Good morning, ladies and gentlemen. Welcome to the Social Housing REIT Plc full year results investor presentation. Questions are encouraged. They can be submitted at any time via the Q&A tab that's just situated on the right-hand corner of your screen. Please just simply type in your questions and press Send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today and will publish those responses where it's appropriate to do so on the Investor Meet Company platform. Before we begin, we would just like to submit the following poll, and if you could give that your kind attention, I'm sure the company would be most grateful. I'd now like to hand you over to the management team from Social Housing REIT. Michael, good morning, sir.
Thank you. Good morning, everyone, and welcome to Social Housing REIT's full year results for the 12 months up to December 31 2025. I'm Michael Carey, and I'm joined today by Nat Markham, Atrato's CFO, and Adrian D'Enrico, SOHO's fund manager. To get started and refresh everyone's memories, Specialized Supported Housing, or SSH, provide suitably adapted homes for vulnerable adults with a range of needs, such as learning difficulties, mental health issues, and/or physical disabilities. This sector is essential social infrastructure. Our properties are let to specialist approved providers who are our tenants, who claim rent from the local authority, which is ultimately funded by central government. The vast majority of these leases benefit from uncapped inflation uplifts with reviews every single year.
As we enter this period of economic uncertainty where we could see higher inflation, SOHO is well-positioned to benefit from this. In a second, I'll hand over to Nat to take you through the numbers. First, I'd like to highlight the significant progress that we've made in our first full year as investment manager of SOHO. I'm delighted to say that in this short period of time, we have achieved an increase in earnings of 21%. At the same time, we've been extremely busy with portfolio optimization and asset management, and Adrian will talk you through all the progress we've made with the approved providers and the work we've done to fix historic tenant issues. Then lastly, I'll finish by talking you through our future plans and how we are well positioned for accretive growth to deliver even more shareholder value.
I'll now hand you over to Nat to talk through the financials.
Good morning. I'm pleased to report the audited results for the year ended December 31 2025. Here we have set out the key financial highlights for the company for the year. I'll talk through the detail on the following slides, but in summary, and starting on the left, net rental income has increased by 12%, driven by inflation-linked rental uplifts and our intensive asset management. The EPRA cost ratio has fallen to 18.7%, helped by the reduced fee that we agreed to manage SOHO. This has driven a 21% increase in adjusted earnings over our first full year of managing the company. This has resulted in the dividend being fully covered for the first time since IPO at a level of 1.17x .
The increase in income and reduction in expenses has led to an adjusted EPS of GBP 0.653 per share. You will of course recall that the target dividend was increased for the first time in three years last year. We announced an increase of 3% to GBP 0.562 per share, and the healthy dividend cover supports the company's strategy of paying a progressive dividend with the next increase to be announced post AGM in May. On the next slide, looking at the income statement. As I previously mentioned, rental income has increased by 12% year-on-year from GBP 35.8 million to GBP 40 million.
Total overheads have decreased by 35% from GBP 11.7 million down to GBP 7.6 million before excluding the impact of the one-off termination fees paid to the previous manager during the prior year. This decrease has largely been driven by the 25% reduction in management fees. However, we of course continue to focus on reducing costs and improving value for money from SOHO's key service providers. As you can see, we have reported a GBP 900,000 increase in non-recoverable property costs, which has mainly been driven by the pass-through nature of the MySpace assets, where on some properties, costs exceed rental income and therefore have to be presented as expenses. As we reach full resolution for these assets, we expect these costs to reduce accordingly.
You can see here the cost reductions have resulted in the EPRA cost ratio falling back to 18.7%. Despite the operationally intensive nature of SOHO, we still consider this too high, and we expect this to reduce as we move away from the pass-through leases. All of this has resulted in adjusted EPRA earnings per share increasing by 21% year-over-year from GBP 0.054 to GBP 0.065 per share. On this basis, the dividend is covered by 1.17x , which we strongly suspect will be one of the highest levels of dividend cover in the sector. To summarize, the portfolio has an extremely attractive earnings profile. All our leases are inflation-linked with annual rent reviews, and 86% are uncapped.
