Okay.
Good morning. I'm going to start the webinar now. My name is Mike Adams. I am the Managing Director of Gresham House Real Estate. I'm delighted to be joined today by Ben Fry, Fund Manager and Sandeep Patel, Finance Director, to present the Residential Secure Income PLC interim results presentation. We'll go for the standard format. Ben will take you through portfolio performance and strategy and then finance and then Sandeep will take you through the finance and we will take questions at the end. As you know, you can post questions on the Q& A box on your screen. I'm going to hand over to Ben now to take you through the presentation.
Thanks, Mike, and good morning, everyone. So I'm going to start with an overview of the key metrics for the first half of 2024 that we're going to talk you through if we just move on to the next slide, please. So, first of all, we've delivered strong top line growth with 6.5% like for like rental growth, whilst continuing with last year's record occupancy of 96% in retirement and 100% in shared ownership, underpinned by our strong 99% rent collection. Importantly, we've now seen a stabilization of RESI's operating cost which, aided by the reduction in fund management fees agreed with Gresham, have enabled RESI to grow adjusted earnings by 9% and comfortably cover our rebase dividend by 117%. Moving down.
Disappointingly, our investment valuation has continued to be impacted by higher interest rates, declining 2% like for like over the six months, despite strong rental growth and leading to a total EPRA NTA return of -3% to take EPRA NTA to 77.3p per share. This has taken our loan to valuation to 52%. But as a reminder, with very long debt with an average maturity of 20 years, limiting the impact of interest rate rises on our portfolio, particularly kind of limiting that exposure over the next few years. So we are really fortunate to be invested in really strong assets with great top line growth. I'll now move on to talk through our ongoing strategic initiatives and then we'll come back to talk through that performance. So at year end we announced two focuses.
First, the sale of our Local Authority portfolio and then driving performance in our Retirement portfolio with an expanded asset management team led by Chris Carter Keall. I'll come back to that progress on Retirement shortly. I just want to focus right now on Local Authority portfolio. So we've completed the first sale of one of the assets on 4 April for GBP 5.6 million net of costs, which was slightly ahead of our GBP 5.5 million September 2023 book valuation. The remainder of the portfolio remains under offer with sale expected in the second half. That has followed delays in obtaining building control, sign off for or works already completed to upgrade fire safety systems.
Once that's completed and that sale has undertaken, these proceeds will be used to extinguish our floating rate working capital facility which is due for repayment by the 30th of December of this year. That will then leave the portfolio focused on retirement and shared ownership, which are performing really well for us, supported by long-term debt with a 21-year average debt maturity. Now, both us and the Board are acutely aware that the current share price does not reflect the value of the portfolio and particularly secure long-term inflation-linked income. We're working with the Board to continue to review options for further disposals which support maximizing shareholder value from which we would prioritise the return of capital to shareholders.
However, we do anticipate that such opportunities may take time because volumes are currently low in the investment market and expected to remain low until after the Bank of England begins cutting interest rates, potentially later on this summer. If we move on then I just want to provide a quick reminder of our portfolio which serves to provide secure inflation linked income. Just one more, please. There you go. So we focus on two massively underserved markets, an incredible growth potential and rental security. So this is with direct leases with 2,500 or 2,600 pensioners and part owners, and also very geographically diversified across the country. So you can see 64% of our portfolio is providing fit for purpose homes for retired people.
So this is the U.K.'s largest private rented retirement portfolio, let on affordable rents with lifetime tenancies underpinned by housing benefit if the residents require. It's all about maintaining independent living without care for longer. Then in the bottom half of the page you can see our shared ownership portfolio, 36% of the portfolio. So this is a part rent, part buy home ownership model where home buyers acquire a share in their residential property and rent the remainder from RESI. It's all about helping young families and key workers acquire a home they'd otherwise be unable to buy and afford. And that affordability is supported by government capital grant funding, meaning living costs are circa 30% below market. So we've got two fundamentally great platforms in growth sectors. I'm just going to talk about kind of the portfolio performance over the past six months.
