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.

13 March 2020

Triple Point Social Housing REIT plc

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

RESULTS FOR THE YEAR ENDED 31 DECEMBER 2019

The Board of Triple Point Social Housing REIT plc (ticker: SOHO) is pleased to announce its audited results for the year ended 31 December 2019.

Financial highlights

· IFRS net asset value per share of 105.37 pence as at 31 December 2019 (2018: 103.65 pence), an increase of 1.66%.

· Portfolio independently valued as at 31 December 2019 at £471.6 million on an IFRS basis (2018: £323.5 million), reflecting a valuation uplift of 7.45% against total invested funds of £439 million2. The properties have been valued on an individual basis.

· The Group's properties were valued at £503.8 million on a portfolio valuation basis (2018: £343.7 million), reflecting a portfolio premium of 6.82% or a £32.2 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 £25.4 million1 as at 31 December 2019 (2018: £17.4 million).

· Operating profit for the year ended 31 December 2019 was £26.9 million (2017: £21.5 million).

· Ongoing Charges Ratio of 1.63% as at 31 December 2018 (2018: 1.58%).

· Extended existing debt facility by £60 million. As at 12 March 2020, £29.4 million of debt was uncommitted.

Operational highlights

· Acquired 116 properties (843 units) during the year for a total investment cost of £130.5 million (including costs) bringing the total investment portfolio to 388 properties.

· Committed approximately £29.8 million to forward fund the development of nine newly built or fully-renovated bespoke Supported Housing schemes, bringing total forward funding agreements entered into by the Group to 22 of which 11 had reached practical completion by the year end and 11 were on-going.

· IFRS blended net initial yield of 5.27% based on the value of the portfolio on an IFRS basis as at 31 December 2019, against the portfolio's blended net initial yield on purchase of 5.91%.

· Further diversified the portfolio: 

o 11 regions

o 149 local authorities

o 300 leases

o 16 Approved Providers

o 88 care providers

· As at 31 December 2019, the weighted average unexpired lease term ("WAULT") was 25.7 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 1.285 pence per ordinary share in respect of the period from 1 October to 31 December 2019. This dividend will be paid on or around 27 March 2020 to shareholders on the register at 13 March 2020.

· The dividend payable on 27 March 2020 brings the total dividend per Ordinary Share paid by the Company to 5.095 pence per share in respect of the financial year to 31 December 2019 in line with the Company's stated target. The Company is targeting an increase in the aggregate dividend, underpinned by the anticipated growth in income. The 2020 dividend target will be determined in line with February 2020 Consumer Price Index   once this data is made available3.

· The Company acquired a further seven properties (91 units) for an aggregate purchase price of approximately £19.3 million (including costs).

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 look forward to 2020 with optimism. This follows another successful year in 2019 which has set us up well for the next 12 months. During 2019, we deployed the proceeds of two fund-raises into more high-quality properties. We extended our debt facility based on continuing demand from local Commissioners and are approaching the optimal target level of gearing. We met our dividend target and are making progress towards fully covering the dividend. Rent continues to be paid and on time. In 2020 we will continue to focus on property quality and due diligence, and our principal challenge will be to help the sector meet growing regulatory requests and increase the Company's share price to reflect our continuing operational success. However, building on our success this year and in previous years, we believe we are well equipped to meet these challenges and more as we move forward into 2020."

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 primarily newly developed 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 pressure and social need to increase housing supply across the UK which is creating opportunities for private sector investors to help deliver this housing. The Group's ability to provide forward funding 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 as well as 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.

CHAIRMAN'S STATEMENT

Introduction

I am pleased to write to you with the results of our second full financial year. This year we have delivered another strong set of results - both financially and in terms of social impact.

Our IFRS NAV per share rose by 1.66% to 105.37 pence, reflecting our secure income and portfolio strength. As expected, our existing portfolio has performed solidly, and we have continued to deploy funds into high-quality properties leased to Approved Providers which continue to strengthen as a result of ongoing regulatory engagement.

Over the last 12 months, we successfully deployed the proceeds of both our October 2018 equity raise and our December 2018 revolving credit facility. In October 2019, we extended the revolving credit facility by another £60 million to meet the strong demand for new Specialised Supported Housing properties. From each and every acquisition in this evolving market, we learn and improve our due diligence process, ensuring that, now and in the future, we always invest in the best properties we can. We now have 388 properties in 149 different local authorities in England, Scotland and Wales which are leased (or pre-let) to 16 different counterparties, ensuring strong diversification.

As always, in 2019 we made sure that the impact of our investments was more than simply financial. We launched the Company because we saw an opportunity to do well by doing good. We realised that Specialised Supported Housing was a sector which could be transformed by the careful investment of private capital into high-quality, adapted, community-based homes around the UK. In doing so, we could achieve a steady, long-term income stream for our investors through rental income. But, as importantly, we could also provide housing that simultaneously improves the health of the people who live in it and saves the Government money compared to housing people with long-term health needs in institutional settings like care homes and hospitals. Research suggests that someone in our housing saves the Government about £200 per week when compared to care home accommodation. This figure increases to about £2,000 a week compared to having someone with long-term health needs in hospital1. For these reasons, the call for new Specialised Supported Housing by Commissioners across the country continued throughout 2019. In fact, at the last review in 2015, the shortfall of supported housing was expected to be 46,771 units by 2024/20252. We hope our investments continue to address this shortfall and benefit society into 2020 and beyond.

In previous reports we have discussed the evolution of regulation in the Supported Housing market. The impact of this regulatory engagement has remained an important part of the market throughout 2019 - and is likely to remain so in 2020 and beyond as historical issues are resolved. We discuss all this in detail in the Investment Manager's Report, but it is worth saying now that, despite some short-term delays caused by regulatory engagement, we strongly welcome greater regulation of a sector that is rapidly evolving and maturing. For all the improvements already made by Registered Providers3, we remain committed to taking into account the views of all relevant stakeholders to evolve the model and ensure that the risks that the Regulator of Social Housing set out in its April 2019 report4 and its non-compliant ratings for individual Registered Providers are mitigated5. This is discussed in more detail in the Investment Manager's Report. This will ensure the sector is sustainable and provides long-term solutions to local government, care providers and individuals with specific care needs. We believe that private capital continues to play an important role, recognised by the Regulator, in addressing the chronic undersupply and in delivering high-quality new housing6.

Throughout 2019 we continued to build on the quality of our portfolio. In April, for example, we acquired our first site in Scotland, West Bowling Green, a flagship forward funding development in the centre of Edinburgh which will be leased to Inclusion Housing and which is being developed in conjunction with Edinburgh City Council. In September we acquired Park View Apartments, a self-contained 18-unit purpose built property in Wolverhampton, that is leased to Bespoke Supported Tenancies. Finally, in December we acquired Delph Crescent which is leased to Care Housing Association and that was developed in full collaboration with Bradford Metropolitan District Council. Investing in high-quality housing helps provide the best health outcomes for residents and the long-term sustainability of the properties for the benefit of Approved Providers, care providers, local authorities and our investors. We will continue to evolve our due diligence criteria in 2020 to ensure we always buy the best properties that we possibly can. When acquisition opportunities are presented, our Investment Manager's deep sector knowledge and well-established due diligence process allows them to conduct an initial appraisal, at which point schemes are often rejected. To date, we have rejected in excess of £500 million of potential deals as a result of property or counterparty quality.

