Let's give people a little moment to join, then we'll kick off. Well, it's just a little after 9:00 A.M., so let's begin this morning's webinar. Good morning, ladies and gentlemen. My name is Rupert Robinson. I'm the Managing Director of Gresham House Asset Management. Welcome to the half-yearly results presentation for Residential Secure Income plc for the period ending March 31st, 2022. I'm delighted to be joined this morning by Ben Fry, Managing Director of our housing business here at Gresham House, and Lead Fund Manager of ReSI plc together with his assistant, Brandon Holloway, who joined the team last year and has a strong background in retirement living in the United States. Before I hand over to Ben and Brandon to go through the numbers in more detail, a few opening remarks from me.
I would also invite our viewers this morning to send in their questions, and we'll take those at the end of the presentation, which will last about 30 minutes. Underpinned by higher inflation and strong secular demand for affordable homes and independent retirement living, Residential Secure Income is extremely well positioned to deliver shareholders secure long-term inflation-linked returns. 97% of ReSI's inflation income means that there's embedded growth in earnings and net asset value, and we'd expect this to come through strongly in the second half of the year. The portfolio today comprises just over 3,250 homes, with a focus on two resilient sectors of affordable housing. Approximately 58% of ReSI today is invested in retirement living, fit-for-purpose homes with affordable rents with lifetime tenancies.
Over 30% invested in shared ownership, providing part rent, part buy and affordable housing for new first-time buyers, supported by government grants. As well as aiming to deliver strong financial returns, the company also seeks to deliver positive social and environmental outcomes for shareholders, and we'll go through that in a little bit more detail in due course. I'm now delighted to hand over to Ben, who will run through the financial highlights. Thank you.
Thanks very much, Rupert, and good morning, everyone. Having provided that overview, let's talk about the highlights for Resi for the past six months. Firstly, we've delivered 37% growth in adjusted earnings, which has been driven by fully occupying our shared ownership portfolio, as well as those acquisitions we made in March last year. This has supported us increasing our dividend coverage up to 96% on that 5.16p dividend, which is a reminder we increased by 3.1% this year. Enabled us overall to deliver a 2.8% total NTA return, which I'll talk through shortly on the next slide. Looking forward, we've recently made GBP 28 million of new shared ownership acquisitions, which fully commits our GBP 15 million equity fundraise that we did in February.
We've delivered 4.2% like-for-like rental reviews over the last six months, which puts us in a great position going forward to help drive earnings, and reflects those kind of 97% inflation-linked rents which Rupert just talked you through. If we move on then, just to look at the total return for the period. As I just mentioned, we delivered that total return of 3.1p for the half, driven by that 37% increase in adjusted earnings. Brandon, in a moment, will take you through what's made that up in more detail.
That in itself covered the dividend 96%, and then the remainder of our return has come from a 1.6% like-for-like valuation gain, taking our investment portfolio up to GBP 375 million, and that's been driven by the same 1.6% like-for-like rental growth in the period. Keeping yields consistent on the portfolio. New change this year is we've now included within EPRA NTA, a negative balance representing the indexation of our inflation-linked debt. There's a charge of 0.9p for the half year, which is recurring, and a one-off catch-up, also of 0.9p from last year, which will not recur.
If we just take the current period amounts and exclude those one-offs, then we've delivered 4.2p or 4% total return for the half. I'll now move over to Brandon to talk through the financials in more detail and come back a little bit later on.
Thanks, Ben. Yep, so now I'll take us through an overview of financial results for the half year, which reflect the substantial investment and leasing activity that we've accomplished. To go into detail about the P&L, and the GBP 0.024 per share of net income that Ben discussed a minute ago, the earnings growth for the half year reflects a substantial 25% year-over-year growth in net rental income to GBP 7.6 million, which reflects 3 key drivers. First, shared ownership leasing momentum and investment activity in the new shared ownership schemes over the last year. Second, an improvement in void loss for the retirement portfolio. Third, the inflation linkage driving rent growth across ReSI's portfolio.
I'll also note that our net finance costs increased to GBP 2.3 million, which is a 14% year-over-year increase, again, reflecting the growth in our shared ownership portfolio over the last year. Adjusted earnings grew 37% year-over-year to GBP 4.2 million, again, reflecting those operational and investment drivers. Lastly, the dividend coverage increased to 96% for the half year, and I'll discuss how we get back to full dividend coverage later on in the presentation. Moving on. This slide really gives you a sense of how much the quality of our earnings has improved over the last year.
