Triple Pnt Soc Regulatory News (SOHO)

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

29 March 2019

Triple Point Social Housing REIT plc

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

RESULTS FOR THE YEAR ENDED 31 DECEMBER 2018

The Board of Triple Point Social Housing REIT plc (ticker: SOHO) is pleased to announce its audited results for the year ended 31 December 2018.

* For the initial period from incorporation to 31 December 2017

Financial highlights

· IFRS net asset value per share of 103.65 pence at 31 December 2018) (2017: 100.84 pence), an increase of 2.79%.

· Portfolio independently valued as at 31 December 2018 at £323.5 million on an IFRS basis (2017: £137.5 million), reflecting a valuation uplift of 6.89% against total invested funds of £302.6 million2. The properties have been valued on an individual basis.

· The Group's assets were valued at £343.7 million on a portfolio valuation basis (2017: £146.9 million), reflecting a portfolio premium of 6.24% or a £20.2 million uplift against the IFRS valuation. A portfolio valuation basis assumes the portfolio of properties is held in a single company holding structure, is sold to a third party on arms-length terms, and attracts lower purchaser's costs of 2.30%.

· The portfolio's total annualised rental income was £17.4 million1 as at 31 December 2018 (2017: £7.8 million).

· Operating profit for the year ended 31 December 2018 was £21.5 million (2017: £5.6 million).

· Ongoing Charges Ratio of 1.58% as at 31 December 2018 (2017: 1.34%).

· Raised gross equity proceeds of £47.5 million through the issue of C Shares at a price of 100p per share in March 2018 and a further £108.2 million through an over-subscribed issue of ordinary shares at a price of 103 pence per share in October 2018.

· Raised gross debt proceeeds of £68.5 million via a private placement of loan notes with MetLife in July 2018 and a further £70 million via a revolving credit facility from Lloyds in December 2018 (which was undrawn as at 31 December 2018).

· Market capitalisation of £349.9 million as at 31 December 2018 (2017: 208.75 million).

Operational highlights

· Acquired 156 properties (1,059 units) during the year with an aggregate purchase price of £170.8 million (including costs) bringing the total investment portfolio to 272 properties.

· Committed approximately £26.3 million to forward fund the development of 13 newly built or fully-renovated bespoke Supported Housing schemes, of which six reached practical completion during the year and seven were on-going at the year end.

· IFRS blended net initial yield of 5.25% based on the value of the portfolio on an IFRS basis as at 31 December 2018, against the portfolio's blended net initial yield on purchase of 5.89%.

· Further diversified the portfolio: 

o 11 regions

o 109 local authorities

o 189 leases

o 16 Approved Providers

o 62 care providers

· As at 31 December 2018, the weighted average unexpired lease term ("WAULT") was 27.2 years.

· 100% of the Group's portfolio was fully let or pre-let and income producing during the year1.

· 100% of contracted rental income was either CPI or RPI linked.

Post Balance Sheet Activity

· The Company declared a dividend of 1.25 pence per ordinary share in respect of the period from 1 October to 31 December 2018. This dividend will be paid on or around 29 March 2018 to shareholders on the register at 15 March 2019.

· The dividend payable on 29 March 2019 brings the total dividend per Ordinary Share paid by the Company to 5.0 pence per share in respect of its first full financial year to 31 December 2018 in line with the Company's stated target at launch. The Company is targetting an aggregate dividend of 5.095 pence per share for the year ending 31 December 2019, an increase of 1.9%, in line with inflation, reflecting the CPI-based rent reviews typically contained in the leases of the assets within the portfolio.3

· Announced the acquisition of a further 17 Supported Housing properties (144 units) for an aggregate purchase price of approximately £21.0 million (including costs) and made further commitments of £4.5 million.

Notes:

1 Excluding ongoing forward funded schemes that are under an agreement for lease

2 Including acquisition costs

3 These are targets only and not a profit forecast and there can be no assurance that they will be met

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

"We have had a busy and successful first full financial year. During the year under review, we successfully completed two equity raises and secured two debt facilities. Using these funds, we continued our strategy of acquiring and managing a portfolio of high-quality new-build or renovated Supported Housing properties across the UK, working with proven counterparties in areas of known demand.

"Given strong underlying demand and the Investment Manager's long-standing relationships with the leading Supported Housing developers, we expect 2019 to be another good year for us. The market remains attractive due to the cost-savings Supported Housing provides local authorities, the higher quality of accommodation provided to residents of Supported Housing, and the lack of alternative funding sources for the development of new schemes."

FOR FURTHER INFORMATION ON THE COMPANY, PLEASE CONTACT:

The Company's LEI is 213800BERVBS2HFTBC58.

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

NOTES:

The Company invests in social housing assets in the UK, with a particular focus on supported housing. The assets within the portfolio are subject to inflation-adjusted, long-term (typically from 20 years to 30 years), Fully Repairing and Insuring ("FRI") leases with Approved Providers (being Housing Associations, Local Authorities or other regulated organisations in receipt of direct payment from local government). The portfolio comprises investments into properties which are already subject to an FRI lease with an Approved Provider, as well as forward funding of pre-let developments but does not include any direct development or speculative development.

There is increasing political and financial pressure on Housing Associations to increase their housing delivery and this is creating opportunities for private sector investors to participate in the market. The Group's ability to provide forward financing for new developments not only enables the Company to secure fit for purpose, modern assets for its portfolio but also addresses the chronic undersupply of suitable supported housing properties in the UK at sustainable rents and delivering returns to investors.

Triple Point Investment Management LLP (part of the Triple Point Group) is responsible for management of the Group's portfolio (with such functions having been delegated to it by Langham Hall Fund Management LLP, the Company's alternative investment fund manager).

The Company was admitted to trading on the Specialist Fund Segment of the Main Market of the London Stock Exchange on 8 August 2017 and 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. The Company operates as a UK Real Estate Investment Trust ("REIT") and is a constituent of the FTSE EPRA/NAREIT index.

Meeting for investors and analysts and audio recording of results available

A Company presentation for analysts and investors will take place at 8.45 a.m. today at the offices of Canaccord Genuity, 88 Wood Street, London, EC2V 7QR. The presentation will also be accessible on-demand via the Company website: https://www.triplepointreit.com/investors/72/. 

The Annual Report and Notice of AGM are also available to view and download on the Company's website at www.triplepointreit.com and hard copy will be posted to shareholders on or around 4 April 2019.

In accordance with Listing Rule 9.6.1 copies of the Annual Report and Notice of AGM will be submitted to the UK Listing Authority and will be available for inspection from the National Storage Mechanism at www.morningstar.co.uk/uk/nsm.

CHAIRMAN'S STATEMENT

Introduction

Since I wrote to you in our maiden annual report 12 months ago, we have had a busy and successful first full financial year. During the year under review, we successfully completed two equity raises and secured two debt facilities. Using these funds, we continued our strategy of acquiring and managing a portfolio of high-quality new-build or renovated Supported Housing properties across the UK, working with proven counterparties in areas of known demand. Over the year we invested £170.8 million of funds to acquire 156 properties, in some cases as single assets and in others as portfolios. Dividends amounting to, in aggregate, 5 pence per Ordinary Share have been declared for the year. The Group's portfolio has enjoyed an IFRS NAV uplift of 2.79% since 31 December 2017. In short, we achieved the solid financial performance that we always intended.