Forward Funding

As part of our aim to buy the highest quality housing possible and deliver the greatest social and financial impact, this year saw us commit a significant level of capital to forward fund the development of new properties amounting to £29.8 million on nine projects. As at 31 December 2019, we have committed £56.2 million to 22 forward funded projects, with 11 projects now having completed and the remaining 11 expected to complete in 2020.

The ability to forward fund remains a key differentiator from our competition and ensures that we are deploying funds into the highest quality new-build projects available. Forward funding allows the Group to 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. As ever, we need to balance how much forward funding we have at any one time since these projects do not generate income during construction. However, given the significant benefits for residents and other stakeholders, we forward fund, wherever possible, new development projects.

Deployment

During the twelve months of 2019 we bought 116 new properties, which provide accommodation for 843 residents, for a total investment cost of £130.5 million7. All our properties are based in communities and have specialist adaptations for the needs of residents agreed by the care provider, Commissioner and Approved Provider. Beyond these completed properties, as at 31 December 2019 we had outstanding commitments of £24.3 million relating to four properties on which we had exchanged, and 11 forward funded properties on which had yet to complete construction. With our second investment into Scotland in October 2019, our diversification continues to grow. Following our investments in 2019, our overall portfolio has grown to 388 properties as at 31 December 2019 (31 December 2018: 272). These properties provide accommodation for 2,728 residents (31 December 2018: 1,893).

During 2019, we began working with 26 new care providers and 40 new local authorities. Overall, we now have leases in place with 16 Approved Providers - the same number as at the end of 2018 - and own properties into which 88 care providers operate (31 December 2018: 62) and located in 149 different local authorities (31 December 2018: 109). At the end of 2019, our portfolio's weighted average unexpired lease term (including put/call options and reversionary leases) was 25.7 years, compared to 27.2 years in the previous period. This reflects the greater diversification of our portfolio from the properties initially acquired on IPO and a maturing of the market.

Deployment in 2019 was slower than 2018. This was the result of the Group being further through its deployment cycle and greater regulatory engagement causing Registered Providers to focus on consolidation rather than growth. Regulatory engagement is discussed in detail in the Investment Manager's Report below, and while it has slowed down the deployment of new Specialised Supported Housing it has improved governance, financial strength and operations which will benefit Approved Providers and the wider sector in the long-term.

Share Price

The Company's share price came under pressure following the publication of a report from the Regulator in April 2019 about lease-based providers of Specialised Supported Housing. This had the effect of reducing the Company's market capitalisation. As well as acknowledging the benefits of private capital investing in this sector, the report set out a number of risks for Registered Providers.

It is true that a minority of Registered Providers operating in this growing sector have been deemed non-compliant by the Regulator. However, the fundamentals remain strong and it is important to remember that the majority of Registered Providers continue to perform well. In addition, there is persistent demand for this type of housing, which provides better outcomes for residents while saving the Government money. We continue to engage with shareholders and other stakeholders to explain the strength of the model generally and our operational performance specifically.

Share Buybacks

During 2019, the Company bought back 450,000 Ordinary Shares at a share price of between 83 and 83.3 pence per share. These shares are now held in treasury. The Board decided to undertake share buybacks because the Company's share price was trading at a significant discount to net asset value following the publication in April of the Regulator's report as mentioned above. The Board took the view that share buybacks should be considered alongside the acquisition of new properties, since share buybacks for investment purposes are particularly attractive when the discount to net asset value is wide, providing net asset value accretion for ongoing shareholders.

The Company will continue to seek shareholder approval at its annual general meeting, as a matter of course, to undertake share buybacks at a discount to net asset value for up to 10% of the Company's issued share capital. The Directors will consider share buybacks if they believe them to be in the interests of shareholders as a whole, taking into account the impact on secondary market liquidity, the Company's ongoing charges ratio, the terms of the Group's debt facilities, and general market conditions including the availability of income-generating investment opportunities.

Equity and Debt Raising

During 2019 we completed deployment of both the £108.2 million of equity raised in October 2018 and the £70 million of debt raised in December 2018. In October 2019, we extended that debt facility by £60 million. As at 12 March 2020, £29.4 million of debt was uncommitted and available to be deployed to meet the demand for more Specialised Supported Housing and help us achieve full dividend cover towards the end of 2020. On a Group consolidated basis, the current LTV is 31.1%.

Financial Results

As at 31 December 2019, our portfolio was independently valued at £471.6 million on an IFRS basis. This reflects a valuation uplift of £32.7 million, or 7.45%, over our total investment cost (i.e. including transaction costs). The valuation reflects a blended valuation net initial yield of 5.27%, which is better than the portfolio's blended average net initial yield at purchase of 5.91%. This equates to a yield compression of 64 basis points, reflecting our ability to buy good properties at off-market prices.

As at 31 December 2019, our portfolio was valued at £503.8 million on a portfolio valuation basis (i.e. assuming a single sale of the property-holding 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 £32.2 million against the IFRS valuation.

IFRS earnings per share in the year was 6.75 pence and EPRA earnings per share was 3.39 pence. The audited IFRS NAV per share and the EPRA NAV per share were both 105.37 pence, an increase since 31 December 2018 of 1.66%.

Dividends

The Company has paid three interim dividends of 1.27 pence per share each for the year to 31 December 2019. On 5 March 2020 we declared a further interim dividend of 1.285 pence per share for the period 1 October to 31 December 2019, payable on or around 27 March 2020 to shareholders on the register on 13 March 2020, bringing the total dividends paid or declared in respect of the year to 31 December 2019 to 5.095 pence per share. This met our dividend target for the whole year, representing an increase of 1.9% over 2018's aggregate dividend, in line with inflation and reflecting the CPI-based rent reviews typically contained in the leases over our properties.

The Company is targeting an increase in the aggregate dividend, underpinned by the anticipated growth in income. The 2020 dividend target will be determined in line with February 2020 Consumer Price Index once this data is made available. It remains a priority of ours to achieve a fully covered dividend. As at 31 December 2019, EPRA earnings covered 66.6% of dividends. Full dividend cover by EPRA earnings is expected in Q3 2020 once debt funds are fully deployed. The delay in full dividend cover has resulted from the slower than expected deployment of funds as Approved Providers have focused on improving governance and operations, as required by the Regulator, rather than growing their portfolios. However, on an annualised basis, if all completed properties were income-generating for the full period, the dividend cover would be 76%; if income on all exchanged and forward funded properties were included, dividend cover would be 90%.

Outlook

We look forward to 2020 with optimism. This follows another successful year in 2019 which has set us up well for the next 12 months. During 2019, we deployed the proceeds of two fund-raises into more high-quality properties. We extended our debt facility based on continuing demand from local Commissioners and are approaching the optimal target level of gearing. We met our dividend target and are making progress towards fully covering the dividend. Rent continues to be paid and on time. In 2020 we will continue to focus on property quality and due diligence, and our principal challenge will be to help the sector meet growing regulatory requests and increase the Company's share price to reflect our continuing operational success. However, building on our success this year and in previous years, we believe we are well equipped to meet these challenges and more as we move forward into 2020.

