Social Housing REIT plc (SOHO.L) Earnings Call Transcript & Summary

Good morning, and welcome to the full year results for Social Housing REIT for the 12 months to December 2024. I'm Ben Green. I'm one of the principals at Atrato, and I'm joined this morning by Adrian D’Enrico; and Mike Carey, who are the fund managers for SOHO; and Nat Markham, our CFO. Just to bring you up to speed with where we're at. We're delighted to have been appointed as AIFM for SOHO on January 1 this year. This means the investment management fee is now based on market capitalization, saving SOHO GBP 1.9 million per annum. Of course, those savings drop straight to the bottom line as earnings. So please bear that in mind when Nat runs us through the backward-looking financial results for last year. The operational team and data have transferred to us seamlessly, so we've hit the ground running. I won't dwell on this slide about us, but I just wanted to say that our market-leading social housing team of 18 people sits within the broader Atrato investment management platform. I want to pause here for a moment to explain how we take a different approach to specialist supported housing. It was originally sold to the market as a long lease asset class. We don't see it that way. It's operational real estate. It can still provide a highly attractive, sustainable and growing income, but we believe it needs to be approached differently. The real estate fundamentals are absolutely key. The properties need to be in the right locations with the right adaptations. Then resident occupancy drives income. There may be a lease, but the approved provider isn't going to pay the rent, unless they're housing vulnerable individuals and are receiving housing benefit from the government because the approved providers don't have any other resources. However, provided the real estate fundamentals are sound and there's a decent resident occupancy level, the underlying cash flows are really attractive, sustainable and growing with inflation every year. Based on our review to date, we believe that is the case for SOHO. So our mission here is to restore investor confidence in the specialist supported housing sector and SOHO specifically. We're taking proactive and decisive asset management decisions. Just look at how quickly we moved on My Space after that have rumbled on for 18 months. We'll be open and transparent, as you'd expect from Atrato. We'll tell you the good and the bad. And turning to the third point on the slide, we believe we can structure income here to enhance SOHO security over it. The weak link is our counterparty, the approved provider who may be a housing association or a charity. They are, generally speaking, good operators doing social good, but they don't have strong balance sheets. We're confident we can find a solution to secure the cash flow better for SOHO and investors. This won't be a short-term solution, but we think we can solve it. And if we do, there should be massive upside and a massive re-rate in this sector, which will make it very attractive to low-cost private capital. I'll now hand you over to Nat Markham, who will take you through the financial results for the year.

Good morning. I'm pleased to report the audited results for the year ended 31st of December 2024. So here, we have set out the key financial highlights for the company for the period, and we'll come to the detail in the following slides. So in summary, and starting with the circle in the top left, 93% of contracted rent for the year was collected. Adjusted earnings were 5.4p per share which, as you can see on the top right, represents an adjusted 0.99x dividend cover. In the bottom left, you can see the portfolio has been independently valued at GBP 626 million, which is a reduction of GBP 53 million from the 31st of December 2023 valuation. This now represents an EPRA NTA per share of 99p. And then finally, the net loan to value is 38%, which is in line with our long-term targets. So starting with the income statement overview. And if we start at the top line, net rental income was GBP 35.9 million, which is up 2% from GBP 35.2 million when compared to the prior year, which I'll expand on, on the next slide. Moving down, EPRA earnings have increased by 3% from GBP 19.5 million to GBP 20 million compared to 2023. And it's worth noting here that when calculating EPRA earnings, we have eliminated the impact of the Triple Point termination fees of GBP 3.3 million as, of course, this is an exceptional item and will not reoccur in the future. Adjusted EPRA earnings have increased by 16% year-on-year from GBP 18.3 million to GBP 21.2 million. We provided this number in order to present true cash dividend cover. I'll take you through this a bit later on. So on this basis, the dividend was practically fully covered at 0.99x. I'll now talk you through the rental income numbers in more detail. Gross rental income was GBP 39.1 million compared to GBP 39.8 million for 2023. Net rental income was GBP 35.9 million compared to GBP 35.2 million for the prior year. In both years, a provision was made for expected credit losses for nonpayment of rent, which in 2024 was all related to My Space and Parasol. Excluding Triple Point's termination fees, other overheads were GBP 3.7 million, which