in relation to retentions for
repairs, maintenance and improvement works by the vendors that is
committed on the acquisition of the properties; and restricted
bank borrowings.
4.6. Provisions
Provisions are recognised when the Group has a present obligation
(legal or constructive) as a result of a past event, it is probable that the
Group will be required to settle that obligation and a reliable estimate
can be made of the amount of the obligation.
The amount recognised as a provision is the best estimate of the
expenditure required to settle the present obligation at the Statement
of Financial Position date, taking into account the risks and uncertainties
surrounding the obligation.
4.7. Trade and other payables
Trade and other payables are classified as current liabilities if payment
is due within one year or less from the end of the current accounting
period. If not, they are presented as non-current liabilities. Trade and
other payables are recognised initially at their fair value and
subsequently measured at amortised cost using the effective interest
method until settled.
4.8. Bank and other borrowings
Bank borrowings and the Group’s loan notes are initially recognised at
fair value net of any transaction costs directly attributable to the issue
of the instrument. Such interest-bearing liabilities are subsequently
measured at amortised cost using the effective interest rate method,
which ensure that any interest expense over the period to repayment
is at a constant rate on the balance of the liability carried in the Group
Statement of Financial Position. For the purposes of each financial
liability, interest expense includes initial transaction costs and any
premium payable on redemption, as well as any interest or coupon
payment while the liability is outstanding.
Modifications to borrowing terms are assessed when agreed with
the lender to determine if they represent a substantial or non-
substantial modification under IFRS 9. This involves the ‘10% test’
comparing the discounted present value of the revised cash ows
against the carrying value of the loan, as well as a review of any other
qualitative changes to the terms. If the modifications are deemed
substantial, the existing liability is extinguished and a new liability is
recognised, with the difference between the carrying amount of the
existing financial liability and the fair value of the modified financial
liability at modification date being recognised in the Statement of
Comprehensive
Income.
If
the
modification
is
deemed
non-substantial, costs or fees incurred are adjusted against the
liability and are amortised over the remaining term.
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4.9. Taxation
Taxation on the element of the profit or loss for the period that is not
exempt under UK REIT regulations would be comprised of current and
deferred tax. Tax is recognised in the Statement of Comprehensive
Income except to the extent that it relates to items recognised as direct
movement in equity, in which case it is recognised as a direct movement
in equity. Current tax is the expected tax payable on any non REIT
taxable income for the period, using tax rates enacted or substantively
enacted at the Statement of Financial Position date, and any adjustment
to tax payable in respect of previous periods.
4.10. Dividends payable to shareholders
Dividends to the Company’s shareholders are recognised as a liability
in the Group’s Financial Statements in the period in which the dividends
are approved. In the UK, interim dividends are recognised when paid.
4.11. Rental income
Rental income from investment property is recognised on a straight-
line basis over the term of ongoing leases and is shown gross of any
UK income tax. A rental adjustment is recognised from the rent review
date in relation to unsettled rent reviews, where the Directors are
reasonably certain that the rental uplift will be agreed.
Tenant lease incentives are recognised as a reduction of rental revenue
on a straight-line basis over the term of the lease. These are recognised
within trade and other receivables on the Statement of Financial
Position.
When the Group enters into a forward funded transaction, the future
tenant signs an agreement for lease. No rental income is recognised
under the agreement for lease, but once the practical completion
has taken place the formal lease is signed at which point rental income
commences to be recognised in the Statement of Comprehensive
Income.
4.12. Finance income and finance costs
Finance income is recognised as interest accrues on cash balances held
by the Group. Finance costs consist of interest and other costs that the
Group incurs in connection with bank and other borrowings. These
costs are expensed in the period in which they occur. Borrowing costs
that are separately identifiable and directly attributable to the
acquisition or construction of forward funded assets that take a
substantial period of time to complete are capitalised as part of the
development cost in investment property (note 14).
4.13. Expenses
All expenses are recognised in the Statement of Comprehensive
Income on an accruals basis.
4.14. Investment management fees
Investment advisory fees are recognised in the Statement of
Comprehensive Income on an accruals basis.
4.15. Share issue costs
The costs of issuing or reacquiring equity instruments (other than in a
business combination) are accounted for as a deduction from equity.
4.16. Treasury shares
Consideration paid or received for the purchase or sale of treasury
shares is recognised directly in equity. The cost of treasury shares held
is presented as a separate reserve (“the treasury share reserve”). Any
excess of the consideration received on the sale of treasury shares over
the weighted average cost of the shares sold is credited to retained
earnings.
5.
RENTAL INCOME
Year ended
31 December
2021
Year ended
31 December
2020
£’000
£’000
Rental income – freehold assets
31,071
26,406
Rental income – leasehold assets
2,046
1,987
33,117
28,393
The lease agreements between the Group and the Registered
Providers are fully repairing and insuring leases. The Registered
Providers are responsible for the settlement of all present and future
rates, taxes, costs and other impositions payable in respect of the
property. As a result, no direct property expenses were incurred.
All rental income arose within the United Kingdom.
6.
DIRECTORS’ REMUNERATION
Year ended
31 December
2021
Year ended
31 December
2020
£’000
£’000
Directors’ fees
275
275
Employer’s National Insurance
Contributions
32
32
Additional fees paid – capitalised as share
issue costs
–
7
307
314
FINANCIAL STATEMENTS
Notes to the Group Financial Statements
for the year ended 31 December 2021
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The Directors are remunerated for their services at such rate as the
Directors shall from time to time determine. The Chair receives a
Director’s fee of £75,000 per annum (2020: £75,000), and the other
Directors of the Board receive a fee of £50,000 per annum
(2020: £50,000). The Directors are also entitled to an additional fee of
£7,500
in connection with the production of every prospectus by the
Company (including the initial Issue). Each Director received this
additional fee in 2020 following the publication of the prospectus, but
no additional fees were received during 2021.
(The additional fees are
treated as a cost of issue not included as an expense through the
Statement of Comprehensive Income).
A summary of the Directors’ emoluments, including the disclosures
required by the Companies Act 2006, is set out in the Directors’
Remuneration Report within the Corporate Governance Report on
pages 92 to 97. None of the Directors received any advances or credits
from any group entity during the year.
7.
PARTICULARS OF EMPLOYEES
The Group had no employees during the year other than the Directors
(2020: none).
8.
MANAGEMENT FEES
Year ended
31 December
2021
Year ended
31 December
2020
£’000
£’000
Management fees
4,552
4,100
4,552
4,100
On 20 July 2017 Triple Point Investment Management LLP ‘TPIM’ was
appointed as the delegated investment manager of the Company by
entering into the property management services and delegated
portfolio management agreement. Under this agreement the
delegated investment manager will advise the Company and provide
certain management services in respect of the property portfolio.
A Deed of Variation was signed on 23 August 2018. This defined cash
balances in the Net Asset Value calculation in respect of the
management fee as “positive uncommitted cash balances after
deducting any borrowings”. The management fee is an annual
management fee which is calculated quarterly in arrears based upon a
percentage of the last published Net Asset Value of the Group (not
taking into account uncommitted cash balances after deducting
borrowings as described above) as at 31 March, 30 June, 30 September
and 31 December in each year on the following basis with effect from
Admission:
•
on that part of the Net Asset Value up to and including
£250 million, an amount equal to 1% of such part of the Net
Asset Value;
•
on that part of the Net Asset Value over £250 million and up to
and including £500 million, an amount equal to 0.9% of such
part of the Net Asset Value;
•
on that part of the Net Asset Value over £500 million and up to
and including £1 billion, an amount equal to 0.8% of such part of
the Net Asset Value;
•
on that part of the Net Asset Value over £1 billion, an amount
equal to 0.7% of such part of the Net Asset Value.
Management fees of £4,552,000 (2020: £4,100,000) were chargeable
by TPIM during the year. At the year end £1,146,000 (2020: £1,132,000)
was due to TPIM.
By two agreements dated 30 June 2020, the Company appointed
TPIM as its Alternative Investment Fund Manager by entering into an
Alternative Investment Fund Management Agreement and (separately)
documented TPIM’s continued appointment as the provider of
portfolio and property management services by entering into an
Investment Management Agreement.
9.
GENERAL AND ADMINISTRATIVE EXPENSES
Year ended
31 December
2021
Year ended
31 December
2020
£’000
£’000
Legal and professional fees
673
666
Audit fees
256
227
Administration fees
336
327
Lease transfer costs
40
343
Other administrative expenses
762
637
2,067
2,200
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On 1 October 2019 Hanway Advisory Limited, who are associated with
Triple Point Investment Management LLP, the investment manager,
were appointed to provide Administration and Company Secretarial
Services to the Group.
Within Administration Fees is an amount of £326,000 (2020: £315,000)
for Company Secretarial Services
chargeable by Hanway Advisory
Limited.
The audit fees in the table above are inclusive of VAT, and therefore
differ to the fees in note 10 which are reported net of VAT.
On 30 June 2020 Triple Point Investment Management LLP was
appointed as the fund’s Alternative Investment Fund Manager (AIFM)
to perform certain functions for the Group. During the year AIFM
services of £175,000 (2020: £76,000) were chargeable by TPIM. At the
year end £44,000 (2020: £38,000) was due to TPIM.
Lease transfer costs represent legal and administrative costs incurred
in relation to the transfer of 12 leases from Westmoreland and
amortisation costs in relation to the original transfer costs.
10.
AUDIT FEES
Year ended
31 December
2021
Year ended
31 December
2020
£’000
£’000
Group audit fees – current year
189
155
Group audit fees – prior year
–
15
Subsidiary audit fees
24
19
213
189
Non audit fees paid to BDO LLP included £29,000 (2020: £27,000) in
relation to the half year interim review and nil (2020: £22,000) in
relation to eNAV work.
The audit fee for the following subsidiaries has been borne by the
Company:
>
TP REIT Super Holdco Limited
>
Norland Estates Limited
>
TP REIT Holdco 1 Limited
>
TP REIT Propco 2 Limited
>
TP REIT Holdco 2 Limited
>
TP REIT Propco 3 Limited
>
TP REIT Holdco 3 Limited
>
TP REIT Propco 4 Limited
>
TP REIT Holdco 4 Limited
>
TP REIT Propco 5 Limited
>
TP REIT Holdco 5 Limited
11.
