Residential Secure Income H2 2024 Earnings Report

Residential Secure Income EPS Results

• Actual EPS: -GBX 5.40
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Residential Secure Income Revenue Results

• Actual Revenue: N/A
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Residential Secure Income Announcement Details

• Quarter: H2 2024
• Date: 1/22/2025
• Time: Before Market Opens
• Conference Call Date: Tuesday, January 21, 2025
• Conference Call Time: 5:00AM ET

Residential Secure Income (LON:RESI) (ReSI or the Company) (LSE: RESI) is a real estate investment trust (REIT) focused on delivering secure, inflation-linked returns in two sub-sectors in UK residential housing; independent retirement rentals and shared ownership, which are underpinned by an ageing demographic and untapped, strong demand for affordable homes. Our purpose is to deliver affordable, high-quality, safe homes with great customer service and long-term stability of tenure for residents. We achieve this through meeting demand from housing developers (housing associations, local authorities and private developers) for long-term investment partners to accelerate the development of socially and economically beneficial affordable housing. ReSI's subsidiary, ReSI Housing Limited (ReSI Housing), is registered as a for-profit Registered Provider of social housing, and so provides a unique proposition to its housing developer partners, being a long-term private sector landlord within the social housing regulatory environment. As a Registered Provider, ReSI Housing can acquire affordable housing subject to s106 planning restrictions and housing funded by government grant.

Residential Secure Income H2 2024 Earnings Call Transcript

Key Takeaways

• The board has decided to wind down the trust over 12–24 months due to persistent NAV discount, low liquidity and inability to scale amid rising bond yields and interest rates.
• The portfolio delivered 5.8% like-for-like rental growth, record occupancy (96% retirement, 100% shared ownership) and 99% rent collection, driving strong net cash flows.
• Two local authority assets were sold above September 2023 book value for £20.5 m, and bathroom upgrades plus portfolio rationalization improved re-letting times by 21% and enhanced ROI on asset management initiatives.
• Adjusted earnings rose 9% with 124% dividend coverage while EPRA NTA fell 4% to 74.6 p per share, reflecting a 3% like-for-like valuation decline from higher yields.
• The company will continue quarterly dividends to maintain REIT status and time disposals to maximize shareholder value, supported by long-dated, mixed fixed and RPI-linked debt facilities.

Presentation

[Mike Adams, MD - Real Estate at Gresham House]

Right. I'm gonna I'm gonna start the presentation now. Good morning, and welcome to the Residential Securing Company LLC presentation for the year ending thirtieth September two thousand and twenty four. We move on. My name is Mike Adams.

[Mike Adams, MD - Real Estate at Gresham House]

I'm the chairman of GH Real Estate. I'm delighted to be joined in the presentation today by Ben Fry, the lead fund manager, and Sandeep Patel, the finance director. The presentation today will take a slightly different format to previous years as a result of the decision by the board last October to commence an orderly wind down of the assets of the trust and the return of capital. This was ratified at the AGM on the December 6. I'm gonna start by giving you a bit more background to the decision to wind up the trust, including a high level overview of the actions we have taken to date and details of the process moving forward.

[Mike Adams, MD - Real Estate at Gresham House]

I'm then going to hand on over to Ben and Sandeep to run through the underlying portfolio performance and financial results for the year before moving to a Q and A session at the end as usual. As in previous years, you can ask questions by clicking on the q and a box on your screen, and I'll take as many of these questions at the end as possible. Moving on to the next slide. This gives a brief overview of the fund since launch in 02/2017 to the decision at the AGM EGM in December where we we decided to wind down the trust. As you can see, the trust owns a portfolio of just under 3,000 homes with a total gross valuation of just over £300,000,000.

[Mike Adams, MD - Real Estate at Gresham House]

The income from these assets has been very robust since launch, but with the the market has been impacted by the wider market, the outward movement in property yields, and the lack of the trust's ability to scale. This has meant that after seven years, the trust only has a market cap of just over a hundred million, whereas the original business plan was to take this to closer to a billion pounds by this time. If we move on to the next slide, the the issues faced by Resi plc are very similar to other companies in the investment trust market. The change in bond yields and interest rates over the period creating challenges for the whole sector. These charts, I think, bring this into stark detail.