As well as this financial success, in 2018 we saw the positive impact that our Group is having on society. As I discuss in more detail below, and in Our Social Impact section below, we believe that investing private capital in this sector is benefiting all stakeholders. By funding the development of Supported Housing, we are saving the government money compared to funding traditional institutional care, we are giving our investors long-term inflation-linked returns underpinned by government income and, above all, we are providing some of the most vulnerable people in society with the community-based homes that they desperately need.

In 2018 we continued to acquire best-in-class properties from around the UK. In February, for example, we acquired Carden Avenue which is leased to Falcon Housing Association for 25 years and is occupied by vulnerable residents cared for by Care Management Group. In June, we bought Meadowhurst Gardens which is leased to Inclusion Housing for 25 years and whose residents are cared for by Lifeways. And in November, we bought Rosslyn Road which is leased to Hilldale Housing Association for 25 years and whose residents are cared for by Priory Care Group. These are only some of the high-quality, long-life assets that we have bought, and which are likely to be in high demand for many years to come for the benefit of all stakeholders. We have every intention of continuing to buy high-quality properties as we move ahead in 2019.

One way we continue to deliver the greatest social and financial impact - as well as distinguish ourselves from our competition - is through our forward funding offering. Forward funding allows the Group to forge stronger developer relationships through joint construction projects, enjoy valuation uplifts on new-build properties, benefit from the high occupancy such custom-built properties achieve, provide higher quality accommodation for residents, as well as bring new housing stock to market to the benefit of wider society.

This forward funding has translated into tangible financial benefit. We deployed our first funds into a forward-funded asset in January 2018, and over the year committed an aggregate of £26.3 million of funds to acquire 13 sites which already are, or soon will be, newly-built or fully-renovated bespoke Supported Housing schemes. Our first four completed forward funding schemes received an average valuation uplift of 4.86% on the amount we paid as at 31 December 2018. We expect to achieve similar financial returns in 2019, building on our forward funding success in 2018. More detail on our forward funding is set out below.

A key development in 2018 has been growing regulation. We launched our fund focused on the Supported Housing market because we saw an opportunity to generate ethical returns from providing capital to a severely under-funded sector with a chronic supply/demand imbalance. However, like many growing sectors, regulation has had to catch up with an evolving market. Most of the Registered Providers we lease to have fewer units than the 1,000-unit threshold above which they are more closely regulated. In 2018, the Regulator of Social Housing began engaging more actively with smaller, lease-based Registered Providers below this threshold. Over the year the Regulator released Regulatory Notices and Judgements on several growing Registered Providers that did not meet the Regulator's standards for viability and governance (details of which are set out in the Investment Manager's report below). The Registered Providers are working with the Regulator to address its concerns. We welcome greater oversight as a means of applying the high standards that apply to larger Registered Providers to smaller Registered Providers and hope that the Regulator continues to engage constructively with the sector in 2019 and beyond as the sector grows and matures.

Deployment

In 2018 we acquired 156 assets, providing accommodation for 1,059 residents, for a total investment cost (i.e. including transaction costs) of £170.8 million. As at 31 December 2018, we had a further £21.0 million of outstanding commitments, both for five exchanged properties and five forward funded properties which had yet to complete construction. A map showing where all our properties are can be found on page 54 of the Annual Report. These properties are leased to 16 Approved Providers (2017: 11) operating in 109 Local Authorities (2017: 51). A total of 62 care providers (2017: 26) are providing care and support across our portfolio. The weighted averaged unexpired lease term for all our leases is 27.2 years (assuming exercise of put options). Since the end of 2018, we have acquired 17 more properties, housing 144 residents, for £21.0 million, substantially deploying the proceeds of our October 2018 equity fundraise. All this has increased geographic and counterparty diversification for the benefit of our shareholders, something that will continue to grow as further funds are deployed through 2019.

Investment Performance

As our first full year, 2018 was a test of our ability to fulfil our promise to our shareholders. By that measure, we believe we succeeded. Using the Investment Manager's strong and growing network, market knowledge and sector expertise, we acquired a diverse spread of properties leased to a range of Approved Providers whose rent is underpinned by numerous different local authorities. As at 31 December 2018, the value of the portfolio was £323.5 million on an IFRS basis, with a valuation uplift of £20.8 million compared to the total investment cost (i.e. including transaction costs), reflecting our success in acquiring off-market, high-quality properties leased to credible counterparties at attractive yields. In doing so, we have paid (or declared) quarterly dividends of, in aggregate, 5 pence for the year.

Such performance reflects and reinforces the disciplined due diligence processes applied by the Investment Manager on each acquisition. Building on its existing sector knowledge and experience, throughout 2018 the Investment Manager continued to ensure that each property we acquired was well built, with suitable adaptations, in an area of strong commissioner support, and managed by a capable Approved Provider working alongside a skilled and experienced care provider. By applying its processes to the best of its ability on each and every acquisition, the Investment Manager has helped us acquire a large portfolio of stable income-generating properties underpinned by both government income and the chronic supply/demand imbalance that is unfortunately likely to remain unresolved for decades to come.

Financial Results

As mentioned above, at the end of the year our portfolio was independently valued at £323.5 million on an IFRS basis, which reflects a valuation uplift of £20.8 million over the total investment cost (i.e. including transaction costs) we paid for the properties. The valuation represents a blended valuation NIY of 5.25%, a favourable comparison to the portfolio's average net initial purchase yield of 5.89%.

At year end our assets were also valued at £343.7 million on a portfolio valuation basis, which assumes a single sale of the SPVs to a third-party on an arm's length basis with purchaser's costs of 2.30%. The portfolio valuation reflects a portfolio premium of £20.2 million against the IFRS valuation.

EPRA earnings per share in 2018 was 2.27 pence. The audited IFRS NAV per share and the EPRA NAV per share were both 103.65 pence, an increase since IPO of 5.77%.

Dividends

On 6 March 2018, we declared our maiden interim dividend of 1 pence per share for the initial period from 12 June to 31 December 2017. On 7 March 2019, following the payment of three interim dividends of 1.25 pence per share for the first three quarters of 2018, we declared an interim dividend of 1.25 pence per share for the final period of 2018 (1 October to 31 December 2018), bringing the total dividends paid or declared for the year ended 31 December 2018 to an aggregate 5 pence per share, in line with our stated target for the year.

During the year the Board also declared dividends payable to holders of C Shares comprising a fixed dividend of 3% per annum pro rated for the period from admission to trading on 27 March to conversion of C Shares on 30 August 2018. This equated to an aggregate amount of 1.29 pence per C Share, comprising 0.789 pence for the period from 27 March to 30 June 2018 and 0.501 pence for the period from 1 July to 30 August 2018.

In 2019, we intend to pay an aggregate dividend of 5.095 pence per share, being an increase of 1.9% (in line with inflation) on 5 pence per share in respect of 2018, reflecting the anticipated growth in our income. We expect the quarterly dividend at the end of 2019 to be substantially covered by EPRA earnings once equity and debt funds are fully deployed.

Equity and Debt Raising

Our strategy continues to be raising appropriate levels of capital, balanced between equity and debt, to take advantage of opportunities in the market without exposing the Group to unnecessary risk and ensuring investors receive suitable returns. In 2018 we successfully completed two equity raises and secured two debt facilities.

In terms of equity, in March 2018 we raised £47.5 million of gross proceeds (net proceeds: £46.5 million) through a C share issue, which converted into Ordinary Shares on 30 August 2018 at a conversion ratio of 0.975836. In October 2018 we raised a further £108.2 million of gross proceeds (net proceeds: £106.0 million) via an over-subscribed issue of Ordinary Shares as part of a 12 month placing programme.