While first tranche sales profits have declined, the stabilization of the shared ownership portfolio has helped generate a 45% year-over-year growth in rental operating profit, excluding the impact of first tranche sales. Really, you know, growing our secure long-term and inflation-linked shared ownership income has always been an essential part of ReSI's business plan, and we're happy to deliver on that strategy, and you can see that reflected in this earnings growth. Moving on. This slide demonstrates why we're optimistic about our cash flow growth and our dividend coverage in the second half of the year. On top of the 25% year-over-year growth in net rental income in the half year, we project an additional 10% net rental income growth, reflecting two key drivers.
First, the full impact of shared ownership leasing in the first half of the year, totaling over GBP 400,000 of projected additional annual net income, as well as an estimated GBP 1 million of annualized net rental income from acquisitions, including roughly GBP 600,000 of immediate income from the Orbit transaction we completed last month. We didn't fully cover the dividend in the first half of the year, but there are two key things to keep in mind. First, we raised the dividend by over 3% last December, which raised our dividend coverage hurdle over the last six months.
Second, we issued shares in February in order to fund the pipeline of accretive shared ownership acquisitions, which should provide material earnings growth in the second half of the year. Ultimately, we expect to re-achieve full dividend coverage by Q4. Lastly, I'll just point out that this slide does not reflect the impact of our portfolio's inflation linkage for the second half of the year. We're pleased with the 5.5% rental income growth we saw across our shared ownership portfolio on April first. We expect that retirement income will continue to grow as annual increases pass through more of the portfolio in the second half of the year. Moving on and shifting focus a bit.
We're happy to note that our balance sheet is growing, and we think ReSI is financially well positioned for future growth. Our EPRA NTA is just over GBP 200 million, and the value of the portfolio has grown 13% over the last six months to over GBP 450 million of portfolio value, including a 15% uplift from GBP 50 million of reversionary surplus. While our loan-to-value was 42% at the end of March, we expect our leverage will grow to be much closer in line with our 50% target, again, as we continue to close on committed acquisitions. Moving on.
Speaking of leverage, our business is supported by nearly GBP 190 million of long-term debt, which is majority amortizing across a weighted average term of 23 years, with our longest debt maturity out in 2065 for the USS debt facility, which is one of the unique characteristics about ReSI. Our debt is relatively low cost for this type of duration. We have a 2.1% weighted average coupon, which should continue to improve as we invest in more shared ownership. Our debt is 93% fixed or hedged, meaning we have limited exposure to rising interest rates.
Again, while our leverage is above 40%, you know, overall that leverage is quite low compared to our peers, who are infrastructure funds, so we're quite happy about where we are. Moving on. As Ben covered earlier, we aim to deliver total returns to investors in excess of an 8% IRR in the long term. Aside from aiming to deliver a 5% dividend yield, a big part of the way we achieve that total return is through the inflation linkage of our portfolio. ReSI's income is 97% inflation-linked. For our independent living retirement portfolio, rents grow annually with RPI, subject to a 6% annual cap.
Rents in our shared ownership portfolio also grow annually at RPI plus 50 basis points, but have uncapped rent increases. One point to note on our USS credit facility, it's inflation-linked. Like our shared ownership cash flow, meaning, our principal and debt service grow with inflation, but the credit facility has a 5% cap on that inflation linkage, which is really proving valuable in today's high inflationary environment. Just to summarize before I hand it back over to Ben, again, we aim to deliver 8% total return, reflecting 5% covered dividend yield with 97% inflation-linked income. Now I'll hand it back over to Ben to take us through the rest of the presentation.
Thanks very much, Brandon. If we move on then to talk about sustainability. Everything we do is underpinned by sustainability at its core. At Gresham House, we break down how we measure this into social factors and environmental factors, as you can see on the screen now. The former focuses on the impact on the individuals, and we divide this into kind of additionality, so funding new homes, affordability, that's the 40% saving that shared owners make compared to renting the same home on the open market. In retirement, that's about making those properties affordable to people in receipt of housing benefits. Then about customer service.
We're looking to provide a best-in-class customer service through our charter commitments and our over 30-person in-house property management team and really help drive up the standards that people in affordable housing receive and ensure they deliver the same kind of quality as homeowners receive. The latter half, the environment captures not just the environmental impact, but also how our schemes fit into the wider community. That means things like resident experience, making sure our homes have private outdoor space, areas to work from home, the things that were really important when COVID kind of kicked off two years ago. It's environmental benefits, so energy efficiency, min of EPC B for new homes and upgrading all of our direct rented properties to C.
