Triple Point Social Housing REIT — Robust base and capital deployment options

Triple Point Social Housing REIT (LSE: SOHO)

Last close As at 28/05/2024

GBP0.59

−0.40 (−0.68%)

Market capitalisation

GBP233m

More on this equity

Research: Real Estate

Triple Point Social Housing REIT — Robust base and capital deployment options

Triple Point Social Housing (SOHO) reported solid H123 results. With borrowing costs fixed, growth in indexed rental income partly offset the impact of credit loss provisions against its two unperforming tenants. Progress is being made in resolving these issues, and as there is no read-across to the wider portfolio, we forecast full dividend cover through FY24. Meanwhile, with the demand for specialised supported housing remaining strong, SOHO has entered a partnership with one of the leading providers in the sector.

Martyn King

Written by

Martyn King

Director, Financials

Real Estate

Triple Point Social Housing REIT

Robust base and capital deployment options

H123 results

Real estate

25 September 2023

Price

55p

Market cap

£222m

Net debt (£m) at 30 June 2023

240.1

Gross LTV at 30 June 2023 (gross debt/gross assets)

39.6%

Shares in issue

393.5m

Free float

99%

Code

SOHO

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(4.7)

9.4

(30.7)

Rel (local)

(9.5)

7.0

(34.8)

52-week high/low

76.9p

42.3p

Business description

Triple Point Social Housing REIT invests primarily in newly built and newly renovated social housing assets in the UK, with a particular focus on supported housing. The company aims to provide a stable, long-term, inflation-linked income with the potential for capital growth.

Next events

Q323 NAV update

Exp. November 2023

Analyst

Martyn King

+44 (0)20 3077 5700

Triple Point Social Housing REIT is a research client of Edison Investment Research Limited

Triple Point Social Housing (SOHO) reported solid H123 results. With borrowing costs fixed, growth in indexed rental income partly offset the impact of credit loss provisions against its two unperforming tenants. Progress is being made in resolving these issues, and as there is no read-across to the wider portfolio, we forecast full dividend cover through FY24. Meanwhile, with the demand for specialised supported housing remaining strong, SOHO has entered a partnership with one of the leading providers in the sector.

Year end

Total income (£m)

Adjusted earnings* (£m)

Adjusted EPS* (p)

NAV**/
share (p)

DPS
(p)

P/NAV
(x)

Yield
(%)

12/21

33.1

20.7

5.14

108.3

5.20

0.51

9.5

12/22

37.4

20.3

5.03

109.1

5.46

0.50

9.9

12/23e

39.8

19.9

5.02

111.6

5.46

0.49

9.9

12/24e

41.3

25.6

6.50

117.5

5.70

0.47

10.4

Note: *Excludes revaluation movements and non-recurring items and adds back non-cash loan fee amortisation. **Throughout this report, NAV is EPRA net tangible assets per share.

Rent collection recovery should drive strong rebound

The problems at My Space and Parasol, two of SOHO’s 27 lessees but c 17% of income, reduced rent collection to 88% and, after £3.2m of provisions taken against arrears, H123 adjusted earnings of £8.9m was £1.5m or 14% lower versus H122 and £1.0m lower than H222 (£9.9m). Dividend cover fell to 0.81x or 0.90x excluding provisions relating to FY22 arrears. Progress is being made with My Space and Parasol and the company expects an improvement in H2 rent collection. Rent growth more than offset property yield widening, generating valuation gains and an increase in H1 NAV. Including DPS paid, the six-month NAV total return was 4.6%. We have lowered our forecast for adjusted earnings by c 7% for FY23 and c 1% for FY24, but continue to expect a strong rebound in FY24 earnings as provisions fall away and indexed rental growth continues, supporting fully covered DPS growth.

Disciplined capital allocation

The board remains focused on creating shareholder value, particularly on closing the material discount to NAV, undertaking an accretive £5m repurchase programme completed in H1. Meanwhile, the recent sale of a four-property portfolio indicates a robustness of asset valuations and published NAV. We expect a pragmatic approach to further capital allocation, which may include further share repurchases, asset sales and portfolio investment, such as the proposed forward funding partnership with Golden Lane, a leading provider of specialised supported housing (SSH) with strong regulatory credentials. While the immediate accretion from share repurchases is greater, accretive investment has strategic advantages with the potential for rental growth.

Valuation: Pricing in very significant risk

The FY23e yield is c 10%. We estimate that even a c 20% decline in FY24 income would support a fully covered DPS of at least c 4.5p, or a yield of c 7.6%, consistent with the peer average.