In terms of debt, in July 2018 we entered into a long dated, fixed rate, interest only private placement of loan notes with MetLife for £68.5 million. The loan notes are split into two tranches with a weighted average term of 12 years and a weighted average fixed rate coupon of 3.039% per annum. In December 2018, we signed a £70 million revolving credit facility with Lloyds Bank. The facility has an initial term of four years extendable by two years. The interest rate on drawn funds is 1.85% per annum over 3-month LIBOR. For undrawn funds the Group pays a commitment fee of 40% of the margin. As at 31 December 2018 no funds had been drawn on this facility. The MetLife and Lloyds facilities are secured against separate ring-fenced portfolios of UK Support Housing assets without recourse to the Company. The Group's MetLife 10-year and 15-year tranches have a fixed rate coupon and the Board regularly reviews potential hedging arrangements which can be put in place at any time during the term of the Lloyds facility.

We are well placed to fund our strong pipeline of high-quality assets with the flexibility provided by both the Lloyds revolving credit facility and the 12 month equity placing programme put in place as part of the October 2018 fundraise. This flexibility enables us to raise capital only when such funds can be deployed so as to minimise cash drag and help achieve full dividend cover. As we continue to grow, our portfolio will diversify across a wider geographical area and among more counterparties, ensuring we remain an attractive investment proposition into 2019 and beyond.

Investment Manager

During 2018 the Board maintained a regular and open dialogue with the Investment Manager, Triple Point Investment Management LLP. Discussions about the structure of the Group, developments in the market and updates from the Regulator of Social Housing were considered. This collaborative and effective partnership will continue into 2019 and the Board is grateful to the Investment Manager for its hard work and success.

Social Impact

The Supported Housing shortage continues to receive considerable media attention, remains high up the political agenda and shows no sign of abating in the short-to-medium term. If current trends continue, the annual shortfall in Supported Housing units for people of working age of 29,053 in 2019/20 is forecast to rise to 46,771 by 2024/251. We seek to address the lack of suitable accommodation for vulnerable residents by funding the development of new properties or the repurposing of existing private properties to make them suitable for Supported Housing. We now own 529 units that are in new built properties that provide homes to people with mental health issues, autism, learning disabilities and physical and sensory impairments. Without our funding many of these houses and apartments would not have been developed, requiring the residents to be housed in less suitable and more expensive properties. Our homes give residents the opportunity for a better quality of life while costing local authorities less than alternatives such as residential care and in-patient care.

Supported Housing should provide adults who have a care need with the opportunity to improve their well-being by helping them to take steps towards greater independence and lessening their care requirements. We are committed to the important social aim of helping to provide more accommodation, and more appropriate accommodation, to some of the most vulnerable in society so they can aspire to live more autonomously in local communities and ultimately lessen their reliance on support and the government. This can only be achieved if our accommodation is of a high standard. Our due diligence and strategic relationships with developers allow us to focus on funding high-quality assets. This, combined with significant investment in the sector, is helping to drive quality in building contractors and developers in the Supported Housing space which in turn is improving the standard of accommodation available to our residents.

Outlook

Given strong underlying demand and the Investment Manager's long-standing relationships with the leading Supported Housing developers, we expect 2019 to be another good year for us. The market remains attractive due to the cost-savings Supported Housing provides local authorities, the higher quality of accommodation provided to residents of Supported Housing, and the lack of alternative funding sources for the development of new schemes.

In the context of ongoing uncertainty about the terms of the UK leaving the European Union, the Regulator published a letter sent to Registered Providers titled 'Preparation for a no deal Brexit'. Many of the risks highlighted by the Regulator are less relevant to Registered Providers that we have leases with due to the fact that they do not typically develop properties and are therefore less exposed to any possible rapid decline in house prices. We will continue to monitor developments but hope that investors view secure income REITs like ours as a good hedge in times of market uncertainty. More detail on Brexit is set out in the Investment Manager's report.

Through its existing developer relationships, the Investment Manager has identified a healthy pipeline of properties that meet our investment criteria. With each transaction, the Investment Manager's well-established due diligence process improves. A substantial portion of assets in the pipeline will probably be rejected as a result of asset or lessee quality. Nonetheless, due to the volume of properties in the pipeline and the fact that they principally come from existing developers, we are confident that there is sufficient quality deal flow for us to meet our deployment targets.

I would like to take this opportunity to publicly welcome Tracey Fletcher-Ray to the Board, to which she brings considerable care, property and social housing experience among other things. I would also like to thank my fellow Board members for their support and commitment throughout 2018 and to all shareholders for your continued support.

Chris Phillips

Chairman

28 March 2019

Notes:

1 National Housing Federation, Supported housing: Understanding need and supply (2015)

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.

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 mix of which the Company seeks to optimise 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.

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

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

Gearing

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

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

Debt will typically be secured at the asset level, whether over a particular property or a holding entity for a particular property (or series of properties), without recourse to the 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.

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, 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 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.

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 below). 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). All the Group's leases with Approved Providers are linked to inflation, have a duration of 20 years or longer, and are fully repairing and insuring - meaning that the obligations for management, repair and maintenance of the property are passed to the Approved Provider. 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 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. More detail on the Group's forward funding can be found below.

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 14-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.

KEY PERFORMANCE INDICATORS

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

EPRA PERFORMANCE MEASURES

The table below 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 Earning and NAV are included in Notes 35 and 36 of the consolidated financial statements respectively. A full reconciliation of the other EPRA performance measures are included in the Unaudited Performance Measures section of the Annual Report.

THE INVESTMENT MANAGER

James Cranmer

Co-Managing Partner

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.

Ben Beaton

Co-Managing Partner

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.

Max Shenkman

Head of Investment

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 £150 million of investment into Supporting 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. He became a Partner in 2018.

Isobel Gunn-Brown

Head of Fund Management Services

Isobel joined the Investment Manager in 2010 and acts as Chief Financial Officer to the Group leading the financial reporting responsibilities of the Group in conjunction with the AIFM. 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.

Ralph Weichelt

Investment Director

Ralph joined the Investment Manager in 2017 as a member of the Investment Team. Prior to joining the Investment Manager, Ralph was a partner in Chalkhill Partners LLP, a debt advisory firm focusing on commercial real estate debt origination via institutions and debt capital markets. Prior to this, he held a number of positions in pan-European real estate entities spanning fund management, transactional work (sourcing/underwriting/execution) and advisory. His experience of over 20 years spans across all investment strategies, ranging from core, value added to opportunistic. Ralph is also a qualified Chartered Surveyor.

Justin Hubble

Partner and General Counsel

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 and 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. He became a Partner in 2018.

INVESTMENT MANAGER'S REPORT

Review of the Business

In 2018, the Group made strong progress in implementing its strategy of investing in high-quality, durable Supported Housing properties in areas of known demand. Over the course of the year, the Group deployed £170.8 million into 156 assets, and had, as at 31 December 2018, another £21.0 million of outstanding commitments, comprising £11.5 million on exchanged contracts for five assets and £9.5 million committed to seven ongoing forward funding transactions. All these acquisitions were funded by the remaining proceeds of the Company's IPO in 2017, as well as two further equity raises (in March and October 2018) and a debt raise in July 2018. A £70 million revolving credit facility was signed at the end of December 2018 to fund continued deployment. All of this reflects the quality of the Group's portfolio and reputation in the market. The Group has achieved strong financial performance, reporting an IFRS NAV per share of 103.65 pence at 31 December 2018, a 2.79% increase since 31 December 2017.

