Residential Sec Regulatory News (RESI)

30 March 2020

Residential Secure Income plc

COVID-19 Update

Residential Secure Income plc ("ReSI" or the "Company") (LSE: RESI), which invests in affordable shared ownership, retirement and local authority housing, today provides an update on its position with regards to the COVID-19 pandemic.

Since the onset of the crisis, our overriding priority has been and remains the safety of our residents, stakeholders and staff. Our property team, led by Pete Redman, are working closely with our property managers and lessees across ReSI's portfolio to ensure we continue to provide safe homes for our residents and shared owners.

In addition, ReSI Capital Management has enacted its business continuity plan, utilising the resources of both TradeRisks and its new parent Gresham House, with full remote-working for all office based staff.

PORTFOLIO UPDATE

Overall the Company has a defensive portfolio which has been positioned to survive through economic stress. Since ReSI's rental income is primarily supported by residents' pensions or housing welfare subsidy systems, including leases to local authorities, the Company believes that increased unemployment is unlikely to have a material impact on performance. ReSI anticipates that the main impact of the COVID-19 crisis will be a delay in further expanding its income generating portfolio and an increase in void levels within the retirement portfolio.

While it is too early to provide a clear picture of the implications of the pandemic, a more detailed summary of the likely impact on the Company's individual portfolios by asset class is as follows:

Local Authority Housing

· This portfolio, which accounted for 18% of the Company's FY2019 net leveraged rental income, is fully leased to Luton Borough Council, which has as AA equivalent credit rating, and therefore no financial impact is expected.

Independent Retirement Rentals

· Provides independent living, with no care provision, for retirees over the age of 60, and is the Company's largest portfolio by asset class, comprising 82% of the Company's FY2019 net leveraged rental income.

· The Company expects that while there will be a reduction in tenants starting leases, this will be offset by a reduction in voluntarily terminations of leases and those entering care homes.

· While the retirement portfolio residents do not generally have material underlying health conditions, their age profile does present a risk that if COVID-19 accelerates it could cause voids to increase. Furthermore, the time taken to recover occupancy would also increase, given the anticipated difficulty in attracting new tenants during a countrywide lockdown.

· For 2020 any increase in voids is expected to be largely offset by a reduction in transaction costs associated with tenant turnover (e.g. letting fees for new tenants, cleaning and repair of flats between tenants).

Shared Ownership

· The Company does not currently anticipate any major impact on rent collection as we have recently assessed our shared owners' affordability and financial security, each of whom has ownership interests in their home, and with rent underpinned by their mortgage providers.

· ReSI does, however, anticipate a delay in both its ability to grow shared ownership occupancy, as well as to grow the portfolio itself. ReSI currently has 93 completed shared ownership homes with 52 occupied, 25 in progression and 16 available. The COVID-19 crisis has made it impossible to complete the acquisition of the remaining 73 homes in Clapham Park by the end of March, as previously anticipated.

· The Company is, however, continuing to see first tranche sales to shared owners during this time, with our sales agent moving to virtual viewings.

· ReSI does not anticipate a long term impact on shared ownership returns since the asset class becomes a more attractive product in an economic downturn given it is the most affordable method of home ownership (with lowest deposit requirements and ongoing costs). In addition, regardless of the COVID-19 outbreak, the country will still have a significant shortfall of housing and this supply demand gap will most likely become more acute through a countrywide lockdown causing reductions in earnings and housing delivery (caused by both construction sites closing and financial pressures on housing developers).

· We anticipate limited staircasing in the current environment, which reduces our need to recycle staircasing proceeds and hence enhances our income stability.

· For the full year 2019 shared ownership did not contribute materially to the Company's net leveraged rental income.

Financial Position And Dividend

· Debt service payments are expected to be unaffected. 90% of ReSI's debt is very long term in nature, with only £14.5 million needing to be refinanced before 2043.

· ReSI has a strong liquidity and balance sheet position with £5 million of cash and positive cashflows in all operating units.

· The Company anticipates that it is well placed to continue to make dividend payments and intends to deliver on this year's target dividend of 5p per share. However, the time before the dividend is fully covered by net rental income is likely to be extended.

ReSI will continue to monitor the COVID-19 situation and its potential impact on both the wider economy and the Company's business. Further updates will be provided if and when new material information comes to light, otherwise the Company will provide a fuller update alongside its Interim Results in May 2020.

FOR FURTHER INFORMATION, PLEASE CONTACT: 

NOTES:

Residential Secure Income plc (LSE: RESI) is a real estate investment trust (REIT) listed on the premium segment of the Main Market of the London Stock Exchange with the objective of delivering secure inflation linked returns by investing in affordable shared ownership, retirement and Local Authority housing throughout the UK. ReSI targets a secure, long-dated, inflation-linked dividend of 5.0 pence per share p.a. (paid quarterly) and a total return in excess of 8.0% p.a. and has to date committed c. £300 million, assembling a portfolio of 2,680 properties.

ReSI aims to make a meaningful contribution to alleviating the UK housing shortage by meeting demand from housing developers (Housing Associations, Local Authorities and private developers) for long-term investment partners to accelerate the development of socially and economically beneficial new affordable housing. ReSI's subsidiary, ReSI Housing Limited, is registered as a for-profit Registered Provider of Social Housing, and so provides a unique proposition to its housing developer partners, being a long term private sector landlord within the social housing regulatory environment. As a Registered Provider, ReSI Housing can acquire affordable housing subject to s106 planning restrictions and housing funded by government grant.

Acquisitions by ReSI are limited to homes with sufficient cashflows, counterparty credit quality and property security to be capable of supporting long‑term investment grade equivalent debt. ReSI does not manage or operate stock and uses experienced and credit-worthy third-party managers. 

ReSI is managed by ReSI Capital Management Limited, a wholly owned subsidiary of TradeRisks Limited which has a 19-year track record of executing transactions within the UK social housing sector and, to date, has arranged funding of over £11 billion in the social housing, care and other specialist residential property sectors.

TradeRisks Limited and ReSI Capital Management Limited were acquired on 4 March 2020 by Gresham House plc, the specialist alternative asset management business which is listed on the London Stock Exchange and now has c.£3 billion of assets under management. Gresham House plc provides funds, direct investments and tailored investment solutions, including co-investment across a range of highly differentiated alternative investment strategies. The Group's expertise includes timber, renewable energy, housing and infrastructure, strategic public and private equity (private assets). It aims to deliver sustainable financial returns and is committed to building long-term partnerships with clients (institutions, family offices, high-net-worth individuals, charities and endowments and private individuals) to help them achieve their financial goals. Shareholder value creation will be driven by long-term growth in earnings as a result of increasing AUM and returns from invested capital.

Further information on ReSI is available at www.resi-reit.com 

Further information on Gresham House is available at www.greshamhouse.com