That not just makes an environmental saving, but it's also a cash saving in the pockets of our residents today. It's about community regeneration, so investing in the areas where local authorities define as being of particular need. Having kind of talked through that theory, I just wanna move on to the next page and talk through some highlights in terms of the period. Firstly, on the left, we can look at kind of environmental and energy savings. As you can see in the graph, we're already ahead of the market. We have a minimum of B for all new homes, energy performance certificates, and an average of C across our portfolio, which compares very favorably to the U.K. average of D.
We also have a target to uplift those 185 direct rented homes today that are at D up to C by at least 2025. Which on average as well as saving carbon will deliver those residents at least a GBP 500 saving on their energy bills each year, which is significant, and that's obviously due to increase in September as the energy price caps increase again. During the past six months, we've made significant progress on this. We've already upgraded 74 of those 185 homes. That's 40%. But just to reiterate, we've focused on the easiest homes now, and it will take a little bit longer to deliver the remaining 60%.
The other key piece for us on environmental energies this year is our focus on our road to net zero, which is something we're working on today with Kamma, and we intend to publish that, alongside our year-end results in December. If we move on to the right-hand side, on social. A few things I wanted to bring out. First of all, the key things we are delivering for our customers. In retirement, it's about helping people address loneliness by living with peers. This is something that is incredibly important because the biggest health problem for the increasing elderly population is they're lonely, and that causes a lot of other kind of problems and issues for the NHS as well.
In shared ownership, it's about providing affordable homes, so helping key workers, young families get onto the housing ladder and get that permanency of a home, which means they can know they can send their kids to the local school, and they can take the next steps in their career without that risk of kind of being kicked out by their landlords at a moment's notice. Just talking through some kind of specifics then in terms of the last six months. We've been bringing forward additional social or additional capital to the social housing sector to delivering new homes.
We've delivered 26 new affordable homes ourselves, as well as provided GBP 21 million to Orbit Housing through acquiring some of their existing shared ownership, which they can then reinvest into delivering about 150 new affordable homes, as well as investing in their energy retrofitting piece as well. We also have in place a hardship fund for our kind of most in need residents who are struggling and we've been able to deliver GBP 31,000 of annualized funding to retirement residents. That's to about 150 residents in the past six months. We're also importantly feeding into sector-wide initiatives to help measure impact and to help improve the impact of the sector as a whole.
In particular, the Equity Impact Project, which is led by The Good Economy and Big Society Capital. That's about setting the standards for all institutional investment in this sector. If we move on to the next slide, just wanna talk about our kind of share price performance over the past 12 months. Importantly, this slide brings out our outperformance versus our peers, but also, as you can see on the right-hand side, we're also now significantly delinked from the supported housing REITs. You can see the light blue line showing Resi delivering a 20% share increase in share price over the past 12 months, as well as that 5% dividend, significantly outperforming our peers, something we want to continue to do.
Having talked through that kind of share price piece, I just wanna summarize and talk through the outlook. If we just move on. There we go. Perfect. 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 in affordable housing. These are that growing, increasingly lonely elderly population, as well as the inability to access homeownership for young families, key workers, which obviously, without solutions will create societal problems overall. We've got a great portfolio now with 3,272 homes, 97% inflation-linked income. We're starting to see that inflation-linked income come through now, with the 4.2% average rent reviews that I mentioned earlier, received in the period.
We've been boosting that portfolio recently, deploying GBP 28 million into 220 new shared ownership homes, deploying that GBP 15 million equity raise that we did in February. As Brandon talked through, we've delivered 37% growth in our adjusted income over the past 6 months. That's from fully occupying our shared ownership portfolio, particularly the previous acquisitions that we made at kind of 18 months ago. That means overall we're delivering 96% covered dividend. As Brandon talked through how we'll get back to that kind of 100% coverage in Q4, taking into account recent acquisitions and inflation. All this is backed by a substantial pipeline, giving us the opportunity to double the size of the trust over the next two years.
Thanks very much for kind of listening to us talk. We'll now kind of open the floor up to questions.