Diversification of the Group's portfolio, in terms of geography, local authority and Approved Provider, continued throughout 2018. Although most of the Group's properties are in the Midlands and North of England, the Group has increased geographical diversification during the year with 15.2% of its portfolio now across the South, South East and South West of England. Similarly, while the Group leased to 11 Approved Providers as at 31 December 2017, the Group as at 31 December 2018 leased to 16 Approved Providers. The pipeline remains strong and based on increasingly-embedded relationships with existing developers and Approved Providers, as well as new relationships born out of our growing reputation in the market for high-quality developments. Based on these successes, we are currently evaluating a pipeline in excess of £400 million over the next 12 months.

When acquisition opportunities are presented, our deep sector knowledge allows us to conduct a quick initial appraisal, at which point schemes are often rejected. Those that pass initial screening undergo our full and exacting due diligence processes. Our surveyors visit each property to carry out a detailed building survey, focusing on structural issues, the general condition, health and safety, and adaptations for the needs of the residents. Our valuers visit the property or development site too, ensuring that the price we pay for the property is supported in the context of the contractual suite and market conditions. Our lawyers review the property title and negotiate the contractual suite, working off our well-established legal contract templates. Meanwhile we review and negotiate the commercial elements, ensuring we agree a yield adjusted to the risk profile of the scheme. Likewise, we ensure there is commissioner support and housing benefit support, and that the Approved Provider and care provider are financially and operationally appropriate and have conducted their own due diligence on the opportunity. Finally, before any scheme is acquired by the Group, our Investment Committee rigorously appraises it and it is sent to the Board for feedback.

Our due diligence does not stop at the point of acquisition. We conduct ongoing due diligence on all our properties, Approved Providers and care providers. Each quarter, management accounts are requested and analysed, with any issues discussed with the relevant counterparties. Likewise, each quarter we ask Approved Providers to complete a series of key performance indicators focused on occupancy, rent levels, and health and safety. We speak to and meet all Approved Providers on a regular basis and for any ad hoc issues. Finally, we conduct site visits to the properties in our portfolio, allowing us to assess how operations work in practice and enhance ongoing communication. All this creates a positive feedback loop, with the quality of our due diligence continuing to improve based on the lessons of our asset management.

Market Review

The Group continues to benefit from an attractive investment environment due to the unprecedented demand for new Supported Housing assets. Following recent research and reports commissioned by bodies such as the National Housing Federation,1 MenCap,2 and the government's own social housing green paper,3 the scale and the depth of the Supported Housing crisis in the UK has received considerable publicity and remains high on the political agenda. During 2015/16 the annual shortfall of Supported Housing units for people of working age was as high as 15,6404. By 2019/20 that annual shortfall is forecast to have nearly doubled to 29,053, rising still further to an annual shortfall of 46,771 by 2024/25 if current trends continue5.

The Supported Housing shortage is part of a wider housing shortage. The government has acknowledged that solving the housing crisis is the biggest domestic policy challenge of the current generation. In June 2018 the house spending programme running from 2017 to 2022 was increased to £9 billion6. The government has also abolished the cap on how much councils can borrow against the value of their housing stock, thereby releasing more capital to fund the development of new properties. While it is estimated that this will result in more than 250,000 new homes by 20227, this still falls short of even current demand and so the UK's housing problems are likely to get worse before they get better8.

Demand for Supported Housing has risen because of improvements in healthcare increasing the number of people requiring long-term accommodation adapted to provide care services, as well as a policy shift to move people with a care need from institutional to community-based living, something accelerated by the fall-out from the Winterbourne care scandal in 2011 and enshrined in the Care Act 2014 and NHS England's Transforming Care programme (2015)9. Local authorities play a pivotal role in determining where those in greatest need will be housed and Supported Housing is usually both more suitable and considerably more cost-effective than traditional alternatives such as care homes and long-stay hospitals. Mencap has estimated that the cost-saving of Specialised Supported Housing compared to registered care is nearly two hundred pounds per week per person, and when compared to in-patient care is nearly two thousand pounds per week per person10.

As reported in the Group's 2018 Interim Report, in February 2018 the Regulator issued a Regulatory Notice stating that a Registered Provider, First Priority Housing Association Limited ('FPHA'), had approached the Regulator and that, following a review, did not appear to have the financial capacity to meet its debts as they fell due. The Regulator worked closely with FPHA to resolve the issues faced by the organisation. By July 2018 a large portion of FPHA's leases had been transferred away from FPHA to other Registered Providers. On 17 July 2018, the remaining creditors reached a resolution with FPHA by entering into a Company Voluntary Arrangement. While this provides an example of the Regulator assisting Approved Providers which have financial difficulties, the Regulator is understandably keen to ensure that such a situation does not arise again in the Supported Housing sector. Importantly, the Group has never had any leases to FPHA.

Following the problems experienced by FPHA, the Regulator has sought to engage with Registered Providers that specialise in the Supported Housing sector and which have fewer than 1,000 tenanted units under management. Due to their smaller size, these organisations typically would be subject to a lower level of regulation than those with over 1,000 units. Understandably the Regulator appears keen to ensure that other Registered Providers in the Supported Housing sector do not experience the breadth and depth of problems endured by FPHA. The Regulator has therefore asked these smaller Registered Providers to provide information on, among other things, their financial performance and governance and compliance policies. The process of the Regulator engaging with the smaller Registered Providers in the sector has caused the Regulator to publicly raise some concerns about these organisations through the issue of Regulatory Notices and Judgements. Supported Housing specialists Westmoreland Supported Housing Association and Trinity Housing Association Limited both received non-compliant ratings for both governance and viability (a V3, G3 rating) towards the end of 2018. On 15 February 2019 - after the year end - Inclusion Housing Community Interest Company likewise received a V3, G3 rating.

The Group has no leases with Trinity Housing Association Limited but does lease 16 properties to Westmoreland (representing 4.4 per cent. of the Group's GAV as at 31 December 2018) and 60 properties to Inclusion (representing 15.8 per cent. of the Group's GAV as at 31 December 2018). The Group's valuer has not impaired the value of the Group's assets leased to Westmoreland since it was given the non-compliant rating. Likewise, the Group's valuer has confirmed that there should be no impact on the value of the Group's assets leased to Inclusion as a result of the non-compliant rating. The Group has received all its rent from both Registered Providers and there has been no suggestion from either that the rents payable under the leases with the Group will not continue to be forthcoming. We continue to monitor and maintain a dialogue with, and receive monthly management accounts from, Westmoreland as it works with advisers and the Regulator to implement a financial and governance action plan in order to address the Regulator's concerns and obtain a compliant rating. We receive monthly management accounts from Inclusion and are satisfied that it is a well-run business with a strong and experienced management team.

We welcome the fact that the Regulator is subjecting smaller Registered Providers to a higher degree of regulation at an earlier stage of their development than they might otherwise have expected. It is helping to bring growing transparency to the sector and instil higher operational and governance standards. We have observed the Registered Providers that operate in the Supported Housing sector evolve and develop since 2014 when, as an investment manager, we began to invest in the Supported Housing space. We expect this progress to continue as the Registered Providers grow under the oversight of the Regulator. Every year for the last six years the Regulator has published a sector risk profile which aims to help Registered Providers understand the environment in which they operate and how best they can manage risk. In their last report, the Regulator provided guidance to Registered Providers that pursue the lease model and highlighted the key considerations that should be borne in mind before entering into long leases. We continue to adapt our leases to reflect the evolving Supported Housing market. The leases that we enter into with Approved Providers have become more nuanced and sophisticated over time and, where possible, we have accommodated concerns from both the Regulator and Approved Providers around specific risks (such as a fundamental change in government housing benefit policy). Our aim is always to find a pragmatic solution which protects shareholder value while preserving the wellbeing of residents.