[Mike Adams, MD - Real Estate at Gresham House]

Over the last two years, the trust has traded at a significant discount to its net assets value, as you can see on the chart in the bottom left hand corner. In addition, we have seen a very low volume, so a daily average of point 13% or in monetary terms, less than a hundred and £50,000 a day. So we have a trust that is traded at a big discount and has very low liquidity. In my my view, this is unlikely to change in the short term, which is is a is a major issue for us and similar investment trust. And I think the larger trusts in the sector trade a far lower discount to to net asset value, and will be the first to recover when the market recovers.

[Mike Adams, MD - Real Estate at Gresham House]

Can you move on to the next slide? Given the challenging market background and the issues faced by company, the board and the manager initiated a review of the performance and the prospects for the fund. Following this review, it was clear to both the manager and the board that without a route to scale in line with the original business plan, it was not in the best interest of the fund or shareholders to continue as is. The market conditions for fundraising in listed market are unlikely to change in the short to medium term, and it was decided to look for the wind down the trust and return capital to shareholders. The next step was to ensure we started a process to maximize value for shareholders.

[Mike Adams, MD - Real Estate at Gresham House]

This involved interviewing a number of advisers and setting a clear disposal process out for both portfolios. Although the portfolios could be sold as one, it was important to enable them to be separated to maximize value. At the same time, it was important we continue to remain focused on the well-being of our 3,000 residents and driving value through the asset management initiatives that, as you will see later in this presentation, have accelerated over the past year. And you can move on. Once the decision to wind down the trust had been made, it was decided to communicate this immediately with investors.

[Mike Adams, MD - Real Estate at Gresham House]

The important message to both investors and the market is that this wind down is a result of wider market factors and is not a full sale. The trust owns good assets in strong markets that will continue to deliver growing inflation net cash flows for the medium to long term. We will therefore be balancing returning capital as quick as possible with maximizing shareholder return. This means a full wind down of the trust may take between twelve and twenty four months. In in getting the timing right, we will be looking at a number of strategic considerations with the board.

[Mike Adams, MD - Real Estate at Gresham House]

Firstly, the macroeconomic environment. When we announced the wind down last October, the consensus view was that interest rates would begin to fall in the February. The recent turmoil in the global bond market means that gilt yields have moved out significantly since then, with the ten year UK gilt almost touching 5% last week. This has made the market less certain and will put pressure on valuation yields. We are watching this very closely given the link between core asset pricing and bond yields.

[Mike Adams, MD - Real Estate at Gresham House]

The second point is asset management growth. Ben will take you through some of the positive outcomes we've had from asset management actions over the past year as well as our future strategy in the next part of the presentation. We are focused on in on increasing incremental net revenue by 5% through these initiatives in 2025 and ensuring that this is factored into a sale process. The final point is growth prospects. Both of these areas are sectors with significant need and opportunity.

[Mike Adams, MD - Real Estate at Gresham House]

The portfolios will offer a platform for growth investors who have capital at the right time in the cycle. We are working on articulating clearly these growth options and opportunities as part of the sales process. Given all of the above, we we will be reporting to the board later this month to decide the optimum time to launch the sale process. I'm now going to pass over to Ben to run through the portfolio overview and performance.

[Ben Fry, Fund Manager at Residential Secure Income plc]

Thanks very much, Mike, and good morning, everyone. So this slide is an overview of the key metrics for FY24 that we're going to talk you through over the next ten to fifteen minutes. So first of all, we've delivered strong top line growth with 5.8% like for like rental growth, whilst continuing last year's record occupancy of 96% in retirement and 100% in shared ownership, all underpinned by that strong consistent 99% rent collection. Importantly, we've seen a stabilization of RESI's operating costs, which aided in the reduction in fund management fees agreed with Gresham House, has allowed RESI to grow adjusted earnings dividend by 124%. Disappointingly, as Mike could have outlined, investment valuations have continued to be impacted by higher interest rates, so they declined 3% like for like year on year despite that strong rental growth, leading to a total EPRA NTA return of minus 4% to take EPRA NTA to 74.6p a share and taking our LTV to 52%, but with that long twenty year average maturity debt limiting the impact of interest rate rises in terms of kind of ongoing operational performance.

