Morning, everyone, and welcome to the ReSI plc half-yearly results for the period to March 31, 2023. The presentation today should take between 20-25 minutes, leaving between 10-15 minutes for Q&A at the end of the session. Can I remind everyone, please, to put all their Q&A online, and we'll pick up your questions at the end? My name is Mike Adams. I am the Managing Director of Real Estate at Gresham House. It's a pleasure to be joined today by Ben Fry and Sandeep Patel, who are the Fund Manager and Finance Director of Gresham House Real Estate, and responsible for the management of the fund.
In terms of background, I think we've seen a very challenging macroeconomic environment with high and severe inflation and a squeeze on the cost of living. The increase in global bond prices have impacted global asset prices. ReSI plc is not immune to that. As you will see in the presentation today, the underlying performance of the portfolio has been very strong, at which highlights the quality of the assets in the ReSI portfolio. I'm gonna hand over to Ben and Sandeep now to take you through the presentation.
Thanks, Mike, and good morning, everyone. I'm gonna start on the next stage with an overview of the highlights for the first half of 2023 that we're gonna talk you through. If we could just move on, please. Thank you. We've delivered strong top-line growth of 6.2% like-for-like rental reviews, underpinned by over 99% rent collection. However, that has been offset by retirement cost increases, increasing floating rate debt costs, and higher fund OpEx to leave adjusted earnings down 3% year on year, and reducing our dividend coverage to 86%, which Sandeep will take you through in a few minutes time.
Given the huge impact of rising debt costs and cost inflation on us and everyone, we are fortunate to be invested in strong assets with great top-line growth to offset that, as you've seen through the numbers. Turning to the bottom line and the valuation, and the kind of bottom line of those numbers there. First of all, valuations. As with many other REITs, the increase in gilt yields has impacted us and led to a 7.2% like-for-like decline in the value of our investment portfolio, despite that strong top-line revenue growth that I mentioned. That's led to an EPRA NTA return of -13.7% to take our EPRA NTA to 89.0p .
That's also increased our loan-to-value to 52%, with an average debt maturity of 21 years, with 90% fixed or inflation-linked debt, that does limit the impact of interest rate rises on our portfolio for the next two decades. If we can move on, I want to provide a quick reminder of our portfolio and then go on to performance. If we move on. Yeah, perfect. This slide gives a quick reminder of our portfolio, which serves to provide secure, inflation-linked top-line income. We're focused on two massively underserved markets with incredible growth potential and rental security, with direct leases, with 2,600 pensioners and part homeowners, and incredible geographical diversification, as you can see on the right-hand side of the page. Just stepping through those two sectors in turn. Firstly, fit for purpose homes for retirees.
That's 57%, the largest part of our portfolio. These are properties that are let on affordable rents with lifetime tenancies, underpinned by housing benefit, if required, and it's all about maintaining independent living without care or longer throughout your retirement. Having a healthier and happier retirement. Second, as we move down, is our shared ownership portfolio, 35%, and the focus of our recent growth. This is a reminder, it's a part-rent, part-buy homeownership model. Homebuyers acquire a stake in the 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 or afford. That affordability is supported by government grant funding, meaning living costs are typically kind of 40% below market.
Remaining of 6% of the portfolio then, is the local authority portfolio, which, while it's still performing, is no longer core to our key focus on those areas. If I move on, then, I'm gonna step through the portfolio performance in turn. Firstly, shared ownership. This is where we have a GBP 125 million portfolio, 769 homes. As a reminder, we grew the portfolio last year with GBP 39 million of accretive acquisitions. This portfolio is performing incredibly well. It's now 99% sold or reserved, and of the 59 new homes we've acquired in September, December, and March, 44 are already occupied, a further eight are reserved. We're well on the way to full occupancy of this portfolio. Why is that?
Fundamentally, demand continues to increase as rising mortgage rates and private rents mean shared ownership is increasingly the most affordable housing choice for young families and key workers who have good jobs, who just don't have the incomes that are now needed to be able to either buy outright or privately rent a similar type of accommodation. Shared ownership is also incredible for us. It's got rental income underpinned by that 37% average shared owner equity stake in the property, and also below market rents, meaning we have a strong 99% rent collection. It will continue to be a strong driver of performance for us, with rents increasing at RPI plus a half % each year. Looking at that rental growth, last April, 2022, our rents increased at 5.5%.