Our success owes much to the strength of the Investment Manager's network and due diligence processes. Through its hard work, we have been able to continue buying best-in-class properties around the country at attractive and sustainable yields.

I would like to take this opportunity to thank shareholders for your continued support, and our Investment Manager and my fellow Board members for their support and commitment throughout the year.

Chris Phillips

Chairman

12 March 2020

Notes:

1 Mencap, Funding supported housing for all (2018)

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

3 See Investment Manager's report below.

4 Regulator of Social Housing, Lease-based providers of specialised supported housing (2019)

5 Regulator of Social Housing, Regulatory Notice: Bespoke Supportive Tenancies Limited (2019)

Regulator of Social Housing, Regulatory Notice: Encircle Housing Limited (2019)

Regulator of Social Housing, Current regulatory judgement: Inclusion Housing Community Interest Company (2019)

Regulator of Social Housing, Current regulatory judgement: Westmoreland Supported Housing Limited (2019)

6 Regulator of Social Housing, Lease-based providers of specialised supported housing (2019), para. 2.6.

7 Including acquisition costs

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 Company seeks to optimise the mix of these assets to enable it to pay a covered dividend increasing in line with inflation and so generate an attractive risk-adjusted total return.

Investment Policy

To achieve its investment objective, the Group invests in a diversified portfolio of freehold or long leasehold social housing assets in the UK. Supported Housing assets account for at least 80% of the Group's gross asset value. The Group acquires portfolios of social housing assets and single social housing assets, either directly or via SPVs. Each asset is subject to a lease or occupancy agreement with an Approved Provider for terms primarily ranging from 20 years to 30 years, with the rent payable thereunder subject to adjustment in line with inflation (generally CPI). Title to the assets remains with the Group under the terms of the relevant lease. The Group is not responsible for any management or maintenance obligations under the terms of the lease or occupancy agreement, all of which are serviced by the Approved Provider lessee. The Group is not responsible for the provision of care to residents of Supported Housing assets.

The social housing assets are sourced in the market by the Investment Manager.

The Group intends to hold its portfolio over the long-term, taking advantage of long-term upward-only inflation-linked leases. The Group will not be actively seeking to dispose of any of its assets, although it may sell investments should an opportunity arise that would enhance the value of the Group as a whole.

The Group may forward fund the development of new social housing assets when the Investment Manager believes that to do so would enhance returns for shareholders and/or secure an asset for the Group's portfolio at an attractive yield. Forward funding will only be provided in circumstances in which:

(a) there is an agreement to lease the relevant property upon completion in place with an Approved Provider;

(b) planning permission has been granted in respect of the site; and

(c) the Group receives a return on its investment (at least equivalent to the projected income return for the completed asset) during the construction phase and before the start of the lease.

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). 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.

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 36 and 37 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.

INVESTMENT MANAGER'S REPORT

Review of the Group's Portfolio

Looking back over the Group's second full financial year, there is much to be happy about. The Group's portfolio is performing well. During the year, the Group bought 116 new properties - many of them off-market - providing accommodation for 843 new residents. The Group's portfolio now comprises 388 properties with accommodation for 2,728 residents. It is diversified across 16 Approved Providers, 88 Care Providers and 149 local authorities. The Group's WAULT remains high at 25.7 years. To date all of the Group's rent has been received in full. The Group's portfolio was independently valued at £471.6 million, an uplift of 7.45% against total funds invested of £439 million.

In achieving all this, the Group spent the proceeds of the equity and debt raises secured at the end of 2018, before successfully securing a £60 million extension to the same debt facility based on the strength of the sector's fundamentals and our investment processes. Indeed, our due diligence evolves with every transaction, and many deals are rejected despite falling within our strict investment criteria. As you would expect, on each and every transaction we analyse a wide and growing range of matters such as legal title, property condition, Commissioner support, rent support, and our counterparties' covenant strength. Central to our due diligence is the physical quality of our properties. High-quality properties mean safer housing, better outcomes for residents, greater demand from local Commissioners and lower maintenance costs for Registered Providers.

Ensuring that our investments have a positive social impact has always been fundamental to our processes. However, we have recently formalised the assessment of impact into our due diligence documentation. This will allow us to measure and track impact as well as we can, ensuring our investments always benefit society as much as our shareholders. All future transactions will be formally assessed against impact measures in both our upfront due diligence questionnaire and our detailed due diligence tracker. Our investment Committee will only allow investments to proceed to completion if they demonstrate a clear social impact, primarily through delivering more housing, saving the Government money, and improving health outcomes for residents.

As part of our aim to make the Company one of the UK's leading social impact REITs, we are commissioning a market-leading provider of commercial due diligence in healthcare to conduct the largest exercise in gathering primary data that the Specialised Supported Housing sector has yet seen. The report will gather as much data as is currently available on the size of the market, current demand, future demand, the cost implications of this type of housing, and the health outcomes it provides. This data will be gathered through Freedom of Information requests, telephone interviews with Commissioners and local authorities, reviews of Housing Strategy papers, and analysis of portfolios from Registered Providers and/or care providers operating in the sector. In collecting all this data, the report should provide the most comprehensive and up-to-date picture yet of the size, demand, and costs and benefits of Specialised Supported Housing. We hope to have the report completed in mid-2020 and look forward to sharing it with all stakeholders.

The publication of the Regulator's risk report in April 2019 focused on the risks that Registered Providers should consider when operating the long-lease model. However, improvements continue to be made by Registered Providers and operating performance remains strong, as reflected in the positive momentum of the Company's share price towards the end of 2019. Indeed, the reasons why the Group was launched in the first place are still readily apparent on the ground. Across the country there is still enormous demand - from Commissioners, care providers and Approved Providers - for this housing because it saves the Government money at the same time as improving the lives of people living in it. It is exactly these societal benefits which underpin the Group's rental income for its investors. Without the Group's investment, its residents could still be living in inappropriate settings to the detriment of themselves, their families and the taxpayer.

Market Review

The rapid growth of the Supported Housing sector that characterised 2016, 2017 and early 2018 has now matured into a period of steadier growth and greater regulatory scrutiny during 2019. The sector, which traditionally had little regulatory involvement, has been the subject of increasing engagement with the Regulator of Social Housing. This engagement resulted in a series of regulatory notices and judgements. In February, at the end of a routine In-Depth Assessment, the Regulator published a Regulatory Judgement on Inclusion Housing C.I.C., deeming it non-compliant in terms of financial viability (V3) and governance (G3)1. Inclusion's non-compliant judgement focused on the general risks of leasing rather than owning properties.

Encircle Housing and Bespoke Supportive Tenancies Limited both received non-compliant ratings in April and May respectively2. Neither was given a formal rating because they had fewer than 1,000 units under management at the time the Regulator conducted its investigations. Their judgements focused on specific issues relating to risk management and indeed on 12 August 2019 a further short notice was published about Bespoke Supportive Tenancies concerning shortcomings in its compliance checks at certain properties.