FINANCE INCOME
Year ended
31 December
2021
Year ended
31 December
2020
£’000
£’000
Other interest income
44
43
Interest on liquidity funds
–
59
44
102
12.
FINANCE COSTS
Year ended
31 December
2021
Year ended
31 December
2020
£’000
£’000
Interest payable on bank borrowings
5,492
4,627
Borrowing costs capitalised (note 14)
–
(128)
Amortisation of loan arrangement fees
1,279
1,163
Head lease interest expense
44
43
Bank charges
8
18
6,823
5,723
Total finance cost for financial liabilities
not at fair value through profit or loss
6,815
5,705
13.
TAXATION
As a UK REIT, the Group is exempt from corporation tax on the profits
and gains from its property investment business, provided it meets
certain conditions as set out in the UK REIT regulations. For the current
period, the Group did not have any non-qualifying profits and
accordingly there is no tax charge in the period. If there were any non-
qualifying profits and gains, these would be subject to corporation tax.
It is assumed that the Group will continue to be a group UK REIT for
the foreseeable future, such that deferred tax has not been recognised
on temporary differences relating to the property rental business.
Year ended
31 December
2021
Year ended
31 December
2020
£’000
£’000
Current tax
Corporation tax charge for the year
–
–
Total current income tax charge in the
profit or loss
–
–
FINANCIAL STATEMENTS
Notes to the Group Financial Statements
for the year ended 31 December 2021
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The tax charge for the period is less than the standard rate of
corporation tax in the UK of 19% (2020: 19%). The differences are
explained below.
Year ended
31 December
2021
Year ended
31 December
2020
£’000
£’000
Profit for the year before tax
28,410
24,594
Tax at UK corporation tax standard rate
of 19%
5,398
4,673
Change in value of investment properties
(1,710)
(1,500)
Exempt REIT income
(4,202)
(3,539)
Amounts not deductible for tax purposes
22
21
Unutilised residual current period tax
losses
492
345
–
–
UK REIT exempt income includes property rental income that is exempt
from UK Corporation Tax in accordance with Part 12 of CTA 2010.
14.
INVESTMENT PROPERTY
Operational
assets
Properties
under
development
Total
£’000
£’000
£’000
As at 1 January 2021
565,533
6,568
572,101
Acquisitions and additions
59,114
1,568
60,682
Fair value adjustment*
9,513
–
9,513
Movement in head lease ground
rent liability
5
–
5
Transfer of completed properties
8,136
(8,136)
–
Reclassified to assets held
for sale
(1,008)
–
(1,008)
As at 31 December 2021
641,293
–
641,293
Operational
assets
Properties
under
development
Total
£’000
£’000
£’000
As at 1 January 2020
454,400
17,949
472,349
Acquisitions and additions
77,126
14,711
91,837
Fair value adjustment*
7,049
908
7,957
Movement in head lease ground
rent liability
3
–
3
Borrowing costs capitalised
(note 12)
–
128
128
Transfer of completed properties
27,128
(27,128)
–
Reclassified to assets held for sale
(173)
–
(173)
As at 31 December 2020
565,533
6,568
572,101
*Gain from fair value adjustment on investment property in the Statement of
Comprehensive Income includes loss from fair value adjustments on assets held
for sale.
Reconciliation to independent valuation:
31 December
2021
31 December
2020
£’000
£’000
Investment property valuation
642,018
571,463
Fair value adjustment – head lease
ground rent
1,462
1,457
Fair value adjustment – lease incentive debtor
(2,187)
(819)
641,293
572,101
Properties under development represent contracts for the development
of a pre-let property under a forward funding agreement. Where the
development period is expected to be a substantial period, the
borrowing costs that can be directly attributed to getting the asset
ready for use are capitalised as part of the investment property value.
All properties under development were completed in the year. There
are no properties under development as at 31 December 2021.
The carrying value of leasehold properties at 31 December 2021 was
£39.36 million (2020: £36.5 million).
In accordance with “IAS 40: Investment Property”, the Group’s
investment properties have been independently valued at fair value by
Jones Lang LaSalle Limited (“JLL”), an accredited external valuer with
recognised and relevant professional qualifications. The independent
valuers provide their fair value of the Group’s investment property
portfolio every three months.
JLL were appointed as external valuers by the Board on 11 December
2017. JLL has provided valuations services to the Group. The proportion
of the total fees payable by the Company to JLL’s total fee income is
minimal. Additionally, JLL has a rotation policy in place whereby the
signatories on the valuations rotate after seven years.
% Key Statistic
The metrics below are in relation to the total investment property
portfolio held as at 31 December 2021.
Portfolio metrics
31 December 2021
31 December 2020
Capital Deployed (£’000)
*
569,991
512,296
Number of Properties
488
445
Number of Tenancies
***
382
341
Number of Approved Providers
***
24
20
Number of Local Authorities
***
156
155
Number of Care Providers
***
114
98
Valuation Net Initial Yield (NIY)
**
5.25%
5.27%
* calculated excluding acquisition costs.
** calculated using IAS 40 valuations (excluding forward funding acquisitions).
*** calculated excluding forward funding acquisitions.
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Regional exposure
31 December 2021
31 December 2020
Region
*
Cost
£’000
% of funds
invested
*
Cost
£’000
% of funds
invested
North West
122,622
21.5
115,025
22.5
West Midlands
92,794
16.3
88,397
17.3
East Midlands
64,595
11.3
65,559
12.8
London
49,526
8.7
49,213
9.6
North East
47,061
8.3
47,088
9.2
Yorkshire
81,034
14.2
46,013
9.0
South East
52,196
9.2
45,682
8.9
South West
27,900
4.9
27,900
5.4
East
23,703
4.2
20,229
3.9
Scotland
5,900
1.0
4,530
0.9
Wales
2,660
0.4
2,660
0.5
Total
569,991
100
512,296
100
* excluding acquisition costs.
Fair value hierarchy
Date of
valuation
Total
£’000
Quoted
prices in
active
markets
(Level 1)
£’000
Significant
observable
inputs
(Level 2)
£’000
Significant
unobservable
inputs
(Level 3)
£’000
Assets measured at
fair value:
Investment
properties
31 December
2021
641,293
–
–
641,293
Investment
properties
31 December
2020
572,101
–
–
572,101
There have been no transfers between Level 1 and Level 2 during the
year, nor have there been any transfers between Level 2 and Level 3
during the year.
The valuations have been prepared in accordance with the RICS
Valuation – Professional Standards (incorporating the International
Valuation Standards) by JLL, one of the leading professional firms
engaged in the social housing sector.
As noted previously, all of the Group’s investment properties are
reported as Level 3 in accordance with IFRS 13 where external inputs
are “unobservable” and value is the Directors’ best estimate, based
upon advice from relevant knowledgeable experts.
In this instance, the determination of the fair value of investment
property requires an examination of the specific merits of each
property that are in turn considered pertinent to the valuation.
These include i) the regulated social housing sector and demand for
the facilities offered by each Specialised Supported Housing (“SSH”)
property owned by the Group; ii) the particular structure of the Group’s
transactions where vendors, at their own expense,
meet
the majority
of the refurbishment costs of each property and certain purchase costs;
iii) detailed financial analysis with discount rates supporting the
carrying value of each property; iv) underlying rents for each property
being subject to independent benchmarking and adjustment where
the Group considers them too high (resulting in a price reduction for
the purchase or withdrawal from the transaction); and v) a full repairing
and insuring lease with annual indexation based on CPI or CPI+1% and
effectively 25 years outstanding, in most cases with a Housing
Association itself regulated by the Regulator of Social Housing.
The valuer treats the fair value for forward funded assets as work-in-
progress value whereby the Group forward funds a development by
committing a total sum, the Gross Development Value (“GDV”) over
the development period in order to receive the completed
development at practical completion. The work-in-progress value of
the asset increases during the construction period accordingly as
payments are made by the Group which leads, in turn, to a pro-rata
increase in the valuation in each quarter valuation assuming there are
no material events affecting the GDV adversely. Interest accrued
during construction as well as an estimation of future interest accrual
prior to lease commencement will be deducted from the balancing
payment which is the final payment to be drawn by the developer prior
to the Group receiving the completed building. All properties under
development were completed in the year. There were no forward
funded assets in the portfolio as at 31 December 2021.
Descriptions and definitions relating to valuation techniques and key
unobservable inputs made in determining fair values are as follows:
Valuation techniques: Discounted cash flows
The discounted cash ows model considers the present value of net
cash ows to be generated from the property, taking into account the
expected rental growth rate and lease incentive costs such as rent-free
periods. The expected net cash ows are then discounted using risk-
adjusted discount rates.
There are two main unobservable inputs that determine the fair value
of the Group’s investment property:
1. the rate of ination as measured by CPI; it should be noted that all
leases benefit from either CPI or RPI indexation; and
2. the discount rate applied to the rental ows.
Key factors in determining the discount rates to assess the level of
uncertainty applied include: the performance of the regulated social
housing sector and demand for each specialist supported housing
property owned by the Group; costs of acquisition and refurbishment
of each property; the anticipated future underlying cash ows for each
property; benchmarking of each underlying rent for each property
FINANCIAL STATEMENTS
Notes to the Group Financial Statements
for the year ended 31 December 2021
130
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(passing rent); and the fact that all of the Group’s properties have the
benefit of full repairing and insuring leases entered into by a Housing
Association.
All of the properties within the Group’s portfolio benefit from leases
with annual indexation based upon CPI or RPI. The fair value
measurement is based on the above items highest and best use, which
does not differ from their actual use.
Sensitivities of measurement of significant unobservable inputs
As set out within the significant accounting estimates and judgements
in note 3, the Group’s property portfolio valuation is open to
judgements and is inherently subjective by nature.
As a result, the following sensitivity analysis has been prepared:
Average discount rate and range:
The average discount rate used in the Group’s property portfolio
valuation is 6.63% (2020: 6.62%).
The range of discount rates used in the Group’s property portfolio
valuation is from 6.21% to 8% (2020: 6.3% to 7.4%).
-0.5%
change in
Discount
Rate
£’000
+0.5%
change in
Discount
Rate
£’000
+0.25%
change
in CPI
£’000
-0.25%
change
in CPI
£’000
Changes in the
IFRS fair value
of investment
properties as at
31 December
2021
26,922
(24,663)
21,190
(20,238)
Changes as at
31 December
2020
35,919
(32,643)
18,635
(17,811)
Given that the factors on which the valuations are based have not been
adversely affected by Covid-19, there has been no direct impact to the
investment property valuation at 31 December 2021. The valuations
have also not been inuenced by climate related factors due to there
being little measurable impact on inputs at present.