This year, rents were due to increase at 12.4% in April, but we have proactively chosen to cap those rent increases at 7% in order to protect affordability for residents at a time of unique pressures. That cap of 7% broadly matches both wage growth and core inflation, excluding the one-offs of energy bills, and has been subsequently matched by the majority of not-for-profits across the sector, something we've, we have very much pushed for. Just to reinforce, this cap was entirely in our gift, and is a great example of how we look to balance long-term returns with the welfare of our residents.
If you move to the bottom right-hand side of the screen there, you can see in the graph, that all these pieces that I've talked through have driven shared ownership income up 41% on the year, and that 7% rent increase on April will continue to drive rent growth in the second half, with a very low cost leakage on shared ownership of 6%. If I move on to the next slide, please, I'm now going to talk about retirement. Similar to shared ownership, we've seen incredibly strong rental growth, 5.6%, record occupancy of 94%, and 100% rent collection. Again, similarly, we have proactively been capping rents, in this case at 6%.
This is to protect affordability of our retirees. We've also supported those in particular, financial hardship with either rental freezes or reduced increases, which has translated into a saving for residents of about GBP 500,000 a year. Key difference, though, of retirement to shared ownership is it is cost-intensive. We have 46% leakage of our rental income, which is because properties have maintained gardens, common rooms, and on-site house managers. That has had an impact on us this year. We've seen 77% inflation in our energy costs for communal areas, which has increased our overall OpEx by 13% and offset that top line rental growth to keep our net operating income flat.
As I mentioned at the start, underlying demand and rental growth continue to be strong and do position us well for the future once those one-offs have been worked through. We're also very much not sitting on our hands. We are taking productive or proactive action to drive net operating income and help to offset some of those cost increases. We are restructuring our in-house property management team at the moment to continue to take advantage of technology. We are re-tendering maintenance contracts to make savings, improving our relettings time to drive occupancy, reduce void periods, and investing in energy efficiency of other upgrades of GBP 500,000 in the half year to continue to drive value and long-term performance in the portfolio. If we can move on, then.
I next wanted to talk through some of our sustainable investment highlights on this page. Life this year is clearly very difficult for everyone, and this page tries to bring out some of the things we're doing to help. I've already talked on the previous 2 pages about what we're doing on rent caps. Next, I wanted to indicate, as you can see in the top left-hand corner, how shared ownership does offer substantial savings compared to renting or buying the same home. Typically, our shared owners pay 32% and 21% less compared to if they were to own or privately rent that same home, comparatively. Really, that is down to three things. One is the rents are subsidized.
They own only a third or 36% share, as I mentioned earlier, which means they have less exposure to mortgage rate rises. Third, our homes are much more energy efficient, which I'll come onto in a moment. If you kind of move down into the bottom left-hand side of the page, you can see some of the great work by our in-house property management team, who have around 90% satisfaction levels, something we're really proud of, and over half of our retirees experience an improvement in their mental health on moving in, which is fundamentally really important to that product. On the right-hand side, just very quickly on the environmental side, our properties are much more efficient than the market.
96% of our directly rented properties are at EPC C or above, which compares to just 48% of the overall residential market, which the government is targeting, will all be at C by 2025. There's a long way for the market to move. Very small movement for ourselves. Why is that important? Generally, if you're in a one-bed flat, moving from EPC D to C, saves you GBP 25 a month on your energy bills. Meanwhile, in our shared ownership, which average of a B, our residents are saving around GBP 84 a month compared to the average home. These are big savings on energy bills. If I now move on to Sandeep, he's going to talk you through the financials.
Thank you, Ben. Good morning to all of you who have carved out time to join our results presentation. As introduced by Ben and Mike earlier, I'm Sandeep Patel. I'm the Housing Finance Director here at Gresham House. I'll be guiding you through the adjusted earnings, dividend coverage, EPRA NTA total return, as well as providing an overview of our debt facilities and covenants. Next slide, please. Detailed here on this slide is our summary P&L and adjusted earnings for the six-month period ending 31 March 2023, with reference to the corresponding six-month period ending March 2022. Stepping through the adjusted earnings, our gross rental income grew 10% from GBP 12.4 million to GBP 13.6 million, and this was underpinned by GBP 0.6 million of organic growth by a like-for-like inflation- linked rental increases from our retirement and shared ownership portfolio.
We had GBP 0.5 million of acquisition-led additions to the ReSI portfolio completed from April 1, 2022. We had GBP 0.1 million coming through operational improvements, including the reductions in voids and retirement and leasing of our shared ownership properties following completion of first-round sales. This translated into 8% growth in net rental income from GBP 8.1 million to GBP 8.8 million. The GBP 0.7 million absolute increase versus the six months ending March 2022 is broken down into component parts in the bridge to the right. It's broadly been driven by three factors. Firstly, GBP 0.4 million was added through shared ownership acquisitions through the deployment of the GBP 15 million equity raise in February 2022, which was supplemented by a further GBP 20 million of debt from our USS facility.