Of course, this is incredibly valuable in a world which appears to be heading for a period of higher inflation. Rental growth for 2026 has been locked in. The majority of our rent reviews this year are based on September 2025 CPI, which was 3.8%. We have a sector-leading debt fixed at a rate of 2.74% with a weighted average term of 7.6 years. We have very little earnings exposure to increased interest rates. Unusually among our peers, the macro backdrop where inflation is expected to increase is very positive for our earnings outlook, as our CPI-linked rental uplifts will flow through to earnings. As a result of these strong earnings and attractive debt, the company is in a robust financial position. Net LTV is 39.5%.
Cost of debt is fixed at an all-in rate of 2.74%, and the portfolio net initial yield has stayed flat since June 30 2025 at 6.42%. I'll show you how that breaks out on the next slide. The EPRA NTA decreased from GBP 0.995 per share at December 31 2024 to 0.9423 per share as at December 31 2025. This was driven by valuation movements resulting from an outward yield shift in the first six months of the year. In the second half of the year, we had the impact of the reduction in value of properties which are going to be sold pending the portfolio review in the second half. We do not expect any further property-level markdowns.
I've included the full statement of financial position within the appendices, and I'll now hand you over to Adrian to take you through the property portfolio in more detail.
As Nat has explained, the financial position of SOHO has strengthened during our first year as investment manager, and we continue to optimize the portfolio. Here you can see some summary statistics. At the end of 2025, the SOHO portfolio comprised 492 properties, offering homes for up to 3,412 vulnerable individuals, our residents. Those homes are right across the U.K., as you can see on the map on the right, in over 150 local authorities, and they're well-utilized. Occupancy has remained strong, rising to 87% as we remove some non-core vacant assets following our portfolio review. The accepted profitability threshold is 80% in this sector, and we're comfortably above that. As our assignments complete, we expect occupancy to rise further.
During the year, we've grown the contracted rent to GBP 43.7 million, and that's supported by 100% of SOHO's leases being inflation-linked, all of which benefit from annual rent reviews. We've made good progress with our EPC upgrade program too. You'll be pleased to see that 77% of our homes are now at EPC C or greater, above the national average of D. That's up 6% during the year, and we'll continue to roll out that program. By being proactive, we're optimizing the portfolio, but we're also reducing the risk of future challenges. As a reminder, successful SSH schemes have five key characteristics. Taking these in turn, of course, our properties need to be in the right location and be suitably adapted. This ensures our residents are safe and can live in these homes over the long term with support.
For many of our residents, these homes will be homes for life. We also need to have identified demand should vacancies arise. While rents are ultimately paid by the government, they should be set at sustainable levels. Finally, you need specialist partners, our lessees, which are well-managed, performing well, and delivering for residents. Our portfolio review undertaken during the year was focused on these five key factors. 88% of our properties were already performing well, resulting in the strong financial performance Nat outlined earlier. Our optimization has focused on two key work streams. Firstly, where our specialist partners, the approved providers, were not performing, we're assigning properties to stronger approved providers to better manage them into the future.
Secondly, where the property characteristics were not suitable, and that's just for a small minority of assets, 1% of the portfolio, we're disposing of these at book value. Let me provide a quick update on the assignments. Our identified solutions, which we've outlined previously, are now well progressed. For properties leased to MySpace, we're using our option agreement to assign performing properties to Inclusion. Meanwhile, non-performing properties are being vacated, and once our vulnerable adult residents have been carefully rehoused, those properties are being surrendered and sold at book value. For those properties formerly leased to Parasol, which were assigned to Portus, and that's the new name for Westmoreland, stabilization is now being achieved, and I'm pleased to confirm that 20 properties have now reverted to fully repairing and insuring terms. The remaining properties will follow over the coming months.
Finally, while we had just two properties with Pivotal, when they faced regulatory engagement, we moved quickly and successfully completed the assignment of those properties to IHL. With the right properties and an engaged, proactive approach, we've identified and now implemented solutions. Going forward, continuing that proactive approach will remain essential because SSH is operational real estate. We'll continue to leverage our dedicated team's deep sector experience and knowledge of the portfolio. To ensure the quality of our homes, we frequently inspect our properties. 442 properties were inspected last year alone. That's almost 90% of the portfolio, and so we'll continue that. That helps us be confident our homes are safe and well managed. To get ahead of any lessee challenges, we regularly engage with our approved provider lessees.