Finally, on 30 September 2019 the Regulator downgraded Westmoreland Supported Housing's original governance rating from G3 to G4 (with its viability remaining at V3)3. This followed a winding up petition submitted - but then withdrawn - by one of Westmoreland's landlords over disputed rent. The Regulator deemed that Westmoreland had a governance shortcoming as it had allowed this to happen. Westmoreland has now had three new board members appointed by the Regulator to improve its governance. All payments under the Group's leases with Westmoreland continue to be paid on time.

As at 31 December 2019, the Group had 90 properties leased to Inclusion (20.6% of the Group's GAV as at 31 December 2019), two properties leased to Encircle (0.6% of GAV), 41 leased to Bespoke Supportive Tenancies (6.1% of GAV), and 15 leased to Westmoreland (3.2% of GAV). As at 31 December 2019, all rents to the Group continued to be paid in full.

Beyond these specific regulatory judgements, the Regulator's April 2019 addendum to its 2018 Sector Risk Profile focused on the risks of providers of Specialised Supported Housing which predominantly lease, rather than own, properties owned by public or private funds. The report acknowledged the importance of private investment into this sector but focused on the risks that should be borne in mind by both Registered Providers and investors into the sector. After discussing these risks, the report stated that the Regulator intends to work with Registered Providers to help them mitigate these risks. This work presumably has had some success because the 2019 Sector Risk Profile suggests that, despite continuing concerns, these concerns relate to only some Registered Providers. Importantly, when these regulatory judgements and notices relate to properties owned by the Group they have not affected the valuation of the Group's investments. The independent account's valuer, JLL, have demonstrated strong evidence that, regardless of the regulatory activities, the appetite from investors for these assets remained unaffected and that similar assets leased to the affected Registered Providers continued to trade in the market without any discount. In the light of this JLL concluded not to risk-adjust the respective yields in relation to these assets in order to reflect lower market values.

In response to this regulatory engagement, Registered Providers in this sector have been working to improve their governance, their operations, and their financial positions. The 14 Registered Providers we lease properties to have appointed 46 board members since the start of 2018. These board members have backgrounds in housing, care, finance and law. Operationally, Registered Providers are recruiting more staff and are signing up to better software packages to improve reporting. Financially, Registered Providers are, as expected, using growing surpluses to diversify from leasing properties into buying freehold properties, giving them asset bases and more income. Over the last two financial years, the average net asset value of our 14 Registered Providers increased by 34%.

In our view, these are the right responses to the risks properly identified by the Regulator. As we said in our article in Social Housing magazine in November 2019, we are working with Registered Providers to ensure the standards of the Regulator are met. Even though we are not regulated by the Regulator, as a long-term stakeholder in this sector we are committed to ensuring the sector works as well as it can for the long-term. We regularly meet our Approved Providers to discuss financial reporting and governance and help them to address specific property-related issues. We continue to expand our property management team with a focus on property inspections as well relationships with Registered Providers and care providers.

In parallel, we continue to meet senior members of Government to explain the nature and benefits of our investment model, discussions which we hope will soon be informed by the data-gathering report referred to above. We are also discussing what adjustments we can make to the model that will uphold financial and governance standards while attracting further private investment. Already we have been rolling out a new force majeure clause that allows tenants to re-negotiate rents in the event of a change in Government rent policy. Likewise, we have been giving tenants call options allowing them to extend the length of their leases.

For all the Regulator's concerns about the performance of some Registered Providers in this sector, they have recognised the benefits of private investment4. The fundamentals of this sector remain as compelling as ever. The House of Commons Library's paper The Future of Supported Housing states that most supported housing is "exceptionally good value for money, providing significant cost savings for the wider public sector, while maximising quality of life for tenants"5. In the same way, Mencap's analysis has found that each person in Specialised Supported Housing saves the Government about £200 per week compared to being in a care home and about £2,000 per week compared to being in a hospital6. Multiplying these costs savings across the 2,728 units in the Group's portfolio (as at 31 December 2019) gives some indication of the scale of the cost-savings the Group alone delivers.

Given these benefits, there is a strong case to use private investment to fill the shortfall of Supported Housing that is expected to be 46,771 units by 2024/257. Beyond the wider housing crisis in the UK, demand for Specialised Supported Housing specifically has grown for a number of reasons. As well as the general population growing, the proportion of people living to working age with health needs has increased as medical advances have extended lifespans8. In addition, the Government continues its policy - enshrined in the Care Act 2014 and the Transforming Care Programme of 2015 - of moving people from institutional settings into community-based settings9. It is perhaps no surprise that we regularly hear from Commissioners in all parts of the UK calling for more Specialised Supported Housing. As recently as February 2020, the CQC released a report stating that "too many people with a learning disability and autistic people are in hospital because of a lack of local, intensive community services"10. Our portfolio continues to diversify across the UK to meet this demand - with two investments into Scotland in 2019, for example. With demand for this type of housing as strong as ever, pricing in the market remains competitive.

Politically, the strong Conservative majority won on 13 December 2019 is likely to lead to a period of stable Government after three years of uncertainty and gridlock. The Government's parliamentary majority will enable it to deal with Brexit transition negotiations as quickly and efficiently as possible to take the issue off the front pages. In any case, housing and social care - which are UK based - are relatively insulated from the impact of Brexit.

Indeed, as well as giving the Government the ability to resolve Brexit sooner, the Conservative majority will enable Government to address other policy areas including social care and housing. The Conservative manifesto promised another £74 million for care packages over three years, which will benefit the care providers on the Group's schemes. Likewise, the Government is targeting building another million new homes over the course of the parliament. A White Paper on social housing due to be published in 2020 is expected to empower tenants and support the continued supply of social homes11. Overall, the Group is well protected from the impact of Brexit and should benefit from the new Government's domestic policies.

Financial Review

As at 31 December 2019, the annualised rental income of the Group was £25.4 million (excluding forward funding transactions) (as at 31 December 2018, £17.4 million). The Group is a UK REIT for tax purposes and is exempt from corporation tax on its property rental business.

A fair value gain of £11.8 million was recognised during the year on the revaluation of the Group's properties.

Slower than expected deployment, resulting from the engagement of Registered Providers with the Regulator, has delayed when the Group will achieve full dividend cover. Our priority remains to achieve a fully covered dividend from operations, which we expect to be achieved in this financial year. Earnings per share and EPRA earnings per share are calculated on the weighted average number of shares in issue during the period.

The audited IFRS NAV per share was 105.37 pence, a continual increase from 103.65 pence as at 31 December 2018 as a result of profits generated from rental income and an uplift in fair value gain on investment property less dividends paid. The Group's EPRA NAV per share is the same as the IFRS NAV at 105.37 pence. The IFRS NAV adjusted for the portfolio valuation (including portfolio premium) was £401.9 million, which equates to a Portfolio NAV of 114.53 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 year was 1.63% compared to 1.58% in the year to 31 December 2018. This is due to the Investment Management fees for the year increasing in line with deployment as fees are not taken on cash.

At the year end, the portfolio was independently valued at £471.6 million on an IFRS basis, reflecting a valuation uplift of 7.45% against the portfolio's aggregate purchase price (including transaction costs). The valuation reflects a portfolio yield of 5.27%, against the portfolio's blended net initial yield of 5.91% at the point of acquisition. This equates to a yield compression of 64 basis points, reflecting the quality of the Group's property selection and off-market acquisition process.