Ben, thank you for that. Brandon, excellent presentation and a good set of half-yearly results for ReSI PLC. Unsurprisingly, we've got a number of questions that are linked to inflation and the rising cost of living and potentially the impact on ReSI. I'll just take some of those. If other people would like to ask any questions, please send them through, and we'll aim to tackle them. The first one is. Are you seeing increased demand for accommodation against the cost of living crisis? Similarly, has competition for assets increased, decreased against the inflationary backdrop? Ben, I'll fire these at you, and then you can hand them over to Brandon, depending upon whether you want to answer them or not.
Yeah. Thank you.
I'll give you the discretion as the senior man.
Thank you. I'll start with that one. Are we seeing increased demand for the accommodation? Yes. Shared ownership in particular is the most affordable route of homeownership is seeing incredibly high demand for new properties. As we mentioned, our portfolio today is 100% occupied. That's something that we can help support and to tap into by bringing forward further kind of new schemes to help give those people that affordable homeownership option. Similarly, the kind of question was, has competition for assets kind of increased, decreased against the inflationary backdrop? It's worth just setting the scene overall in terms of what's happening in affordable housing overall.
The sector is dominated by housing associations who own about 3 million affordable homes, have been investing about GBP 10 billion a year into new affordable homes. Those housing associations are now having to reduce that spend, and that's for two main reasons. One, they're having to invest upwards of GBP 2 billion a year in terms of energy retrofitting. The path to kind of EPC C that I talked about for ourselves, and they're also having to invest a further GBP 1 billion a year into fire safety. That's taking about a third of their capital out that was delivering new homes.
Mm-hmm.
That provides an opening for private sector capital, such as ourselves, such as Legal & General, who are kind of the other largest party, and Blackstone, to invest in the sector. Do we see increased competition? We do see increased demand from institutions, but offsetting that is the reduced development and delivery appetite from the sector's largest providers.
Okay, thank you for that. Second question is: Do you expect rising interest rates to be a potential opportunity for shared ownership and ReSI with greater uncertainty around for sale housing schemes?
Yes. Thanks, Rupert. I'll take that one as well. Yes. Just as I touched on, kind of shared ownership is the most affordable form of homeownership. What tends to happen is situations happen like in the past kind of 2 years, where house prices rise, and also more recently, interest rates have risen. Affordability becomes tighter.
Mm-hmm.
What that tends to mean is that people who could have afforded to buy their own home no longer can, and they step down into shared ownership. That makes shared ownership incredibly robust compared to the overall housing market because it benefits from that affordability meaning that people can step down, and that's why we're seeing such high demand for shared ownership as I kind of touched on. Yes, it is very much an opportunity for us.
Okay. Question here around rental growth and relative sort of performance versus RPI. The retirement homes achieved 3.8% rental growth and shared ownership 5.5%, but RPI averaged 7.6% during the half year. What is the reason for the underperformance relative to RPI? I suspect there's a lag effect here, but maybe to you, gentlemen.
Yeah. Brandon, do you wanna talk us through that one?
Yeah.
Sure. Generally, our portfolio does lag RPI by an average of seven months across the year. The retirement portfolio specifically by an average of, let's call it six months. You will expect that in the second half of the year, we continue to see sustained rent growth in the retirement portfolio as more leases come up for renewal. The same, you know, both renewal and rent increases across our retirement portfolio. Ben, I don't know if there's anything you want to add there, but please jump in.
Yeah. That's it, yeah. Shared ownership increases each year, first of April, so there's always a lag. Retirement takes time, because it goes across the year. Absolutely.
Okay, thank you. On a sort of slightly similar vein, could you please outline how much you expect like-for-like rents to grow across the portfolio in FY 2022? Probably a range of some outcome there.
Yeah. The best kind of range is where we've been so far is that kind of 4.2% level.
Yeah.
Retirement we'd expect in the second half to be at that kind of 6% RPI cap. Shared ownership we know for the year is 5.4% 'cause we've just been through that rent review. That puts our kind of average for the year at somewhere around kind of the 5% level.
Okay, thank you. Another question. There's been a lot of news recently about social housing and in particular with ShadowFall focusing on Civitas. How has this impacted ReSI at all in terms of business model? Any comments around that?
Fundamentally, has it impacted our business? No. It impacted our business when we were trying to set up our registered provider, which, as a reminder, we do all our regulated housing investment through our own registered provider. It meant in 2017 it took us a long time to get that established because the regulator really kind of did a deep dive on our business model, made sure that this was a way of investing in affordable housing that they supported. Once we got that set up, it means we're in a great position and no, we're not impacted by that kind of lease-based structure or that and the kind of difficulties that that structure has. Not our philosophy, and we're also not in that sector at all.