15.
TRADE AND OTHER RECEIVABLES (non-current)
31 December
2021
31 December
2020
£’000
£’000
Other receivables
183
–
Lease incentive debtor
2,128
–
2,311
–
The Directors consider that the carrying value of trade and other
receivables approximate their fair value. All amounts are due to be
received in more than one year from the reporting date.
16.
TRADE AND OTHER RECEIVABLES (current)
31 December
2021
31 December
2020
£’000
£’000
Rent receivable
1,971
2,112
Prepayments
796
608
Other receivables
608
613
Lease incentive debtor
60
819
3,435
4,152
Included in Prepayments are prepaid acquisition costs which include
the cost of acquiring assets not completed at the year end. The
Directors consider that the carrying value of trade and other receivables
approximate their fair value. All amounts are due to be received within
one year from the reporting date. The Group applies the IFRS 9
simplified approach to measuring expected credit losses using a
lifetime expected credit 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 incorporation in 2017. The historical loss rates are then adjusted
for the current and forward-looking information on macroeconomic
factors affecting the Group’s tenants. The Group does not hold any
collateral as security. The Group applies the general approach to
providing for expected credit losses under IFRS 9 for other receivables.
Both the expected credit loss and the incurred loss provision in the
current and prior year are immaterial.
17. CASH, CASH EQUIVALENTS AND RESTRICTED CASH
31 December
2021
31 December
2020
£’000
£’000
Cash held by lawyers
8,459
3,938
Restricted cash
571
849
Ring-fenced cash
4,451
–
Cash at bank
38,989
48,914
52,470
53,701
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Cash held by lawyers is money held in escrow for expenses expected
to be incurred in relation to investment properties pending completion.
These funds are available immediately on demand.
Restricted cash represents retention money (held by lawyers only) in
relation to repair, maintenance and improvement works by the vendors
to bring the properties up to satisfactory standards for the Group and
the tenants. The cash is committed on the acquisition of the properties.
It also includes funds held in an escrow account in relation to the
transfer of leases during 2020.
Ring-fenced cash includes retention monies held by Coutts in a
“charged” account which requires lender’s
permission to release, and
funds held in a separate bank account for upcoming commitment fees
on the Lloyds RCF.
31 December
2021
31 December
2020
£’000
£’000
Total Cash, cash equivalents and
restricted cash
52,470
53,701
Restricted cash
(571)
(849)
Cash reported on Statement of Cash
Flows
51,899
52,852
18.
TRADE AND OTHER PAYABLES
31 December
2021
31 December
2020
Current liabilities
£’000
£’000
Accruals
2,373
2,929
Trade payables
48
79
Head lease ground rent (note 27)
39
39
Other creditors
1,191
1,922
3,651
4,969
The Other Creditors balance consists of retentions due on completion
of outstanding works. The Directors consider that the carrying value of
trade and other payables approximate their fair value. All amounts are
due for payment within one year from the reporting date.
19.
OTHER PAYABLES
31 December
2021
31 December
2020
Non-current liabilities
£’000
£’000
Head lease ground rent (note 28)
1,423
1,417
Rent deposit
100
100
1,523
1,517
20.
BANK AND OTHER BORROWINGS
31 December
2021
£’000
31 December
2020
£’000
Bank and other borrowings drawn at year end
263,500
198,500
Less: loan issue costs incurred
(6,077)
(4,736)
Add: loan issue costs amortised
1,279
1,163
Unamortised costs at end of the year
(4,798)
(3,573)
Balance at year end
258,702
194,927
At 31 December 2021 there were undrawn bank borrowings of
£160 million (2020: £30 million).
As at 31 December 2021, the Group’s borrowings comprised two debt
facilities;
•
a long dated, fixed rate, interest only financing arrangement in
the form of a private placement of loan notes in an amount of
£68.5 million with MetLife Investment Management Investment
Management (and affiliated funds)
•
£195 million long dated, fixed rate, interest only sustainability-
linked loan notes through a private placement with MetLife
Investment Management Investment Management clients and
Barings
The Group also have access to £160 million Revolving Credit Facility
(RCF) with Lloyds and NatWest which was undrawn at the
reporting date.
Loan Notes
The Loan Notes of £68.5 million are secured against a portfolio of
specialist supported living assets throughout the UK, worth approximately
£188 million (31 December 2020:
£184 million). The Loan Notes represent
a loan-to-value of 40% of the value of the secured pool of assets and are
split into two tranches: Tranche-A, is an amount of £41.5 million, has a
term of 10 years from utilisation and is priced at an all-in coupon of
2.924%
p.a.; and Tranche-B, is an amount of £27.0 million, has a term of
15 years from utilisation and is priced at an all-in coupon of 3.215% p.a.
On a blended basis, the weighted average term is 12 years carrying a
weighted average fixed rate coupon of 3.04%
p.a. At 31 December 2021,
the Loan Notes have been independently valued at £71.0 million which
has been used to calculate the Group’s EPRA Net Disposal Value in note
4 of the Unaudited Performance Measures. The fair value is determined
by comparing the discounted future cash ows using the contracted
yields with the reference gilts plus the margin implied. The reference gilts
used were the Treasury 0.804% 2028 Gilt (Tranche A) and Treasury 0.991%
2033 Gilt (Tranche B), with an implied margin that is unchanged since the
date of fixing.
In August this year, the Group put in place Loan Notes of £195 million
which enabled the Group to refinance the full £130 million previously
FINANCIAL STATEMENTS
Notes to the Group Financial Statements
for the year ended 31 December 2021
132
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drawn under its £160 million RCF with Lloyds and NatWest. The Loan
Notes are secured against a portfolio of specialist supported living assets
throughout the UK, worth approximately £391 million. The Loan Notes
represent a loan-to-value of 40% of the value of the secured pool of
assets and are split into two tranches: Tranche-A, is an amount of £77.5
million, has a term of 10 years from utilisation and is priced at an all-in
coupon of 2.403%
p.a.; and Tranche-B, is an amount of £117.5 million,
has a term of 15 years from utilisation and is priced at an all-in coupon of
2.786% p.a. On a blended basis, the weighted average term is 13 years
carrying a weighted average fixed rate coupon of 2.634%
p.a. At
31 December 2021, the Loan Notes have been independently valued at
£189.7 million which has been used to calculate the Group’s EPRA Net
Disposal Value in note 4 of the Unaudited Performance Measures. The
fair value is determined by comparing the discounted future cash ows
using the contracted yields with the reference gilts plus the margin
implied. The reference gilts used were the Treasury 0.899% 2028 Gilt
(Tranche A) and Treasury 1.141% 2033 Gilt (Tranche B), with an implied
margin that is unchanged since the date of fixing.
The loans are considered to be a Level 2 fair value measurement.
RCF
The RCF was fully refinanced on the 2
6 August 2021 and as a result,
was novated from TP REIT Propco 2 Limited to TP REIT Propco 5
Limited. This was not considered to be a substantial modification
under IFRS 9 in the Group accounts, as there is no change to the
borrower at Group level. Otherwise, the terms remain unchanged and
at 31 December 2021 the facility remained undrawn. The originally
agreed four-year term was previously extended in 2020 by one further
year expiring on 20 December 2023. This may be extended by a
further year, to 20 December 2024 (subject to the consent of the
lenders). Originally, the interest rate for drawn amounts was 1.85% per
annum over three-month LIBOR. Under the amended and restated
facility agreement in place pre the refinance, the Group negotiated
and agreed provisions setting pre-agreed terms for the transition of
LIBOR to the new benchmark rate SONIA from the 1 July 2021. For
undrawn loan amounts the Company pays a commitment fee in the
amount of 40% of the margin.
When fully drawn, the RCF will represent
a loan-to-value of 40% secured against a defined portfolio of the
Group’s specialist supported housing assets located throughout the
UK and held in a wholly-owned Group subsidiary. For the RCF there is
considered no other difference between fair value and carrying value.
The Group has met all compliance with its financial covenants on the
above loans throughout the year.
Undrawn committed bank
facilities – maturity profile
Total
£’000
< 1 year
£’000
1 to 2
years
£’000
3 to 5
years
£’000
> 5
years
£’000
At 31 December 2021
160,000
– 160,000
–
–
At 31 December 2020
30,000
–
–
30,000
–
21.
NOTES SUPPORTING STATEMENT OF CASH FLOWS
Reconciliation of liabilities to cash ows from financing activities:
Bank
borrowings
£’000
(note 20)
Head lease
£’000
(note 18,19)
Total
£’000
At 1 January 2021
194,927
1,456
196,383
Cash ows:
Bank borrowings drawn
195,000
–
195,000
Bank borrowings repaid
(130,000)
–
(130,000)
Repayment of principal on head
lease liabilities
–
(39)
(39)
Loan arrangement fees paid
(2,728)
–
(2,728)
Non-cash ows:
– Amortisation of loan
arrangement fees
1,278
–
1,278
– Loan arrangement fees paid
in advance recognised in
prepayments
225
–
225
– Head lease additions
–
2
2
– Accrued interest on head
lease liabilities
–
44
44
At 31 December 2021
258,702
1,463
260,165
Bank
borrowings
£’000
(note 20)
Head lease
£’000
(note 18,19)
Total
£’000
At 1 January 2020
164,955
1,453
166,408
Cash ows:
Bank borrowings drawn
29,408
–
29,408
Repayment of principal on head
lease liabilities
–
(39)
(39)
Loan arrangement fees paid
(1,101)
–
(1,101)
Non-cash ows:
– Amortisation of loan
arrangement fees
1,163
–
1,163
– Loan arrangement fees paid
in advance recognised in
prepayments
502
–
502
– Head lease additions
–
–
–
– Accrued interest on head
lease liabilities
–
42
42
At 31 December 2020
194,927
1,456
196,383
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22.
