Residential Secure Income plc ("ReSI" or the “Company”) (LSE: RESI), which invests in affordable shared ownership, retirement and local authority housing, today provides an update on its position with regards to the COVID-19 pandemic.
Since the onset of the crisis, our overriding priority has been and remains the safety of our residents, stakeholders and staff. Our property team, led by Pete Redman, are working closely with our property managers and lessees across ReSI’s portfolio to ensure we continue to provide safe homes for our residents and shared owners.
In addition, ReSI Capital Management has enacted its business continuity plan, utilising the resources of both TradeRisks and its new parent Gresham House, with full remote-working for all office based staff.
Overall the Company has a defensive portfolio which has been positioned to survive through economic stress. Since ReSI’s rental income is primarily supported by residents’ pensions or housing welfare subsidy systems, including leases to local authorities, the Company believes that increased unemployment is unlikely to have a material impact on performance. ReSI anticipates that the main impact of the COVID-19 crisis will be a delay in further expanding its income generating portfolio and an increase in void levels within the retirement portfolio.
While it is too early to provide a clear picture of the implications of the pandemic, a more detailed summary of the likely impact on the Company’s individual portfolios by asset class is as follows:
Local Authority Housing
This portfolio, which accounted for 18% of the Company’s FY2019 net leveraged rental income, is fully leased to Luton Borough Council, which has as AA equivalent credit rating, and therefore no financial impact is expected.
Independent Retirement Rentals
Provides independent living, with no care provision, for retirees over the age of 60, and is the Company’s largest portfolio by asset class, comprising 82% of the Company’s FY2019 net leveraged rental income.
The Company expects that while there will be a reduction in tenants starting leases, this will be offset by a reduction in voluntarily terminations of leases and those entering care homes.
While the retirement portfolio residents do not generally have material underlying health conditions, their age profile does present a risk that if COVID-19 accelerates it could cause voids to increase.Furthermore, the time taken to recover occupancy would also increase, given the anticipated difficulty in attracting new tenants during a countrywide lockdown.
For 2020 any increase in voids is expected to be largely offset by a reduction in transaction costs associated with tenant turnover (e.g. letting fees for new tenants, cleaning and repair of flats between tenants).
The Company does not currently anticipate any major impact on rent collection as we have recently assessed our shared owners’ affordability and financial security, each of whom has ownership interests in their home, and with rent underpinned by their mortgage providers.
ReSI does, however, anticipate a delay in both its ability to grow shared ownership occupancy, as well as to grow the portfolio itself. ReSI currently has 93 completed shared ownership homes with 52 occupied, 25 in progression and 16 available. The COVID-19 crisis has made it impossible to complete the acquisition of the remaining 73 homes in Clapham Park by the end of March, as previously anticipated.
The Company is, however, continuing to see first tranche sales to shared owners during this time, with our sales agent moving to virtual viewings.
ReSI does not anticipate a long term impact on shared ownership returns since the asset class becomes a more attractive product in an economic downturn given it is the most affordable method of home ownership (with lowest deposit requirements and ongoing costs). In addition, regardless of the COVID-19 outbreak, the country will still have a significant shortfall of housing and this supply demand gap will most likely become more acute through a countrywide lockdown causing reductions in earnings and housing delivery (caused by both construction sites closing and financial pressures on housing developers).
We anticipate limited staircasing in the current environment, which reduces our need to recycle staircasing proceeds and hence enhances our income stability.
For the full year 2019 shared ownership did not contribute materially to the Company’s net leveraged rental income.
Financial Position And Dividend
Debt service payments are expected to be unaffected. 90% of ReSI’s debt is very long term in nature, with only £14.5 million needing to be refinanced before 2043.
ReSI has a strong liquidity and balance sheet position with £5 million of cash and positive cashflows in all operating units.
The Company anticipates that it is well placed to continue to make dividend payments and intends to deliver on this year’s target dividend of 5p per share. However, the time before the dividend is fully covered by net rental income is likely to be extended.
ReSI will continue to monitor the COVID-19 situation and its potential impact on both the wider economy and the Company’s business. Further updates will be provided if and when new material information comes to light, otherwise the Company will provide a fuller update alongside its Interim Results in May 2020.
FOR FURTHER INFORMATION, PLEASE CONTACT:
ReSI Capital Management Limited / TradeRisks Limited
+44 (0) 20 7382 0900
Jefferies International Limited
+44 (0) 20 7029 8000
+44 (0) 20 3727 1000