We conducted regular meetings with 92% of them during the year. While we have no contractual relationship with them, we also met with the largest 10 care providers during the year. Between them, they support over half of the residents in our portfolio. We continue to monitor numerous other quantitative and qualitative factors, ensuring we have strong oversight of our lessees and our homes to help support positive resident and shareholder outcomes. Our proactive approach builds on the intrinsic value of SOHO's established nationwide portfolio. We are well-positioned in a sector where, unfortunately, structural undersupply is expected to persist. Over 29,000 homes are expected to be needed in the SSH sector over the next decade alone. This sustained demand will continue to support strong long-term occupancy for SOHO's well-managed, well-maintained homes.
At the same time, rising build cost inflation continues to increase replacement values, and that reinforces the importance and value of SOHO's existing assets. Crucially, our homes serve long-term, high acuity residents, about half of which require over 100 hours of care and support each week. That will continue to underpin both the resilience and the social importance of our portfolio. To complement our focus on our properties and our lessees, we've also been enhancing our assessment of the impact our portfolio has on our residents and the environment, and we've refreshed our sustainability strategy. Having undertaken the materiality assessment and taking insights from key stakeholders, this new refreshed strategy is centered on three key pillars, thriving residents, sustainable homes, and engaged governance. Our first standalone sustainability report was published yesterday, detailing our activities and successes against these three key pillars.
We also published our annual impact report, which includes case studies from residents across the portfolio. This enhanced reporting is testament to the importance we place on SOHO delivering for shareholders, residents, and the wider world, both now and into the future. We're pleased to report that our efforts are already being acknowledged, with SOHO being awarded an EPRA sBPR Gold Award and having its net-zero targets approved by the Science Based Targets initiative. Together, these steps underscore SOHO's commitment to delivering measurable, long-term value for shareholders, residents, and the environment. I'll now hand you back to Michael to look ahead as we build on SOHO's optimized portfolio.
Thank you, Adrian. As you've heard, earnings are up, and the portfolio is in a really strong position, which means SOHO is well-positioned to enter its next phase of development. In today's market, we're acutely aware that scale and deeper share liquidity is paramount to success. Therefore, we've been working on how we deliver growth for SOHO shareholders, which should, in time, reduce SOHO's cost of capital. Firstly, as we talked about before, we are looking at how we improve the visibility and control over our underlying cash flows. Now, we've always been very transparent that even though our approved providers are well-regulated, they are not strong covenants, and unfortunately, this has caused well-publicized historic credit issues. Therefore, we are working on a solution with one of our key approved providers to set up ring-fenced bank accounts for SOHO's rents.
This will improve the quality of our cash flows and further mitigate the risk of credit losses. Then once this is enacted and successful, we will look to roll out this strategy across our other approved providers. Secondly, in today's market, we need to consider innovative avenues for growth, and one of those ways is to consider using our paper to be acquisitive. Now, the Tritax Blackstone transaction has set the precedent for listed companies being a credible exit for illiquid private funds, and this blueprint is something that we are considering to deliver growth. Now, clearly, there are a number of challenges with our shares because they're trading at a discount. However, we believe there are a number of potential opportunities out there available to us. Finally, we are considering diversification into the wider living sector.
As I'm sure most people are aware, SSH is a small subsector of the wider living market, and the assets are granular by their nature. Therefore, to facilitate growth, we are considering investing in adjacent sectors. However, these sectors must be structurally supported, income must be inflation aligned, and therefore must be earnings accretive for SOHO shareholders. To wrap up, in our first year as investment manager, we've increased earnings by 21%. In addition to this, we've already locked in rental growth for this year, which means because we have a fixed cost of debt, any higher inflation will effectively pass straight through to earnings. This gives SOHO a very strong platform, even as we enter this period of economic uncertainty.
As you've heard, the solutions for the legacy tenant issues are almost complete, and the portfolio is stabilized and in a really strong position. Finally, we and our advisors are working on a genuine and credible plan to deliver growth for SOHO shareholders. That concludes the presentation. We're now happy to take questions.
Perfect. Guys, if I may just jump back in there and thank you very much indeed for your presentation this morning. Ladies and gentlemen, please do continue to submit your questions just by using the Q&A tab that's situated on the right-hand corner of your screen. While the team take a few moments to review those questions that have been submitted already, I just like to remind you that a recording of this presentation, along with a copy of the slides and the published Q&A, can all be accessed via your investor dashboards. Guys, as you can see there, we have received a number of questions throughout your presentation this morning, and thank you to all of those on the call for taking the time to submit their questions.
at this stage, guys, if I may just hand back to you to read out those questions and give your responses where it's appropriate to do so, and if I pick up from you at the end, that'd be great. Thank you.