Our due diligence continues to focus on ensuring that Registered Providers have adequately considered and mitigated the risks attached to long leases. For example, we seek to make sure that rental levels have been checked with local authority housing benefits officers such that we and the Registered Provider can be confident that they are sustainable in the long run. We also verify that the service charge received by the Registered Provider is sufficient to cover the costs of managing the property. All properties are demand-driven and we look to confirm commissioner support to mitigate voids risk. Finally, we often allow rent-free periods in leases to accommodate the time it takes to fill properties and we check Registered Providers receive sufficient upfront capital contributions from developers to cover sinking funds and general management costs associated with growth.

Due to the lack of supply in the Supported Housing market, there is a considerable opportunity for long-term funders to deliver returns to investors while also having a positive social impact. By developing sustainable, cost-effective adapted accommodation that is leased to Approved Providers, the Group is simultaneously giving value-for-money to local authorities, providing vulnerable residents with independent homes, and benefiting from rental income ultimately derived from housing benefit. Fundamental to the sustainability of our investment model is the long-term partnership approach we apply to our relationships with Approved Providers. We continually monitor the performance of our Approved Providers and, when entering new leases, we evaluate the risks to their business as well as our investment to be confident that it is a mutually beneficial transaction.

In the context of ongoing uncertainty about the terms of the UK leaving the European Union, the Regulator published a letter sent to Registered Providers titled 'Preparation for a no deal Brexit'. The purpose of this letter was to reiterate the importance of stress-testing business plans and identifying specific, deliverable and timely mitigations to ensure that viability is maintained, and residents and Supported Housing assets are protected.

Many of the risks highlighted by the Regulator are less relevant to Registered Providers that the Group has leases with due to the fact that they do not typically develop properties. They are therefore much less exposed to the housing market than some of the larger Registered Providers with large development businesses. Similarly, they are less reliant on European labour and are less exposed to the cost of building materials.

The Group offers investors a relatively risk-averse long-term secure income stream. In the event of a disorderly exit from the European Union, investors may seek to continue allocating capital to REITs in the secure income sector to mitigate the risk of market uncertainty.

Financial Review

As at 31 December 2018, the annualised rental income of the Group was £17.4 million (excluding forward funding transactions). The Group is a UK REIT for tax purposes and is exempt from corporation tax on its property rental business.

The fair value gain of £14.5 million was recognised during the period on the revaluation of the Group's properties.

Earnings per share was 8.37 pence for the period, compared to 3.94 pence for the period ending 31 December 2017 calculated on the weighted average number of shares in issue during the period. Adjusted earnings per share were 12.91 pence for the period, where post-tax earnings were adjusted for a valuation on a portfolio basis (as opposed to individual asset IFRS basis).

EPRA earnings per share was 2.27 pence for the period, compared to 0.02 pence for the period ending 31 December 2017 calculated on the weighted average number of shares in issue during the period.

The audited IFRS NAV per share was 103.65 pence, representing an increase since IPO of 5.77%. The Group's EPRA NAV per share is the same as the IFRS NAV at 103.65 pence. The IFRS NAV adjusted for the portfolio valuation (including portfolio premium) was £384.3 million which equates to a Portfolio NAV of 109.39 pence per share.

The 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 period was 1.58%.

At the period end, the portfolio was independently valued at £323.5 million on an IFRS basis reflecting a valuation uplift of 6.89% against the aggregate purchase price of the portfolio (including transaction costs). The valuation reflects a blended valuation NIY of 5.25%, against the portfolio's average net initial purchase yield of 5.89% at the point of acquisition. This equates to a yield arbitrage of 64 bps, reflecting the quality of the Group's asset selection and acquisition process.

The Group's properties were valued at £343.7 million on a portfolio valuation basis, reflecting a portfolio premium of 6.2% or a £20.2 million uplift against the IFRS valuation. The portfolio valuation assumes a single sale of the SPVs to a third-party on an arm's length basis with purchaser's costs of 2.30%.

Debt Financing

During the period, the Group entered into two debt facilities which were secured against defined portfolios of the Company's UK Supported Housing assets without recourse to the Company.

In July 2018, the Group entered into a long dated, fixed rate, interest only private placement of loan notes with MetLife for £68.5 million. The Loan Notes are split into two tranches: Tranche-A, in 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%; and Tranche-B, in 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%. On a blended basis, the weighted average term is 12 years carrying a weighted average fixed rate coupon of 3.039%.

In December 2018, the Group secured a £70 million revolving credit facility with Lloyds Bank. The floating rate revolving credit facility has an initial term of four years expiring on 20 December 2022 which may be extended by a further two years to 20 December 2024. The interest rate for drawn amounts under the facility is 1.85% pa over 3-month LIBOR. For undrawn funds, the Group pays a commitment fee of 40% of the margin. As at 31 December 2018 no funds had been drawn on this facility. The Board regularly reviews potential hedging arrangements which can be put in place at any time during the duration of the Lloyds facility.

Both facilities, when fully drawn, represent a loan-to-value ('LTV') of 40% of the value of the secured assets in the defined portfolios, which is in line with the Company's investment policy of a long-term level of aggregate borrowings equal to 40% of the Group's gross asset value, subject to a limit of 50%.

The MetLife facility requires us to maintain an asset cover ratio of x2.25 and an interest cover ratio of x1.75. At year end, the Group was fully compliant with both ratios, with an asset cover ratio of x2.57 and an interest cover ratio of x3.95. The Lloyds facility, once drawn, requires us to maintain an LTV of lower than 50% and an interest cover ratio in excess of x2.75.

Continued Strategic Alignment and Asset Selection

During the year, the Group has continued to execute its investment strategy, delivering inflation-protected income underpinned by a careful selection of secure, long-let and index-linked properties. In 2018, the Group purchased 156 assets, including 13 forward funding transactions, for a total investment cost (i.e. including transaction costs) of £170.8 million.

Beyond this deployment, the Group had, as at 31 December 2018, outstanding commitments totalling £21.0 million, comprising £11.5 million for contracts exchanged over five assets and £9.5 million for outstanding forward funding commitments.

Property Portfolio

As at 31 December 2018, the property portfolio comprised 272 properties with 1,893 units and demonstrating broad geographic diversification across the UK. The 3 largest concentrated areas were the North West (24.5%), the East Midlands (16.0%) and the West Midlands (14.6%). The fair value of the property portfolio is £323.5 million (an average of £1.2 million per property).

In 2018, the Group entered into 13 forward funding transactions, of which six had reached practical completion and seven were still under construction as at 31 December 2018. The aggregate maximum capital commitments for all forward funding transactions in the year was £26.3 million, with £9.5 million of this outstanding as at 31 December 2018. Forward funding continues to form an integral part of the Group's investment strategy.

Rental Income

As at 31 December 2018, the Group's property portfolio was fully let with all assets either let or pre-let on financial close, comprising 189 fully repairing and insuring leases which includes the forward funding transactions. The total annualised rental income of £17.4 million is the aggregate rental income of the standing investments. The coupon interest received by the Group during the construction period from the developer under forward funding agreements is not included as rental income.