So firstly on shared ownership. So here we have a fully occupied portfolio worth GBP 115 million of 758 homes. So shared ownership is a sector where demand continues to increase and that's been driven by rising mortgage rates and private rents, meaning it's increasingly the most affordable housing choice for young families and key workers. It's also really great for us as an investment. With rental income underpinned by 37% average shared owner equity stake and below market rents, meaning we have a really strong over 99% rent collection, we're expecting shared ownership to continue to be a strong driver of performance with rents growing at RPI + 0.5%. And we've just seen or just put through a 8.3% average rent increase in April 2024, which will underpin our second half financial performance figures, now putting through that sort of rent increase.
It's really important to us that these increases are affordable and sustainable. We see that as being underpinned by strong wage growth of around 7% over the past six months, while energy prices are easing and our shared owners being relatively insulated versus outright purchases against increased mortgage costs. If you look in the bottom right hand corner of the screen, you can see that last year's 7% rental increase helped drive up our income in shared ownership 12%. And that will continue to grow in the second half of 2024, reflecting this year's 8.3% increase with very low kind of operating leakage of 6%. And shared ownership is a really incredible platform. We really don't feel the market values the quality of the income stream we have here very similar, very close to a debt product, your residents and partners in their homes, not just tenants.
Because of the kind of overall investment needs that housing associations have, there's a big opportunity for institutional investments to expand in shared ownership. We're seeing that investment stepping up. Two large housing associations have recently sold large shared ownership portfolios to well-known U.K. institutional investors. The market is continuing to mature. If we move on then to look at retirement. Here we've grown revenue 9.6% and that's been driven by two factors so strong like-for-like rental growth of 6.1% compared to 12 months ago, combined with higher average occupancy, maintaining our record 96% occupancy through the winter months when we typically see higher turnover of residents, and also that consistent 99% occupancy rent collection. Now we have continued to see an increase in operating expenses. They're up kind of 13% in retirement year-on-year.
But the excessive cost pressure that we saw in FY 23 so last year has eased and that has ensured that that strong rental growth that I just mentioned has converted into net rental income growth of 7%. And unfortunately as we look forward, operating cost increase has been driven by energy costs for communal areas. We're now seeing that starting to moderate and that should help reduce leakage in future and provide an extra kind of kicker to our net operating income growth. And just as a reminder in retirement, you can kind of see from those pictures at the bottom left of your screen, the leakage in this portfolio reflects our properties having maintained gardens, having common rooms and on site house managers who are there to support the residents.
So if we just move on then I'm now going to talk through some of the active asset management steps we announced at year end to drive net operating income. As a reminder, this was one of our two key strategic priorities for the year. Firstly, we've improved our reletting times by about 30% to 10 weeks on average. Ensuring our occupancy is maintained at 96%, we achieved during summer 2023 despite those winter months generally seeing increased turnover. That's allowed us to focus on growing those rental levels at 6.1% a year. As I mentioned on the previous slide, we're currently introducing a self service customer portal that should continue to speed up the rental process and save costs by enabling residents to get information directly.
That builds upon our introduction at the start of the year by electronic lease signing, which is now used by 3/4 of our customers compared to zero 12 months ago. That saves around a week in previously kind of posting leases and getting them posted back to our residents. And really reflects the fact that while our resident group are retirees, they are increasingly keen to use technology. We've also been re tendering our repairs and maintenance contracts, so we now have preferred suppliers in place in our core locations, which has led to a significant improvement in speed and quality. On the capital side, we've commenced our bathroom upgrades, replacing baths in some of the older properties with showers.
We've upgraded the first 35 in the first half and that is improving our reletting times on average by two weeks and delivering in excess of our minimum 8% return on cash that we look at for upgrading properties. We've also commenced our portfolio rationalization which we announced at year-end to drive economies of scale on maintenance, get more control on service charges and reduce leakage. So you can see the graphs on the right-hand side of your page, so they highlight in blue basically the 20% of the portfolio we've identified for disposal to really focus down the portfolio, which we've done using both local market knowledge and data that we have from lettings as well as ONS growth predictions to focus on areas of future retirement demand. The proceeds of this disposal program will be reinvested in core locations.