The Group's properties were valued at £503.8 million on a portfolio valuation basis, reflecting a portfolio premium of 6.82% or a £32.2 million uplift against the IFRS valuation. The portfolio valuation assumes a single sale of the property holding SPVs to a third-party on an arm's length basis with purchaser's costs of 2.30%.

Debt Financing

In October 2019, the Group secured a £60 million extension to its existing £70 million Revolving Credit Facility ("RCF") previously provided exclusively by Lloyds Bank plc. As part of the extension, National Westminster Bank plc provided debt alongside Lloyds Bank plc on identical terms. The Group now has the ability to draw a total of up to £130 million under the RCF. The extension of the RCF widens the Group's lender pool while providing the Group with additional committed capital at an attractive margin, to help finance the acquisition of supported housing assets from its pipeline.

The RCF and its subsequent extension followed the long-dated, fixed-rate, interest-only private placement of loan notes signed with MetLife in July 2018 for £68.5 million which was fully deployed in 2018. During the year, the Group drew down £100.6 million of the RCF, equating to 77% of the debt available under the facility. The Group is planning to undertake further draws in the first half year of 2020 and aims to be fully drawn in Q3 2020.

Both the MetLife facility and the RCF have been secured and drawn at an initial loan-to-value ("LTV") of 40% against defined pool of assets 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. As at 31 December 2019, the LTV for MetLife was 37.8% and 40% for the RCF. On a Group consolidated basis the current LTV is 31.1%.

The MetLife facility is split into two tranches, Tranche‐A in an amount of £41.5 million has a term of 10 years from utilisation expiring in 30 June 2028 and Tranche‐B in an amount of £27 million has a term of 15 years from utilisation will expire in 30 June 2033. The RCF has an initial four-year term expiring on 20 December 2022 and, subject to lender approval, may be extended by a further two years to 20 December 2024.

The MetLife facility requires the Group to maintain an asset cover ratio of x2.25 and an interest cover ratio of x1.75. The RCF requires the Group to maintain on drawn funds a LTV ratio of lower than 50% and an interest cover ratio in excess of x2.75. At all times the Group has complied with debt covenants on both facilities. As at 31 December 2019, the RCF remained unhedged. The Board regularly reviews potential hedging arrangements which can be put in place at any time during the duration of the facility.

The Group will continue to monitor capital requirements to ensure we take advantage of developments in the market and achieve dividend cover.

Strategic Alignment and Property Selection

In 2019, 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. During the year, the Group bought 116 properties, which included nine new forward funding transactions, for a total investment cost of £130.5 million (including transaction costs).

In addition, as at 31 December 2019 the Group had outstanding commitments of £24.3 million (including transaction costs), comprising £6.6 million for contracts exchanged on four properties at the period end and £17.6 million for outstanding forward funding commitments.

Property Portfolio and Asset Management

As at 31 December 2019, the property portfolio comprised 388 properties with 2,728 units and showed a broad geographic diversification across the UK. The four largest concentrated areas by market value were the North West (21.8%), West Midlands (15.9%), East Midlands (14.2%) and London (11.3%). The IFRS value of the property portfolio at 31 December 2019 was £471.6 million.

During 2019, the Group continued its forward funding programme which forms an integral part of the Group's investment strategy, creating significant value-add to the property portfolio. Through forward funding, the Group enjoys valuation uplifts on new-build properties and benefits from the high occupancy such custom-built properties achieve driven by strong Commissioner demand. As at 31 December 2019, the Group had entered into a total of 22 forward funding projects with 11 schemes having reached practical completion and 11 schemes still under construction. Our asset management team aims to visit every property in the Group's portfolio each year, inspecting the quality of each asset and meeting the Care Provider to ensure properties are maintained in accordance with health and safety and the FRI leases; ultimately safeguarding tenant welfare. Our dedicated Relationship Manager is further strengthening our relations with Approved Providers and Care Providers. The Group's portfolio is actively asset managed with opportunities to improve environmental efficiencies factoring heavily in addition to other asset management initiatives.

Rental Income

As at 31 December 2019, the property portfolio was fully let (with all properties either let or pre-let on financial close), comprising 300 fully repairing and insuring leases which excludes the agreement for leases in relation to current forward funding transactions. The total annualised rental income of £25.4 million is the aggregate rental income of the standing investments. All rents continued to be paid in full and on time. In this reporting period, there were 178 leases which benefited from an annual rental uplift linked to CPI/RPI, equating to a total rental value increase of approximately £0.2 million more than the initially contracted rent. The annual rent uplifts typically happen every April or on the anniversary of the lease start date.

The Group has not expanded its tenant base of 16 Approved Providers in the period, yet it remains well diversified across the sector with some of the most specialist UK housing associations. Our three largest Approved Providers by rental income were Inclusion (21.7%), 28A Supported Living (13.1%) and Falcon (13.1%).

Our three largest Approved Providers by units were Inclusion Housing (616), Falcon Housing Association (357) and Hilldale Housing Association (328).

As at 31 December 2019, the property portfolio had a WAULT of 25.7 years (well in excess of the Group's minimum term of at least 15 years), with 92.0% of the portfolio's rental income showing an unexpired lease term of between 21-30 years. Compared with 30 June 2019, the WAULT has reduced by 1.5 years as most additions in the last six months have had a lease term of c.25 years (compared to some of our first investments which had lease terms of up to 60 years). The WAULT includes the initial lease term upon completion as well as any reversionary leases and put/call options available to the Group at expiry.

Rents under the leases are indexed against either CPI (94.2%) or RPI (5.8%), which provides investors with the security that the rental income will increase in line with inflation. Some leases have an index "premium" under which the standard rental increase is based upon CPI or RPI plus a further percentage point, reflecting top-ups by local authorities. These account for 6.1% of the Group's leases. For the purposes of the portfolio valuation, Jones Lang LaSalle assumed CPI and RPI to increase at 2.0% per annum and 2.5% per annum respectively over the term of the relevant leases.

Pipeline and Outlook

Almost every day we hear that Commissioners around the country are requesting more new Supported Housing schemes. This is to meet the housing requirements of thousands who remain in inappropriate institutional and home settings. These calls are borne out in the statistics, with a shortfall of 46,771 Supported Housing units expected by 2024/2512. Our pipeline has historically reflected this demand in full, with nearly £400 million in our pipeline in the middle of 2019. However, given our capital constraints (our debt is drawn down in tranches), we have reduced our active pipeline to match the expected cash flow and to reduce possible abort costs. At the year-end we had an active pipeline of over £100 million. This pipeline remains diversified across the UK mainland with a range of new and existing counterparties and can scale up as and when we have further funds to deploy.

In early 2020 the Group invested the first tranche of the £60 million extension to the October 2019 revolving debt facility. Based on the Group's pipeline, we anticipate that the rest of the extension will be invested by Q3 2020. The Group will look to raise further capital as and when necessary (and subject to market conditions) to meet attractive investment opportunities, including, wherever possible, forward funding schemes.