[Ben Fry, Fund Manager at Residential Secure Income plc]

As Mike outlined, RESI's portfolio consists of strong assets with great top line growth and I'll now move on to talk through our strategic initiatives. So at year end, we announced two focuses, firstly the sale of our local authority portfolio and second, driving performance in our retirement portfolio. So in local authority, we've completed the disposal through two transactions. So we sold the first asset on the April 4 for £5,600,000 net of costs, slightly ahead of our £5,500,000 September 20 3 book value. We then sold the second asset on the January 10 for £15,000,000 net of costs, again slightly ahead of our £14,400,000 September 20 3 book value.

[Ben Fry, Fund Manager at Residential Secure Income plc]

As a reminder, the sale of the second building took longer than we initially expected due to delays in obtaining building control sign off for works that were completed earlier in 2024 to upgrade fire systems in that building. In total then we received £20,500,000 of proceeds from these two assets, which we used to fully repay our floating rate working capital facility with Santander and leaving the trust focused on retirement and shared ownership, which are performing really well. We then highlighted at year end that we wouldn't stop there on disposals, we'd continue to work with the board to continue to review options for further disposals which support maximizing value and prioritize returns to capital from such disposals. And we also talked about how we anticipated that commencing once the Bank of England had begun cutting interest rates and the election had bedded in, which led to the board's decision in and our decision in September to recommend that the trust be wound down, reflecting that kind of more positive situation we were then in September. So our second focus that we talked about twelve months ago was the active asset management and to particularly drive NOI growth in retirement.

[Ben Fry, Fund Manager at Residential Secure Income plc]

So we did that through a few routes. So firstly, we commenced our portfolio rationalization to drive economies of scale on maintenance, get more control over service charges and reduce leakage and identified 20% of the portfolio for disposals to focus it down, utilising the local knowledge that we have for managing this portfolio for the past eight years and ONS growth predictions to focus on future retirement demand and really reinvesting those proceeds from areas we're exiting in the core locations and upgrading existing assets. So the first thirty properties, which are about 1.3% of the portfolio, have now been sold or in legals and as we talked about, our plan is to step that up now that we've completed on the local authority sale last week. We also commenced bathroom upgrades, so a large part of the portfolio still have baths as opposed to showers and we upgraded 71% 71 of those homes last year. Generally that improves our re letting times by about two weeks and delivers on our target 8% minimum return on cash invested.

[Ben Fry, Fund Manager at Residential Secure Income plc]

And that particular alongside focused marketing and increased speed of repair work, once a property becomes vacant, have helped us improve our re letting times by 21% overall to eleven point five weeks and that's helped us support that 96% occupancy, which we first achieved in H2 twenty three, we've now delivered that for a full financial year and we also increased that further to a record 97% in September 24. So if I move on then to look at some numbers alongside that. So firstly in retirement, we've grown revenues 8.4% year on year, that's been driven by strong like for like rental growth of 4.8%, maintaining that occupancy at 96%, those record levels and also that 99% rent collection. We have seen an increase of 11% in operating expenses, but the excessive kind of cost pressure that we had in FY 2023 has eased, which has meant that that strong rental growth has enabled us to deliver net income growth of 6% on the retirement portfolio year on year. Just focusing on that operating cost, so that increase was primarily driven by huge increases in insurance, alongside some additional increases in energy costs in common areas, the latter of which we're now seeing starting to moderate and should help reduce leakage in future.

[Ben Fry, Fund Manager at Residential Secure Income plc]

Unfortunately insurance is still something where costs are increasing, as many of you probably know from your personal home insurance. So as a reminder, overall this portfolio has 47 leakage on net rental income. Primarily that reflects the fact that properties have maintained gardens, common rooms and on-site house managers who are supporting the residents. If we move on then to look at shared ownership, so here we've got a portfolio fully occupied, 112,000,000 value, seven fifty one homes. The occupiers have long dated hundred to thousand year FRR leases with us.