During the year, the Group further diversified its tenant base by adding five Approved Providers to the portfolio: Care Housing Association, Encircle Housing, 28A Supported Living, Sunny Vale Supported Accommodation and Partners Foundation. With the Group having entered into leases with 16 Approved Providers, the Group's tenant base is well diversified across the sector with some of the most capable Registered Providers in the Supported Housing sector. The Group's three largest Approved Providers by rental income were Inclusion Housing (20.3%), Falcon Housing Association (15.6%) and My Space Housing Solutions (13.5%).

The three largest Approved Providers by units under management (in the Group's portfolio) were Inclusion Housing with 337 units, followed by Falcon Housing Association and My Space Housing Solutions, each with 302 units.

As at 31 December 2018, the property portfolio had a WAULT of 27.2 years, with 88.7% of the property portfolio's income showing an unexpired lease term to first break of between 21-30 years. Compared with Q2 2018, the WAULT has shortened slightly (by 1.8 years) as the majority of the leases added to the portfolio in the reporting period have a fixed lease term of 25 years. The WAULT comprises the initial lease term at lease commencement as well as any reversionary lease or put options available to the Group at the expiry of the initial lease term.

The rental income received under the FRI leases is indexed annually against CPI (91.8%) or RPI (8.2%), which provides investors with security that the rental income is in line with inflation. Some leases have an indexation 'premium' under which the standard rental increase is based upon CPI or RPI plus a further 1 percentage point, reflecting top-ups by local authorities. For the purpose of the IFRS valuation, Jones Lang LaSalle assumed CPI to increase at 2.0% per annum and RPI to increase at 2.5% per annum over the term of the relevant leases.

As at 31 December 2018, the total rent passing was £17.4 million (excluding forward funding transactions). In this reporting period, 65 leases benefited from a rental uplift, equating to a total rental increase increment of £0.2 million over and above the original contracted rent.

Pipeline and Outlook

We have been active in the Supported Housing market since 2014 and this has enabled us to build up longstanding relationships with Approved Providers, care providers and developers. Using our thorough but clear due diligence processes, we have established a reputation as a disciplined but pragmatic manager which understands and accounts for the risks of all of the parties involved in a Supported Housing transaction. We have sought to associate ourselves with high-quality deals and keep our commitments to Approved Providers, local authorities, care providers and developers. As a result, we can attract best-in-class Supported Housing development opportunities.

The pipeline for the coming year remains healthy, with current visibility on an aggregate value in excess of £400 million. Based on this pipeline, we anticipate investing the Group's available equity proceeds by the end of April 2019. The Group's available funding options, including the equity placing programme (available until October 2019) and revolving credit facility, provide us with the flexibility to accelerate deployment as necessary.

The developers we work with continue to engage with Approved Providers, care providers and local authorities to identify where the need for Supported Housing is most acute. It can take time to identify a suitable site for development or a property for renovation. Once a site or a property has been selected, planning permission may be required and further engagement with the local authority will be needed to set the rental level and verify demand for the specific asset. There can therefore be a significant time-lag between a property or site being identified and it being sufficiently de-risked for the Group to proceed with its purchase. For example, a new build asset can take over a year to get to the point where it is institutionally fundable. Consequently, the deals contained in the pipeline are at various stages of development and we have good visibility of future deal flow for up to 12 months before financial close.

We are increasingly focused on forward funding new-build projects that are inherently more complex and time-consuming than existing properties that only need to be renovated. However, the extra work required to forward fund is warranted as these are superior assets that have been built with the care requirements of the residents considered at all stages of development. They also tend to be larger projects and the residents are typically longer term. As with nearly all of the Group's acquisitions, these properties are purchased off-market from developers who value certainty of process and long-standing relationships over achieving the best price possible through marketing each asset to a wide range of funders. Consequently, we expect yields to remain broadly in-line with what we have achieved to date although we are seeing some compression especially with the most attractive assets.

Understandably following the issues experienced by FPHA, Registered Providers in the Supported Housing sector are increasingly focused on managing risk and this can lead to protracted due diligence processes. Although this can slow down deployment, this is undoubtedly a good thing as it means that the general quality of transactions being done in the sector is high and always improving.

Over the next 12 months, as well as focusing on funding more new-build properties, we will also look to further diversify the care providers and Approved Providers that we work with. We expect that the geographic footprint of the portfolio will expand, and we will continue to both strengthen existing developer relationships and forge new ones so that we can grow the Group's asset base in 2019 and beyond.

Max Shenkman

Head of Investment

28 March 2019

Notes:

1 National Housing Federation, Supported housing: Understanding need and supply (2015)

2 Mencap, Funding supported housing for all (2018)

3 Ministry of Housing, Communities and Local Government, A new deal for social housing (2018)

4 National Housing Federation, Supported housing: Understanding need and supply (2015)

5 National Housing Federation, Supported housing: Understanding need and supply (2015)

6 Secretary of State Ministry of Housing, Communities and Local Government (2018) Affordable Housing: Witten statement - HCWS797

7 Secretary of State Ministry of Housing, Communities and Local Government (2018) Affordable Housing: Witten statement - HCWS797

8 House of Commons Library, Tackling the under-supply of housing in England (2018)

9 Local Government Association, Adass, NHS (2015) Building the right support

10 Mencap, Funding supported housing for all (2018)

11 Including transaction costs

PORTFOLIO SUMMARY

FORWARD FUNDING REVIEW

Introduction

During 2018 the Group entered into 13 forward funding agreements of which six projects had their works certified as completed and seven had ongoing works as at 31 December 2018. The aggregate maximum commitment for the 13 forward funding agreements was £26.3 million, which accounted for 8.1% of total committed capital and 6.0% of GAV or 7.2% of NAV. Of the £26.3 million of maximum commitments made during the year, £9.5 million was outstanding at year end following construction progress. The chart on page 47 of the Annual Report sets out the 13 forward funding projects the Group had entered into as at 31 December 2018, showing their time-frames and maximum commitments.

Forward funding, which the Group has offered from launch, provides benefits to all stakeholders.

For residents, forward funding creates bespoke properties of the highest quality, often designed in collaboration with commissioners, local authorities, care providers and Approved Providers to ensure they are tailored to the needs of residents. Likewise, residents struggling to find suitable accommodation benefit from the new stock that is brought to market by the construction of these new-build properties in areas of high demand.

For developers, forward funding provides construction funding at competitive rates (usually 50-100 bps above the net yield of the completed asset) with funding typically provided quicker than from alternative sources like banks. Similarly, forward funding offers developers the practical efficiency of having the construction funding provided by the same entity that will buy the completed asset, as well as giving developers a guaranteed buyer once construction of the project completes.

For the Group, forward funding creates strong relationships with developers, local authorities and commissioners (who benefit from the new accommodation that the schemes provide locally). In addition, forward funding gives the Group off-market access to schemes as well as the ability to shape and contribute to the successful creation of a scheme. Once construction completes, the Group owns high-quality properties that often benefit from valuation uplifts. The Group's first four completed forward funding schemes received an average valuation uplift of 4.9% on the amount the Group paid (as at 31 December 2018). Likewise, the Group's completed schemes enjoy strong levels of occupancy as a result of their high quality, which benefits the Group and its tenants, the Approved Providers. 

The Group's ability to offer forward funding therefore provides a number of important financial and social benefits, as well as giving the Group a competitive advantage over market peers unable to provide the same offering.

CORPORATE SOCIAL RESPONSIBILITY

Sustainable Business

Acting in a sustainable and responsible manner is fundamental for the achievement of our long-term financial objectives. Our business model seeks to ensure that not only are our properties suitable for individuals with complex living needs but our portfolio continues to meet occupiers' evolving needs in the future. With ethical objectives in mind, we strive to provide value for investors and the wider community at the same time.