SHARE CAPITAL
Issued and
fully paid
Issued and
fully paid
Number
£’000
At 1 January 2021
403,239,002
4,033
At 31 December 2021
403,239,002
4,033
Issued and
fully paid
Issued and
fully paid
Number
£’000
At 1 January 2020
351,352,210
3,514
Issued on public offer on
21 October 2020
51,886,792
519
At 31 December 2020
403,239,002
4,033
The Company achieved admission to the specialist fund segment of
the main market of the London Stock Exchange on 8 August 2017,
raising £200 million. As a result of the IPO, at 8 August 2017,
200,000,000 shares at one pence each were issued and fully paid. The
Company was admitted to the premium segment of the Official List of
the Financial Conduct Authority and migrated to trading on the
premium segment of the Main Market on 27 March 2018.
Following a fourth public offer on 21 October 2020, a further
51,886,792 Ordinary Shares of one pence each were issued and
fully paid.
Rights, preferences and restrictions on shares: All Ordinary Shares
carry equal rights, and no privileges are attached to any shares in the
Company. All the shares are freely transferable, except as otherwise
provided by law. The holders of Ordinary Shares are entitled to receive
dividends as declared from time to time and are entitled to one vote
per share at meetings of the Company. All shares rank equally with
regard to the Company’s residual assets.
The table above includes 450,000 treasury shares (note 24). Treasury
shares do not hold any voting rights.
23.
SHARE PREMIUM RESERVE
The share premium relates to amounts subscribed for share capital in
excess of nominal value.
31 December
2021
£’000
31 December
2020
£’000
Balance at beginning of year
203,776
151,157
Share premium arising on Ordinary
Shares issue
–
54,481
Share issue costs capitalised
(23)
(1,862)
Balance at end of year
203,753
203,776
24. TREASURY SHARES RESERVE
31 December
2021
£’000
31 December
2020
£’000
Balance at beginning of year
(378)
(378)
Own shares repurchased
–
–
Balance at end of year
(378)
(378)
The treasury shares reserve relates to the value of shares purchased by
the Company in excess of nominal value. No treasury shares were
purchased during the current or prior year. During the year ended
31 December 2019, the Company purchased 450,000 of its own 1p
Ordinary Shares at a total gross cost of £377,706 (£374,668 cost of
shares and £3,038 associated costs). As at 31 December 2021 and
31 December 2020, 450,000 1p Ordinary Shares were held by
the Company.
25.
CAPITAL REDUCTION RESERVE
31 December
2021
£’000
31 December
2020
£’000
Balance at beginning of year
166,154
166,154
Dividends paid
(5,760)
–
Balance at end of year
160,394
166,154
The capital reduction reserve relates to the distributable reserve
established on cancellation of the share premium reserve. Dividends
have been distributed out of Retained Earnings and the Capital
Reduction Reserve in the year ended 31 December 2021.
26.
RETAINED EARNINGS
31 December
2021
£’000
31 December
2020
£’000
Balance at beginning of year
55,066
49,286
Total comprehensive income for the year
28,410
24,594
Dividends paid
(15,165)
(18,814)
Balance at end of year
68,311
55,066
FINANCIAL STATEMENTS
Notes to the Group Financial Statements
for the year ended 31 December 2021
134
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Governance
27.
DIVIDENDS
Year ended
31 December
2021
£’000
Year ended
31 December
2020
£’000
1.285p for the 3 months to 31 December
2019 paid on 27 March 2020
–
4,509
1.295p for the 3 months to 31 March
2020 paid on 26 June 2020
–
4,544
1.295p for the 3 months to 30 June 2020
paid on 25 September 2020
–
4,544
1.295p for the 3 months to
30 September 2020 paid on
18 December 2020
–
5,217
1.295p for the 3 months to 31 December
2020 paid on 26 March 2021
5,217
–
1.3p for the 3 months to 31 March 2021
paid on 25 June 2021
5,236
–
1.3p for the 3 months to 30 June 2021
paid on 30 September 2021
5,236
–
1.3p for the 3 months to 30 September
2021 paid on 17 December 2021
5,236
–
20,925
18,814
On 3 March 2022, the Company declared an interim dividend of
1.3 pence per Ordinary Share for the period 1 October 2021 to
31 December 2021. The total dividend of £5.2 million will be paid on
25 March 2022 to Ordinary shareholders on the register on 11 March
2022.
The Company intends to pay dividends to shareholders on a quarterly
basis and in accordance with the REIT regime.
Dividends are not payable in respect of its Treasury shares held.
28.
LEASES
A. Leases as lessee
The following table sets out a maturity analysis of lease payments,
showing the undiscounted lease payments to be paid after the
reporting date:
< 1 year
£’000
2-5 years
£’000
> 5 years
£’000
Total
£’000
Lease payables
31 December 2021
40
159
13,126
13,325
31 December 2020
40
158
14,366
14,565
31 December
2021
£’000
31 December
2020
£’000
Current liabilities (note 18)
40
39
Non-current liabilities (note 19)
1,423
1,417
Balance at end of year
1,463
1,456
The above is in respect of properties held by the Group under
leasehold. There are 24 properties (2020: 21) held under leasehold
with lease ranges from 125 years to 999 years.
The Group’s leasing arrangements with lessors are headlease
arrangements on land and buildings that have been sub-let under the
Group’s normal leasing arrangements (see above) to tenants. The
Group carries its interest in these headlease arrangements as long
leasehold investment property (note 14).
B. Leases as lessor
The Group leases out its investment properties (see note 14).
The future minimum lease payments receivable by the Group under
non-cancellable operating leases are as follows:
< 1 year
£’000
2-5 years
£’000
> 5 years
£’000
Total
£’000
Lease receivables
31 December 2021
35,771
143,199
461,561
640,531
31 December 2020
31,585
126,471
419,850
577,906
Prior year restatement
In the prior year the Group incorrectly calculated the future minimum
lease receipts on the assumption that any put and call options have
been extended rather than the “expected lease” term (see note 3.4)
being the period to the first break clause, or to the point where the put
or call options become exercisable. The prior year disclosure has
therefore been restated to reect the future minimum lease payments
receivable by the Group under non-cancellable operating leases using
the correct lease term.
The restatement has reduced the total amount
receivable by £246m. This has affected this disclosure only and does
not change any of the figures reported in the primary statements.
Leases are direct-let agreements with Registered Providers for a term
of at least 15 years and usually between 20 to 25 years with rent linked
to CPI or RPI. All leases are full repairing and insuring (FRI) leases, the
tenants are therefore obliged to repair, maintain and renew the
properties back to the original conditions.
135
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The following table gives details of the percentage of annual rental
income per Registered Provider with more than a 10% share:
Registered Provider
31 December
2021
% of total
annual rent
31 December
2020
% of total
annual rent
Inclusion Housing CIC
30
31
Falcon Housing Association CIC
10
11
Parasol Homes (previously 28A
Supported Living)
10
11
Other disclosures about leases are provided in notes 5, 14, 17, 20 and
32.
29.
CONTROLLING PARTIES
As at 31 December 2021 there is no ultimate controlling party of
the Company.
30.
SEGMENTAL INFORMATION
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 delegated to the
Delegated Investment Adviser TPIM).
The internal financial reports received by TPIM contain financial
information at a Group level as a whole and there are no reconciling
items between the results contained in these reports and the amounts
reported in the financial statements.
The Group’s property portfolio comprised 488 (2020: 445) Social
Housing properties as at 31 December 2021 in England, Wales and
Scotland. The Directors consider that these properties represent a
coherent and diversified portfolio with similar economic characteristics
and, as a result, these individual properties have been aggregated into
a single operating segment. In the view of the Directors there is
accordingly one reportable segment under the provisions of IFRS 8. All
of the Group’s properties are engaged in a single segment business
with all revenue, assets and liabilities arising in the UK, therefore, no
geographical segmental analysis is required by IFRS 8.
31.
RELATED PARTY DISCLOSURE
Directors are remunerated for their services at such rate as the Directors
shall from time to time determine. The Chair receives a Director’s fee
of £75,000 per annum (2020: £75,000), and the other directors of the
Board receive a fee of £50,000 per annum (2020: £50,000). The
Directors are also entitled to an additional fee of £7,500 in connection
with the production of every prospectus by the Company (including
the Issue). This was received by the Directors in 2020 but not in the
current year as no prospectus was produced.
Dividends of the following amounts were paid to the Directors during
the year:
Chris Phillips: £2,850 (2020: £2,836)
Peter Coward: £4,031 (2020: £3,938)
Paul Oliver: £4,050 (2020: £4,031)
Tracey Fletcher-Ray: £1,960 (2020: £489)
No shares were held by Ian Reeves as at 31 December 2021 (31
December 2020: nil).
32.
CONSOLIDATED ENTITIES
The Group consists of a Parent Company, Triple Point Social Housing
REIT PLC, incorporated in the UK and a number of subsidiaries held
directly by the Company, which operate and are incorporated in the
UK and Guernsey. The principal place of business of each subsidiary is
the same as their place of incorporation.
The Group owns 100% of the equity shares of all subsidiaries listed
below and has the power to appoint and remove the majority of the
Board of those subsidiaries. The relevant activities of the below
subsidiaries are determined by the Board based on simple majority
votes. Therefore, the Directors of the Company concluded that the
Company has control over all these entities and all these entities have
been consolidated within the financial statements. The principal
activity of all the subsidiaries relates to property investment.
