Residential Secure Income PLC Kepler Trust Intelligence: New research

TIDMRESI

Residential Secure Income PLC

27 November 2018

Residential Secure Income: New research

27/11/18

Highlights:

-- Residential Secured Income (ReSI) targets a 5% inflation-linked dividend yield and in excess of 8% total returns per annum from investments in social housing.

-- Although the trust is not yet fully invested, it currently offers a prospective yield of 5.4% should current forecasts be met. The unleveraged yield on the underlying portfolio is 5%, in line with the long-term target. Dividends are paid quarterly.

-- Management have shown discipline in their approach, turning down over GBP3bn in potential deals which did not meet their stringent criteria for investment. For this reason the trust is not yet fully invested.

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Residential Secure Income (ReSI) is a REIT that, when fully invested, aims to generate an RPI-linked 5% dividend yield and capital growth from investments in the social housing sector.

The trust takes a cautious approach which means it only invests in a project when it knows it can raise investment grade debt against the assets. This and the collapse of a few expected deals shortly after launch in July 2017 mean that the trust is not yet fully invested - it is at GBP240m in gross assets which will rise to around GBP330m when the listing proceeds are fully invested and geared. This slow pace of investment has caused the trust to slip onto a discount relative to NAV and peers.

The trust can invest in various residential housing sub-sectors, but concentrates on retirement housing, shared ownership housing, as well as leasing housing to local authorities for the vulnerable. The management team at TradeRisks, led by Ben Fry, view these types of assets as the more secure sources of income in the sector.

Although the trust is not yet fully invested, it currently offers a prospective yield of 5.4% should current forecasts be met. The unleveraged yield on the underlying portfolio is 5%, in line with the long-term target. Dividends are paid quarterly.

The trust is managed by a team at TradeRisks, which has raised debt and advised clients in the social housing sector for 17 years. The investment trust allows that team to plug a gap - that of equity - in social housing financing which they have watched develop as government grants have reduced.

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November 27, 2018 02:02 ET (07:02 GMT)