Looking ahead in 2020, we expect strong performance. Regulatory engagement of Registered Providers is likely to continue, but our view is that, in the long-term, the sector will benefit from this as it continues to mature. It is already clear that due diligence processes, financial positions, and governance across the sector have materially improved, and we will continue to support progress across all these fronts into 2020 and beyond. In the meantime, we will continue to help the Group invest in the best properties available across the UK for the benefit of taxpayers, our investors and, above all, our residents.

Max Shenkman

Head of Investment

12 March 2020

Notes:

1 Regulator of Social Housing, Current regulatory judgement: Inclusion Housing Community Interest Company (2019)

2 Regulator of Social Housing, Regulatory Notice: Encircle Housing Limited (2019)

Regulator of Social Housing, Regulatory Notice: Bespoke Supportive Tenancies Limited (2019)

3 Regulator of Social Housing, Current regulatory judgement: Westmoreland Supported Housing Limited (2019)

4 Regulator of Social Housing, Lease-based providers of specialised supported housing (2019), para. 2.6.

5 Department for Communities and Local Government & Department for Work and Pensions, Funding for Supported Living (2016)

6 Mencap, Funding supported housing for all (2018)

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

8 Department for Communities and Local Government & Department for Work and Pensions, Supported accommodation review: The scale, scope and cost of the supported housing sector (2016)

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

10 Care Quality Commission, Monitoring the Mental Health Act in 2018/19, p.6

11 Sarah Williams, Conservatives gain majority, promising to deliver "the housing people need" (2019)

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

PORTFOLIO SUMMARY

Notes:

1 Funds invested include total funds committed to forward funding developments, including amounts not yet deployed, excluding purchase costs

CORPORATE SOCIAL RESPONSIBILITY

Acting in a sustainable and responsible manner is fundamental both to our ambition to be the leading UK Supported Housing investor and to the achievement of our long-term financial objectives. In this section we have outlined the key areas in which we consider the impact of our operations with the aim of having a positive societal impact.

Our properties provide multiple benefits to local communities. They provide residents with safe and secure accommodation, tailored to meet their individual care needs. They provide Approved Provider lessees with a way of growing sustainably, allowing them to expand the number of individual lives they support and improve and they provide employment for local carers, housing managers and builders. While development and refurbishment can cause some minor short-term disruption to an area, these activities help create employment and, at the same time, help alleviate the UK's housing crisis.

Our business model seeks to ensure not only that our properties are suitable for individuals with complex living needs, but that our portfolio continues to meet residents' 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

Offering residents resource-efficient and adapted living areas is critical to ensure our investments are fit-for-purpose and sustain their value over the long-term. As a landlord, we consider the opportunities we have to help reduce running costs for our lessees and occupiers, increase resident well-being and contribute to the prosperity of a location through supporting new building design and development. Ignoring these issues when considering property management and investments would risk the erosion of income and value as well as missing opportunities to enhance investment returns.

Policy presents new challenges and opportunities for the real estate industry and the social housing market, with potentially profound implications for both owners and occupiers. A good investment strategy must incorporate environmental and social issues alongside traditional economic considerations. Impact assessment is central to our investment process and is demonstrated through the environmental, social and governance assessments in our due diligence. For example, we require every property we acquire to have a minimum energy performance rating of at least a D on an Energy Performance Certificate ("EPC") and have set a target of at least a C rating, notwithstanding the legal requirement for any privately rented properties to have a minimum energy performance rating of E on an EPC.

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.

Climate Change

The Board is cognisant of the impact of the Group's operations on emissions. 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.

The Board has considered the requirements to disclose the annual quantity of emissions in tonnes of carbon dioxide equivalent for activities for which the Group is responsible and believes that the Group has no reportable emissions for the year ended 31 December 2019, 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.

Business Relationships

As well as the critical day-to-day portfolio management, the Group has a set of corporate providers that ensure the smooth running of the Group's activities. The Group's key service providers are listed in the Annual Report, and the Management Engagement Committee annually review the effectiveness and performance of these service providers, taking into account any feedback received. The Group also benefits from the commitment and flexibility of its corporate lenders for its debt facilities and works with a selection of high-quality trusted developer partners to source the majority of its deals off market and to who forward funding is provided. Each of these relationships is critical to the long-term success of the business. Therefore, the Group and the Investment Manager maintain high standards of business conduct by acting in a collaborative and responsible manner with all its business partners that protects the reputation of the Group as a whole.

Employees 

The Group has no employees and accordingly no requirement to separately report on this area.

The Investment Manager is an equal opportunities employer who respects and seeks to empower each individual and the diverse cultures, perspectives, skills and experiences within its workforce. The Investment Manager places great importance on company culture and the wellbeing of its employees and considers various initiatives and events to ensure a positive working environment.

Health and Safety

The Group is committed to fostering the highest standards in health and safety. Before the Group acquires a property, we ensure it includes all installations necessary to minimise the risk to the vulnerable people who will live in it. Day-to-day responsibility for health and safety in our properties is then shared by the Approved Providers and Care Providers who manage the housing and provide care. Nonetheless, our Investment Manager still requests confirmation from Approved Providers that all properties remain compliant and visit properties to verify this. Every quarter the Board is provided with updates on the health and safety of our residents.

Diversity 

We are an externally managed business and do not have any employees or office space. As such the Group does not operate a diversity policy with regards to any administrative, management and supervisory functions.

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 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.

SECTION 172(1) STATEMENT

The following disclosure describes how the directors have had regard to the matters set out in section 172(1)(a) to (f) when performing their duty under s172 and forms the directors' statement required under section 414CZA of the Act.

Stakeholder Engagement

This section describes how the Board engages with its key stakeholders, and how it considers their interests when making its decisions. Further, it demonstrates how the Board takes into consideration the long-term impact of its decisions, and its desire to maintain a reputation for high standards of business conduct.

Principal Decisions

Principal decisions have been defined has those that have a material impact to the Group and its key stakeholders. In taking these decisions, the directors considered their duties under section 172 of the Act.

Extension of Debt Facility

During the year the Group secured a £60 million extension to its existing £70 million revolving credit facility. In considering whether to approve the transaction the Board had regard to the interests of the Group's shareholders, lenders and the community. 

The Board believed that the extension of the debt facility was in the best interest of shareholders as it would provide additional capital and would allow the Group to continue to execute its pipeline and achieve a fully covered dividend. The Group was able to secure the extension of the debt facility on identical terms to its existing facility. Further, the Group maintained an active dialogue for the lender to appraise the Group's business model and its portfolio. As described in the Corporate Social Responsibility section the Board also considered that further funds available to be deployed into the supported housing sector would benefit the wider community.

Further details of the Group's debt financing are detailed in the Investment Manager's Report.

Share Buybacks

The Board agreed to undertake buybacks in the year, acquiring 200,000 Ordinary Shares at a price of 83 pence and 250,000 Ordinary Shares at a price of 83.3 pence per Ordinary Share for treasury.

The Board considered the views of shareholders and believed that share buybacks for investment purposes were particularly attractive when the discount to NAV at which the Company's shares trade is wide given the NAV accretion which it provides to ongoing shareholders. The Board continued to consider share buybacks for investment purposes alongside the acquisition of new Supported Housing properties when establishing how best to deploy capital taking account of the pipeline at the time. Further details of the share buybacks during the year is in the Chairman's Statement.