FINANCIAL STATEMENTS
Notes to the Group Financial Statements
for the year ended 31 December 2021
136
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The subsidiaries listed below were held as at 31 December 2021:
Name of Entity
Registered Office
Country of
Incorporation
Ownership %
TP REIT Super HoldCo Limited*
1 King William Street, London, EC4N 7AF
UK
100%
TP REIT HoldCo 1 Limited
1 King William Street, London, EC4N 7AF
UK
100%
TP REIT HoldCo 2 Limited
1 King William Street, London, EC4N 7AF
UK
100%
TP REIT HoldCo 3 Limited
1 King William Street, London, EC4N 7AF
UK
100%
TP REIT HoldCo 4 Limited
1 King William Street, London, EC4N 7AF
UK
100%
TP REIT HoldCo 5 Limited
1 King William Street, London, EC4N 7AF
UK
100%
TP REIT PropCo 2 Limited
1 King William Street, London, EC4N 7AF
UK
100%
TP REIT PropCo 3 Limited
1 King William Street, London, EC4N 7AF
UK
100%
TP REIT PropCo 4 Limited
1 King William Street, London, EC4N 7AF
UK
100%
TP REIT PropCo 5 Limited
1 King William Street, London, EC4N 7AF
UK
100%
Norland Estates Limited
1 King William Street, London, EC4N 7AF
UK
100%
Grolar Developments SPV 6 Limited
1 King William Street, London, EC4N 7AF
UK
100%
Parklands 1 Ltd
1 King William Street, London, EC4N 7AF
UK
100%
Kirkdale House 1 Limited
1 King William Street, London, EC4N 7AF
UK
100%
Connaught1 Ltd
1 King William Street, London, EC4N 7AF
UK
100%
Earlsway (Macclesfield) Limited
1 King William Street, London, EC4N 7AF
UK
100%
Creed Housing SPV 5 Limited
1 King William Street, London, EC4N 7AF
UK
100%
Grolar Developments SPV 10 Limited
1 King William Street, London, EC4N 7AF
UK
100%
Applewood 1 Ltd
1 King William Street, London, EC4N 7AF
UK
100%
SL Stoke Ltd
1 King William Street, London, EC4N 7AF
UK
100%
Rowen 1 Ltd
1 King William Street, London, EC4N 7AF
UK
100%
Challenger Homes (Crewe) Limited
1 King William Street, London, EC4N 7AF
UK
100%
MSL (114) Ltd
1 King William Street, London, EC4N 7AF
UK
100%
*
indicates entity is a direct subsidiary of Triple Point Social Housing REIT plc.
The subsidiaries listed below were acquired in the year to 31 December 2021:
Name of Entity
Registered Office
Country of
Incorporation
Ownership %
Grolar Developments SPV 6 Limited
1 King William Street, London, EC4N 7AF
UK
100%
Kirkdale House 1 Limited
1 King William Street, London, EC4N 7AF
UK
100%
Creed Housing SPV 5 Limited
1 King William Street, London, EC4N 7AF
UK
100%
Parklands 1 Ltd
1 King William Street, London, EC4N 7AF
UK
100%
Earlsway (Macclesfield) Limited
1 King William Street, London, EC4N 7AF
UK
100%
Grolar Developments SPV 10 Limited
1 King William Street, London, EC4N 7AF
UK
100%
Connaught1 Ltd
1 King William Street, London, EC4N 7AF
UK
100%
Applewood 1 Ltd
1 King William Street, London, EC4N 7AF
UK
100%
SL Stoke Ltd
1 King William Street, London, EC4N 7AF
UK
100%
Challenger Homes (Crewe) Limited
1 King William Street, London, EC4N 7AF
UK
100%
Rowen 1 Ltd
1 King William Street, London, EC4N 7AF
UK
100%
MSL (114) Ltd
1 King William Street, London, EC4N 7AF
UK
100%
The subsidiaries listed below have been struck off since 31 December 2021:
Name of Entity
Registered Office
Country of
Incorporation
Ownership %
Creed Housing SPV 5 Limited
1 King William Street, London, EC4N 7AF
UK
100%
Kirkdale House 1 Limited
1 King William Street, London, EC4N 7AF
UK
100%
Applewood 1 Ltd
1 King William Street, London, EC4N 7AF
UK
100%
Parklands 1 Ltd
1 King William Street, London, EC4N 7AF
UK
100%
Grolar Developments SPV 10 Limited
1 King William Street, London, EC4N 7AF
UK
100%
Grolar Developments 6 Limited
1 King William Street, London, EC4N 7AF
UK
100%
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Governance
33.
FINANCIAL RISK MANAGEMENT
The Group is exposed to market risk, interest rate risk, credit risk and
liquidity risk in the current and future periods. The Board oversees the
management of these risks. The Board’s policies for managing each of
these risks are summarised below.
33.1. Market risk
The Group’s activities will expose it primarily to the market risks
associated with changes in property values.
Risk relating to investment in property
Investment in property is subject to varying degrees of risk. Some
factors that affect the value of the investment in property include:
•
changes in the general economic climate;
•
competition for available properties;
•
obsolescence; and
•
Government regulations, including planning, environmental and
tax laws.
Variations in the above factors can affect the valuation of assets held by
the Group and as a result can inuence the financial performance of
the Group.
The factors mentioned above have not had a material impact on the
valuations of the investment properties as at 31 December 2021, and
are not expected to in the immediate future, but will continue to be
monitored closely.
Please refer to the Sustainability Report on pages
54 to 56
for further
information on Environmental Policy which may affect the investment
property valuations going forward. There was no impact on the
valuations in the year ended 31 December 2021 from climate change
factors, given that there is little measurable impact on inputs at
present.
33.2. Interest rate risk
Interest rate risk is the risk that the fair value or future cash ows of a
financial instrument will uctuate because of changes in market
interest rates.
The Revolving Credit Facility with Lloyds Bank was undrawn at
31 December 2021. It has been secured on a oating rate basis whereby
the Group pays a margin of 1.85% per annum above 3-month LIBOR for
drawn loan amounts throughout the loan term. In the light of the ceasing
of LIBOR as a benchmark rate, the Group has negotiated and agreed
provisions within the terms of the increase and extension of the RCF
setting pre-agreed terms for the transition of LIBOR to the new benchmark
rate SONIA. The date for the transition from LIBOR to SONIA was 1 July
2021.
The director’s decision was not to put hedging arrangements in place
from the date of signing the initial agreement, as up until the most recent
Amended and Restated Agreement signed on 14 December 2020 under
the terms of the Revolving Credit Facility, the Group has had full exibility,
and at its sole discretion, to put hedging arrangements in place at any
time during the loan term.
In the Amended and Restated Agreement signed on 26 August 2021, a
Hedging Trigger Event remains in place which means a hedging
agreement will be required to be entered into if the Projected Interest
Cover falls below 400% on any date after the first utilisation date.
Throughout the loan term the Group has closely monitored changes in
interest rates to determine if it is necessary to implement hedging. The
liquidity table in 33.4 below outlines the bank borrowings and interest
payable on bank borrowings with a oating interest rate.
All debt drawn at 31 December 2021 does not have any exposure to
interest rate risk.
33.3. Credit risk
Credit risk is the risk that a counterparty will not meet its obligations
under a financial instrument or customer contract, leading to a financial
loss. The Group is exposed to credit risks from both its leasing activities
and financing activities, including deposits with banks and other
institutions as detailed in notes 16 and 19.
Credit risk related to financial instruments and cash deposits
One of the principal credit risks facing the Group arises with the funds it
holds with banks and other institutions. The Board believes that the
credit risk on short-term deposits and current account cash balances is
limited because the counterparties are banks and institutions with high
credit ratings.
In August this year, Fitch has assigned the Company an Investment
Grade Long-Term Issuer Default Rating of
‘A-’ with a stable outlook, and
a senior secured rating of ‘A’ for the Group’s new Loan Notes.
Credit risk related to leasing activities
In respect of property investments, in the event of a default by a
tenant, the Group will suffer a rental shortfall and additional costs
concerning re-letting the property to another Social Housing
Registered Provider. Credit risk is primarily managed by testing the
strength of covenant of a tenant prior to acquisition and on an ongoing
basis. The Investment Manager also monitors the rent collection in
order to anticipate and minimise the impact of defaults by occupational
tenants. Outstanding rent receivables are regularly monitored. The
maximum exposure to credit risk at the reporting date is the carrying
value of each class of financial asset.
The Group has leases in place with five Registered Providers that have
been deemed non-compliant by the Regulator of Social Housing
(RSH). We continue to conduct ongoing due diligence on all Registered
Providers and all rents payable under these leases have been paid. The
Group’s valuer has confirmed that there is no impact on the value of
FINANCIAL STATEMENTS
Notes to the Group Financial Statements
for the year ended 31 December 2021
138
Triple Point Social Housing REIT plc
Company Overview
Strategic Report
Financial Statements
Other Information
Governance
the Group’s assets as a result of the non-compliant rating. We continue
to monitor and maintain a dialogue with the Registered Providers as
they work with advisers and the Regulator to implement a financial and
governance improvement action plan in order to address the
Regulator’s concerns and obtain a compliant rating. The Board believes
that the credit risk associated with the non-compliant rating is limited
and all rents are received by the Registered Provider from local and
central government.
The effects of Covid-19 on credit risk have been and continue to be
assessed but substantially all (99.82%) rents due at 31 December 2021
have been collected, and no material expected credit losses have
been identified.
33.4. Liquidity risk
The Group manages its liquidity and funding risks by considering cash
ow forecasts and ensuring sufficient cash balances are held within the
Group to meet future needs. Prudent liquidity risk management
implies maintaining sufficient cash and marketable securities, the
availability of financing through appropriate and adequate credit lines,
and the ability of customers to settle obligations within normal terms
of credit. The Group ensures, through forecasting of capital
requirements, that adequate cash is available to fund the Group’s
operating activities on a weekly basis. Upcoming cash requirements
are compared to existing cash reserves available, followed by
discussions around optimal cash management opportunities in order
to best manage liquidity risk.
The following table details the Group’s liquidity analysis:
31 December 2021
£’000
< 3
months
£’000
3-12
months
£’000
1-5
years
£’000
> 5
years
£’000
Headleases (note 28)
13,325
10
30
159
13,126
Trade and other
payables
Bank and other
borrowings (note 20):
– Fixed interest rate
263,500
–
–
– 263,500
– Variable interest rate
–
–
–
–
–
Interest payable on
bank and other
borrowings:
– Fixed interest rate
83,827
1,804
5,413
28,869
47,741
– Variable interest rate
–
–
–
–
–
360,652
1,814
5,443
29,028 324,367
31 December 2020
£’000
< 3
months
£’000
3-12
months
£’000
1-5
years
£’000
> 5
years
£’000
Headleases (note 28)
14,565
10
30
159
14,366
Trade and other
payables
4,908
4,717
191
–
–
Bank and other
borrowings (note 20):
– Fixed interest rate
68,500
–
–
–
68,500
– Variable interest rate
130,000
–
–
130,000
–
Interest payable on
bank and other
borrowings:
– Fixed interest rate
19,951
520
1,561
8,326
9,544
– Variable interest rate
9,863
720
1,829
7,314
–
247,787
5,967
3,611 145,799
92,410
33.5. Financial instruments
The Group’s principal financial assets and liabilities, which are all held
at amortised cost, are those that arise directly from its operation: trade
and other receivables, trade and other payables, headleases,
borrowings and cash held at bank.