So to drive those economies of scale and also to upgrade existing assets. So for example those bathroom kitchen upgrades I just mentioned. So we've now commenced that at the start of the year. We have the first 24 properties which represents 1% of the portfolio have now either been sold or in legals and they've been sold on average for 30% above book value. So this will be accretive to our returns, this program, both on a capital perspective as well as from a reinvestment perspective in terms of driving down that leakage in increasing our local economies of scale. Once we've sold or completed the sale of the Local Authority portfolio, we're going to look to step up this program. So I'll now hand over to Sandeep to talk through RESI's kind of financial numbers and then come back a little bit later.
Oh sorry, I had one more slide there. I got ahead of myself. So this slide is just a reminder from our year-end review with The Good Economy and karma. I just wanted to remind of some of the great things we're doing for residents. So first of all on the left-hand side you can see the great work by our in-house property management team where we've got 80% to 90% satisfaction levels and really importantly in retirement, 60% of our retirees are experiencing improvement in their mental health on moving in and that's really important to drive demand for the product. And the more we can explain to residents the benefits of living in this accommodation, the better we will do from a demand and occupation perspective.
Then on the right-hand side you can see the portfolio is substantially more energy efficient than the market. 98% of directly rented are at EPC C or above, compared to 47% of the wider market. So the previous Tory government until recently had a target of EPC C for all directly rented by 2025. They did remove that, but Labour have indicated in their manifesto that they'll be reintroducing minimum standards for 2030. So it's really important that we stay on top of this. It also, we tend to find that more energy efficient buildings lead to stickier tenants because their energy bills are lower and you can see kind of going from a D to a C saves in a retirement flat about GBP 21 a month or in shared ownership it's more like kind of 57 pounds a month compared to the average home.
Now I'll move on to Sandeep to talk through finances.
Thanks, Ben, and good morning. Sorry, the lights just gone off, and good morning to everyone online. I'll be guiding you through the H1 2024 adjusted earnings, the evolution of NTA since our September year-end, and the RESI debt stack. So, detail on this graph is on this slide is our adjusted earnings, stepping through. Our gross rental income increased 10% from GBP 13.6 million to GBP 14.9 million. This was underpinned by GBP 0.8 million of organic growth via a like-for-like inflation-linked rental increases across our retirement and shared ownership portfolio. We had GBP 0.3 million of asset-management-led initiatives which have filtered through into lower voids and higher occupancy which is up from 94% in H1 2023 to 96% in H1 2024.
We had GBP 0.2 million of gross rental generation through lease up and full occupancy on our shared ownership portfolio which is now fully leased up with sales risk removed. This translated into 7% growth in net rental income from GBP 8.8 million to GBP 9.4 million. That GBP 0.6 million absolute increase is broken down into component parts on the right-hand side of the slide. Firstly, GBP 0.1 million was added through the 6.8% like-for-like shared ownership rent reviews. Secondly, full occupancy and P and L contribution from the shared ownership portfolio acquisitions which completed during the prior year six month period generated a further GBP 0.2 million of net rental income. In contrast to H1 2023 where retirement rental income remained flat year-on-year as a result of top-line rental growth being fully offset by increases in cost.
H2 2024 saw GBP 0.4 million of growth through rent growth of GBP 0.7 million coming from a 6.1% like-for-like rental increases across our retirement portfolio. This was supplemented by GBP 0.3 million due to the 2% increase in average occupancy. This was partially offset by a GBP 0.6 million increase in costs year-on-year. This resulted from a 13% increase in service charges which was predominantly driven by continued increases in energy costs which are now starting to stabilize. Our first-tranche sales profits reduced 81% year-on-year. As a reminder, first-tranche sales profits reflect the gain on costs recognized by selling a portion of a shared ownership home and is thereafter replenished by ongoing net rental income from the shared owner. The reduction in this line reflects the maturity of the shared ownership portfolio with all units leased and sales risk removed.
Our net finance costs increased by 10% to GBP 3.4 million and this was caused by a 2% average increase in SONIA year-over-year. On RESI's GBP 21 million of floating rate debt management fees decreased 24% to GBP 0.8 million. This was largely attributable to the rebasing of the management fee which we announced at year end and was effective for the Q2 period covering 1 January to 31 March. As a reminder, the management fee is now calculated in reference to the average of NAV and market capitalisation. Overheads were broadly flat in absolute terms and is pleasing relative to H1 2023 where our overheads increased 33% year-over-year. In totality our adjusted earnings grew 9% to GBP 4.5 million and generally speaking is due to the top line rental growth and stabilization of costs. Next slide please.
