Release Date: January 22, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Residential Secure Income PLC (LSE:RESI, Financial) reported strong top-line growth with a 5.8% like-for-like rental increase.
- The company maintained high occupancy rates, with 96% in retirement and 100% in shared ownership.
- Adjusted earnings grew by 9%, comfortably covering the dividend by 124%.
- The company successfully disposed of local authority assets, generating GBP20.5 million in proceeds.
- The portfolio's energy efficiency is ahead of the market, with 98% of properties rated EPCC or above.
Negative Points
- The decision to wind down the trust was made due to challenges in scaling and market conditions.
- The trust has been trading at a significant discount to its net asset value, with low liquidity.
- Investment valuations declined by 3% year-on-year due to higher interest rates.
- Operating expenses increased by 11% in the retirement portfolio, driven by insurance and energy costs.
- The market backdrop remains difficult, with bond yield movements likely to pressure valuation yields.
Q & A Highlights
Q: What are the estimated costs of the wind down?
A: Sandeep Patel, Finance Director, stated that while it's difficult to provide absolute numbers at this stage, ReSI is proactive in managing wind down costs. They have worked with the Board to agree on a budget for third-party advisers, aligning them with shareholder value maximization. Normal expenses expected during an orderly wind down, including legal, tax, and liquidation fees, will be incurred.
Q: Can you give more context about the Wesley House sale and the valuation achieved?
A: Ben Fry, Fund Manager, explained that Wesley House was sold for net proceeds of GBP15 million, compared to a book value of GBP14.4 million as of September 31, 2023. The gross proceeds were about GBP15.3 million, with approximately GBP300,000 in legal and other transaction costs.
Q: Who are the natural buyers of the retirement homes, and will future sales be of a similar scale?
A: Mike Adams, Managing Director, indicated that buyers will likely be those looking to grow their presence in the independent retirement sector in the UK. The portfolio offers a platform for growth, with over 2,000 units in retirement, and the strategy is to find buyers who can evolve the portfolio over time.
Q: How does the ReSI portfolio compare to the Blackstone portfolio sold to USS?
A: Ben Fry noted that the Blackstone portfolio primarily consisted of nationwide houses built in the past five years, whereas ReSI's portfolio includes modern apartments in London and slightly older houses across the country. The ReSI portfolio may be split to appeal to different buyers.
Q: What is the strategy regarding returning capital to investors in terms of distributions?
A: Sandeep Patel stated that the aim is to return capital in the most tax-efficient manner, likely through a liquidation. If there is a lag between sales of different portfolios, two capital returns may be made via a tender offer, subject to final tax advice.
Q: Can you provide details on the debt and the ability to transfer it with any sales?
A: Sandeep Patel explained that both debt facilities have change of control provisions. Initial discussions with lenders indicate openness to transferring the debt to purchasers. If the debt is broken, prepayment conditions apply, calculated based on prevailing swap rates or index values.
Q: Will ReSI continue to pay dividends, and what is the timeline?
A: Sandeep Patel confirmed that ReSI will continue to pay quarterly dividends to maintain REIT status. Dividends will be announced alongside NAV updates, with the next announcement expected in mid-February, aligning with the historical timetable.
Q: Is the Board considering increasing the dividend during the runoff?
A: Sandeep Patel mentioned that there is no set dividend target for FY25. The Board will evaluate dividends quarterly based on realizations, profitability, maintaining REIT status, and reinvestment needs to maximize capital returns.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