[Ben Fry, Fund Manager at Residential Secure Income plc]

So this is a sector where demand continues to increase as what kind of increased mortgage rates and private rents. Being shared ownership is increasingly the most affordable housing choice for young families and people in employment who don't have the highest incomes. Delivering these affordable homes and providing these for people is rewarding for us as investors, so the shared owners have a 38% equity stake, pay below market rents, that all means we've got that strong 99 rent collection and those rents increase at RPI plus a half percent each year, which for this year helped us drive rental growth by 8.8% and next year as we look forward to April 25, those rents will increase again by 3.2. So alongside the financial kind of impact of that, we look at ensuring that those increases are affordable and sustainable and we monitor that alongside wage growth which was 8% across the same period as that 8.8% rental increase and the customers are generally now benefiting from an easing of energy price growth, as well as being more insulated against increased mortgage costs compared to outright purchases. And that rent increase compares to about 10.5% that we've seen in equivalent PRS.

[Ben Fry, Fund Manager at Residential Secure Income plc]

So it's below that point and we think that makes it very sustainable and attractive for an ongoing purchaser. So as you can see in the graph on the bottom right hand side of this page, those rent increases helped us increase income up 11% year on year and will continue to grow in FY '25 reflecting the full year impact of this year, of April's '8 point '8 percent increase and next April's '3 point '2 percent increased volume. And just to reemphasize on the shared ownership, this really is a kind of debt like product because you've got customers in on those FRI leases, they basically manage it because it is their own home and you also have a market where housing associations are needing to sell off their own shared ownership portfolios, meaning that there are some really strong investment opportunities for people coming into the sector to acquire kind of this platform and aggregate it into something much larger. The biggest example we've seen of transactions in shared ownership over the past twelve months, were Blackstone selling a portfolio of 3,000 homes to USS, UK's largest pension fund, back in August, alongside two large housing associations selling portfolios in March to large UK Institutional Investors and insurance companies.

[Ben Fry, Fund Manager at Residential Secure Income plc]

So it's a sector that is actively trading. If we move on to page 14, the next one then, so this is a slide from our customer surveys, as well as our environmental report from Karma. And I just wanted to remind about the great work by our in house property management team. So we've got 89 80 to 90% satisfaction levels and sixty percent of our retirees experience an improvement in their mental health on, on moving in, which is really important in the overall growth of of that retirement pieces, as Mike mentioned earlier on. And then on the right hand side, just indicated the energy efficiency.

[Ben Fry, Fund Manager at Residential Secure Income plc]

So we're way ahead of the market with 98% of directly rented properties at EPCC or above, compared to 47% of the wider market, which again we think should support the attractiveness of the portfolio. We are expecting now that there's been a change in government, they'll probably reintroduce a target of EPCC for directly rented properties by 2028. So it is good that we are almost kind of fully in line with that piece. And I'll now hand over to Sandeep to talk through Resi's financial numbers.

[Sandeep Patel, Finance Director - Housing at Gresham House]

Good morning all, and thanks Ben. This section of the presentation will cover FY24 adjusted earnings, the evolution of NCA over the financial year and RESI's key debt metrics. Starting here on this slide with adjusted earnings, which have increased 9% year over year, providing 124% coverage over the 4.12p per share dividend paid. Stepping through the line item. Resi's gross rental revenue increased 7% converting into a 5% increase in net rental income from £18,100,000 to £18,900,000 The £800,000 absolute increase year on year is broken down into component parts on the right hand side.

[Sandeep Patel, Finance Director - Housing at Gresham House]

As described by Ben earlier, shared ownership contributed £500,000 Retirement contributed a net £600,000 by a like for like rent reviews and higher average occupancy throughout the year. This was softened by a £300,000 reduction due to disposal of the first local authority asset in April 2024. As expected, RESI's first tranche sales profits reduced by 90%. This reduction the reduction in this line reflects a shared ownership portfolio being fully leased up and sales risk fully removed and is thereafter replenished by rental income. Net finance costs increased 4% to GBP 6,700,000.0 and was caused by a 1.4% average increase in Sonae year on year on RESI's floating rate debt, which is subsequently fully repaid post balance sheet via the proceeds arising from the full divestment of the local authority portfolio.