Okay.
Well, thank you for your question. Should I kick off with the pre-submitted question? The question was, can we have an update on the current government's attitude to this social housing business model? I'm happy to do so. I think the change in government has clearly been positive for the residential sector in general. There's certainly a very strong ambition to try and resolve the housing crisis across all tenures, both private and affordable. In the affordable space, we obviously saw the GBP 39 billion Affordable Homes Programme. We've seen the rent settlement, guaranteeing rental uplifts at CPI + 1% for the next 10 years. I think that's testament to the support that they're looking to try and provide to the sector as a whole.
In terms of Specialized Supported Housing, specifically, it's quite a small part of that whole affordable housing spectrum. There's about 4.5 million affordable or social homes across the U.K. Specialized Supported Housing is probably around 50,000 homes. There's no official statistic. But it's vital, and that's why we talk to it as being essential social infrastructure. The residents, the obligation is on the state to house them and to care for them. And this sector can deliver that in a very efficient way. Public sector budgets are obviously constrained at this time, and as a result, we tend to focus on the saving that this portfolio delivers for the public purse. We've published, as I mentioned, the recent, or yesterday, sorry, the social impact report that talks to and quantifies those savings.
This portfolio delivers around GBP 53.5 million of social income per year, which includes GBP 40,000 of savings to the taxpayer when you look at where these residents would otherwise be housed. While the government is supportive of the sector, I think its priorities are obviously trying to deal with the 1.3 million households that are on waiting lists. But certainly there's overt support for SSH because it delivers the best outcomes for the residents. It delivers a long-term solution for them. As I mentioned, they'll be homes for life, and it saves multiple millions of GBP this year and every year going forwards for these residents who are occupying. It's definitely an element which is supported.
Indeed, we've been having conversations with a number of parts of government in terms of how we can actually bring further capital into the space and deliver more homes, given that shortfall that I mentioned earlier.
Cool. I think there's a couple others I'll take. Well, one from Ashley which says, "Within the most recent reports and accounts, reference is made to the benefits of scale and liquidity and potential changes towards a new broader investor policy. Can you please provide more detail on this? In particular, what are the key pillars or this might be, your allocation policy and red lines, and what KPIs existing shareholders might wish to consider over the next three to five years?" I think on that particular point, you know, as I said, we are considering these, the diversification and a broader investment policy, but anything that we look at would need to be earnings accretive. Clearly, it would need to deliver shareholder value. It would need to be structurally supported. It would need to have inflation-linked income.
It would need to fall within our expertise. Quite crucially as well, it would need to have a similar yield profile. As an example, something like BTR, which trades at around 4%, where we trade about 6.5%, that would not be something we could consider as a result of that. Nat, do you want to take the question for John-
Yeah.
Rather than me?
Yeah, of course. We've had a question around the compliance with the REIT regime and the need to make sure that we're distributing 90% of our property income, as required by that REIT regime. Look, it's a nice problem to have. We're more than fully covered, and it is something that we are very aware of. The regime requires us to make sure that we're compliant within 12 months of the accounting year end. There is possibility to take our time and make sure that we are using cash in the most efficient manner. Absolutely, we want to make sure that we remain compliant, and we want to make sure that we are delivering the best returns for investors.
As I said in the presentation, we will be looking to adjust that dividend target up post the AGM. We are in line with what Michael just said around exploring opportunities. We are just looking at the most efficient way of utilizing cash while balancing that REIT compliance.
Thank you, Nat. I think there's a couple of questions here both around net asset value and valuation, and obviously around rising gilt yields as a result of the last few weeks. I think, I mean, ultimately, yes, valuations are ultimately driven by gilts and interest rates. We have an eye on that. I think for us it's too early to say whether this, whether, you know, A, whether the current situation is gonna be sustained and what kind of impact that's gonna have longer term on rates and gilts. We certainly have an eye on that. But I don't think that's just, that's not a problem that's exclusive to us. That's gonna be across the whole real estate sector.