Robust base and capital deployment options

While the H123 financial results were, as expected, significantly affected by the issues with My Space and Parasol, there was no read-across to the wider portfolio, which continues to perform as expected. In this report we provide an update to our detailed report published in April, with a particular focus on the continuing low valuation placed on the stock and SOHO's future capital allocation strategy.

Despite progress with resolving the My Space and Parasol issues (see below), strengthening demand for SSH accommodation, supportive evidence for asset values and the positive affirmation of the business model implied by the renewal of the company’s investment grade credit rating, we note that the current valuation of the shares remains at a material discount to peers and, we believe, discounts a significant risk to income. On a range of measures, the shares are trading at a c 50% discount to that implied by the recent agreed acquisition of close peer Civitas (page 7).

The successful sale of four diverse properties for £7.6m, just 3.6% below the 30 June 2023 book value, is supportive of both published valuations and NAV, and demonstrates continued investor demand for SSH properties. The properties were located across four local authorities, leased to Inclusion Housing and Chrysalis, with care provided by four separate care providers. The portfolio contained a mixture of adapted and new build properties as well as individual and shared homes.

With the board strongly focused on closing the discount to NAV, in consultation with shareholders it will determine whether to return a portion of the property sale proceeds by way of further share repurchases. Over the medium term, the company says that its aim is to supplement its existing portfolio of properties with forward funding projects and acquisitions, but that all deployment will be considered in the context of delivering shareholder value and the broader market conditions.

We estimate that while both repurchases and acquisitions would create value, the greater immediate return from repurchases should be quickly erased by rental growth on acquisitions (page 8). The strength of SSH demand and SOHO’s ability to grow in partnership with strong providers of SSH such as Golden Lane further reinforces the strategic merits of acquisitions.

Update on My Space and Parasol

SOHO has leases with a diverse range of 27 approved providers (APs),1 and the majority of these have performed steadily over the past year, successfully navigating the twin challenges of inflation and labour shortages well. However, as previously reported, two APs, Parasol (9.2% of rents) and My Space (7.7%) fell behind with their rental payments over the course of 2022 and continuing through H123. Post period end, in August, SOHO put in place a creditor agreement with Parasol, which sets a minimum level for monthly rent payments over a six-month period. At the end of the six-month agreement, full rent becomes due again. If this is not the case, SOHO retains the ability to move leases to a different RP and has held constructive discussions with potential alternative partners. The company says that it has built a constructive relationship with the leadership team, recently strengthened, and continues to support them as they move the organisation forward.

  SOHO refers to all its lessees as APs, of which 25 of the 27 are regulated by either the Regulator of Social Housing, the Care Quality Commission or Ofsted, representing 98% of the portfolio by rent roll. In this report we also refer to registered providers (RPs) or those registered with and regulated specifically by the Regulator of Social Housing. This applies to all SOHO’s SSH properties.

SOHO hopes to soon finalise a similar creditor agreement with My Space, required to help enable My Space to address its solvency position, and expects it to cover both the rent that will be due going forward and arrears. My Space has significantly strengthened its leadership, having recently recruited a new CEO and CFO. It is recruiting a COO, while at the same time, new trustees are in the process of being identified for the board, with the aim of enhancing My Space’s level of audit, financial and legal expertise. Among a number of options, My Space continues to consider a possible business combination or merger. Meanwhile, SOHO has identified alternative lessees to whom the properties leased to My Space can be moved if required. My Space continues to engage with the Regulator of Social Housing (RSH) in relation to the Enforcement Notice issued earlier this year, has undertaken a range of the actions prescribed and has provided an initial response to all points raised in the notice.

Lease clause should help providers address regulatory issues

Following a period of consultation with stakeholders, including the RSH, in June SOHO began the roll-out of its new lease clause. The aim is to address some of the general risks raised by the RSH in relation to long leases by increasing the risk sharing between SOHO and its RPs and providing protection against factors that are beyond their control. This may be a change to government funding policy or local government commissioning where the income that RPs are able to generate from a property is reduced. In some such circumstances, and subject to a materiality threshold, the clause allows for the RP to agree a new rent level that reflects the revised circumstances. Should the new rent level not be acceptable to the company, it has the ability to re-assign or terminate the lease.

Additionally, the new clause provides for contractual rent increases to be linked to the lower of UK CPI (or RPI where applicable), or the maximum rent increase allowed under prevailing central housing policy to the extent that it applies to SSH. To date, leases have included annual upward-only rent increases linked to inflation only and it is hoped that the change will further address the points raised by the RSH. The new clause would not have had an impact on FY23 rent increases as SSH was not included in the social housing rent cap and, based on historical experience, we believe that it is unlikely to have any practical impact on medium-term rent growth.

