Residential Secure Income Share Discussion Threads

[horndean eagle] 15/2/2024 10:17

I think you will find the units they have for retirement are pretty small and basic. I have family who live in one of these specialist places and the kitchen is no more than 5ft by 6ft.

[glavey] 15/2/2024 03:02

It's all relative but are not the facilities in rental properties generally small and limited to the basics? I'm no expert but is it not the general practice in such types of property to do a refurb at each re-let, much like they do in student lets? As I understand it this is because it is (or was) cheaper to rip out and replace with new rather than risk the hassle of things breaking down and having to send trades in to investigate and sort out problems ad-hoc. Of course this generally meant that the products used were typically 'budget range' where longevity was of limited consequence. Similarly cabinetry would be 'contract range' which is (was) pretty cheap stuff, to be installed by fitters who were paid on a job basis and had no desire to hang about. Now it may be that inflation has taken its toll in recent times and the figures quoted are historical, so perhaps £2.3k may be light going forwards. Similarly existing wear and tear would be tenant dependent. But for an incoming tenant being offered what appears to be a nice new kitchen and bathroom would make the asked rental a lot more palatable than being offered something which has all the attributes of being the caste-offs of a former occupier. To sum up, some clean bright stylish fresh tat is probably more attractive than some used, slightly grubby and weary prestige product from a previous decade. It is also considered less risky for the lessor.

[spectoacc] 14/2/2024 16:24

Was amazed recently when I went for the cheapest new kitchen I could, in a 2-bed. Kitchen itself wasn't expensive - this wasn't a £5k Howdens job - but the rip-out, disposal, construction, labour, tiling really added up.

Again - RESI aren't doing complete new kitchens bathrooms for £2.3k, even with bulk buying and their own labour. I'd be disappointed if on relatively new stock, they were having to spend that every 6 years on a change in tenancy, but I'd be unsurprised if they had to spend c.£15k every 10 years to completely replace.

The concern is that 1. BtL is a wasting asset; and 2. All may be due for full replacement in a similar few year period, with no provision having been made. But perhaps the £2.3k's extends when that comes.

[redhorse2020] 14/2/2024 16:07

So you're suggesting 15k to 20k on average every 10 years?? I think we need to remember that these are only relatively small retirement units, probably only one bedroom.

[florence141414] 14/2/2024 15:04

I don’t think it’s correct to think of it as though they must only be doing touch ups because the average spend is low. Some will have been touch ups, some will have needed a bathroom, others a kitchen and some nothing at all.

What comes out in the wash is that the average spend required for the properties vacated in FY23 only was 2.3k. Is that a lower then the average year over the long term? Possibly. But 15% of their eligible properties seems like a decent sample size. It also happens to be just about 1 in 6 which gives even more confidence that these are non anomalous figures. Maybe they got lucky with the state the properties happened to be in this year…?

Or maybe economies of scale and in house teams mean it is much less expensive than you or I getting the local guy in to give us a quote.

[spectoacc] 14/2/2024 14:30

I'd want them to accrue say £1.5k-£2k pa, then every 10 years or so replace both kitchen and bathroom.

Surprised things are wearing after just 6 years, albeit they're clearly only refreshing, not replacing.

[redhorse2020] 14/2/2024 14:27

Think I'd be more worried if they were spending a fortune on these properties. Given the valuation per unit is relatively low, how much would you expect them to capex?

[spectoacc] 14/2/2024 14:21

£2.3k per property for kitchen/bathroom.

"Replaced when residents turn over". For £2.3k? Perhaps they could give me the number of their workmen. You'd not even get the goods for that, let alone the labour.

Suspect what they mean is - we replace a few cupboard doors and perhaps a worktop. And a new shower curtain.

[redhorse2020] 13/2/2024 16:49

Thanks Florence, I agree that this is a well run fund with quality assets in good locations (predominantly the south) therefore supported by strong intrinsic asset values which should grow as interest rates eventually fall. Unfortunately I'm sitting on a loss but if I didn't already have a significant holding I'd certainly be buying at the current levels.

[florence141414] 13/2/2024 16:41

So it’s the case that 0.9m of FY23 capex was attributable to refurbs. Which are then re-let at higher rents. 2.3k per property and over 15% of the properties for which they are responsible has some kind of work done in the period which seems like a non anomalous amount to me.

I’ve started a position here. I think the debt profile is good and, today’s inflation numbers notwithstanding, likely to get better while rents stay high.

So it wouldn’t take much improvement to get to a 9% earnings yield of today’s prices. I think that would look very attractive to a few pension funds if/when the risk free rates drop to 4%.

Plus you’re getting the benefit of 2x leveraged capital appreciation upside due to the asset discount.

I feel like usually when you see these metrics for a REIT it’s because the interest charges are about to double in 2 or 3 years and that’s just not the case here.

[florence141414] 13/2/2024 16:32

Had a superb response from management.

For our shared ownership portfolio, the shared owner is responsible for maintaining their property.