is 6% higher than 2023. This was as a result of legal and professional fees related to the change of investment manager and other strategic initiatives. Moving down, management fees were GBP 4.7 million in both 2023 and 2024, and finance costs have also stayed the same year-on-year as 100% of debt is fixed, which I'll talk to later. Lastly, and as you can see at the bottom, the EPRA cost ratio was 29.9%, which includes the termination fees paid to Triple Point. Excluding these fees, the ratio falls to 21.3%, which we still view as too high. Now the management fee structure will, of course, result in materially lower costs, which will help to lower this number. But also, we have agreed with the Board that we will do a line-by-line cost analysis of the entire business with a view to reducing this figure further. Consistently with prior years, the company reports an adjusted earnings metric, which removes the impact of noncash items from EPRA earnings to assess the affordability of dividends. These noncash items are the amortization of finance costs and the movement in the lease incentive debtor. As a result of the Parasol lease transfers, the related lease incentive debtor was written off under IFRS, reducing net rental income. We have reversed this for the purposes of adjusted earnings to replicate the cash position. Adjusted earnings were GBP 21.2 million compared to dividends paid of GBP 21.5 million. Now moving to the statement of financial position. The largest driver of NAV is the valuation of investment properties, which as a result of a widening of the average net initial yield to 6.22%, combined with revised rent expectations, has fallen by GBP 53 million year-on-year, which Michael will touch on later. Net loan to value was 38%. Now previously, loan-to-value has been reported on a gross basis, which is 40%. However, we will move on to -- move to report on a net basis moving forward. EPRA NTA has reduced by 13% from 114p per share to 99p per share, and I'll take you through this movement on the next slide. So here we've separated out the key components in that 15p per share movement in EPRA NTA. As you would expect, the largest movement is the valuation decline of 13.5p per share. One of the company's greatest strength is its sector-leading debt profile. As you can see, we have an average maturity of 8.6 years at a fixed cost of 2.74%. And therefore, we don't have any concerns about finance costs or debt renewal. A combination of this low finance cost, the team executing the plan and our focus on other cost reduction provides a clear path to both earnings growth and potential dividend growth. I'll now hand over to Adrian to talk you through the sector in more detail.

Thanks, Nat. Good morning. We thought it's important to take a moment to remind everyone what specialized supported housing is and what it isn't. Specialized supported housing or SSH provides homes for vulnerable adults. These homes allow our residents to live independently in their communities, close to their families and their support networks. Our residents have care needs and these include learning disabilities, physical disabilities or mental health conditions or a combination of diagnoses. The residents receive care for their conditions in their home rather than an institutional or medical setting. Our homes are especially designed or adapted to meet those needs. And they're managed by approved providers also referred to as APs, who are predominantly regulated by the regulator of social housing. Specialized supported housing leads to better well-being of resident outcomes and savings to the public purse as we'll discuss later. Now there's been a lot of noise around the sector, in part because of the challenges faced by other residential strategies. So we wanted to address some misconceptions. We've got four misconceptions that are commonly asserted about the sector shown on the left. An association with homeless accommodation, long lease investment and then misconceptions about occupancy and the counterparties in the sector. Taking those in turn. Firstly, the specialized supported housing is the same as homeless or temporary accommodation. Temporary accommodation provides homes for residents who are homeless or come through the asylum system. And as the name suggests, it's very short term in nature. Specialized supported housing is not that. It offers homes for vulnerable adults with care needs who tend to stay a very long time. In many instances, these will be homes for life, and that provides income stability. Secondly, there's a passive investment with a long lease. Yes, long leases are in place, but this is operational real estate, as Ben said. The security of income is driven by resident occupancy, not just the lease. So we look at it as a long income and not a long lease investment. Thirdly, that these properties will always be full because of the supply shortfall in the sector. They will have high levels of resident occupancy, but referrals are thoughtfully considered. Commissioning bodies make placements very carefully. We also have residents moving on positively if their care needs reduce or negatively if their conditions deteriorate. So there will always be some degree of vacancy. But that's okay because our margins -- because