The external portfolio valuers have indicated that there is unlikely to be any negative impact on SOHO’s portfolio and lenders have agreed to the inclusion of the clause in SOHO’s leases.

Partnership with Golden Lane

SOHO describes the level of RPs seeking funding partners for the delivery of their development pipelines as ‘exceptional’. It sees a partnership approach as critical to addressing the shortage of SSH and it is a primary driver of its new relationship with Golden Lane, one of the leading RPs in the SSH sector, with a regulatory compliance rating of G1 V2.2

  Governance and viability standards ratings issued by the Regulator of Social Housing, with 1–2 representing levels of compliance and 3–4 levels of non-compliance.

SOHO is working on a pipeline of projects with Golden Lane and initially hopes to invest in conjunction with it, in what it describes as a competitively priced forward funding project to be constructed by a developer that it knows well and has worked with in the past. The project is for the development of 12 adapted flats for people with learning disabilities in Chorley and will be leased to Golden Lane.

Forward funding projects bring new, specially adapted supply to the sector and SOHO has completed 33 forward funding projects since launch, although the last was completed in March 2021, and these are typically low risk, being pre-let with fixed construction costs. We would expect the yield on investment to be c 6% (portfolio EPRA net initial yield of 5.65%), well ahead of the 2.74% cost of debt, fixed for around 10 years, and Golden Lane is an excellent partner with which to grow.

Robust H123 financial results

During H123, growth in rental income substantially offset the impact of credit loss provisions, while costs and fixed rate finance charges were flat. Nonetheless, adjusted earnings of £8.9m was £1.5m or 14% lower versus H122 and £1.0m lower than H222 (£9.9m). The fall in EPRA earnings was moderated by lower amortisation of loan arrangement fees, excluded from adjusted earnings.3

  SOHO’s adjusted earnings is aimed at providing a measure of cash earnings as a basis for dividend decisions. It excludes the non-cash amortisation of loan arrangement fees that are included in EPRA earnings.

The £3.2m credit provision in H123 included c £1.0m relating to prior year arrears. Excluding all credit provisioning, as a guide to underlying progress in the wider portfolio, adjusted earnings increased £1.2m versus H122 and £0.5m versus H222.

SOHO’s leases are all linked to inflation (92.4% CPI and 7.6% RPI) with only 4.9% containing caps, and subject to annual reviews. To assist APs in an inflationary environment while continuing to deliver attractive income growth for shareholders, SOHO decided to voluntarily limit rent increases to 7% for 2023, in line with the government’s cap on social housing rent increases from 1 April 2023, even though SSH was exempted from this. UK inflation remained elevated during H123 (the year-over-year increase in CPI was 8.0% at 30 June, having been as high as 10.4% in February), and annual reviews completed during H123, c 70% of the total, were in line with SOHO’s increase limit, and added 4.8% to annualised rent.

Investment management fees, linked to the level of NAV, were slightly lower than in H122 and administration expenses increased 6% with inflation. With interest costs fixed, finance expenses were unchanged.

Rental growth more than offset general market yield widening (the EPRA net initial yield increased to 5.65% compared with 5.46% at end-FY22), generating property revaluation gains of £5.9m and growth in NAV per share despite dividend distributions being only partly covered by underlying earnings. NAV per share increased 2.1% in the period to 111.3p (FY22: 109.1p) and including DPS paid the NAV total return was 4.6%.

Exhibit 1: Summary of H123 financial performance

£m unless stated otherwise

H123

H122

H123/H122

FY22

Rental & other income

19.6

18.3

7%

37.4

Expected credit loss

(3.2)

(0.5)

(2.1)

Investment management fees

(2.3)

(2.4)

-1%

(4.7)

Administration expenses

(1.6)

(1.5)

6%

(3.2)

Recurring net finance expense

(3.6)

(3.6)

0%

(7.2)

Adjusted earnings

8.9

10.4

-14%

20.3

Amortisation of loan arrangement fees

(0.1)

(0.6)

(1.0)

EPRA earnings

8.7

9.8

-11%

19.3

Change in fair value of investment properties

5.9

17.1

8.3

Non-recurring write-off of loan arrangement fees

0.0

(2.0)

(2.6)

IFRS earnings

14.6

24.9

-41%

24.9

Basic & diluted IFRS EPS (p)

3.65

6.19

-41%

6.18

EPRA EPS (p)

2.18

2.43

-10%

4.78

Adjusted EPS (p)

