LIVE.L (LIVE.L) 2026-09-25 Earnings Call Transcript

Okay, good morning, everyone, and welcome to Living REIT's interim results for the period 1st of January to the 30th of June 2026. I know everyone, but I'm Michael Carey, and I'm joined by Nat Markham and Tom Still, who run the Atrato Living team with me. You will have noticed this is the first results presentation as the rebranded Living REIT or LIVE. It's been a really exciting time for us and the company. We now have a broader mandate and clear growth strategy, expanding our addressable market to sectors with complementary characteristics to SSH. To start today off, Nat will take you through the financials for the period. These results will reflect the core SSH business, where we've seen continued earnings and income growth driven by improved rent collection, which has meant a further uplift to the dividend target. After that, Tom will talk you through our proactive approach to asset management and how this is delivering for shareholders. Our enhanced oversight of approved providers and early intervention when issues arise has meant continuity of income for the company. Then finally, I'll talk you through strategy and growth, in particular, our recent senior living acquisition, which will deliver high single-digit earning accretion and how that's created a larger, diversified platform. I'll now hand you over to Nat.

Thank you. It's been a transformational year for Living REIT. However, as Mike said, the majority of the strategic change took place after the period end and therefore is not reflected in the numbers for 30th of June. As a result, these numbers reflect strong performance of the core SSH business and none of the acquisition impact. Starting on the top left, net rental income has grown by 2.3%, which has been driven by inflation-linked leases and Atrato's proactive approach to asset management. This increase in income has resulted in adjusted EPRA earnings growth of 2.2%. As a result, the board increased the dividend target by 3% for the second year running following Atrato taking over as manager. In the bottom left, dividend cover remains market leading at 1.2x even after the dividend increase. Rent collection has increased to 92.7%, and EPRA NTA per share has stayed broadly stable at 95.4p, which I will take you through in more detail on the following slides. Moving on to the income statement. Performance of the underlying SSH portfolio has been stable and in line with expectations. As mentioned on the previous slide, net rental income was GBP 20.2 million, an increase of 2.3% when compared to the same period in the prior year. As you can see, administrative costs and finance expenses have stayed broadly flat. You may recall that Atrato's management fee is linked to market capitalization. Therefore, management fees have increased by GBP 200,000 or 13.4% due to the higher share price, which was on average 16% higher than the same period for 2025. This fee structure, alongside Atrato's significant shareholding in LIVE, shows genuine alignment between manager and shareholders. The EPRA cost ratio increased slightly from 16.5% to 17.1%. We would usually expect this to reduce on the SSH portfolio as we continue to grow. However, as you would have seen with other residential REITs, as a reminder, RESI net cost ratio was 37%, due to the non-FRI structure, this will be higher on the senior living portfolio and therefore will increase moving forward. Adjusted EPRA earnings per share increased by 2.2% to 3.4p. As mentioned on the last slide, the dividend remains comfortably covered at a market leading 1.2x. Looking at the balance sheet as of 30th June, which was of course prior to the senior living acquisition, property values remain broadly flat, with the outward yield shift being largely offset by rental uplifts. Cash balances were GBP 42 million as of 30th June in anticipation of the acquisition. EPRA NTA increased by 1.2% from 94.2p per share to 95.4p per share, which I will take you through on the next slide. Looking at the EPRA NTA bridge, this shows the impact of earnings contributing 3.3p for the period against the 1.41p of dividends paid and valuation reduction of 0.76p. However, as previously mentioned, this does not include the impact of the quarter 2 dividend payment, which was declared in the period. Therefore, to be transparent, I have included the impact of the post-period end dividend payment and presented a pro forma NTA which, all else being equal, would have been 93.92p. As you can see, the dividend is comfortably covered by the 3.3p of earnings. At the balance sheet date, 90% of our debt was fixed with an average maturity of 6.7 years. To finance the acquisition, the group entered into GBP 30 million of new facilities with Barclays. As at the period end, only GBP 5 million was drawn. The weighted average cost of debt as of 30th June was 3.06%, and there was an inherent fair value of GBP 51.5 million. This is, of course, not included in the NTA for the period, but reflects the attractive nature of LIVE's debt profile. Net LTV was 37.8%. However, we will look at how that has evolved since 30th June in the next slide. As part of the post-balance sheet acquisition, we took on highly attractive long-dated debt with Scottish Widows. As you can see, this has further improved our already sector-leading debt profile, with 92% of our debt fixed for an average of 8.9 years at an average all-in cost of 3.16%. The fair value of this additional debt was GBP 33.5 million, which results in the combined fair value of LIVE's debt of GBP 85 million. Whilst you would not typically expect to reflect this in the NTA, the nuances of the accounting rules mean that some, but not all of this GBP 33.5 million fair value of the acquired facility will have to flow through to NTA, and we are working with advisors to determine exactly how much of this will come through. The acquisition meant that LTV increased to 45%. However, we have already started the process of paying down GBP 7 million of the Barclays facility with the proceeds of planned property disposals, and we would, of course, aim to reduce this further to our medium-term target of 40%. Our financing profile is as well-positioned, and as you can see, compares very favorably to the rest of the U.K. REIT market with a lower weighted average fixed cost and a materially longer term. This is incredibly valuable in a higher interest rate environment, especially when you consider our annual inflation-linked rental income. I will now hand you over to Tom to talk you through the property.