Mike, there's a question from Martin: What sort of upgrades are we doing on the properties that need work to achieve a C EPC grade? The works we're undertaking were previously subsidized by ECO4. It varies quite significantly. As I mentioned, we have 492 properties across the country. It ranges from single occupancy bungalows through to blocks of self-contained flats, whatever is most appropriate for the individual cohorts or the types of residents who are actually utilizing those properties. In a number of instances, it has been the installation of solar PV on the roofs of the properties, which then feed into the property themselves. But it is also additional factors such as wall insulation, roof insulation, replacement windows, replacement boilers. We're actually working with our approved providers.
We have a working group with them, and we're scoping out how we can move beyond. C is the target clearly for 2030 for socially rented homes. We're trying to complete our EPC upgrade program ahead of that, in 2028. We're not looking just to get everything just to that minimum C level. We're looking to go beyond. Indeed, we've had a number of instances where we've been able to sensibly improve the EPCs in some instances to B's and A's. But we are working with them to look at things like making sure that on the replacements of boilers, whether or not we can actually get them to move to electrification rather than gas use, and other wider portfolio initiatives. It varies is the answer.
We've got some further detail in case studies in our sustainability report about the actual specific works that we're undertaking across the portfolio.
Thanks, Adrian. I think there's quite a few questions here also about the dividend, but I think Nat's answer has covered those. Yeah, we covered that in terms of looking at new sectors. How can the discount of value be decreased? I mean, we're working on that daily. I think everybody within the sector's got that challenge. I think it's a combination of, you know, rates coming down, the work that we're doing restoring faith in the SSH sector.
I think one of the challenge we've certainly had was the contamination from Home REIT, which we've been very front-footed in getting out to the market to explain that this is a completely different asset class, different funds to Home REIT's, and that kind of contamination that happened as a result was not right. The sentiment has definitely improved towards SOHO. I think before Iran a few weeks ago, we were trading about GBP 0.79, we were really starting to close that discount. I think we're into the high teens%. Obviously we've been impacted like everybody else has by Iran. It's too early to know what the long-term impact of that is. We're doing everything we can to decrease that.
When you talk about diversification into living market, how will you assess tenant covenant strength, taking into account the failures of Home REIT's? Yeah, I mean, as Adrian's talked through, very much, we are very hands-on managers in terms of how we work with our tenants. We treat all of these sectors as operational real estate. You know, we work with those tenants. Any new tenants that would potentially come into the portfolio, we work with them from the outset to understand their business, their balance sheet strength, their trading history, how they operate. We go and visit them in their offices to see how they operate. Client satisfaction, all the usual operational hurdles that you'd expect. We are laser focused on all of those.
Any new sector we look at, we will be just as focused as we are in SSH. You mentioned transactions using paper. Have we looked at any other innovative solutions such as JVs? Yes. We're constantly reviewing every avenue of growth, and JVs is certainly an avenue that we have and do explore. What is the scale of your growth ambition? Scale of our growth ambition. Look, we are acutely aware that scale and, as I said before, deeper share liquidity is paramount to being successful in this market. As I'm sure most people are aware, the REIT market has got considerably smaller over the last three years through a flurry of M&A that has favored larger REITs.
Actually we've had instances where we have sold the story to certain investors, but we are just not big enough to be on their buy list. We are very focused on the first hurdle of trying to get to GBP half a billion, and then ultimately, I think longer term, we have ambitions to be GBP 1 billion, but clearly that's gonna take some work to get there. Is there any other questions, guys, that I haven't covered?
I don't think so.
I think that has covered them all. Yeah.
Perfect. Guys, if I may just jump back in there. Thank you very much indeed for addressing all of those questions that came in from investors this morning. Of course, if there are any further questions that do come through, we'll make these available to you immediately after the presentation has ended just for you to review. Michael, perhaps before really now just looking to redirect those on the call to provide you with their feedback, which I know is particularly important to yourself and the company. If I could please just ask you for a few closing comments just to wrap up with, that'd be great.
Yeah. Thank you for everyone's time. I think from us, obviously earnings are up, and they're up significantly by 21%. The portfolio is stabilized, and we feel that people are feeling excited about SSH again, which is a really good place to be. Then finally, as we said, we're working really hard to deliver growth and value for shareholders. Thank you for your time this morning.
Perfect, Michael. That's great. Thank you once again for updating investors this morning. Could I please ask investors not to close this session, as you'll now be automatically redirected to provide your feedback. On behalf of the management team of Social Housing REIT Plc, we would like to thank you for attending today's presentation. That now concludes today's session. Good morning to you all.