2.21

2.57

-14%

5.03

DPS (p)

2.73

2.73

0%

5.46

EPRA earnings basis dividend cover (x)

0.80

0.89

0.88

Adjusted earnings basis dividend cover (x) earnings)

0.81

0.94

0.92

IFRS portfolio at fair value

667.2

669.6

0%

669.1

Gross borrowings

(263.5)

(263.5)

(263.5)

Cash

23.8

41.6

30.1

Net assets

438.0

450.3

439.3

IFRS & EPRA NTA per share (p)

111.3

111.8

0%

109.1

NAV total return

4.6%

5.7%

7%

5.7%

Gross gearing (gross debt/gross assets)

37.5%

36.8%

37.4%

Net LTV (net debt/portfolio valuation)

36.1%

33.3%

6%

35.0%

Source: Triple Point Social Housing data, Edison Investment Research

Accounting return of 6.1% pa since listing

SOHO has delivered positive accounting/NAV total returns3F4 each year since listing in August 2017 to the end of H123. Aggregate NAV total return over the period was 40.2% or an annual average of 5.9%, with dividends paid accounting for more than 70% of the total.

  Change in IFRS NAV per share during the period with dividends paid added back (but not assuming reinvestment of dividends).

NAV return has also been positive on a quarterly basis with the exception of Q422 (-1.0%), when yield widening had a negative impact on property values, although these were significantly more robust than for the broad UK commercial property sector, benefiting from long, inflation indexed leases.

Exhibit 2: Positive accounting return each year since listing

FY17*

FY18

FY19

FY20

FY21

FY22

H123

Cumulative since IPO

Opening NAV per share (p)

98.00

100.84

103.65

105.37

106.42

108.27

109.06

98.0

Closing NAV per share (p)

100.84

103.65

105.37

106.42

108.27

109.06

111.31

109.1

DPS paid (p)

0.00

4.75

5.06

5.17

5.20

5.40

2.73

28.3

Dividend return

0.0%

4.7%

4.9%

4.9%

4.9%

5.0%

2.5%

28.9%

Capital return

7.3%

2.8%

1.7%

1.0%

1.7%

0.7%

2.1%

11.3%

NAV total return

7.3%

7.5%

6.5%

5.9%

6.6%

5.7%

4.6%

40.2%

Average annual return

5.9%

Source: Triple Point Social Housing REIT, Edison Investment Research. Note: IFRS NAV data, consistent with the quarterly reporting. *Annualised return from August 2017.

Until FY22, dividend cover (on an adjusted earnings basis5) had been steadily increasing as the company built scale. The dip in FY22 cover to 0.92x (FY21: 0.99x) primarily reflected the full-year impact of SOHO’s well-timed refinancing of borrowings at a fixed (but increased) cost in late 2021. As a result of the increase in credit losses, H123 cover was 0.81x on an adjusted basis but would have been c 0.9x excluding credit losses provision taken against the FY22 arrears. We forecast cover to increase in H223 as rent collection improves and provisions begin to fall, with unchanged 0.92x cover for the year. In the absence of further rent provisions, we forecast DPS to be well covered in FY24.

  Adjusted earnings is provided by the company as a guide to cash earnings, as a basis for dividend decisions. In FY22, adjusted earnings of £20.3m included a positive adjustment to EPRA earnings of £19.3m in respect of non-cash loan fee amortisation expenses.

Exhibit 3: Dividend history

FY17

FY18

FY19

FY20

FY21

FY22

FY23e

FY24e

DPS declared (p)

1.00

5.00

5.10

5.18

5.20

5.46

5.46

5.70

Adjusted earnings per share (p)

0.02

2.29

3.50

4.90

5.14

5.03

5.03

6.35

Dividend cover (x)

0.02

0.46

0.69

0.95

0.99

0.92

0.92

1.11

EPRA earnings per share (p)

0.02

2.27

3.39

4.61

4.82

4.78

4.95

6.28

EPRA earnings cover (x)

0.02

0.45

0.67

0.89

0.93

0.88

0.91

1.10

Source: Triple Point Social Housing historical data, Edison Investment Research forecasts

The valuation remains low in contrast to financial returns

Despite SOHO delivering low volatility and consistently positive accounting returns, our FY23 DPS estimate of 5.46p represents a yield of c 10%, while the shares are trading at an almost 50% discount to H123 NAV.