Thanks very much, Nat. Before I talk through our proactive asset management approach and the positive impact it is having, I will run through our SSH portfolio as of the 30th of June. Firstly, starting with the box on the top left, we have a contracted rent roll of GBP 43.3 million. Rent collection has again improved to 92.7%, largely driven by resident occupancy increasing to 88%. Allowing for properties which we sold post the period end, rent collection improves further to 96.5% on a pro forma basis. In the bottom left, the portfolio had 3,301 lettable homes, and 78% of these are now EPC C and above. Finally, in the bottom right, our valuation yield has moved slightly outwards to 6.54%. Despite this, LIVE's valuation is broadly stable as a result of inflation-linked rental increases. As a reminder, SSH is operational real estate and therefore requires a hands-on, proactive asset management approach. This approach, which constitutes stakeholder engagement, decisive action when needed, and portfolio optimization, continues to underpin our strong financial performance. Taking you through those, starting with stakeholder engagement, you can see that 91% of the portfolio has been inspected over the last 12 months. We met 89% of our approved providers, and we met our top ten care providers, covering 50% of our portfolio. Moving down the slide, we continue to take decisive action when needed. Our approach starts with asset management and crucially, property fundamentals. That is the right property in the right location. We maintain tight oversight on our approved providers through meetings, inspections and collecting financial data. This information provides an early warning system, allowing us to take preemptive, decisive action when challenges arise. Engagement and decisive action allow us to focus on portfolio optimization. Having worked through all the portfolio's inherited legacy issues, we have been able to focus on capital recycling. Post the period end, we sold a further 18 properties at close to book value, and these proceeds will be used to pay down debt and fund future earnings-accretive purchases. Moving on to approved provider updates. The most important development in the period, and indeed for some years in the SSH sector, was LIVE's largest tenant, Inclusion Housing, being upgraded to compliant by the Regulator of Social Housing. As a reminder, in the top box here, the regulator grades approved providers on financial and governance grounds, rating each of those out of four. A compliant rating is therefore G2/V2, or better, and the regulator has tended to deem lease-based approved providers as non-compliant. Inclusion, who are LIVE’s largest tenant, has been deemed compliant, achieving a V2/G2 rating. The evolution of this regulatory stance shows the Regulator’s buy-in of the lease-based model and justifies the approach of LIVE’s tenant base. This judgment indicates an incredibly positive direction of travel for the SSH sector. We expect other approved providers to be able to use this judgment as a blueprint to achieve their own compliant rating. We have long maintained that SSH providers operate in a compliant manner. This judgment further accelerates the institutionalization of the SSH sector. Moving on now to a clear example of how our proactive approach is delivering for shareholders. During the period, we transferred properties from Pivotal to IHL at contracted rent. Our asset management team became aware of issues at Pivotal ahead of the rest of the market, and that was as a result of our property inspection program and our relationship with the care providers. Our knowledge of the properties, which were occupied and income producing, allowed us to take decisive action. We identified IHL as a new approved provider and were able to assign leases on the same terms. Subsequent to the transfer, Pivotal were de-registered as an approved provider. This meant that Pivotal became unable to claim the appropriate housing benefit, leaving other landlords with significant arrears. LIVE’s proactive oversight and decisive action ensured the properties were transferred with no impact on earnings. You have seen how our approach worked there on Pivotal, and we have subsequently chosen to utilize it on another tenant, Auckland Home Solutions. Our enhanced oversight identified concerns with other landlords of Auckland properties. LIVE’s properties are well occupied, in good condition, and in payment. Following extensive engagement, we have made the decision to transfer these properties away from Auckland. We expect the leases to transfer to Inclusion on FRI terms. As with Pivotal, we do not expect any impact on earnings as a result of the transfer. LIVE’s Auckland properties are well occupied and performing, and as a result of our oversight, we have all the property information that we need to ensure a seamless transfer, which we expect to conclude in Q4. I will now hand you back to Mike to talk through LIVE’s transformative strategic evolution.