[Sandeep Patel, Finance Director - Housing at Gresham House]

Our management fees decreased 25% to £1,400,000 This was largely attributable to the rebasing of the management fee effective from the Q2 period commencing 01/2024. The management fee is now calculated in reference to the average of NAV and market cap. Vigilance on overheads, aided by the Board's decision to reduce the Board composition from four to three, meant they also reduced 8% year over year. In aggregate, this is culminated in adjusted operating earnings growing by that 9% mentioned earlier to GBP9.5 billion. Next slide please.

[Sandeep Patel, Finance Director - Housing at Gresham House]

The slide here summarizes the movement in adjusted earnings. The key points to draw out here are: ongoing adjusted earnings covered the rebased dividend by 124% Last year dividend coverage was at 91%, but that was at the 5.16p pension share dividend paid in FY 'twenty three. The 33% change in coverage was driven by two factors 25% was due to dividend rebasing and 8% from earnings growth year over year. The last two elements of the bridge show the annualized impact on earnings post removal of the local authority portfolio, I. E.

[Sandeep Patel, Finance Director - Housing at Gresham House]

Stripping out the local authority earnings and corresponding RCF debt finance costs leaves a run rate of 4.82p per share. RESI has today declared a Q4 dividend of 1003p per share. In terms of outlook and as RESI transitions and advances the wind down, RESI will continue to pay dividends quarterly in order to remain REIT status and evaluate based on progress on realizations, overall profitability and balance against any reinvestment needed to maximize capital receipts. As a reminder, declared dividends quarterly alongside NAV updates. Results this year were a month later than normal due to the time needed to account for the meeting voting early in early December.

[Sandeep Patel, Finance Director - Housing at Gresham House]

RESI expects to release the December NAV in mid Feb with timings falling back in line with prior year timetable thereafter. Next slide please. Here we have the evolution of NTA from over the year. Total return on NTA for the year was minus 3.1p and is made up of two parts. On the income side, the 124% dividend coverage was accretive to NTA by 1p.

[Sandeep Patel, Finance Director - Housing at Gresham House]

There was a net balance sheet loss of 8.1p, which was primarily made up of property valuations. On a total portfolio basis, RESI benefited from 5.8% like for like average rent growth, which is valuation accretive by 7.5p. This was outweighed by the 60 basis points weighted average outward yield shift, which diluted the valuations by 14.5p, meaning in aggregate valuations contributed a minus 6.8p decline in NTN. Also within EPRA is a negative balance which reflects the indexation on RESI's inflation linked debt. Next slide please.

[Sandeep Patel, Finance Director - Housing at Gresham House]

The RESI's debt stack contains three debt facilities with a weighted average debt maturity of twenty years. Fifty one percent of the debt is locked in at an attractive fixed all in rate of 3.5%. This debt is an amortizing term loan for Scottish Wheeler's lender. Amortization is largely back ended and due a maturity in 02/1944. '40 '1 percent of the debt is in relation to the RPI linked QSS facility, with indexation capped at 5.5%, and this facility carries a coupon of 1.1%.

[Sandeep Patel, Finance Director - Housing at Gresham House]

Finally, is a £15,000,000 RCF, which unhedged and withdrawn at the year end but paid down in full this month, making up the remaining 8% of the drawn deck stack at the year end. As with most secured long dated borrowing facilities, the USS and Scottish Widows debt contain prepayment and change of control clauses. We have had initial conversations with both lenders who have expressed that they will consider authorizing the debt to be transferred to a purchaser and will provide firmer guidance as we progress. In the event the debt is broken, the USS debt will be repaid at the higher of the index value and the DCF of the remaining interest and principal payment, with a discount rate set based on the yield on a similar duration index and gilt. The Scottish Willow's debt, if broken, is calculated in reference to the prevailing swap rate with the possibility of a break gain.

[Sandeep Patel, Finance Director - Housing at Gresham House]

Next slide please. Summarised here are RESI's key debt metrics. The key things to note are: repayment of the £15,000,000 RCF took place earlier this month, as mentioned previously. This has removed the early real covenant pressure on any of RESI's debt facilities. The Santander facility matures in March 2025, and we have started initial discussion with them regarding an extension to enable further execution of the asset management initiatives.