Exhibit 4: Trailing dividend yield

Exhibit 5: Trailing P/NAV (x)

Source: Refinitiv prices, company DPS data, Edison Investment Research

Source: Refinitiv prices, company NAV data, Edison Investment Research

Exhibit 4: Trailing dividend yield

Source: Refinitiv prices, company DPS data, Edison Investment Research

Exhibit 5: Trailing P/NAV (x)

Source: Refinitiv prices, company NAV data, Edison Investment Research

Material discount to peer group

Exhibit 6 shows a comparison of a selected group of companies that we would consider to be the closest peers to SOHO, investing in housing and healthcare properties. Given their long-lease income characteristics, share prices across the group have been negatively affected by rising bond yields in recent months, more so than the broader REIT sector. This is despite being driven by strong demographic and/or social trends with little or no correlation to the economy, vulnerable to the impact of higher interest rates on growth.

SOHO shares offer a noticeably higher yield than the average and trade at a significantly lower P/NAV ratio, despite its track record of positive financial and operation performance and delivery of material social benefit.

Exhibit 6: Peer valuation and performance comparison

Price

Market cap

P/NAV*

Yield**

Share price performance

(p)

(£m)

(x)

(%)

3 months

1 year

3 years

5 years

Assura

45

1334

0.84

7.0

2%

-21%

-42%

-17%

Impact Healthcare

85

351

0.75

7.8

-4%

-24%

-16%

-19%

Primary Health Properties

97

1300

0.88

6.8

6%

-19%

-34%

-14%

Residential secure Income

60

111

0.68

8.6

-4%

-40%

-34%

-37%

Target Healthcare

77

480

0.74

7.2

11%

-20%

-27%

-32%

Average

0.78

7.5

2%

-25%

-31%

-24%

Triple Point Social Housing

55

216

0.49

10.0

14%

-29%

-50%

-49%

UK property sector index

1,190

5%

-8%

-13%

-30%

UK equity market index

4,073

3%

8%

28%

1%

Source: Company data, Refinitiv. Note: Prices at 25 September 2023. *Based on last reported EPRA NAV. **Based on trailing 12-month DPS declared.

SOHO’s closest comparator, Civitas, no longer appears in the peer group comparison following its agreed acquisition by Hong Kong-based property developer CK Asset Holdings6 in June 20237 for 80p in cash. In recommending the offer, the board of Civitas commented that while it believed it undervalued the long-term prospects of the company, it recognised that Civitas, and its sector as a whole, was facing a number of challenges in sentiment, which the public markets were unlikely to overcome in the short to medium term. In this context, its decision was swayed by the immediate liquidity that the bid would provide to shareholders, with the opportunity to exit in full and in cash at a significant premium to the prevailing share price, in a time of macroeconomic uncertainty.

  Through its subsidiary, CK Bidco.

  The date at which the offer became unconditional. Civitas subsequently de-listed on 4 August 2023.

Taking the Civitas data as off 31 March 2023 (end-FY23), the bid represented a 27% discount to NAV, much narrower than the c 50% discount on which SOHO shares continue to trade. Including this with a range of portfolio metrics, we estimate the Civitas acquisition price to have been at least c 50% above the current SOHO rating, a strong indicator of value in the SOHO shares.

Exhibit 7: SOHO is trading at a c 50% discount to the Civitas acquisition valuation

Civitas

SOHO

Civitas/SOHO

Price per share (p)

80

55

NAV per share (p)

109.2

111.6

Number of shares (m)

606.4

393.5

Market cap (£m)

485.1

222.0

Contracted rent (£m)

56.3

40.5

Portfolio value (£m)

978.1

667.2

Number of homes

697

497

Number of beds

4,594

3,454

Valuation multiples

P/NAV (x)

0.73

0.49

48%

P/contracted rent (x)

8.6

5.3

61%

P/portfolio value (x)

0.50

0.32

53%

Price/home (£000s)

696

435

60%

Price/bed (£000s)

106

63

69%

Source: Triple Point Social Housing and Civitas data, Edison Investment Research

Discounting an almost 20% decline in income

The average trailing yield of the peer group excluding SOHO is c 7.6%. Based on our FY24 forecasts we estimate that SOHO could withstand a c 20% reduction in forecast income while still generating sufficient earnings to pay fully covered DPS of c 4.5p, reflecting a similar 7.6% yield.