Environment

We always seek to ensure that our properties improve the lives of occupiers, have a minimal detrimental impact on the local and wider environment and maximise shareholder value.

Offering occupiers 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 have the opportunity to help reduce running costs for our lessees and occupiers, increase occupier well-being and contribute to the prosperity of a location through supporting new building design and development.

Ignoring these issues when considering asset management and investments would risk the erosion of income and value as well as missing opportunities to enhance investment returns. Through construction, long-term use and eventual demolition, the built-up environment accounts for over a third of global energy consumption. 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. This is especially the case now, when issues such as climate change are in the public eye, meaning the property sector remains a prime target for policy action.

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.

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. 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. This increased professionalisation in the industry will lead to further high-quality housing being made available, alleviate the issue of low supply and enable us and the Approved Providers to support vulnerable residents further.

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 period ended 31 December 2018, 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.

Community and Employees 

Our assets provide multiple benefits to their local communities. They provide occupiers with safe and secure accommodation, tailored to meet their individual care needs, and Approved Provider lessees with a sustainable finance option, allowing them to expand the number of individual lives they can support and improve. In a circumstance where carers are needed - which is the case for the majority of our occupiers - this can stimulate local economies by moving jobs to the area. In development and refurbishment, we help create employment. At the same time, our assets contribute a solution to the critical housing shortage in the UK.

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.

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 page 86 of the Annual Report.

Human Rights

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

The Board are satisfied that, to the best of their knowledge, the Company's principal advisers, which are listed in the Shareholder Information section on page 138 of the Annual Report, comply with the provisions of the UK Modern Slavery Act 2015.

Our business is solely in the UK and therefore we consider there is a low risk of human rights abuses.

RISK MANAGEMENT

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

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 above, 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 to them.

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. A description of the key internal controls of the Group can be found in the Annual Report. The AIFM, in conjunction with 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 occurrence and graded suitably. The principal risks that have been subject to this methodology are noted in the Risk Heat Matrix set out in the Annual Report. The Board regularly reviews the risk register to ensure gradings and mitigating actions remain appropriate.

Our risk management process is designed to identify, evaluate and mitigate (rather than eliminate) the significant 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 which it has determined to be material.

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.

GOING CONCERN AND VIABILITY

Going Concern

The Strategic Report and financial statements have set out the current financial position of the Group and parent Company. The Board has regularly reviewed the position of the Company and its ability to continue as a going concern in Board meetings throughout the period. The Company 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 £302.6 million up to 31 December 2018, and £21.0 million since the year end. The cash balance of the Group at period end was £114.6 million, of which £97.3 million was readily available for use. As stated in the Strategic Report, the Investment Manager has identified a visible pipeline of over £400 million of attractive investment opportunities for acquisition over the next 12 months. The Board has evaluated the financial position of the Group and plans to raise both debt and equity capital, as necessary, in order to fund the Group's investments for the next 12 months. Income generated from the Group's portfolio of assets is expected to 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.

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 Group and parent Company's financial statements and, therefore, has adopted the going concern basis in the preparation of the financial statements.

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 2023, 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 the care providers is typically five years

· 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 27.2 years to expiry, representing a secure income stream for the period under consideration

· The Group's floating rate Revolving Credit Facility has an initial term of four years which may be extended by a further two years.

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

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

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 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:

1. Approved Providers defaulting under a lease having a negative impact on rental income and valuations:

· the viability model has been stressed by a 10% reduction in rental income. The 10% reduction in rent was chosen to represent either a mid-sized Approved Provider becoming insolvent or a major sectoral change that may affect the ability of an Approved Provider to pay full rents. It is assumed that the loss in income has an impact on the valuation of the portfolio, 90% remains at full valuation and 10% at vacant possession value assumed to be approximately 47% of the full market value. Under the 12 month going concern model rents are reduced by 25% to represent a scenario whereby an Approved Provider, to which the Group had it reached its maximum target exposure, became insolvent.

2. Deterioration in economic outlook which could impact the fundamentals of the social housing sector, including a negative impact on valuations and rental uplifts:

· the business model has been stressed to exclude all rental uplifts which has an impact on the valuation of the portfolio and the ability to pay covered dividends.

· the business model has been stressed with an adverse impact on the yield which has an impact on covenant testing.

3. Lack of availability of debt financing or other capital:

· in the normal course of business, financing is arranged in advance of expected requirements and the business model assumes that the Directors have reasonable confidence that additional or replacement debt facilities will be put in place during 2019 to bring leverage up to the target of 40%. No further financing is assumed in the business model after 2019.

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 would be required to enable the Group to meet its future liabilities.

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

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

BOARD APPROVAL OF THE STRATEGIC REPORT

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

Chris Phillips

Chairman

28 March 2019

GROUP FINANCIAL STATEMENTS

GROUP STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2018

All amounts reported in the Group Statement of Comprehensive Income for the year ended 31 December 2018 relate to continuing operations.

GROUP STATEMENT OF FINANCIAL POSITION

As at 31 December 2018

The Group financial statements were approved and authorised for issue by the Board of Directors on 28 March 2019 and signed on its behalf by:

Chris Phillips

Chairman

28 March 2019

GROUP STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2018

GROUP STATEMENT OF CASH FLOWS

For the year ended 31 December 2018

NOTES TO THE GROUP FINANCIAL STATEMENTS

For the ended 31 December 2018

1. CORPORATE INFORMATION

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

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

2. BASIS OF PREPARATION

The financial information contained in this results announcement has been prepared on the basis of the accounting policies set out in the financial statements for the period ended 31 December 2017 except for the adoption of IFRS 9 and IFRS 15 during the year ended 31 December 2018 which have not had a material impact on the results. Whilst the financial information included in this announcement has been computed in accordance with the recognition and measurement requirements of IFRS, as adopted by the European Union, this announcement does not itself contain sufficient disclosures to comply with IFRS. The financial information does not constitute the Group's financial statements for the years ended 31 December 2018 or for the period ended 31 December 2017, but is derived from those financial statements. Financial statements for the period ended 31 December 2017 have been delivered to the Registrar of Companies and those for the year ended 31 December 2018 will be delivered following the Company's Annual General Meeting. The auditors' reports on both the 31 December 2018 and 31 December 2017 financial statements were unqualified; did not draw attention to any matters by way of emphasis; and did not contain statements under section 498 (2) or (3) of the Companies Act 2006.

The Group's Financial Statements have been prepared in accordance with the requirements of International Financial Reporting Standards as adopted by the European Union ("IFRS"), IFRIC interpretations, and with those parts of the Companies Act 2006 as applicable to companies reporting under IFRS. 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.

New standards impacting the Group that have been adopted in the Financial Statements for the year ended 31 December 2018 are:

· IFRS 9 Financial Instruments; and

· IFRS 15 Revenue from Contracts with Customers

IFRS 9 Financial Instruments

IFRS 9 replaces IAS 39 Financial Instrument: Recognition and Measurement and introduces a single model that has initially only two classification categories rather than the multiple classification and measurement models in the previous standard. The new models are amortised cost and fair value.

Due to the nature of the Group's financial instruments, the adoption of IFRS 9 does not have a material impact on the Group's results or financial position and does not require there be a restatement of comparative figures.

Having considered the requirements of IFRS 9, under section 5.5.15(b), the directors have chosen to apply the simplified approach when considering the Expected Credit Loss (ECL) model when determining the expectations of impairment. Under the simplified approach the Company is always required to measure lifetime expected losses. The directors incorporate forward funding information when estimating the appropriate amount of provisions.