This slide here summarizes the movement in adjusted earnings year-over-year. I won't spend too much time on this as I've just talked through the drivers in the previous slide. The key points here. Our ongoing adjusted earnings covered the rebased dividend paid of 2.1 pence per share by 117% last year. Dividend coverage was 86% of the 2.58 pence dividend paid. The 31 basis points improvement in coverage comprised 23 basis points because of the dividend being rebased and 7 basis points due to the earnings growth year-over-year. Next slide please. Here we have the evolution of our NTA from year end. Total return of NTA for a six-month period ending 31 March was minus 2.6p and it's made up of two parts. On the income side we had 2.5p of adjusted earnings and one off earnings against 2.1p dividend paid.
There was a net balance sheet loss of 5.1p which is primarily made up of property valuations. RESI benefited from 6.5% like for like rental growth across its portfolio which was valuation accretive by 7.5p. This was however outweighed by a 20 basis points weighted average outward yield shift which diluted the valuations by 11.5p, meaning in aggregate valuations contributed to a 4p decline in NTA. Also within EPRA is a negative balance which reflects the indexation of our inflation linked USS debt. Next slide please. Turning to debt, the RESI debt stack contains 3 debt facilities with a weighted average debt maturity of 20 years. 49% of the debt is at an attractive fixed all in rate of 3.5%. This debt is an amortizing term loan with Scottish Widows. Amortization is largely back ended and due on maturity in 2044.
40% of the debt is in relation to the RPI linked USS facility. Indexation is capped at 5.5% and carries a coupon of 1.1%. Finally there is a 25 million RCF which is unhedged and at the balance sheet date was GBP 21 million drawn. In early April, GBP 4 million of facility was repaid leaving an aggregated LTV of 52%. Next slide please. Summarized here are our most recently reported covenants which relate to the March 2024 balance sheet date. Key things to note here are repayment of the GBP 17 million drawn balance on the Santander RCF is due in December 2024. Repayment is contingent on the sale of the remaining Local Authority asset which we are targeting for completion in H2 due to the fact pattern. Despite the sale currently being under exclusivity, BDO the group auditors have placed a material uncertainty clause in their audit report.
This will be removed for full year results on completion of the sale. Finally, from a Covenant perspective, aside from the Santander LTB covenant, there is ample headroom on all other covenants. The 20 basis points outward yield shift has narrowed headroom inclusive of a GBP 4 million repayment in April 2024. Valuations can decline by GBP 6 million which would translate into a further 10 basis point of yield expansion. The LTV covenant pressure will fall away on full repayment of the drawn balance. I'll now tag Ben back in for outlook and closing remarks.
Thanks. Thanks Sandeep. So let's just kind of summarize, bring everything together and talk about outlooks then. So first of all our portfolio is underpinned by that acute need for affordable high quality safe homes. RESI focused on two growth markets addressing big problems growing an increasingly lonely elderly population, inability to access home ownership. Looking at our performance, our underlying operational performance has been really strong. 6.5% like for like rental growth, flowing into 9% adjusted earnings growth and ensuring we've comfortably covered our rebase dividend by 117%. We expect this strong growth to continue in the second half, underpinned by continued wage and pension growth and with those shared ownership rents increasing by over 8% on the 1st of April.
Our priority right now is really to complete the disposal of the residual Local Authority portfolio in the second half and repay that floating rate debt ahead of its December maturity. As Sandeep's just talking through and we're really focused on driving performance with a strong value enhancement strategy and Retirement underway. And hopefully I've kind of talked through some of the key steps we've undertaken there. Now we're acutely aware, just a reminder, that the current share price does not reflect the value of the portfolio and are working with the board to continue to review options for further disposals which support maximizing shareholder value from which we prioritise return of capital. We anticipate such opportunities may take time. As I talked through earlier, volumes in the investment market are expected to remain low until after the Bank of England begins cutting interest rates.
We're very much not looking to fire sell these really high quality assets that we have in the portfolio. Resi's got these two strong platforms that shareholders have supported and we really need to ensure that value within those is recognized for shareholders. So I'll now hand back to Mike to run Q and A.