Exhibit 8: Dividend sensitivity to income

£m unless stated otherwise

FY24e

Market cap*

221.5

Dividends required to generate 7.6% yield (A)

16.8

Minimum DPS required to generate 7.6% yield (p)

4.3

Adjusted earnings required for full divided cover (B)

16.8

Forecast adjusted earnings

25.6

Forecast income

41.3

Maximum reduction in forecast adjusted earnings to cover dividend (A-B)

8.8

As a % of forecast income

21%

£m unless stated otherwise

Market cap*

Dividends required to generate 7.6% yield (A)

Minimum DPS required to generate 7.6% yield (p)

Adjusted earnings required for full divided cover (B)

Forecast adjusted earnings

Forecast income

Maximum reduction in forecast adjusted earnings to cover dividend (A-B)

As a % of forecast income

FY24e

221.5

16.8

4.3

16.8

25.6

41.3

8.8

21%

Source: Edison Investment Research. Note: *Based on 55p per share.

Investment for growth or continued share re-purchases?

Over the medium term, SOHO aims to grow its portfolio further, with a focus on creating new capacity to meet the current lack of supply for SSH and the expected growth in demand. In the short term, increased capital costs, not fully reflected in asset yields, require a highly selective approach to investment. With the board focused on creating shareholder value, particularly on closing the material discount to NAV, during H123 it favoured share repurchases over acquisitions, completing a £5m buy-back programme (9.2m shares or 2.3% of the total outstanding) at an accretive average discount to prevailing NAV of 52.8%. Meanwhile, the completed sale of the four-property portfolio that was announced 1 September provides supportive evidence of the robustness of asset valuations and published NAV.

H123 share repurchases enhanced NAV per share by 1.27p, 1.1% of the end-FY22 value, and improved dividend cover. Attractive as this was, there are other relevant considerations with respect to further share repurchases. These will typically have a negative impact on share trading liquidity, more likely to hinder a re-rating of the shares. Where funded by asset sales, there is a loss of scale and upwards pressure on cost ratios. The effective near-term withdrawal from the market at a time of strong (‘unprecedented’) demand for funding from RP partners is both negative for the creation of social value and risks impeding the development of attractive opportunities with those partners over the medium term. The forward funding agreement with Golden Lane is a case in point.

The tortoise or the hare?

SOHO’s end-H123 cash position was £23.8m, subsequently increased by the £7.9m (before costs) portfolio sale. An amount of this is available for deployment, but not all, after allowance for items including prudent liquidity reserves, declared dividend payments and planned capex including environmental efficiency upgrades. For illustrative purposes we have compared the immediate financial impact of £10m invested in additional income earning portfolio assets (at a yield of 6.0%) with a similar value of share repurchases at the current share price, on an annualised basis. Both are immediately accretive to earnings although the uplift from share re-purchase (4.8%) is twice that from portfolio investment. However, that gap should quickly narrow with indexed rental growth on the assets. Similarly, while repurchases are accretive to NAV per share (2.3% in the illustration), assuming an unchanged property valuation yield, future rental growth should be reflected in higher property values and NAV. Meanwhile, share repurchases modestly lift gearing (shown below as net loan to value or LTV).

Exhibit 9: Illustrative immediate impact on estimates of portfolio investment versus share repurchase

£m unless stated otherwise

2024

Investment scenario

Repurchase scenario

forecast

Adjustment

Pro-forma

Adjustment

Pro-forma

Investment properties

687.3

10.0

697.3

687.3

Net debt

(228.6)

(10.0)

(238.6)

(10.0)

(238.6)

Other assets

3.5

3.5

3.5

Total net tangible assets

462.2

462.2

452.2

NAV per share (p)

117.5

117.5

120.5

Accretion to NAV per share

0.0%

2.6%

Net LTV

33.3%

34.2%

34.7%

Shares in issue (m)

393.5

393.5

393.5

(18.2)

375.3

Income

41.3

0.6

41.9

41.3

Finance expense*

(7.2)

(7.2)

(7.2)

Other costs

(8.5)

(8.5)

(8.5)

Adjusted earnings

25.6

0.6

26.2

25.6

Adjusted EPS (p)

6.50

0.15

6.66

0.32

6.82

Accretion to adjusted EPS

2.3%

4.8%

Source: Edison Investment Research. Note: *The investments are funded from cash with minimal impact on net finance expense.

Earnings forecasts

We have lowered our forecast for adjusted earnings by c 7% for FY23 and c 1% for FY24. Across the period, lower forecast rental income is partly offset by lower expenses. The non-core asset sale reduces annual rental income by c £0.4m, while the Golden Lane forward funding, if agreed by both parties, is unlikely to contribute meaningfully to rental income until FY25. We have assumed that the annual rate of CPI for September will be 6.0%, feeding through to rental growth after 7% in FY23. The reported 12-month change in CPI to July 2023 was 6.9%.