[Sandeep Patel, Finance Director - Housing at Gresham House]

We have shown the debt at book value and the dividend break as at thirtieth December twenty twenty four. Please note these are sensitive to swap and gilt yields, but you can see the USS debt index valuation of £87,000,000 and while there is no LTV covenant on this facility, the current portfolio eval means the LTV measured in reference to the index valuation is 77%. For Scottish Widows, the break as at thirtieth September twenty twenty four is £87,000,000 versus the book of 93,000,000 therefore providing a break gain at thirtieth September twenty twenty four of £6,000,000 This concludes this section of the presentation, and I'll now pass back over to Mike for closing.

[Mike Adams, MD - Real Estate at Gresham House]

Thank you, Sandeep. If you can move to the next slide. I think in summary, the fund has had a good year in terms of underlying asset performance. We have a clear strategy moving forward for to wind down the fund to maximize proceeds over a twelve to twenty four month period. And the board has aligned the manager by both rebasing the fee last year and also having a performance based fee for both the manager and the agent on achieving the maximum proceeds for investors.

[Mike Adams, MD - Real Estate at Gresham House]

The fund is leveraged, and the leverage will amplify the upside and downside of the yield shifts on any exit. So the importance of the strategic initiatives we are undertaking to maximize rental value are are are very important. The market backdrop is difficult at the moment. The yield the bond yield moving out is gonna likely cause pressure on yields and on valuation yields in the sector. So we are going to monitor that incredibly carefully as a as a board and a manager in order to maximize proceeds over over the period.

[Mike Adams, MD - Real Estate at Gresham House]

We do have good portfolios, and we are not in a rush to to to sell the properties at a discount to what we think they are worth in the long term. So that will be paramount in our minds over the next few months as we as we run through this process. Thank you all for listening today. I'm gonna now move to to the the q and a part of the presentation. As we said before, if you want if you want to ask a question, you can you can tap on the on the q and a button on on your on your screen.

[Mike Adams, MD - Real Estate at Gresham House]

So moving to the first question. I think this is one for you, Sandeep. So what are the estimated costs of the wind down?

[Sandeep Patel, Finance Director - Housing at Gresham House]

Thanks, Mike. Well, it's difficult to give absolute numbers at this stage, but akin to the vigilance in FY 'twenty four with respect to fund OpEx, RESI are proactive in managing the costs associated with the wind down. As a fund manager, we've worked with the Board to agree a budget for third party advisers, wherever possible, they are closely aligned with shareholder value maximization. For example, the sales agent, as mentioned by Mike just then, is incentivized to achieve September NCA through base and performance fee. Beyond that, Reza will incur normal expenses expected during an orderly wind down of a listed trust, including a combination of legal tax and liquidation fees.

[Mike Adams, MD - Real Estate at Gresham House]

Thank you, Sandeep. Next question is, I think one for Ben. The question is, can you give a little bit more context about the Wesley House sale and the valuation achieved?

[Ben Fry, Fund Manager at Residential Secure Income plc]

Yes. Thanks, Mike. So Wesley House was sold for net proceeds of £15,000,000 So that compares to the book value at 09/31/2023 of '14 point '4 million. That's broadly about 15,300,000.0 gross proceeds, about 300 k of kind of legal and other costs of transaction.

[Mike Adams, MD - Real Estate at Gresham House]

Thank you. Thank you, Ben. The next question is who are the natural buyers of the retirement homes? Will future sales be of a similar scale rather appetite from larger platform buyers? I'm happy to take this.

[Mike Adams, MD - Real Estate at Gresham House]

I think, you know, the there is there is a relatively small amount of core capital in the market. So the buyers looking at the retirement, I believe, will be looking at how can they use this as a platform to grow a presence in the independent retirement sector in The UK. That that sector is sort of very nascent in my view, and there's a there's a lot of people looking at retirement rental. This portfolio has a benefit of a management team. It has a benefit of a large over 2,000 units in in retirement.

[Mike Adams, MD - Real Estate at Gresham House]

So in my view, it is someone who's gonna be this portfolio, looking to evolve it over and continue this strategy that we've put in place and and and evolve it to a a more modern portfolio over time. So our job in the next year is to find those buyers and to articulate the growth strategy in order to maximize the proceeds from that from that deal. The the next question is about the Blackstone deal with USS that Ben mentioned, and comparing the resi portfolio in terms of quality and age compared to that Blackstone portfolio. Ben, can you comment on that?

