Transcript
Speaker: I'm Martin King, Property Analyst at Edison Investment Research and I'm joined today by Michael Carey and Nat Markham from Living Reet's Investment Advisor, Atrato. Michael is a Managing Director at Atrato and is responsible for the fund's strategy and overall management.
Speaker: Nat is CFO of both Atrato and Living Reet. Michael, shareholders recently approved a change in the company's investment strategy and also a change in the name to Living REIT from Social Housing REIT as it was before. Can you talk about those changes and what they mean for the company and for shareholders?
Speaker: Sure. So as you know, we took over the management of Social Housing REIT in January 2025. and our immediate focus was to fix the tenant issues that we inherited, stabilise the portfolio and improve sentiment towards the specialised supported housing sector.
Speaker: Now we were successful in doing that, we saw earnings increase significantly and as a result we saw share price improvement. But as we went through that process, it became very evident that scale was always going to be an issue for us and therefore we needed to find a way to grow.
Speaker: Given that the majority of the sector is trading at a discount to to net asset value, the traditional route of raising equity and deploying that into new assets was not available to us. So we had to be innovative on how we deliver that growth.
Speaker: So I firstly was using our shares to be acquisitive, which we've seen on the residential secure income reap portfolio that we acquired recently. And then also I think the TriTax Blackstone transaction showed that listed vehicles could be a credible exit for illiquid private vehicles. So that blueprint is something that we also wanted to explore.
Speaker: And then also there was our investment policy. SSH is a great sector, but it's a small sector, and therefore the opportunities are very limited within it. So we've broadened that investment policy to the wider living sector, which allows us now to invest in senior living assets as well as care homes, which is the genesis of that rebrand to Living REIT.
Speaker: So Michael, you've got off to a flying start with this. You've recently acquired a portfolio of senior living assets. Could you just say more how that fits into the new strategy?
Speaker: Yes, as you say, we've acquired a portfolio of over 2,000 senior living assets across the yeah UK. I think when we rebranded and and broadened the investment policy there was a temptation to broaden it to the entire living sector.
Speaker: However, we wanted to focus on assets that were, or sectors, that were complementary to specialised supported housing, which is where we how we landed on senior living and care homes.
Speaker: And those key characteristics that we think are complementary are inflation-aligned income, strong supply-demand dynamics, and ultimately this is good, safe, affordable accommodation for the people that live within it.
Speaker: So we think that investment policy is complementary to specialised supported housing and gives us the scope to go out and be acquisitive and grow. Michael, thanks very much. I'm going to turn over to Nat now and who can take us through some of the financial aspects of the transaction. Nat, thank you for joining us.
Speaker: Michael spoke of the strategic fit of the retirement living acquisition but in the context of a company that was on an improving path both operationally and financially. Can you talk about that background, the improvements in the company and then go on to talk about the the acquisition, how you funded it and what impact do you think that's going to have on the numbers?
Speaker: Absolutely. So we've come off the back of some really good full year results. We managed to get earnings really significantly up. The share price has reacted really well to that. And for the first time since IPO, we put the dividend up. So it was all in all a really good news story. But the one consistent piece of feedback that we were getting was that we needed a strategy to grow, as Michael's talked to. So the traditional route hasn't been available to us because of the trading at a discount. So we had to think about other ways that we could finance an acquisition and this acquisition we have financed combination of cash and our paper or our shares and that has worked really well for us so we structured it as using 15 million pounds of our own cash that was held within the company we took out a new 30 million revolving credit facility with Barclays and The rest of it was through the issuance of new shares which we issued at the December 31st, 2025 net asset value. So those shares are worth considerably more than they were completion, which is obviously a really positive story as well. All in all, it was a really good structure for us and means that in the first full year post-acquisition, we expect this to be high single digits accretive to our earnings position. So we've gone from a really strong position and we're hoping to add to that. Yeah. And the important thing is you could issue shares at NAV to the vendor in a way that you couldn't do if you were trying issue them to the market to raise cash. Exactly.
Speaker: Absolutely. Yeah. So we couldn't issue shares. Well, we could issue shares at net asset value, but there wouldn't have been a market for them. So that's the only thing that we can do because they obviously trading at a price that is below that. Okay, and one of the interesting aspects of this I think is that you already had as Living REIT, you already had some very attractive long-term fixed rate debt, youre very well priced below market rates.
Speaker: With the acquisition you've been able to continue that. Absolutely. So we had one of the, if not the sector leading piece of debt within the company already, really low priced fixed rate debt. And we've managed to to take on another similarly ah attractive piece of debt. So and we've taken on 92 million of a facility that is fixed at 3.46% for 17 years. So there's a really significant piece of sort of inherent value included within that debt, which is shores up that position for us. that The railway credit facility is priced at a higher level. So the medium term objective there is to to get that paid down as a priority um because it has taken our leverage up. But I think investors are very receptive to the idea of us
Speaker: taking leverage up for a strategic acquisition such as this, um provided there is ah a sort of really good plan to pay it down over the medium term, which which we do have with that really positive earnings profile.
Speaker: And meanwhile, I think Michael said, the the income is inflation linked, yeah whereas your debt costs fix are all fixed. Yes, and it's a really nice problem to have from in my position because that that's that's been the biggest headache for for a lot of people in the sector for a really long time has been that the the impact of higher interest rates. So we're sitting on two really valuable pieces of of financing. Great, thanks very much.
Speaker: So Michael, we've heard how the retirement living acquisition ticks all the boxes in terms of strategy and providing accretive growth. What happens next? What comes next?
Speaker: Well, we need to continue to grow. So we are actively in the market assessing other opportunities that allow us to do that. When we took over, we were around £230 million pound market cap Today we're around 360, that's a massive improvement, but we still need to keep going.
Speaker: Our median term aim has always been to get into FTSE 250, so we're hyper-focused on achieving that. But then, of course, we also need to continue to manage the portfolio, driving earnings and improving sentiment in the sector.
Speaker: Thank you for watching today. It's been very interesting talking to Michael and Nat. If you want more information about the company or about this transaction, you can find plenty of detail on the Edison website and also a presentation on the acquisition itself on the company's own website and we'll provide links below. But thank you very much.