Full occupancy and P&L contribution from the shared ownership portfolio acquisitions, which completed during the prior six-month period, generated a further GBP 0.1 million net rental income. Shared ownership rent growth of 5.5% from the April 1, 2022 rent reviews contributed a further GBP 0.1 million of net rental income. As you can see, by aggregating the retirement rent growth and retirement cost inflation, the last two components of the bridge there, retirement portfolio net rental income remained flat year-on-year, despite strong rental growth of 5.8% from the retirement portfolio. This was due to a 13% increase in costs attributable to our ReSI retirement portfolio. As mentioned earlier, this is mainly due to higher energy bills, to heat and light of communal areas, which fully offset that strong rental growth.
Our first-time sales profits reduced by 31% to GBP 0.2 million. First-time sales reflect the gain on cost recognized by selling a portion of a shared ownership home to the occupiers and is thereafter replaced by ongoing rental income from the shared owner. This reduction in this line reflects the ongoing maturity of the shared ownership portfolio and the removal of sales risk. Our net finance costs increased by 13% to GBP 3.1 million, and was mainly caused by a 21% increase in interest on our borrowings to GBP 2.6 million, with ground rent expenses remaining flat at GBP 0.5 million.
Our higher finance costs have been mainly driven by a 3% average increase in SONIA year-on-year on the ReSI's GBP 21 million of floating rate debt, which broadly represents about 10% of ReSI's debt stack. With floating rate cost of debt continuing to increase, ReSI are exploring the sale of non-core assets in order to pay down floating rate debt and leave the company with a long-term fixed or inflation rate in debt. Our management fees increased to GBP 1.1 million, versus GBP 0.9 million for the six months ending 31 March 2022. This reflects the impact of February 2022's fundraise, as well as a higher NAV than 12 months event.
The important thing to note here is our management fee is measured in advance, based on the prior quarter NAV, with an annual adjustment, which takes place in H2, ensuring the fee for the full financial year is charged in reference to an average NAV over 12 months. Accordingly, the management fee is expected to reduce, primarily as a function of the outward yield shifts on the ReSI portfolio since year-end, and for the full year ending 30 September 2023, be broadly in line with the prior year actual. ReSI's overheads increased by 33% to GBP 0.7 million, and has been predominantly attributable to higher costs associated with running a listed fund, including increases in audit, depository, and other professional fees, together with further investment in the regulation and governance of our registered provider of social housing, ReSI Housing, as it grows and matures.
In totality, our adjusted EPRA earnings fell by 3% to GBP 4.1 million, and more broadly can be explained by the higher expenses and finance costs on floating rate debt, which has outpaced the strong underlying rental growth. Our dividend cover, measured as EPRA adjusted earnings, as per share of 2.2 pence over the dividend per share paid of 2.6 pence, fell from 96% to 86%, on which I'll provide further color on the next slide. Next slide, please. Turning to the adjusted EPRA and pence per share bridge. Look, a lot of the narrative here, I've just discussed, so I'll focus on dividend coverage. For both the six months ending March 2023 and March 2022, ReSI paid dividends totaling 2.6 pence per share.
Strong top line rental growth stemming from acquisitions, operational improvements, and organic inflation-led rental increases would have more than offset the impact of the retirement cost inflation and delivered a fully covered dividend before the impact of increases in finance costs, fund management fees, and fund management overheads. It's important to note here, the company was very well advanced with a prospective equity raise in September 2022 to enable the execution of accretive shared ownership acquisitions, which are under exclusivity. In anticipation of the equity raise, ReSI was drawing on its RCF as a bridge to enable some of the smaller acquisitions in the pipeline to complete. The equity raise was curtailed due to the widespread market dislocation in late September 2022.
Our GBP 21 million drawn floating rate debt is wholly unhedged, therefore, has been exposed to the higher rate environment we are currently operating in, along with the higher expenses in the fund, contributed to an 18% or a 0.5 pence decline in dividend coverage. On a constant basis, our dividend cover, as measured by ReSI, is expected to improve in H2 by the 7% rent reviews on the shared ownership portfolio and the realization of the operational improvements in the retirement portfolio. Moving on to the EPRA NTA total return. The total return for the 6 months ending 31 March was -14.5 pence and is made up of fundamentally two parts.