Thanks very much Ben and Sandy for a very clear presentation. We've got a number of questions coming through so I'll take the first one. I'll try and bunch them together. The first one is about the Local Authority portfolio, Ben. The question is why has it taken so long to sell the remaining asset? The secondary question is why are you so confident that you're going to sell it before the year end? And the final question on that is, have you got a plan B if you haven't sold it by the year end? So three questions, but I've wrapped them into one.
Yeah. So in terms of our confidence. So we are working with one buyer who has conducted significant due diligence, spending a lot of money on working through the asset they require for completion. Completion of that building control sign off that I outlined earlier that we are still awaiting. That should then unlock the portfolio for them to be able to complete. Should there be any issues with that. We do have backups in place. So our first is we have a reserve bidder who is available and keen to transact on the portfolio. We also have the ability to either refinance the existing debt with Santander or to look to dispose of other assets within the portfolio in order to kind of pay down the debt.
By which I mean potentially some of the retirement that I mentioned earlier that we're selling at significant premiums at the moment. I'll bet that is on individual properties. So it does take time. Hopefully that outlines the kind of three questions.
Thanks, Ben. The next question relates to the NAV and the NAV discount that the fund currently trades on. How are you proposing to manage this discount and how would you potentially return capital to shareholders?
Thanks, Mike. So first of all we've kind of considered the opportunity for buybacks at the moment with a focus on deleveraging the portfolio that the board do not consider that to consider that the right time to be doing that want to pay down the floating rate debt. First of all, once that has undertaken, should further disposals be completed that will then be used to prioritise return of capital. The format of that, whether that's buybacks or via kind of a more formal return of capital, is to be decided at that point. But we're very clear that that is the intention. We just have to bear in mind that it will take time to get what we consider to be best value for portfolio because those investment markets are relatively low and volumes are low.
There is a limited amount of core capital in the market happening at the moment. There is a lot of opportunistic capital that you can sell at very low prices. But that's something just to reiterate that we very much don't want to do in the meantime. It's just strange. One of the points in the meantime, it's really about focusing on performance of the portfolio, and by particularly focusing on the retirement portfolio, we can help to drive value by driving that NOI growth on the portfolio.
Thanks, Ben. The next question relates to. There's sort of two questions in one. Again, firstly, is the impact of the election on the portfolio and, in particular, the level of government funding or Local Authority funding in the Retirement portfolio and whether that could potentially be impacted.
Yes. So our view on the election is kind of based on both manifestos and conversations that we're having. So it's very clear to us that the next government want to step up housing supply, but it's also very clear they don't have significant cash available to do so themselves. So they'll be increasingly seeking long-term institutional investment to help deliver this. And we see that very much as an opportunity for institutions rather than a threat to be part of the solution rather than than part of the problem. So we don't see it having any negative impact on the portfolio in terms of retirement. So around a third of our residents currently get some kind of housing benefit support to live in their homes. The remainder purely private pay. We don't see that being under threat.
Those properties are priced around what's known as kind of local housing allowance levels, which is the level you can get housing benefit for. We expect that to be continued to be supported through the new government. I think what's really important in retirement is our rent levels are really relatively affordable. So we're around kind of GBP 900-GBP 950 a month. If you were to compare that to residents who need care, it can be kind of 4 or 5 times that level. So it's just a completely different product that we're providing. And because our residents are much more mentally active and they're getting a lot more social interaction, it helps keep them out of care. So it's a saving rather than a cost.
Thanks, Ben. The next question relates to costs in the retirement portfolio and, you know, asking you to get your crystal ball out for next year. And with the view that energy prices are potentially coming down, what impact that may have on the costs in the portfolio?
Yes, so there is a lag on energy prices in the portfolio. Typically energy prices kind of fixed 12 months in advance. We are now seeing those prices coming down, which will reduce the energy component of the communal costs within our buildings. That should help us to at least keep flat or hopefully drive down operating costs within retirement and therefore drive net operating income.
Thanks, Ben. That is the final question. So unless there's any more questions coming through on the Q and A, I'm going to wrap up the session now. Thank you very much, Ben and Sandeep, and thank you everyone for joining.