Given the nature of the Group's receivables, the directors do not consider any to be impaired. They believe that all are fully recoverable. This view is because all rent receivables are from fully repairing and insuring leases and each tenant receives their cash inflows from local and central government. These factors combine to ensure the probability of credit loss is immaterial.

IFRS 15 Revenue from Contracts with Customers

IFRS 15 has replaced IAS 11 Construction Contracts and IAS 18 Revenue. The standard introduces a new revenue recognition model that recognises revenue either at a point in time or over time.

The directors are satisfied the standard has no material impact on the financial statements as rental income is outside the scope of the standard and the Group's only revenue is currently generated from rental income from leases that do not contain any service components.

The following are new standards, interpretations and amendments, which are not yet effective and have not been early adopted in this financial information, that will or may have an effect on the Group's future financial statements:

· IFRS 16 Leases (effective for annual periods beginning on or after 1 January 2019).

The Directors have given due consideration to the impact on the financial statements of IFRS 16 and at present they do not anticipate that the adoption of the standard and interpretation will have a material impact on the financial statements in the period of initial application, other than on presentation and disclosure. This is because where the Group is a lessee i.e. leasehold properties, the Group already recognises these as finance leases on the statement of financial position. Further, no changes have been identified in respect of these leases where the Group also acts as a lessor.

2.

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 show the expected annualised rental income exceeds the expected operating costs of the Group. This is explained further within the Going Concern and Viability section included in the Strategic Report on pages 64 to 66 of the Annual Report.

As a result, the directors believe that the Group is well placed to manage its financing and other business risks and that the Group will remain viable, continuing to operate and meets its liabilities as they fall due.

The directors believe that there are currently no material uncertainties in relation to the Group's ability to continue in operation for the period of at least 12 months from the date of approval of the Group's Financial Statements. The Board is, therefore, of the opinion that the going concern basis adopted in the preparation of the financial statements is appropriate.

2.2. Reporting period

The financial statements have been prepared for the year ended 31 December 2018. The comparative period was for the period from 12 June 2017 to 31 December 2017.

2.3 Currency

The Group and Company 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 definitions published by the Royal Institute of Chartered Surveyors' ("RICS") Valuation - Professional Standards, July 2017, Global and UK Editions (commonly known as the "Red Book"). 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;

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 the substance of the assets and activities of the acquired entity in determining whether the acquisition represents the acquisition of a business. The Group accounts for an acquisition as a business combination where an integrated set of activities is acquired in addition to the 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 no integrated set of activities were acquired.

3.3. The Group as lessor (note 27)

The Group has acquired investment properties that are subject to commercial property leases with Registered Providers. The Group has determined, based on an evaluation of the terms and conditions of the arrangements, including the duration of the lease terms compared to the economic life of the asset, the minimum lease payments discounted using an average cost of borrowing rate compared to the fair value of the asset at acquisition, that it retains all the significant risks and rewards of ownership of these properties and so accounts for the leases as operating leases.

3.4. The Group as lessee (note 27)

Leases where substantially all of the risks and rewards incidental to ownership of a leased asset have been transferred to the Group are accounted for as finance leases. The key judgements in making this assessment include the fact that the lease term is for the major part of the economic life of the asset. The asset is treated as if it had been purchased outright and held within the Group's investment properties. The amount initially recognised as an asset is the lower of the fair value of the leased property and the present value of the minimum lease payments of ground rents payable over the term of the lease. The corresponding lease commitment is shown as a head lease liability. Ground rent payments are analysed between capital and interest. The interest element is charged to the Statement of Comprehensive Income over the period of the lease. The capital element reduces the balance owed to the lessor.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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 6.5-6.75% per annum is payable by the Developer. The accrued coupon interest is considered as a discount on the fixed contract price. It does not result in any cash flows during the development, but reduces the outstanding balance payable to the developer on practical completion. When practical completion is reached, the completed investment property is transferred to operational assets at the fair value on the date of completion.

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

4.3. Leases - Lessor

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

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

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

4.4. 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.

Trade 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 trade 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 trade 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 trade receivables. For trade 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 trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision.

4.5. Cash and cash equivalents

Cash and cash equivalents 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 consideration 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.

4.9. C shares financial liability

C shares were convertible non-voting preference shares issued during the year and met the definition of a financial liability. C shares were recognised on issue at fair value less directly attributable transaction costs. After initial recognition, C shares are subsequently measured at amortised cost using the effective interest rate method. Amortisation is credited to or charged to finance income or finance costs in the Consolidated Statement of Comprehensive Income. Transaction costs are deducted from proceeds at the time of issue. C shares converted into Ordinary shares on the conversion date on the basis of their respective NAV per share at the calculation date.

4.10. 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.

4.11. Dividend 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.

4.12. 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.

 Rental income is invoiced in advance and any rental income that relates to a future period is deferred and appears within current liabilities on the Statement of Financial Position.

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.

4.13. 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.

4.14. Expenses

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

4.15. Investment management fees

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

4.16. 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.

5. RENTAL INCOME

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 United Kingdom.

6. DIRECTORS' REMUNERATION

The Directors are remunerated for their services at such rate as the directors shall from time to time determine. The Chairman receives a director's fee of £75,000 per annum, and the other directors of the Board receive a fee of £50,000 per annum. 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).

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. 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 period other than the directors (2017: none).

8. MANAGEMENT FEES

On 20 July 2017 Triple Point Investment Management LLP 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.

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 at 31 March, 30 June, 30 September and 31 December in each year on the following basis with effect from Admission:

(a) 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;

(b) 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;

(c) 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;

(d) 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 £2,309,000 (2017: £472,000) were chargeable by TPIM during the year. At the year-end £811,000 (2017: £446,000) was due to TPIM.

9. GENERAL AND ADMINISTRATIVE EXPENSES

On 1 October 2018 Hanway Advisory Ltd, who are associated with Triple Point Investment Management LLP the delegated investment manager, were appointed to provide Administration and Company Secretarial Services to the Group. During the year Company Secretarial Services of £31,200 were chargeable by Hanway Advisory Ltd.

10. AUDIT FEES

BDO LLP also received £113,000 (2017: £53,000) for its role as reporting accountant of the Company in relation to new share issues, and £73,000 in relation to eNAV and interim reviews. The fees relating to the share issuance have been treated as share issue costs and offset against share premium arising on the issue of these shares.

BDO LLP received £nil (2017: £25,000) for corporate finance services which are treated as capitalised in the cost of the investment property.

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

· Norland Estates Limited

· TP REIT Prop Co 2 Limited

· TP REIT Super Hold Co Limited

· TP REIT Hold Co 1 Limited

· TP REIT Hold Co 2 Limited

· FPI Co 22 Limited*

· FPI Co 173 Limited*

* Accounts audited for the period ended 31 December 2017 only.

11. FINANCE INCOME

12. FINANCE COSTS

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.

The tax charge for the period is less than the standard rate of corporation tax in the UK of 19% (2017:19%). The differences are explained below.

The Government has announced that the corporation tax standard rate is to be reduced from 19% to 17% with effective date from 1 April 2020.

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

Properties under development represent contracts for the development of a pre-let property under a forward funding agreement.

The carrying value of leasehold properties at 31 December 2018 was £26.5 million (2017: £24.1million).

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 six 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 7 years.

% Key Statistics

The metrics below are in relation to the total investment property portfolio held as at 31 December 2018.

*calculated excluding acquisition costs

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

*** calculated excluding forward funding acquisitions