Set out below is a comparison by class of the carrying amounts and fair
value of the Group’s financial instruments that are included in the
financial statements:
Book value
31 December
2021
£’000
Fair value
31 December
2021
£’000
Book value
31 December
2020
£’000
Fair value
31 December
2020
£’000
Financial assets:
Trade and other
receivables
4,739
4,739
3,368
3,368
Cash, cash
equivalents and
restricted cash
52,470
52,470
53,701
53,701
Financial liabilities:
Trade and other
payables
3,606
3,606
4,930
4,930
Borrowings
258,702
260,761
194,927
205,272
34.
POST BALANCE SHEET EVENTS
Property acquisitions
Since 31 December 2021, the Group has acquired eight properties,
deploying £10.0 million (including acquisition costs).
Borrowings
On 21 February, the £160 million RCF with Lloyds was reduced to £50 million,
and remains undrawn at date of signing.
139
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35. CAPITAL COMMITMENTS
The Group had capital commitments of £4.2 million (2020: £2.8 million) in
relation to the assets exchanged but not completed at 31 December 2021.
36.
EARNINGS PER SHARE
Earnings per share (“EPS”) amounts are calculated by dividing profit for
the period attributable to ordinary equity holders of the Company by the
weighted average number of Ordinary Shares in issue during the period.
As there are no dilutive instruments outstanding, both basic and diluted
earnings per share are the same.
The calculation of basic and diluted earnings per share is based on
the following:
Year ended
31 December
2021
Year ended
31 December
2020
Calculation of Basic Earnings per share
Net profit attributable to Ordinary
Shareholders (£’000)
28,410
24,594
Weighted average number of Ordinary
Shares (excluding treasury shares)
402,789,002
360,853,102
IFRS Earnings per share – basic and diluted
7.05p
6.82p
Calculation of EPRA Earnings per share
Net profit attributable to Ordinary
Shareholders (£’000)
28,410
24,594
Changes in fair value of investment property
(£’000)
(8,998)
(7,957)
EPRA earnings (£’000)
19,412
16,637
Non cash adjustments to include:
Interest capitalised on forward funded
developments
–
(128)
Amortisation of loan arrangement fees
1,279
1,163
Adjusted earnings (£’000)
20,691
17,672
Weighted average number of Ordinary
Shares (excluding treasury shares)
402,789,002
360,853,102
EPRA earnings per share – basic and
diluted
4.82p
4.61p
Adjusted EPRA earnings per share –
basic and diluted
5.14p
4.90p
Adjusted earnings is a performance measure used by the Board to assess
the Group’s dividend payments. The metric adjusts EPRA earnings for
interest paid to service debt that was capitalised, and the amortisation of
loan arrangement fees. The Board sees these adjustments as a reection
of actual cash
ows which are supportive of dividend payments. The
Board compares the Adjusted earnings to the available distributable
reserves when considering the level of dividend to pay.
37.
NET ASSET VALUE PER SHARE
Basic Net Asset Value (“NAV”) per share is calculated by dividing net assets
in the Group Statement of Financial Position attributable to Ordinary
Shareholders of the parent by the number of Ordinary Shares outstanding
at the end of the period. Although there are no dilutive instruments
outstanding, both basic and diluted NAV per share are disclosed below.
Net asset values have been calculated as follows:
31 December
2021
£’000
31 December
2020
£’000
Net assets at end of the year
436,113
428,651
Shares in issue at end of the year
(excluding treasury shares)
402,789,002
402,789,002
Dilutive shares in issue
–
–
IFRS NAV per share – basic and dilutive
108.27p
106.42p
38.
CAPITAL MANAGEMENT
The Group’s objectives when managing capital are to safeguard the
Group’s ability to continue as a going concern in order to provide returns
for shareholders and to maintain an optimal capital structure to minimise
the cost of capital.
The Group considers proceeds from share issuance, bank and other
borrowings and retained earnings as capital.
Until the Group is fully invested and pending re-investment or distribution
of cash receipts, the Group will invest in cash equivalents, near cash
instruments and money market instruments.
The level of borrowing will be on a prudent basis for the asset class and will
seek to achieve a low cost of funds, whilst maintaining the exibility in the
underlying security requirements and the structure of both the investment
property portfolio and the Group.
The Directors currently intend that the Group should target a level of
aggregate borrowings over the medium term equal to approximately 40%
of the Group’s Gross Asset Value. The aggregate borrowings will always
be subject to an absolute maximum, calculated at the time of drawdown,
of 50% of the Gross Asset Value.
The initial fixed rate facility with
MetLife Investment Management
requires an asset cover ratio of x2.00 (amended from previous covenant
of x2.25 in August 2021 to bring more in line with the ACR covenant in
the new Note Purchase Agreement with MetLife Investment Management
and Barings) and an interest cover ratio of x1.75. At 31 December 2021,
the Group was fully compliant with both covenants with an asset cover
ratio of x2.75 (2020: x2.69) and an interest cover ratio of x4.90 (2020:
x4.89).
The subsequent facility with MetLife Investment Management and Barings
requires an asset cover ratio of x1.67 and an interest cover ratio of x1.75. At
31 December 2021, the Group was fully compliant with both covenants
with an asset cover ratio of x2.01 and an interest cover ratio of x4.39.
The RCF requires the Group to maintain a loan-to-value of less than 50%,
and an interest cover ratio in excess of x2.75 when drawn. At 31 December
2021, the RCF was undrawn.
FINANCIAL STATEMENTS
Company Statement of Financial Position
as at 31 December 2021
Triple Point Social Housing REIT plc
140
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Governance
31 December 2021
31 December 2020
Note
£’000
£’000
Assets
Non-current assets
Investment in subsidiaries
4
382,318
366,641
Total non-current assets
382,318
366,641
Current assets
Trade and other receivables
5
3,700
1,533
Cash, cash equivalents and restricted cash
6
12,561
29,409
Total current assets
16,261
30,942
Total assets
398,579
397,583
Liabilities
Current liabilities
Trade and other payables
7
1,831
2,350
Total current liabilities
1,831
2,350
Total liabilities
1,831
2,350
Total net assets
396,748
395,233
Equity
Share capital
8
4,033
4,033
Share premium reserve
9
203,753
203,776
Treasury shares reserve
10
(378)
(378)
Capital reduction reserve
11
160,394
166,154
Retained earnings
13
28,946
21,648
Total Equity
396,748
395,233
Net asset value per share – basic and diluted
14
98.50p
98.12p
The Company has taken advantage of the exemption allowed under Section 408 of the Companies Act 2006 and has not presented its own
Statement of Comprehensive Income in these financial statements. The profit of the Company for the year was £22,463,000 (2020: £21,645,000).
The Company Financial Statements were approved and authorised for issue by the Board on 24 March 2022 and signed on its behalf by:
Chris Phillips
Chair
24 March 2022
The accompanying notes on pages
142 to 145
form an integral part of these Company Financial Statements.
Company Registration Number: 10814022
2021 Annual Report
141
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Financial Statements
Other Information
Governance
FINANCIAL STATEMENTS
Company Statement of Changes in Equity
for the year ended 31 December 2021
Share
capital
£’000
Share
premium
reserve
£’000
Treasury
shares
reserve
£’000
Capital
reduction
reserve
£’000
Retained
earnings
£’000
Total
equity
£’000
Note
Balance at 1 January 2021
4,033
203,776
(378)
166,154
21,648
395,233
Total comprehensive income for the year
–
–
–
–
22,463
22,463
Transaction with Owners
Dividends paid
12
–
–
–
(5,760)
(15,165)
(20,925)
Issue costs capitalised
9
–
(23)
–
–
–
(23)
Balance at 31 December 2021
4,033
203,753
(378)
160,394
28,946
396,748
Share
capital
£’000
Share
premium
reserve
£’000
Treasury
shares
reserve
£’000
Capital
reduction
reserve
£’000
Retained
earnings
£’000
Total
equity
£’000
Note
Balance at 1 January 2020
3,514
151,157
(378)
166,154
18,817
339,264
Total comprehensive income for the year
–
–
–
–
21,645
21,645
Transaction with Owners
Ordinary Share capital issued in the year at a premium
8,9
519
54,481
–
–
–
55,000
Issue costs capitalised
9
–
(1,862)
–
–
–
(1,862)
Dividends paid
12
–
–
–
–
(18,814)
(18,814)
Balance at 31 December 2020
4,033
203,776
(378)
166,154
21,648
395,233
The accompanying notes on pages
142 to 145
form an integral part of these Company Financial Statements.
FINANCIAL STATEMENTS
Notes to the Company Accounts
for the year ended 31 December 2021
Triple Point Social Housing REIT plc
142
Company Overview
Strategic Report
Financial Statements
Other Information
Governance
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”) and in accordance with
the Companies Act 2006.
1.1. 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 disclosures regarding the Company’s capital;
•
a statement of cash ows;
•
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 the Group.
In addition, and in accordance with FRS 101 further disclosure
exemptions have been adopted because equivalent disclosures are
included in the Group 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.
The principal accounting policies applied in the preparation of the
financial statements are set out below.
2. PRINCIPAL ACCOUNTING POLICIES
2.1. Currency
The Company financial information is presented in Sterling which is
also the Company’s functional currency.
2.2. Investment in subsidiaries
Investment in subsidiaries is included in the Company’s Statement of
Financial Position at cost less provision for impairment. Investments
are subject to impairment tests whenever events or changes in
circumstances indicate that their carrying amount may not be
recoverable. Where the carrying value of an asset exceeds its
recoverable amount, the asset is written down accordingly. Impairment
charges are included in profit or loss, except to the extent they reverse
gains previously recognised in other comprehensive income. Where
assets have been transferred within the Group, a capital reduction in
the originating Company is performed, and a dividend is declared to
Triple Point Social Housing REIT PLC. This results in an impairment to
investments in subsidiaries.
2.3. Trade and other receivables
Trade and other receivables are amounts due in the ordinary course of
business. If collection is expected in one year or less, they are classified
as current assets.
Rent receivables are initially recognised at fair value plus transaction
costs and are subsequently carried at amortised cost, less provision for
impairment.
Impairment provisions for amounts due from subsidiaries are
recognised based on a forward-looking expected credit loss model
using the general approach. The methodology used to determine the
amount of the provision is based on whether there has been a
significant increase in credit risk since initial recognition of the financial
asset. For those where the credit risk has not increased significantly
since initial recognition of the financial asset, twelve month expected
credit losses along with gross interest income are recognised. For
those for which credit risk has increased significantly, lifetime expected
credit losses along with the gross interest income are recognised. For
those that are determined to be credit impaired, lifetime expected
credit losses along with interest income on a net basis are recognised.