Okay. One here more around ESG. How is management considering the transitional implications of climate change on the portfolio, e.g. legislation requiring minimum EPC standards? What is the timescale for this, and will there be an impact on REIT returns?
Yes. The first piece as a reminder on residential is that there is a minimum EPC requirement for renting homes of C for new lets from 2025 and from 2028 for all leasing. It's worth pointing out that the government currently has an exemption for that on any works that would cost more than GBP 10,000 a property, which is actually gonna rule out a lot of properties across the UK from reaching those energy standards. Typically kind of pre-1930s stock, which is something the government needs to work through as to how they'll do that. Our portfolio itself is very well positioned, much more modern than that.
As I touched on, we will very much be there by 2025. This year, we're gonna publish that road to net zero, which talks about how we go beyond that and take our portfolio to carbon neutral.
Thank you, Ben. Another question. Would you expect shared ownership to capture the full inflation feed-through if RPI stays high, e.g. 10%? Or would you expect owner affordability to result in pushback?
Do you wanna have a go at this one, Brandon?
Sure. One thing I think it's helpful to point out is, you know, while our shared ownership leases are generally uncapped, relative to RPI, shared ownership portfolio rents are generally affordable, number one. Number two, they comprise typically 50% of a given shared owner's total living costs. While we may be talking about a high inflationary environment, those overall rent increases on an absolute basis may be less than what those residents would otherwise see on the open market. All that's to say that, you know, our shared ownership rents are affordable and we. Ben, I'll just toss it back over to you if you wanna.
Yeah, no.
Try to help but-
That's absolutely right, Brandon. We've got that 40% saving compared to renting the same property on the open market, and then the fact that they've got a mortgage as well, which is half their housing costs. If RPI was 10%, the shared owner would be only seeing kind of a 5% rise, and they may actually just be seeing a reduction because their mortgage LTV will have dropped as they've been paying it off and as house prices have risen, meaning they can get cheaper mortgages. Which is the case for a lot of our more recent kind of shared owners.
Okay. Thank you, Ben and Brandon. There's comment in the results about growing the portfolio. Can you expand on that, both in terms of opportunity and shared ownership and also retirement living?
Yes. Sure. So I touched on kind of. Well, we touched on earlier kind of why there is a kind of opportunity as a whole. We're seeing particular opportunities in shared ownership from housing associations as per our transactions with Orbit, who are looking to recycle their stock to continue to invest in their development plans, their energy efficiency plans, and their fire safety plans. We are seeing more and more housing associations approaching us on these type of transactions. Does take time, but the market is very much growing there. You've now seen as well as ourselves doing kind of five transactions on this basis, M&G and L&G also doing similar transactions which is great to help grow the market.
Retirement as well, we do see kind of some opportunities, but lesser at the moment on a risk-adjusted basis. Why is that? Because we already have a fairly substantial portfolio there. In particular, our focus is on the affordable end of the market. Whereas virtually all new development in retirement is at rent levels at kind of 2-3 times our levels.
Mm-hmm.
Which is very much not our focus. Our focus is more on kind of acquiring existing stock than looking at those really high new developments. Just to kind of reiterate there about growing the portfolio. We very much want to grow so in a way that is beneficial for shareholders. I mean, that needs to be accretive to both NAV, NTA, and earnings. Share price, very much share price dependent.
One final question here, which I think relates to the local authority investment in the portfolio and what the objective is with that particular investment.
Yes. The local authority is obviously relatively small. It's 8% of our portfolio.
Right.
However, we do like it. It is great investment. Delivers us kind of incredibly secure, simple income from the local authority. They pay us a rent each month, and do nearly all the maintenance and insurance on those buildings. However, as you can tell, it's not a focus of us. Our growth is in the other two areas. That means we may consider selling it if a kind of opportunity arises, and we can reinvest those proceeds at the same time so that we don't see any dilution in income. That's something that's kind of on our path over the next couple of years as we kind of work through.
Thank you for that. Okay, ladies and gentlemen, there aren't any further questions. I think we've tackled all the ones that we had sent through earlier and on screen today. Thank you, Ben and Brandon. Thank you for an excellent set of results. Obviously, if anyone would like any follow-up conversations or meetings with the managers, we'd be delighted to organize those. Otherwise, thank you for attending this morning's webinar, and we look forward to seeing you all soon. Thank you.
Thanks very much.
Thanks.