For the retirement portfolio, there are two aspects to capital expenditure/refurbishment/maintenance that we pay:

That for building fabric and common areas (including a lifetime fund) is paid out of the service charge we pay each year and is expensed to the profit and loss. For FY23 this was c£1.6mn, or £0.8k per property and is seen within the £5.5mn service charge expense in note 6.
That for kitchens and bathrooms within apartments is capitalised. These are generally replaced when residents turn over, which occurs on average every 6 years and generally leads to an increase in rent charges charged. For FY23 this cost £0.9mn and is equivalent to around £2.3k for each of the 373 properties which were vacated and relet.

[redhorse2020] 08/2/2024 14:39

Yes strong occupancy and rents growing in line with inflation should mean that the debt remains manageable. Will be interesting to see what you find out regarding dilapidations... presumably this will also be an issue for other REITs too.

[florence141414] 08/2/2024 13:56

Thanks for the feedback. I had thought all but the 20m floating debt was secured at 3.5% for 20 years or so.

But your comment has caused me to double check and it seems that 70m is inflation linked. So thank you for that.

Even so, it should not have increased by more than a couple of % vs what it was in the FY23 results I wouldn’t have thought. Which would equate to 140k. So, assuming occupancy rates and rents are at least stable, the 8m profits look safe enough.

As for the dilapidation expenses, I was surprised not to see any mention of depreciation or something similar that would indicate that it is being accounted for. I’ve emailed them for clarification on where these expenses are provisioned for in the income statement. I get my 8m profit number by making adjustments that I deem appropriate to the cash flow statement. So the refurbs that were paid for in that year should be included but it would be handy to get a smoothed out figure as using the cash flow statement does not give you an idea of whether a high or low number of refurbs were carried out in any given year.

I believe it’s the case that the shared ownership internal maintenance is the responsibility of the tenant/part owner. Which would leave approx 2200 retirement homes as the responsibility of the REIT. Would you say that 1k per year per property is close enough as a rough guess? 2.2m annually? Possibly sounds on the low side…?

[redhorse2020] 08/2/2024 11:34

Yes, it's not good but I think it's capped at around 6 percent and should be less costly now that inflation is falling.

[34adsaddsa] 08/2/2024 11:17

The inflation linked debt is a disaster.

[riskvsreward] 07/2/2024 18:41

Over the years this trust is the most bought by the directors, plus they invest regularly a quarter of the management fee in its own shares. This gives some comfort that the insiders are well aligned with other shareholders and they have some confidence in the business model.

[redhorse2020] 07/2/2024 18:16

My understanding is that 90 percent of the debt is very long dated, only around 55 percent is fixed rate with about 35 percent being inflation linked and 10 percent being floating rate. Even so, I guess they should benefit significantly from lower inflation and interest rates as well as lower energy costs as you point out. Hopefully will start moving in the right direction as most of us are sitting on fairly chunky losses on this one.

[redhorse2020] 07/2/2024 18:11

The did highlight the upgrade of kitchens and bathrooms in the latest results presentation. From memory, I think they said it would be rent enhancing and earnings accretive. They were targeting 8 percent return on cash investment although I've no idea how achievable that is.

[spectoacc] 07/2/2024 16:29

And what happens when all the kitchens, and all the bathrooms, all need replacing in the same few year period? Say £15k per property, conservatively. Apparently they've been refreshing a few already, but in the absence of being able to continually add new stock (thereby spreading out the capex cost), I don't see RESI as a viable proposition.

Great for management/those who set it up mind. And perhaps rental income rises enough to cover enough of the cost.

Or perhaps they're provisioning for it. Somewhere.

Rental property is a wasting asset IMO.

(Some of the above is in the price of course).

[florence141414] 07/2/2024 15:44

Hi all, I'm just running the rule over RESI for the first time. I've written a quick summary of the proposition. I'd be extremely grateful to anyone here with deeper knowledge of the company that would be willing to have a look and tell me what I've got right and wrong.

REIT that specialises in shared ownership and retirement properties. Makes about 8m a year after adjusting out fluctuations in property values. Sensational debt profile with almost all debt secured at 3.5% over the next 21 years so very little risk of profits reducing in that period. Although there was a little bit of that last year due to communal area energy costs and the increase in the small amount of floating debt. However this will almost certainly be paid down by asset sales currently in legals. So a good chance that future rent increases hit the bottom line as interest payments remain stable and energy costs normalise. Even at 8m profits today's 97m market cap currently has it on an undemanding 12x p/e multiple and a 50% discount to net tangible assets.

[redhorse2020] 01/2/2024 09:04

Ok so probably just concern that interest rates will stay high for a while longer yet. Wondered if there might be something else driving it? As you say hopefully will pick up a bit as rates come down... ?

[creme de menthe] 01/2/2024 08:10

One sell of 200 shares yesterday wiped sev mil off the company value.
We are waiting for the company to deal with the high debt levels and declining dividend. Falling interest rates will help, so will the selling of some assets. Might turn around in 6 months. I hope so as Im down 40% here.

[redhorse2020] 01/2/2024 05:43

Update seemed pretty positive. Any thoughts on why this keeps dropping to new lows?

[panshanger1] 30/1/2024 12:43

Pretty unloved atm New year low