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 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. The Board regularly review the control reports of the key service providers and the external auditors note any deficiencies in internal controls and processes have been identified during the course of the audit.

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 below. The Board regularly reviews the risk register to ensure gradings and mitigating actions remain appropriate.

As part of this risk management evaluation the Board has identified and undertaken a robust assessment of the Group's emerging risks by assessing upcoming or potential changes in the market or regulatory environment. The Board considers the likelihood of the emerging risk materialising and its potential impact on the Group. Emerging risks are regularly monitored, and to the extent possible or practicable, mitigating actions are implemented.

Our risk management process is designed to identify, evaluate and mitigate (rather than eliminate) the significant and emerging risks we face and continues to evolve to reflect changes in the business and operating environment. The process can therefore only provide reasonable, and not absolute, assurance. It does however ensure a defined approach to decision making that decreases uncertainty surrounding anticipated outcomes, balanced against the objective of creating value for shareholders.

The Board has not identified or been advised of any failings or weaknesses in our risk management and internal control systems.

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.

Emerging Risks

The United Kingdom's Withdrawal from the European Union

The Board has continued to monitor the potential risks associated with Brexit. As discussions continue to develop with the UK's trading relationship with the EU, it still remains unclear as to the extent or precise nature of the impact of Brexit on the Company and its stakeholder base. Nevertheless, the strong Conservative majority achieved in December 2019 is likely to lead to a period of greater political stability, and with care, housing and social care, being UK based, the Group remains relatively insulated from the impact of Brexit.

The Board will continue to monitor the developing relationship between the UK and the EU and the wider potential impact of Brexit on the Group and its stakeholder base.

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 year. The Group has targeted high-quality properties in line with yield expectations and will continue to analyse investment opportunities to ensure that they are the right fit for the Group.

The Group has invested £439 million up to 31 December 2019, and £19.3 million since the year end. The cash balance of the Group at year end was £67.7 million, of which £30.4 million was readily available for use. This is the cash balance at 31 December 2019 less any funds that are committed for future deployment, retentions, or working capital requirements. As stated in the Strategic Report, the Investment Manager has identified a visible pipeline of over £100 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 substantially facilitate the payment of dividends to shareholders at the targeted rate. Based on this, the Board believes that the Group is in a position to manage its financial risks for the foreseeable future.

The Board believes that there are currently no material uncertainties in relation to the Group's and Company's ability to continue for a period of at least 12 months from the date of the approval of the Group and parent Company's financial statements and, therefore, has adopted the going concern basis in the preparation of the financial statements.

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 2024, is the maximum timescale over which the performance of the Group can be forecast with a material degree of accuracy and therefore is the appropriate period over which to consider the viability.

In determining this timescale the Board has considered the following:

· That the business model of the Group assumes the future growth in its investment portfolio through the acquisition of Supported Housing assets which are intended to be held for the duration of the viability period

· The length of the service level agreements between Approved Providers and Care Providers 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 25.7 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 (of which three remain) 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 emerging risks and principal risks facing the Group, including those that would threaten its business model, future performance, solvency, liquidity and dividend cover for a five year period.

The Directors' assessment has been made with reference to the principal risks and uncertainties and emerging risks 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. 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. This assumes there could be a 12 month delay in finding a replacement tenant; whereas the viability model assumes a new tenant will be found and 10% reflects the average loss in rental income over the five year model.

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 the secured debt facilities will be fully drawn during 2020 to bring leverage up to the target of 40%. No further financing is assumed in the business model after 2020.

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

12 March 2020

GROUP FINANCIAL STATEMENTS

GROUP STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2019

The accompanying notes form an integral part of these Group Financial Statements.

GROUP STATEMENT OF FINANCIAL POSITION

As at 31 December 2019

The Group Financial Statements were approved and authorised for issue by the Board on 12 March 2020 and signed on its behalf by:

Chris Phillips

Chairman

12 March 2020

The accompanying notes form an integral part of these Group Financial Statements.

GROUP STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2019

The accompanying notes form an integral part of these Group Financial Statements.

GROUP STATEMENT OF CASH FLOWS

For the year ended 31 December 2019

The accompanying notes form an integral part of these Group Financial Statements.

NOTES TO THE GROUP FINANCIAL STATEMENTS

For the ended 31 December 2019

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 announcement has been prepared on the basis of the accounting policies set out in the statutory accounts for the year ended 31 December 2019. Whilst the financial information included in this announcement has been computed in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union, this announcement does not itself contain sufficient information to comply with IFRS. The financial information does not constitute the Company's statutory accounts for the years ended 31 December 2019 or 2018, but is derived from those accounts. Those accounts give a true and fair view of the assets, liabilities, financial position and profit and loss of the Company and the undertakings included in the consolidation taken as a whole. Statutory accounts for 2018 have been delivered to the Registrar of Companies and those for 2019 will be delivered following the Company's Annual General Meeting. The auditor's reports on both the 2019 and 2018 accounts were unqualified; did not draw attention to any matters by way of emphasis; and did not contain statements under s498(2) or (3) of the Companies Act 2006.

The principal accounting policies adopted in the preparation of this preliminary financial information are set out below. The policies have been consistently applied to both years, with the exception of the adoption of IFRS 16 in the year to 31 December 2019:

· IFRS 16 Leases

IFRS 16 replaced IAS 17 Leases and introduced a single lessee accounting model and requires a lessee to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee is required to recognise a right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments.

Previously, the Group was required to classify all leases as either operating or finance leases.

The Group adopted IFRS 16 using the modified retrospective approach with recognition of any transitional adjustments being made on the date of application (1 January 2019), without restatement of comparative figures. The Group elected to apply the practical expedient to not reassess whether a contract is, or contains a lease at the date of initial application. Contracts entered into before the transition date that were not identified as leases under IAS 17 and IFRIC 4 were not reassessed. The definition of a lease under IFRS 16 was applied only to contracts entered into or changed on or after 1 January 2019.

The Directors have given due consideration to the impact on the financial statements of IFRS 16 and have concluded that the adoption of the standard did not have a material impact on the financial statements in the period of initial application. 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 the leases where the Group also acts as a lessor.

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:

· Definition of a Business (Amendments to IFRS 3) (effective 1 January 2020);

· Amendments to IAS 1 Presentation of Financial Statements (effective 1 January 2020);

· Amendments to references to the Conceptual Framework in IFRS Standards (effective 1 January 2020*); and

· Definitions of material amendments to IAS 1 and IAS 8 (effective 1 January 2020).

*standard not yet endorsed

The Directors are currently assessing the impact of these amendments and have given due consideration to the impact on the financial statements of the amendments to IFRS 3. Under the amendments of IFRS 3, to be considered a business, an acquired set of activities and assets must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. An optional concentration test that permits a simplified assessment of whether an acquired set of activities and assets is a business has been added.

At present they do not anticipate that the adoption of the amendment and interpretation will have a material impact on the financial statements in the period of initial application. This is because the amendment narrows the definition of a business, however, subsidiaries acquired by the Group to date have all been treated as the acquisition of a group of assets rather than a business as there was not an integrated set of activities acquired in addition to the property. The Group does not intend to purchase any subsidiaries which incorporate anything other than an investment property.