2.4. Cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash include cash in hand, cash
held by lawyers and liquidity funds with a term of no more than three
months that are readily convertible to known amounts of cash and
which are subject to an insignificant risk of changes in value.
Cash held by lawyers is money held in escrow for expenses expected
to be incurred in relation to investment properties pending completion.
These funds are available immediately on demand.
Restricted Cash represents monies held in escrow in relation to the on-
boarding of the lease transfer.
2.5. Trade and other payables
Trade and other payables are classified as current liabilities if payment
is due within one year or less from the end of the current accounting
period. If not, they are presented as non-current liabilities. Trade and
other payables are recognised initially at their fair value and
subsequently measured at amortised cost using the effective interest
method until settled.
2.6. Dividend payable to shareholders
Dividends to the Company’s shareholders are recognised as a liability in
the Company’s financial statements in the period in which the dividends
are approved. In the UK, interim dividends are recognised when paid.
2021 Annual Report
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Financial Statements
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2.7. Finance income and finance costs
Finance income is recognised as interest accrues on cash balances held
by the Company. Finance costs consist of interest and other costs that
the Company incurs in connection with bank and other borrowings.
These costs are expensed in the period in which they occur.
2.8. Expenses
All expenses are recognised in the Statement of Comprehensive
Income on an accruals basis.
2.9. Investment management fees
Investment advisory fees are recognised in the Statement of
Comprehensive Income on an accruals basis.
2.10. Share issue costs
The costs of issuing or reacquiring equity instruments (other than in a
business combination) are accounted for as a deduction from equity.
2.11. Treasury shares
Consideration paid or received for the purchase or sale of treasury
shares is recognised directly in equity. The cost of treasury shares held
is presented as a separate reserve (the “treasury share reserve”). Any
excess of the consideration received on the sale of treasury shares over
the weighted average cost of the shares sold is credited to retained
earnings.
3.
SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES
AND ASSUMPTIONS
The preparation of the Company’s Financial Statements requires the
Directors to make judgements, estimates and assumptions that affect
the reported amounts of revenues, expenses, assets and liabilities and
the disclosure of contingent liabilities at the reporting date. 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 affected in future periods. The estimate and
associated assumptions that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within the
next financial year is as follows:
Investments (note 4)
Investments held as fixed assets are stated at cost less any provision
for impairment. The Directors assess the recoverability of investments
made and economic benefit of the investments based on market
conditions, economic forecasts and cash ow estimates.
4.
INVESTMENT IN SUBSIDIARIES
31 December
2021
31 December
2020
£’000
£’000
Balance at beginning of year
366,641
286,164
Acquisitions
86,851
94,500
Impairments
(71,174)
(14,023)
Balance at end of year
382,318
366,641
Investment in subsidiaries are included in the Company’s Statement of
Financial Position at cost less provision for impairment.
The impairment represents a write down in the value of the Company’s
subsidiaries after a corporate restructure. The subsidiaries that formed
part of the corporate restructure paid a dividend to the Company
representing their full value less £1 which remained as equity. The
subsidiaries have since been struck off or are in the process of being
struck off. A list of the Company’s subsidiary undertakings as at
31 December 2021 is included in note 32 of the Group Financial
Statements.
5.
TRADE AND OTHER RECEIVABLES
31 December
2021
31 December
2020
£’000
£’000
Amounts due from subsidiaries
3,561
1,433
Prepayments
125
85
Other receivables
14
15
3,700
1,533
Included in Prepayments are prepaid acquisition costs which include
the cost of acquiring assets not completed at the year end.
The Directors consider that the carrying value of trade and other
receivables approximate their fair value. All amounts are due to be
received within one year from the reporting date.
The Group applies the general approach to providing for expected
credit losses under IFRS 9 for other receivables and amounts due from
subsidiaries. Both the expected credit loss and the incurred loss
provision in the current and prior year are immaterial.
FINANCIAL STATEMENTS
Notes to the Company Accounts
for the year ended 31 December 2021
Triple Point Social Housing REIT plc
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6. CASH, CASH EQUIVALENTS AND RESTRICTED CASH
31 December
2021
31 December
2020
£’000
£’000
Cash held by lawyers
–
118
Restricted cash
564
601
Cash at Bank
11,997
28,690
12,561
29,409
Cash held by lawyers is money held in escrow for expenses expected
to be incurred in relation to investment properties pending completion.
These funds are available immediately on demand.
Restricted cash represents monies held in escrow in relation to the
transfer of leases during 2020.
7. TRADE AND OTHER PAYABLES
Current Liabilities
31 December
2021
31 December
2020
£’000
£’000
Other creditors
20
428
Amounts due to subsidiaries
–
84
Accruals
1,763
1,759
Trade and other payables
48
79
1,831
2,350
The Directors consider that the carrying value of trade and other
payables approximate their fair value. All amounts are due for payment
within one year from the reporting date.
8.
SHARE CAPITAL
Issued and
fully paid
Issued and
fully paid
Number
£’000
At 1 January 2021
403,239,002
4,033
At 31 December 2021
403,239,002
4,033
Issued and
fully paid
Issued and
fully paid
Number
£’000
At 1 January 2020
351,352,210
3,514
Issued on public offer on 21 October
2020
51,886,792
519
At 31 December 2020
403,239,002
4,033
The Company achieved admission to the specialist fund segment of
the main market of the London Stock Exchange on 8 August 2017,
raising £200 million. As a result of the IPO, at 8 August 2017,
200,000,000 shares at one pence per share have been issued and fully
paid. The Company was admitted to the premium segment of the
Official List of the Financial Conduct Authority and migrated to trading
on the premium segment of the Main Market on 27 March 2018.
Following a fourth public offer on 21 October 2020 the Company
issued 51,886,792 new Ordinary Shares of one pence each which were
fully paid.
The table above includes 450,000 treasury shares (note 10). Treasury
shares do not hold any voting rights.
9.
SHARE PREMIUM RESERVE
The share premium relates to amounts subscribed for share capital in
excess of nominal value.
31 December
2021
31 December
2020
£’000
£’000
Balance at beginning of year
203,776
151,157
Share premium arising on new Ordinary
Shares
–
54,481
Share issue costs capitalised
(23)
(1,862)
Balance at end of year
203,753
203,776
10. TREASURY SHARES RESERVE
31 December
2021
31 December
2020
£’000
£’000
Balance at beginning of year
(378)
(378)
Own shares repurchased
–
–
Balance at end of year
(378)
(378)
The treasury shares reserve relates to the value of shares purchased by
the Company in excess of nominal value. During the period ended
31 December 2020, the Company purchased 450,000 of its own 1p
Ordinary Shares at a total gross cost of £377,706 (£374,668 cost of
shares and £3,038 associated costs). As at 31 December 2021, 450,000
1p
Ordinary
Shares
are
held
by
the
Company
(31 December 2020:
450,000
).
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Governance
11. CAPITAL REDUCTION RESERVE
31 December
2021
31 December
2020
£’000
£’000
Balance at beginning of year
166,154
166,154
Dividends paid
(5,760)
–
Balance at end of year
160,394
166,154
The capital reduction reserve relates to the distributable reserve
established on cancellation of the share premium reserve. Dividends
have been distributed out of Retained Earnings and the Capital
Reduction Reserve in the year ended 31 December 2021.
During the Board meeting on 3 August 2017 a resolution was passed
authorising the cancellation of the share premium account. The
amount standing to the credit of the share premium account of the
Company following completion of the Issue (less any issue expenses
set off against the share premium reserve) was, as a result, credited as
a distributable reserve to be established in the Company’s books of
account which shall be capable of being applied in any manner in
which the Company’s profits available for distribution (as determined
in accordance with the CA 2006) are able to be applied.
In order to cancel the share premium reserve the Company needed to
obtain a court order, which was received on 15 November 2017. An
SH19 form was filed at Companies House with a copy of the court
order and the certificate of cancellation was issued by Companies
House on 15 November 2017.
12.
DIVIDENDS
Year ended
31 December
2021
Year ended
31 December
2020
£’000
£’000
1.285p for the 3 months to 31 December
2019 paid on 27 March 2020
–
4,509
1.295p for the 3 months to 31 March 2020
paid on 26 June 2020
–
4,544
1.295p for the 3 months to 30 June 2020
paid on 25 September 2020
–
4,544
1.295p for the 3 months to 30 September
2020 paid on 18 December 2020
–
5,217
1.295p for the 3 months to 31 December
2020 paid on 26 March 2021
5,217
–
1.3p for the 3 months to 31 March 2021
paid on 25 June 2021
5,236
–
1.3p for the 3 months to 30 June 2021 paid
on 30 September 2021
5,236
–
1.3p for the 3 months to 30 September
2021 paid on 17 December 2021
5,236
–
20,925
18,814
On 3 March 2022, the Company declared an interim dividend of 1.30
pence per Ordinary share for the period 1 October 2021 to 31 December
2021. The total dividend of £5.2 million will be paid on 25 March 2022
to Ordinary shareholders on the register on 11 March 2022.
The Company intends to pay dividends to shareholders on a quarterly
basis and in accordance with the REIT regime.
Dividends are not payable in respect of its treasury shares held.
13.
RETAINED EARNINGS
31 December
2021
31 December
2020
£’000
£’000
Balance at beginning of year
21,648
18,817
Total comprehensive profit for the year
22,463
21,645
Dividends paid
(15,165)
(18,814)
Balance at end of year
28,946
21,648
14.
NET ASSET VALUE PER SHARE
Net Asset Value per share is calculated by dividing net assets in the
Company Statement of Financial Position attributable to ordinary
equity holders of the parent by the number of Ordinary Shares
outstanding at the end of the year. Although there are no dilutive
instruments outstanding, both basic and diluted NAV per share are
disclosed below.
Net asset values have been calculated as follows:
31 December
2021
31 December
2020
£’000
£’000
Net assets at end of period
396,748
395,233
Shares in issue at end of period
(excluding treasury shares)
402,789,002
402,789,002
Dilutive shares in issue
–
–
Basic and dilutive per share
98.50p
98.12p
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 Financial
Statements are presented together with the Group Financial Statements.