Thanks, Tom. I will now take you through strategy and how we are building a leading U.K. living platform. Firstly, in July, we completed the acquisition of a senior living portfolio. This landmark acquisition is expected to deliver high single-digit earnings accretion in full-year 2027 and increases our pro forma GAV by 27% to GBP 825 million. As part of that acquisition, we have broadened our investment policy, which now encompasses the wider living sector alongside our core SSH portfolio. As a result, we have a strong platform for further growth with greater scale, diversification, and share liquidity. At full year results, we said we were looking to use our shares to be acquisitive, and we have delivered on that. We acquired the U.K.’s largest senior living rental portfolio, comprising 2,163 homes, which is valued at GBP 185 million. The purchase was funded by a combination of GBP 63 million of new equity issued at EPRA NTA, GBP 45 million of cash, which was partly funded by a new GBP 30 million Barclays facility, and finally, the porting of GBP 92 million of highly attractive debt, which is fixed for 17 years at 3.46%. What does this mean for LIVE? We are now a larger, diversified group focused on the wider living sector. We have a portfolio comprising 5,464 lettable homes. On a pro forma basis, our GAV has increased to GBP 825 million, and our net rental income is now GBP 52 million. Looking at senior living as a sector, when we decided to diversify, we wanted to ensure we did so into sectors that were highly complementary to SSH. We see those complementary characteristics as structurally supported. For example, demographic tailwinds. The over 55 population is expected to increase by 4.3 million people by 2044. Structurally undersupplied, the U.K. needs 250,000 senior living homes over the next five years. Attractive income profile, inflation-aligned, sustainable income, and of course, being able to deliver earnings accretion. Finally, which is key to our investment policy, providing positive resident outcomes. Senior living delivers secure, affordable accommodation where well-maintained homes support resident wellbeing. Now looking at the opportunities we've identified for the senior living portfolio optimization. Firstly, we are capitalizing on the senior living shifting from one of home ownership to one of rental, which is being driven by factors such as people being healthier in old age and therefore wanting more flexibility on where they live in retirement, people looking to release equity and pass that down to younger generations, and also people looking to avoid any inheritance complications. Secondly, as part of the M&A, we acquired cash that is restricted by the ported debt facility. That cash can only be used to acquire new senior living assets, and we are working hard to accretively deploy that to further support earnings growth. Lastly, while the portfolio is disparate, there are five high-conviction geographical strongholds. Over time, we will look to dispose of properties outside of these areas and use the proceeds to acquire ones within them, making management more efficient and costs more certain. Now, before I wrap up, I just want to draw your attention to the significant change that has taken place over the last year and a half. As you can see, the graph shows the key events alongside both earnings and share price growth. The company has changed its manager, board, advisors. It rebranded, diversified, actively managed the portfolio, increased the dividend twice, and has delivered on strategic M&A, and we will continue to work hard to deliver further success. To wrap up, we are well positioned for future EPS growth from the Senior Living acquisition. We've identified further asset management opportunities, and we'll continue to use our proactive approach to deliver shareholder value. Finally, we have ambitions to continue using our shares to be acquisitive and deliver further growth for the company. Thank you for your time, and I'll now open up the floor to questions.

You mentioned the strong value in the debt that you've acquired, but also some uncertainty about exactly how they will be treated. Do you think that whichever that is, it is going to have a positive impact on the reported NTA. The value will be there, wherever it is supported, but is that going to have a positive impact?

Yeah. As I said, typically you would not expect that fair value to be reflected in the NTA, but the nuances of the accounting rules mean that some of it will flow through. Using shares as a consideration have also added to the accounting complexity of this. Absolutely, we expect there is some value to flow through to the NTA, and the quantum of that, which is working through with advisors. It will not be the full GBP 33 million, but it will be an element of that.

Whilst you are there, it is sustained strong dividend cover. How does that work in terms of EPRA requirements for distributions?