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.

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 Currency

The Group financial information is presented in Sterling which is also the Company's functional currency.

3. SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS

In the application of the Group's accounting policies, which are described in note 4, the directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are outlined below:

Estimates:

3.1. Investment properties (note 14)

The Group uses the valuation carried out by its independent valuers as the fair value of its property portfolio. The valuation is based upon assumptions including future rental income and the appropriate discount rate. The valuers also make reference to market evidence of transaction prices for similar properties. Further information is provided in note 14.

The Group's properties have been independently valued by Jones Lang LaSalle Limited ("JLL" or the "Valuer") in accordance with the definitions published by the Royal Institute of Chartered Surveyors' ("RICS") Valuation - Professional Standards, July 2018, Global and UK Editions (commonly known as the "Red Book"). JLL is one of the most recognised professional firms within social housing valuation and has sufficient current local and national knowledge of both social housing generally and specialist supported housing ("SSH") and has the skills and understanding to undertake the valuations competently.

With respect to the Group's Financial Statements, investment properties are valued at their fair value at each Statement of Financial Position date in accordance with IFRS 13 which recognises a variety of fair value inputs depending upon the nature of the investment. Specifically:

Level 1 - Unadjusted, quoted prices for identical assets and liabilities in active (typically quoted) markets;

Level 2 - Quoted prices for similar assets and liabilities in active markets; and

Level 3 - External inputs are "unobservable". Value is the Director's 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 28)

The Group has determined based on an evaluation of the terms and conditions of the arrangements that it retains all the significant risks and rewards of ownership of its properties and so accounts for the leases as operating leases. This evaluation involves judgement and the key factors considered include comparing the duration of the lease terms compared to the economic life of the underlying property asset, or in the case of sub-leased properties, the remaining life of the right-of-use asset arising from the headlease, the minimum lease payments discounted using an average cost of borrowing rate compared to the fair value of the asset at acquisition.

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 6-6.75% 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.

Lessee

As a lessee the Group recognises a right-of-use asset within investment properties and a lease liability for all leases, which is included within other payables (note 18). The lease liabilities are measured at the present value of the remaining lease payments, discounted using an appropriate discount rate. The discount rate applied by the Group is the incremental borrowing rate at which a similar borrowing could be obtained from an independent creditor under comparable terms and conditions. Subsequent to initial measurement lease liabilities increase as a result of interest charged at a constant rate on the balance outstanding and are reduced for lease payments made.

As leasehold properties meet the definition of investment property, the right-of-use assets are presented within investment property (note 14), and after initial recognition are subsequently measured at fair value.

Sub-leases

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership of the underlying property asset to the lessee. Sub-leases of leasehold properties are classified with reference to the right-of-use asset arising from the head lease. All other leases are classified as operating leases.

4.

4.4 Rent and other receivables

Rent and other receivables are amounts due in the ordinary course of business. If collection is expected in one year or less, they are classified as current assets.

Rent receivables are initially recognised at fair value plus transaction costs and are subsequently carried at amortised cost, less provision for impairment.

Impairment provisions for current and non-current rent receivables are recognised based on the simplified approach within IFRS 9 using a provision matrix in the determination of the lifetime expected credit losses. During this process the probability of the non-payment of the 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 rent receivables, which are reported net, such provisions are recorded in a separate provision account with the loss being recognised in the consolidated statement of comprehensive income. On confirmation that the rent receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision.

Impairment provisions for all other receivables are recognised based on a forward looking expected credit loss model using the general approach. The methodology used to determine the amount of the provision is based on whether there has been a significant increase in credit risk since initial recognition of the financial asset. For those where the credit risk has not increased significantly since initial recognition of the financial asset, twelve month expected credit losses along with gross interest income are recognised. For those for which credit risk has increased significantly, lifetime expected credit losses along with the gross interest income are recognised. For those that are determined to be credit impaired, lifetime expected credit losses along with interest income on a net basis are recognised.

4.5 Cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash include cash in hand, cash held by lawyers and liquidity funds with a term of no more than three months that are readily convertible to a known amount of cash, and which are subject to an insignificant risk of changes in value.

Cash held by lawyers is money held in escrow for expenses expected to be incurred in relation to investment properties pending completion. These funds are available immediately on demand.

Restricted Cash represents cash held in relation to retentions for repairs, maintenance and improvement works by the vendors that is committed on the acquisition of the properties; and restricted bank borrowings.

4.6 Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle that obligation and a reliable estimate can be made of the amount of the obligation.

The amount recognised as a provision is the best estimate of the 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 prior 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 were 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 Dividends payable to shareholders

Dividends to the Company's shareholders are recognised as a liability in the Group's Financial Statements in the period in which the dividends are approved. In the UK, interim dividends are recognised when paid.

4.12 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.

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. Borrowing costs that are separately identifiable and directly attributable to the acquisition or construction of forward funded assets that take a substantial period of time to complete are capitalised as part of the development cost in investment property (note 14).

4.14 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.

4.17 Treasury shares

Consideration paid or received for the purchase or sale of treasury shares is recognised directly in equity. The cost of treasury shares held is presented as a separate reserve ("the treasury share reserve"). Any excess of the consideration received on the sale of treasury shares over the weighted average cost of the shares sold is credited to retained earnings.

5. RENTAL INCOME

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 (2018: £75,000), and the other directors of the Board receive a fee of £50,000 per annum (2018: £50,000). The Directors are also entitled to an additional fee of £7,500 (2018: £7,500) in connection with the production of every prospectus by the Company (including the initial Issue). The additional fees are treated as a cost of issue not included as an expense through the Statement of Comprehensive Income.

A summary of the directors' emoluments, including the disclosures required by the Companies Act 2006, is set out in the Directors' Remuneration Report within the Corporate Governance Report. None of the directors received any advances or credits from any group entity during the year.

7. PARTICULARS OF EMPLOYEES

The Group had no employees during the year other than the directors (2018: 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. This defined cash balances in the Net Asset Value calculation in respect of the management fee as "positive uncommitted cash balances after deducting any borrowings".

The management fee is an annual management fee which is calculated quarterly in arrears based upon a percentage of the last published Net Asset Value of the Group (not taking into account uncommitted cash balances after deducting borrowings as described above) as at 31 March, 30 June, 30 September and 31 December in each year on the following basis with effect from Admission:

(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 £3,869,000 (2018: £2,309,000) were chargeable by TPIM during the year. At the year-end £986,000 (2018: £811,000) 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 £336,000 (2018: £31,200) were chargeable by Hanway Advisory Ltd.

The audit fees in the table above are inclusive of VAT, and therefore differ to the fees in note 10 which are reported net of VAT.

10. AUDIT FEES

Non audit fees paid to BDO LLP included £45,000 (2018: £73,000) in relation to quarterly eNAV and the half year interim reviews, and £7,500 for its role as reporting accountant of the Company in relation to new share issues in 2018 (2018: £113,000). The fees relating to the share issuance were treated as share issue costs and offset against share premium arising on the issue of these shares.

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

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% (2018:19%). The differences are explained below.

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