On the income side, we had GBP 0.022 per share of adjusted EPRA earnings, which covered 86% of the GBP 0.026 of dividend paid. We did also recognize GBP 0.002 per share of one-off costs in relation to the fundraising costs. There was a net balance sheet loss of GBP 0.165, which is primarily made up of property valuation declines. Inclusive of the rent reviews effective on the 1st of April, we benefited from a 6.2% like-for-like rental growth or 5.8% excluding April rent reviews. This would have been value accretive by GBP 0.051 per share. This was outweighed by 50 basis points in weighted average outward yield shift, which diluted valuations by GBP 0.204.
In aggregate, our valuations contributed to a 15.3 pence per share decline in NTA. Also within EPRA is a negative balance, which represents the indexation of our inflation-linked debt. As you can see on the bridge, the idea behind the inflation-linked debt is to support the delivery of inflation-linked returns. The general impact is about 4.25 times on property valuation as it is on debt, with the intention being NAV growth in excess of inflation in a stable property yield environment. Turning to the next slide, please.
ReSI has four debt facilities, comprising an amortizing term loan with NatWest, which matures later this year, an amortizing term loan with Scottish Widows, which is largely backended, and the USS debt, which is also amortizing and with the principal inflation- linked, with a 5.5% cap, carrying a blended coupon of 1.1%. The weighted average debt maturity is 21 years, with 47% being fixed at an attractive all-in rate of 3.5% and 43% being the inflation-linked USS debt facility. Our GBP 21 million floating rate debt exposure is planned to be removed by the sale of non-core assets. Taking into account these maturities, ReSI will have circa GBP 10 million of liquidity available. Just moving on to what that means to our covenant. Next slide, please. Yeah.
From a covenant perspective, due to that 50 basis points outward yield shift across the property portfolio since September 2022, ReSI's LTV, measured in accordance with the respective facility agreement, has increased to 53%, which is marginally above our 50% target leverage. All our facilities are in compliance with covenants, and aside from the Santander RCF, have ample headroom. Our Santander RCF carries a 55% LTV covenant and is about GBP 8 million drawn and representing around 4% of ReSI's outstanding debt balance. There is GBP 12 million of property valuation headroom, which is about 3% before a covenant breach would be triggered.
We estimate, based on current passing rent, ReSI's weighted average valuation yield would need to shift out further by circa 20 basis points for this valuation, for the breach to be triggered. This is on top of the 50 basis points widening since September 2022. We expect that higher quality assets generating stable income flows, such as the ReSI portfolio, will stabilize more quickly and prove more resilient from a yield perspective. We can't crystal ball gaze. We do think transactional yields have stabilized. If any further outward drift in yields were to materialize, it will not be as significant as the 50 basis points move we've seen since year-end. Additionally, we expect the inherent inflation- linked in the portfolio to act as a strong valuation tailwind.
As a wholly proactive measure, and in the event there is indeed further material downward pressure or a black swan event which impacted valuations, together with the sale of non-core assets being delayed, we have discussed amending the LTV covenant with Santander. These discussions have been positive and are expected to conclude favorably in advance of our year-end.
I will now hand back over to Ben for outlook and closing remarks.
Thanks very much, Sandeep. Let's summarize and talk outlook then on the next page. Fundamentally, our portfolio is underpinned by an incredibly acute need for affordable, high quality, safe homes, with ReSI focused on two of the biggest problems: the growing and increasingly lonely elderly population, and an inability for young families and key workers to access homeownership. While there's incredible need for affordable housing, British Property Federation estimate a need for GBP 34 billion a year of investment for the next decade, at the same time as which the traditional players, housing associations, are having to reinvest around GBP 35 billion in their own stock by 2030 to deal with fire safety, energy efficiency, damp and mold. What does this mean? There's two main things.
There are now a lot of opportunities to acquire talented portfolios of shared ownership, giving an incredibly attractive low-risk entry point into that sector of the market. Secondly, even without that, it will support the portfolio's performance with strong top-line growth expected to continue. Looking at that, our portfolio, particularly, we have that 6.2% inflation-linked rent growth we have seen through the half, with the 7% shared ownership rent increase on the first of April, providing some uplift in dividend cover in the second half.
This is all underpinned by our focus on direct leases, with 2,600 pensioners and part homeowners on affordable rents, underpinned by that 99% rent collection, with a real focus on customer service and protecting residents, which is shown through that 90% in-house team satisfaction levels, and was supported by that really long dated, 21-year average maturity debt life. In the meantime, we're very focused on performance of our portfolio, so we're prioritizing those operating improvements, the retirement portfolio that I brought forward through earlier to help offset cost pressure, whilst continuing to protect residents and reinvest in energy efficiency upgrades.