Oh, for the distributions? We forecast out to meet those 90% distribution requirements, obviously. There was a 12-month window post-period end where you can catch up, if you will, just to make sure that you do meet those requirements. But all our modeling is based on the premise, obviously, of maintaining re-compliance and staying within that regime, because that is obviously fundamental to the long-term success of the company. Yeah, it is a fine balance, and we would obviously target that in preference to doing anything else with our cash.

On the re-tenanting, how do you decide which approved provider you are going to move it to? Does it depend who is operating in the area? Is it always one that you have previous relationships with-

Yeah. There are several factors. On the Auckland to Inclusion one, actually, we had, I think, about four APs who wanted to take the Auckland portfolio because of how well occupied it is and the fact that the rent is in payment. We chose Inclusion in this instance because of their recent compliant rating. We think Inclusion will be the first of many to reach compliance within the lease-based sector. In the future, if Falcon, Portus, et cetera, are compliant, then they become a more viable entity for us to assign to. But we took a view that because Inclusion is now compliant, that was the right party to choose to do that assignment to.

Then with the IHL?

IHL, that was a geographical decision. IHL have a very strong provider in Cornwall, and Cornwall is extremely isolated, so it made sense to be there.

A couple of actually quick follow-ups on those. On the REIT compliance and the dividend payment, just to check that the 120% cover, is that roughly the same earnings number, earnings measure that is used for the REIT compliance? I can read that as being that you are only underpaying according to the REIT compliance, and then I would expect a catch-up dividend at some point.

It is not exactly the same number. There are, as you would expect with tax, there are some things that are carved in and out. The earnings number that we target is typically a bit lower than the headline earnings number that you would see coming through. However, as I said, we have got 12 months post-period end to catch that number up. You can typically use the first dividend following period, includes an element from a tax perspective of REIT compliance for the prior year. Yes, there is always the opportunity to make an additional dividend payment if you felt that you needed that to target compliance. You do have a full 12 months to make sure that you are compliant.

Yeah. Okay. Thanks. On the approved providers and when you have to rotate out one that looks like a risk, just wonder what the process is, because it is an odd one, is not it? You kind of get to fire your tenant and choose. Can they dig in and say they do not want to go? What would happen?

Well, yes. So, we had that situation with My Space before we became the manager, and we weren't able to move them on through what was in the leases. Most of our tenants have signed up to something called a risk-sharing clause, which gives us much more flexibility in being able to assign those leases. The reality is it's a small sector, and we are one of the biggest voices in that sector, and we work collaboratively with all of our tenants. Both the Pivotal and the Auckland assignment were ones where we have worked collaboratively with both of those tenants, rather than them being forced assignments. A lot of it just comes down to relationships.

Thanks.

Specific to Inclusion is the regulator upgrade. If there are more upgrades on providers using the lease-based model, does that open up the possibility that there will be some return to growth as operators make use of that to generate capital? How does that mean for the rollout of your investment strategy across asset classes? Where do you see that developing?

I think firstly, the Inclusion judgment was a really interesting one because they were originally given non-compliant in 2019. The Regulator of Social Housing is meant to come back within five years and re-grade, and they just left Inclusion alone. So I think it was a bit of a warning to the sector at the time, to lease-based providers. What happened in June was two events. One, Inclusion was upgraded to V2/G2, which was as a result of a sustained period of growth and a constant surplus that they'd run for some time. They also de-registered Pivotal as an RP. Pivotal were inherently linked to a developer platform, and a lot of the leases that Pivotal signed were in the interest of that developer rather than the interest of the RP itself. I think what happened is the Regulator of Social Housing said, "If you don't do it correctly like Pivotal Housing Association did, we will de-register you and take action. If you do run a proper business that is a lease-based business, you can be deemed compliant, and we will show that." We think the majority of our other RPs will follow that blueprint now and will be compliant, and clearly, that will make the sector more investable as a whole. In terms of the second question, as we've been managing this fund, it's been very clear that we need to grow and scale. It's going to be our biggest challenge. To grow, we need to be opportunistic. In an ideal world, in five years' time, I'd love to say that our portfolio is third let's say, third care home, third continued living. We don't necessarily have that luxury, so we need to go after opportunities that are available to us. There's opportunities, for example, with private funds where there's a liquidity event coming up in all three of those sectors. Then there's obviously opportunities within smaller companies, portfolios, family trusts, et cetera, where we're monitoring those as well.