Note 31 of the Notes to the Group Financial Statements includes
details of other related party transactions undertaken by the Company
and its subsidiaries.
16.
POST BALANCE SHEET EVENTS
There were no post balance sheet events subsequent to the end of the
period.
Other Information
Unaudited Performance Measures
for the year ended 31 December 2021
1.
PORTFOLIO NET ASSET VALUE
The objective of the Portfolio Net Asset Value “Portfolio NAV” measure
is to highlight the fair value of the net assets on an ongoing, long-term
basis, which aligns with the Group’s business strategy as an ongoing
REIT with a long-term investment outlook. This Portfolio NAV is made
available on a quarterly basis on the Company’s website and
announced via RNS.
In order to arrive at Portfolio NAV, two adjustments are made to the
IFRS Net Asset Value (“IFRS NAV”) reported in the consolidated
financial statements such that:
i.
The hypothetical sale of properties will take place on the basis of a
sale of a corporate vehicle rather than a sale of underlying property
assets. This assumption reects the basis upon which the Company’s
assets have been assembled within specific SPVs.
ii.
The hypothetical sale will take place in the form of a single portfolio
disposal.
31 December
2021
31 December
2020
£’000
£’000
Net asset value per the consolidated
financial statements
436,113
428,651
Value of Asset pools
436,113
428,651
Effects of the adoption to the assumed,
hypothetical sale of properties as a
portfolio and on the basis of sale of a
corporate vehicle
49,974
40,137
Portfolio Net Asset Value
486,087
468,788
After reecting these amendments, the movement in net assets is
as follows:
31 December
2021
31 December
2020
£’000
£’000
Opening reserves
468,788
401,898
Net issue proceeds
(23)
53,138
Operating profits
26,192
22,322
Capital appreciation
19,350
15,929
Loss on fair value adjustment on assets
held for sale
(515)
(64)
Finance income
44
102
Finance costs
(6,823)
(5,723)
Dividends paid
(20,925)
(18,814)
Portfolio Net Assets
486,088
468,788
Number of shares in issue at the year
end (excluding treasury shares)
402,789,002
402,789,002
Portfolio net asset value per share
120.68p
116.39p
2.
ADJUSTED EARNINGS PER SHARE – PORTFOLIO NAV
BASIS
Summary Consolidated Statement
of Comprehensive Income
31 December
2021
31 December
2020
£’000
£’000
Net rental income
33,117
28,393
Other income
–
535
Expenses
(6,926)
(6,606)
Fair value gains on investment property
58,973
48,094
Loss on fair value adjustment on assets
held for sale
(515)
(64)
Finance income
44
102
Finance costs
(6,823)
(5,723)
Value of each pool
77,870
64,731
Weighted average number of shares
(excluding treasury shares)
402,789,002
360,853,102
Adjusted earnings per share – basic
19.46p
17.94p
3. EPRA NET REINSTATEMENT VALUE
31 December
2021
31 December
2020
£’000
£’000
IFRS NAV/EPRA NAV (£’000)
436,113
428,651
Include:
Real Estate Transfer Tax* (£’000)
39,492
34,655
EPRA Net Reinstatement Value (£’000)
475,605
463,306
Fully diluted number of shares
402,789,002
402,789,002
EPRA Net Reinstatement value per
share
118.07p
115.02p
* Purchaser’s costs
4. EPRA NET DISPOSAL VALUE
31 December
2021
31 December
2020
£’000
£’000
IFRS NAV/EPRA NAV (£’000)
436,113
428,651
Include:
Fair value of debt* (£’000)
(2,059)
(7,750)
EPRA Net Disposal Value (£’000)
434,054
420,901
Fully diluted number of shares
402,789,002
402,789,002
EPRA Net Disposal Value**
107.76p
104.50p
* Difference between interest-bearing loans and borrowings included in balance
sheet at amortised cost, and the fair value of interest-bearing loans and
borrowings.
**Equal to the EPRA NNNAV disclosed in previous reporting periods.
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Unaudited Performance Measures
for the year ended 31 December 2021
5. EPRA NET TANGIBLE ASSETS
31 December
2021
31 December
2020
£’000
£’000
IFRS NAV/EPRA NAV (£’000)
436,113
428,651
EPRA Net Tangible Assets (£’000)
436,113
428,651
Fully diluted number of shares
402,789,002
402,789,002
EPRA Net Tangible Assets*
108.27p
106.42p
*Equal to IFRS NAV and previous EPRA NAV metric as none of the EPRA
Net Tangible Asset adjustments are applicable as at 31 December 2021 or
31 December 2020.
6.
EPRA NET INITIAL YIELD (NIY) AND EPRA
“TOPPED UP” NIY
31 December
2021
31 December
2020
£’000
£’000
Investment Property – wholly-owned
(excluding head lease ground rents)
639,831
570,644
Less: development properties
–
(6,506)
Completed property portfolio
639,831
564,138
Allowance for estimated purchasers’
costs
39,492
34,655
Gross up completed property portfolio
valuation
679,322
598,793
Annualised passing rental income
35,343
31,556
Property outgoings
–
–
Annualised net rents
35,343
31,556
Contractual increases for lease incentives
443
62
Topped up annualised net rents
35,785
31,618
EPRA NIY
5.20%
5.27%
EPRA Topped Up NIY
5.27%
5.28%
7. ONGOING CHARGES RATIO
31 December
2021
31 December
2020
£’000
£’000
Annualised ongoing charges
6,671
6,263
Average undiluted net assets
432,382
399,192
Ongoing charges
1.54%
1.57%
8. EPRA VACANCY RATE
31 December
2021
31 December
2020
£’000
£’000
Estimated Market Rental Value (ERV) of
vacant spaces
93
92
Estimated Market Rental Value (ERV) of
whole portfolio
35,785
31,618
EPRA Vacancy Rate
0.26%
0.29%
9. EPRA COST RATIO
31 December
2021
31 December
2020
£’000
£’000
Total administrative and operating costs
6,926
6,606
Gross rental income
33,117
28,393
EPRA cost ratio
20.91%
23.27%
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Glossary and
Definitions
“AIC Code”
AIC Code of Corporate Governance produced by the Association of Investment Companies;
“AIC Guide”
AIC Corporate Governance Guide for Investment Companies produced by the Association of
Investment Companies;
“AIFM”
the alternative investment fund manager of the Company being Triple Point Investment
Management LLP;
“AIFMD”
the EU Alternative Investment Fund Managers Directive 2011/61/EU;
“Approved Provider”
a housing association, Local Authority or other regulated organisation in receipt of direct
payment from local government including a care provider;
“Basic NAV”
the value, as at any date, of the assets of the Company aſter deduction of all liabilities
determined
in accordance with the accounting policies adopted by the Company from time to time;
“Board”
the Directors of the Company from time to time;
“Company”
Triple Point Social Housing REIT plc (company number 10814022);
“C Shares”
C non-voting preference shares of 1.25 pence each in the capital of the Company;
“DTR”
the Disclosure Guidance and Transparency Rules sourcebook containing the Disclosure
Guidance, Transparency Rules, corporate governance rules and the rules relating to primary
information providers;
“EPRA”
the European Public Real Estate Association;
“GAV”
the gross assets of the Company in accordance with applicable accounting rules from time to
time;
“Group”
the Company and any subsidiary undertakings from time to time;
“Investment Manager”
Triple Point Investment Management LLP (partnership number OC321250);
“IPO”
the admission by the Company of 200 million Ordinary Shares to trading on the Specialist
Fund Segment of the Main Market, which were the subject of the Company's initial public
offering on 8 August 2017;
“NAV”
the net assets of the Company in accordance with applicable accounting rules from time to
time;
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“NIY”
net initial yield, being the annual rent generated under a lease in respect of a property divided
by the combined total of that property’s acquisition price and acquisition costs;
“Ordinary Shares”
ordinary shares of £0.01 each in the capital of the Company;
“Registered Provider”
a housing association or Local Authority;
“REIT”
means a qualifying real estate investment trust in accordance with the UK REIT Regime
introduced by the UK Finance Act 2006 and subsequently re-written into Part 12 of the
Corporation Tax Act 2010;
“Supported Housing”
accommodation that is suitable, or adapted, for residents with special needs, which may
(but does not necessarily): (a) include some form of personal care provided by a supported
housing care provider; and/or (b) that enable those tenants to live independently in the
community;
“TPSHIL”
TP Social Housing Investments Limited (company number 11187363) the entire issued share
capital of which was acquired by the Company as part of a related party transaction detailed in
the Circular dated 22 June 2018;
“Total Return”
the percentage increase in net asset value plus dividends paid since IPO; and
“WAULT”
the weighted average unexpired lease term certain across the portfolio, weighted by
contracted rental income. We have included all parts of the term certain, including additional
leases which are triggered by landlords’ put options, but not those triggered by lessees’ call
options unless the options were mutual.
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Shareholder
Information
NON-EXECUTIVE DIRECTORS
REGISTERED OFFICE
Chris Phillips
Ian Reeves CBE
Peter Coward
Paul Oliver
Tracey Fletcher-Ray
1 King William Street
London
EC4N 7AF
ALTERNATIVE INVESTMENT FUND MANAGER
(“INVESTMENT MANAGER”)
JOINT FINANCIAL ADVISER
Akur Limited
66 St James’s Street
London
SW1A 1NE
Triple Point Investment Management LLP
1 King William Street
London
EC4N 7AF
JOINT FINANCIAL ADVISER AND CORPORATE
BROKER
LEGAL ADVISER
Taylor Wessing LLP
5 New Street Square
London
EC4A 3TW
Stifel Nicolaus Europe Limited
150 Cheapside
London
EC2V 6ET
TAX ADVISER
DEPOSITARY
Deloitte LLP
1 New Street Square
London
EC4A 3BZ
INDOS Financial Limited
54 Fenchurch Street
London
EC3M 3JY
ADMINISTRATOR AND COMPANY SECRETARY
REGISTRAR
Hanway Advisory Limited
1 King William Street
London
EC4N 7AF
Computershare Investor Services PLC
e Pavilions
Bridgwater Road
Bristol
BS99 6ZZ
AUDITOR
VALUER
BDO LLP
55 Baker Street
London
W1U 7EU
Jones Lang LaSalle Limited
30 Warwick Street
London
W1B 5NH
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