Rent collection was stronger than we expected in H123 but progress with My Space and Parasol has been a little slower than we had assumed, and this is reflected in a lower H223 collection rate and higher provisioning than we previously forecast. We nonetheless expect increased rent collections against the properties currently leased to My Space (c £3.0m of rent pa) and to Parasol (c £3.6m of rent pa) in H223 before normalising from the beginning of 2024. Provisions have been taken against current arrears but, despite this being included in the creditor agreements, conservatively we do not forecast recovery of back rents.

Our forecasts imply c 94% rent collection for H223 and 91% for the year, with full collection in FY24. Our FY24 rental income forecast recognises the possibility of the rents on the My Space assets being renegotiated, particularly if reassigned (this is specifically excluded in respect of the Parasol assets) and builds in a c 20% or £0.6m reduction.

We expect a strong recovery in earnings in FY24 as indexed rent growth continues and rent provisioning falls away, sufficient to increase DPS on a fully covered basis. We forecast 4.4% growth in FY24 DPS to 5.7p, 1.1x covered by adjusted earnings.

Our NAV forecasts include some further property yield widening, by c 20bp to c 5.85% (previously 5.65%).

Exhibit 10: Summary of forecasts

New forecast

Previous forecast

Change

Change

£m unless stated otherwise

FY23e

FY24e

FY23e

FY24e

FY23e

FY24e

FY23e

FY24e

Total income

39.8

41.3

40.9

41.8

-1.1

-0.5

-2.6%

-1.3%

Investment management fees

(4.7)

(4.7)

(4.7)

(4.8)

0.0

0.1

-0.4%

-2.0%

Administrative expenses

(3.6)

(3.8)

(3.7)

(3.9)

0.2

0.1

-4.1%

-2.4%

Expected credit loss

(4.5)

0.0

(3.8)

0.0

-0.7

0.0

Net finance expense

(7.2)

(7.2)

(7.2)

(7.2)

0.0

0.0

0.0%

0.0%

Adjusted earnings

19.9

25.6

21.5

25.9

(1.5)

(0.3)

-7.2%

-1.3%

Amortisation of loan arrangement fees

(0.3)

(0.3)

(0.3)

(0.3)

0.0

0.0

EPRA earnings

19.7

25.3

21.2

25.7

(1.6)

(0.4)

-7.3%

-1.4%

EPRA EPS (p)

4.95

6.43

5.27

6.37

-0.3

0.1

-6.0%

0.9%

Adjusted EPS (p)

5.02

6.50

5.33

6.44

-0.3

0.1

-5.8%

1.0%

DPS declared (p)

5.46

5.70

5.46

5.70

0.0

0.0

0.0%

0.0%

EPRA DPS cover (x)

0.91

1.13

0.96

1.12

Adjusted DPS cover (x)

0.92

1.14

0.98

1.13

EPRA NTA per share (‘NAV’) (p)

111.6

117.5

113.8

117.8

-2.2

-0.3

-2.0%

-0.3%

NAV total return

7.3%

10.3%

9.4%

8.4%

Source: Edison Investment Research

Exhibit 11: Financial summary

Period ending 31 December (£m)

2020

2021

2022

2023e

2024e

INCOME STATEMENT

Total income

28.9

33.1

37.4

39.8

41.3

Expected credit loss

0.0

0.0

(2.1)

(4.5)

0.0

Directors' remuneration

(0.3)

(0.3)

(0.3)

(0.3)

(0.3)

Investment management fees

(4.1)

(4.6)

(4.7)

(4.7)

(4.7)

General & administrative expenses

(2.2)

(2.1)

(2.9)

(3.2)

(3.4)

Total expenses

(6.6)

(6.9)

(7.9)

(8.2)

(8.5)

Operating profit/(loss) before revaluation of properties

22.3

26.2

27.5

27.2

32.8

Change in fair value of investment properties

7.9

9.0

8.3

6.9

20.0

Operating profit/(loss)

30.2

35.2

35.7

34.0

52.8

Net finance income/(expense)

(5.6)

(6.8)

(10.8)

(7.5)

(7.5)

PBT

24.6

28.4

24.9

26.5

45.3

Tax

0.0

0.0

0.0

0.0

0.0

Net profit

24.6

28.4

24.9

26.5

45.3

Adjusted for:

Change in fair value of investment properties

(8.0)

(9.0)

(8.3)

(6.9)

(20.0)

Loan arrangement fees written off

0.0

0.0

2.6

0.0

0.0

EPRA earnings

16.6

19.4

19.3

19.7

25.3

Interest capitalised on forward funded developments

(0.1)