Rent collection was supported by occupancy for the residents, resident occupancy. Does that suggest that it's the pass-through rents that are driving, from where it is, obviously, the pass-through rents that are driving that. But how do I answer that? You move some of the former way smaller assets onto FRI leases. At some point, that gets reflected in the contracted rent roll. Is any of that happening yet, Tom?

Yeah. We moved 38 leases from Parasol to Portus last year. Of those, 30 will be moving to FRI lease terms, and moving up to contracted rent for consultant, for being worked through. To answer your question, yes, that will improve rent collection going forward as we move to proper FRI terms.

Yeah. I think Tom mentioned if you remove the impact of the properties that we have been selling, rent collection goes up to 96%. We are constantly looking at portfolio optimization and capital recycling. To add to that, there is a bunch of opportunities that we want to acquire. If we can exit properties that are not performing to help fund that, then we will do that. There is a question, I think, from Sarah.

Hi. Nat, you mentioned that the senior living assets aren't on FRI leases and that that will have an impact on the cost ratio. How does the service charge that the residents pay feed into that? Should that not sort of offset it?

It's a presentational issue predominantly. The way the EPRA cost ratio has to be presented, there is a natural gross to net leakage. That's just the way that is constructed. The service charge does flow through that, and there is obviously the amount that it's contributed, but we pick up the service charges on the on the senior living portfolio.

Okay. Thank you.

It is probably quite useful to look back at, we obviously will be presented in our financials, but in the way it is going to look very similar to the way that it was presented in the seller's financial statements. You can see that gross to net breakdown.

Great. Thank you.

You have taken on more income than you have taken on cost. It is optical, is that right? Yeah.

It is, yeah. It is just the way that, if you think about it, that an FRI rent will necessarily be a bit lower just because they are absorbing costs, whereas you have got a gross higher rent, but you have got costs coming out of it, and it is just the way those EPRA numbers break down that you are required to show those costs flowing through the calculation.

I have got one. Apologies for the late arrival, and apologies if you have covered it. It is just on the opportunity set, and whether you have touched on the sort of the care home space and how you view your approach to that segment. Could you give a bit of color? I say apologies if you have already done that, but-

About care homes specifically?

Care homes specifically, yeah.

Yeah. I think we've been doing some work as to how we fit into that market. We think there's a gap in the market for us. There's a lot of people investing in prime kit, so your Targets, Octopus, Welltower, et cetera, which trades at somewhere between 5% and 6%. You've then got the likes of CareTrust REIT and Omega, who have typically been investing into more, I guess, asset management heavy care, which is probably around 9%, 10% yield. We see a gap in the middle, which someone described to us as best of the rest. Probably really good performing homes, but the covenants not as strong. That's where we see ourselves fitting into that market. We haven't acquired any care homes yet. We're looking at opportunities available to us, but I think that's going to be our market. That's also the level we need to be at to be accretive, to be earnings accretive as well.

Is there anything to come out of the local authority relationships that you might have built up over time through the core asset base? What's-

Potentially, yeah. I think we have a lot of relationships within the care home market anyway, through advisors, agents, operators, et cetera. Potentially might come through local authorities, but I think we feel pretty well covered at the moment in terms of ins with people.

How granular would you see a build-up in care homes being? Would you do it on a small basis from operators? Or how granular?

Potentially, yeah. I think we'd look at it on an asset-by-asset basis. Ideally, we'd buy a portfolio because it's easier. But I think we are prepared to be the aggregator and drive returns through aggregating, whether that's senior living, SSH, or care homes. Can I ask what the disposal proceeds were recently, and then what else you've got to sell? In the period, the disposal proceeds were just over GBP 5 million. We have agreed sales already post-period of just under GBP 8 million. Before you identified that for sale from these, there are another few properties that we are looking at selling. As Nat mentioned, we are already looking to pay down GBP 7 million of that Barclays facility with those disposals.

Those disposals all from the SSH portfolio?

Correct. Yeah.

Back to your care home strategy. In terms of the way you think about private pay versus LA funding, how do you think about that mix if you want to approach?

Yeah, I think where we potentially fall into that gap, you cover both. I think on the prime side, it is going to be obviously all private pay. We like the local authority-funded, because it is more certainty of income. It is obviously a lesser amount. I think we are open to both. The reality is most of it comes from private payer, or sometimes in the case of a top-up. But we are comfortable taking on either of those. Any more on the screen? Excellent. Well, thank you everyone for your time.