[Ben Fry, Fund Manager at Residential Secure Income plc]

Yeah. So the Blackstone portfolio was the main difference was that was primarily a nationwide portfolio of of houses built in the past kind of five years. In contrast, Resy's portfolio is kind of split between modern apartments built in London as well as slightly older portfolio of houses across the country. So they will appeal to slightly different customers. It is possible that that we split, for example, Resy's portfolio into the London apartments and the out of London houses as as that is sold to appeal to potentially different different buyers.

[Mike Adams, MD - Real Estate at Gresham House]

Thank you. Next question from for Sandy. Sandy, what is the strategy regarding returning capital to investors in terms of distributions? Yeah. Sorry. Can you still hear me or not, Ben?

[Ben Fry, Fund Manager at Residential Secure Income plc]

Yeah. Your network is dropping a little bit, Mike,

[Sandeep Patel, Finance Director - Housing at Gresham House]

but we can still just I think I got most of that Mike. I think our aim is to return capital in the most tax efficient manner for both our institutional and retail holders. I think the simplest approach would be a return of capital through liquidation. This would require both portfolios to be sold in close proximity in terms of timing. In the event that there is a lag between the sales of the shared ownership and retirement portfolios, we anticipate making two capital returns, which subject to final tax advice will be via a tender offer.

[Mike Adams, MD - Real Estate at Gresham House]

Thank you, Sandy. The next question I think you've answered in the presentation with regard to the debt and the ability to transfer that with any sales, Sandy. Can you just give some color on that?

[Sandeep Patel, Finance Director - Housing at Gresham House]

Yes. So both facilities have changed control provisions. We have entered into dialogue with USS and Scottish Widows. They are open to it and will provide further guidance when we start getting bids in. In the event that the debt is broken, they both do have change of control, I'm sorry, prepayment conditions.

[Sandeep Patel, Finance Director - Housing at Gresham House]

The Scottish widows, it's calculated in reference to prevailing swap rates and for the USS debt it's at the higher of the index value and a DCF of the remaining principal and interest repayments with the discount rate set at the yield of a comparable duration index and gilt.

[Mike Adams, MD - Real Estate at Gresham House]

Thank you, Sandy. The next question is regarding dividends. The comment was that it was announced a bit later than usual. And are we still intending to pay a dividend March and moving forward?

[Sandeep Patel, Finance Director - Housing at Gresham House]

Yes. So I believe we answered that during the presentation, Mike. We will continue to pay quarterly dividends in order to maintain REIT status. Traditionally, RESI has announced dividends in conjunction with its NAV updates, and we'll continue to do that. This year, the timetable was a little bit later due to that wind down meeting in the December 6.

[Sandeep Patel, Finance Director - Housing at Gresham House]

We expect to announce December NAV in mid February, and then we should fall back in line with the historic timetable.

[Mike Adams, MD - Real Estate at Gresham House]

Thank you. The next question was, with dividend cover increasing, is the Board considering increasing the dividends through the runoff?

[Sandeep Patel, Finance Director - Housing at Gresham House]

No. I I guess I can take that one, Mike. So I think as mentioned during the presentation, we're not we're not setting a dividend target for FY '25. We're going to monitor it quarterly, and we'll balance and evaluate that dividend based on progress on the realizations, overall profitability, maintaining REIT status and any proceeds needed to be reinvested within the portfolios to maximize capital receipts.

[Mike Adams, MD - Real Estate at Gresham House]

Thank you, Sandeep. Those are all the core questions that we've received today. Clearly, if people have any further detailed questions, they can email the manager, and we will answer those directly. But on the basis of that, I'm gonna bring the presentation to to a close today, and thank you all very much for attending.

[Sandeep Patel, Finance Director - Housing at Gresham House]

Thanks all.

[Ben Fry, Fund Manager at Residential Secure Income plc]

Thank you.

Participants

Executives

• Ben Fry, Fund Manager

Analysts

• Mike Adams, MD - Real Estate at Gresham House
• Sandeep Patel, Finance Director - Housing at Gresham House