0.0

0.0

0.0

0.0

Amortisation of loan arrangement fees

1.2

1.3

1.0

0.3

0.3

Company adjusted earnings

17.7

20.7

20.3

19.9

25.6

Basic & diluted average number of shares (m)

360.9

402.8

402.8

397.0

393.5

Basic & diluted IFRS EPS (p)

6.82

7.05

6.18

6.69

11.52

EPRA EPS (p)

4.61

4.82

4.78

4.95

6.43

Basic & diluted company adjusted EPS (p)

4.90

5.14

5.03

5.02

6.50

DPS declared (p)

5.18

5.20

5.46

5.46

5.70

EPRA EPS/DPS (x)

0.89

0.93

0.88

0.91

1.13

Company adjusted EPS/DPS (x)

0.95

0.99

0.92

0.92

1.14

EPRA cost ratio

23.3%

20.9%

21.1%

20.6%

20.6%

EPRA NTA total return

5.9%

6.6%

5.7%

7.3%

10.3%

BALANCE SHEET

Investment properties

572.1

641.3

667.7

666.7

687.3

Other receivables

0.0

2.3

2.9

3.0

3.0

Total non-current assets

572.1

643.6

670.6

669.8

690.4

Cash & equivalents

53.7

52.5

30.1

32.5

35.3

Other current assets

4.3

3.9

4.3

3.7

3.8

Total current assets

58.0

56.4

34.4

36.2

39.1

Trade & other payables

(5.0)

(3.7)

(3.1)

(4.1)

(4.2)

Other current liabilities

0.0

0.0

0.0

0.0

0.0

Total current liabilities

(5.0)

(3.7)

(3.1)

(4.1)

(4.2)

Bank loan & borrowings

(194.9)

(258.7)

(261.1)

(261.3)

(261.6)

Other non-current liabilities

(1.5)

(1.5)

(1.5)

(1.5)

(1.5)

Total non-current liabilities

(196.4)

(260.2)

(262.6)

(262.8)

(263.1)

IFRS net assets

428.7

436.1

439.3

439.0

462.2

EPRA net assets

428.7

436.1

439.3

439.0

462.2

Period-end basic & diluted number of shares (m)

402.8

402.8

402.8

393.5

393.5

Basic & diluted IFRS NAV per share (p)

106.4

108.3

109.1

111.6

117.5

Basic & diluted EPRA NTA per share (p)

106.4

108.3

109.1

111.6

117.5

CASH FLOW

Net cash flow from operating activity

24.5

24.7

25.7

28.7

32.8

Cash flow from investing activity

(94.4)

(61.4)

(18.3)

7.7

(0.6)

Net proceeds from equity issuance

53.1

(0.0)

0.0

0.0

0.0

Loan interest paid

(4.6)

(5.6)

(7.2)

(7.2)

(7.2)

Bank borrowings drawn/(repaid)

29.4

65.0

0.0

0.0

0.0

Share repurchase

0.0

0.0

0.0

(5.0)

0.0

Dividends paid

(18.8)

(20.9)

(21.7)

(21.7)

(22.2)

Other cash flow from financing activity

(1.1)

(2.7)

(0.6)

(0.1)

0.0

Cash flow from financing activity

58.0

35.7

(29.6)

(34.1)

(29.4)

Change in cash

(11.9)

(1.0)

(22.2)

2.4

2.8

Opening cash

64.7

52.9

51.9

29.7

32.1

Closing cash (excluding restricted cash)

52.9

51.9

29.7

32.1

34.9

Restricted cash

0.8

0.6

0.4

0.4

0.4

Cash as per balance sheet

53.7

52.5

30.1

32.5

35.3

Debt as per balance sheet

(194.9)

(258.7)

(261.1)

(261.3)

(261.6)

Unamortised loan arrangement costs

(3.6)

(4.8)

(2.4)

(2.2)

(1.9)

Total debt

(198.5)

(263.5)

(263.5)

(263.5)

(263.5)

Net (debt)/cash excluding restricted cash

(145.6)

(211.6)

(233.8)

(231.4)

(228.6)

Net LTV (net debt/investment property)

25.5%

33.0%

35.0%

34.7%

33.3%

Company gearing (gross debt/gross asset value)

31.5%

37.6%

37.4%

37.3%

36.1%

Source: Triple Point Social Housing historical data, Edison Investment Research forecasts


General disclaimer and copyright

This report has been commissioned by Triple Point Social Housing REIT and prepared and issued by Edison, in consideration of a fee payable by Triple Point Social Housing REIT. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by Triple Point Social Housing REIT and prepared and issued by Edison, in consideration of a fee payable by Triple Point Social Housing REIT. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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