We're selling or looking to sell non-core assets to pay down floating rate debt, which will remove the impact of rising rates on net income, and refocus the portfolio onto retirement shared ownership to help drive the sustainability of income and on long-term returns. Once this is complete, we will be working with the board to revisit for an appropriate level of dividend that is fully covered with excess, and is able to progressively grow in line with our underlying inflation-linked rents in our portfolio. On the balance sheet side, we've taken a large drop in valuations with yields moving out 50 basis points, but transactional evidence, as at the end of March, suggests that downward pressure is easing, but ultimately, this is driven by gilt rates, which have moved a little bit out further post year-end.
On that note, I'm gonna hand back to Mike to run the questions and answers for investors.
Thank you, Ben, and thank you, Sandeep. If I can encourage people, please, to submit their questions on the online forum. I'll start with the first question. I think this is one for you, Ben. Do you see the potential 10%-15% forecast house price declines in the U.K. impacting your NAV over the next six months to a year?
Simple answer to that one is no. Why is that? Fundamentally, we're valued off our rental income, which is stable and growing. Secondly, a small part of our returns does come from staircasing, makes up about 10% of our valuation, which is linked to house prices. That already assumes within it a 12% fall in house prices from peak, which hasn't yet materialized, but will protect us at that type of fall.
Thanks, Ben. A couple of questions now on the non-core assets. First question being: Why haven't you sold them to date? The second question being: How easy do you anticipate actually selling these assets?
Yes. Thanks, Mike. First of all, we want to get maximum price when we do sell them. As we highlighted in the year-end results, we have been undertaking some works to maximize the kind of value that we get from these assets. Those are now largely complete. Simultaneously, the last 6 months have not been clearly the best market in which to sell assets to maximize value. We do see that now changing. We do see demand out there for these assets. We do see the potential for them to be sold over the next 6 months. That is very much our focus.
Thank you very much, Ben. The next question is regarding the capping of your shared ownership rents, and was this in shareholder interests?
Yeah. Thanks, Mike. We spent, look, a lot of time thinking about this. We very much took a leading position last summer to cap our rents, on the basis that a large part of inflation was exceptional energy cost increases, and that was not supported or not aligned with rent growth. Core inflation. We took the decision to cap those rents at that 7% level. We still have flexibility to catch up those rent increases once both real wage growth returns, or inflation drops. That's something we will consider to revisit over the next few years.
It is good. We did push for the rest of the market to look at rent caps on a similar level to us, which they subsequently have done. That is something we were very supportive of. We do think it's really important through this environment to continue to ensure affordability, which ultimately helps to deliver the long-term returns from the portfolio.
Thank you, Ben. A question for Sandeep now. If the question is: What would the LTV fall to if you managed to dispose of the non-core assets? Sandeep, are you able to answer that?
You're just on mute, Sandeep.
Still on mute. Apologies, not worked it out after 3 years. If we were to realize the local authority portfolio and non-core assets in line with their 31 March valuations, our LTV would drop to circa 49%, which is marginally lower than our long-term leverage target, and we would be comfortable because we'd be underpinned by 21 years of fixed or amortizing debt.
Thank you, Sandeep. Another question relating to dividend, Ben. You highlighted that there was a potential that we may be cutting the dividend in the future. Can you expand on that and give us any guidance?
There are a number of levers that do affect where we do set the dividend, which are primarily around the timing and quantum of those non-core asset sales. We do need to wait till those have happened, till we're able to give that guidance. What we can say is we do want to make sure we are covered with headroom to enable that long-term growth in line with the strong rental growth we are expecting to continue with the portfolio.
Thank you, Ben. I haven't got any more questions on the screen at the moment. I'll just wait a second to see whether any further questions come through. Another question is, just: Can you assure shareholders that sales, which I assume are the non-core assets, will actually take place? Ben, I think that's you.
Yes. We, we cannot give 100% surety. Clearly, it's not entirely in our control. What we can say is we are fully focused on this. We are spending a lot of time managing this process, and this is really our core focus as a team. We have a number of incredibly experienced investment directors running this process.
Yeah, I just agree with that. I think there is always a balance. We do want to sell those assets. We also do want to maximize value from a shareholder perspective, and it's getting that balance right as a team, which I believe the team are doing. If there's no further questions, I'm actually going to bring the session to a close. On that basis, thank you all very much indeed for your time today. Any further questions you haven't asked today, please feel free to get in touch with the team directly, and we're more than happy to answer those questions. On that basis, I'm going to close the presentation. Thank you.