of the margins paid in addition to our rent, a scheme is profitable at an occupancy level of 80% or above, as Michael will talk to you later. And finally, in terms of the counterparties, the sector was historically sold as quasi government income with very strong counterparties, and that's not the case. Yes, our rents are ultimately funded by the government, but the intermediaries are small-scale specialist organizations who require close scrutiny. So what makes a good specialized supported housing property? We believe there are five key elements which make homes work functionally and financially and we've shown these here. Working our way across the top row, firstly, property. You need, of course, the right property in the right place, close to amenities, transport links and within the community. And that's for the benefit of the residents, but also it's important for things like staffing. Secondly, adaptations. Our properties need to be suitable for the residents who will call them home in many instances for years or decades to come. Thirdly, demand. Of course, we need properties in locations where there is identified referral demand from the local area. And then looking at the bottom row, fourthly, sustainable rents. These need to be set at an affordable level in the local context and agreed with the local authority. And finally, our specialist partners. Our approved provider lessees ensure that our properties are safe, well-maintained homes, which are compliant with regulatory standards. If you get these five things right, schemes are sustainable for the long term, and that benefits the approved providers, benefits the residents and also our shareholders. So looking at these in a little bit more detail. Firstly, the properties. Here, we have 20 assets within our portfolio of almost 500 properties. And as you can see they're a real mix. They range from single traditional homes to purpose-built blocks of self-contained flats. From the outside, they just look like regular properties because they are appropriate for their local setting. But if you look inside, you can see what makes them specialized supported housing. They contain a variety of physical adaptations. Externally, that might be things like access ramps shown on the top left. Internally, it might be lifts, wider doorways or amenity spaces. You also have accessibility features such as wet rooms with features like walk-in baths as shown on the top right. To let residents use and move around their home safely, we also have hoists, rails and other support as shown in the bottom left. And you also have bespoke features like adjustable height kitchens that help support resident independence as we can see on the bottom right. These adaptations are purpose-built during construction or can be added subsequently as we refurbish the property and bring it into the sector. It's about making reasonable adaptations so that residents can call a place their home and live independently with support. So if we have the right property in the right location, it's suitably adapted, we then need to consider referral demand. The sector is structurally undersupplied, but it's also experiencing a strong increase in demand with more people moving from institutional settings or from family homes as we can see on the left. We also, of course, as we see across the U.K., have a population growth tailwind. That leads us to the chart on the right-hand side, and we have a forecast supply gap of around 50,000 -- sorry, 30,000 extra homes required over the next decade. Specialized supported housing is already a large sector, but it has strong growth potential to meet that growing need and that significant demand overhang for the existing properties we already have in our portfolio is very helpful. But to secure that demand and get resident referrals, we need to make sure that rents are set at an appropriate level. Rents in the specialized supported housing sector are exempt from local housing allowance caps, but it's important they are appropriate in their local context, set at a level which encourages not prohibits referrals and offers value for money for the public purse. And that's particularly important at a time of constrained public finances. The chart we're showing here shows our rents compared to sector averages. SOHO rents shown on the left-hand side averaged GBP 231 per person per bed per week, and that's in line with other privately funded specialized supported housing portfolios shown in the middle. Our rents are 20% above the broader supported housing sector, but that difference is justified because our portfolio is, as we have seen, highly adapted. We have also a modern portfolio of purpose-built or modern refurbishments and the majority of it is self-contained accommodation, which commands a higher rent. And of course, unlike the wider supported housing sector, no grants is used to subsidize our properties. So overall, our rents are on market, affordable and sustainable. There's an additional defensive advantage we have from our established portfolio. We've been through a period of high inflation, as everyone knows, which has led to a sharp rise in build costs. Actually, build costs have increased above inflation levels, and we can see that in the chart on the bottom right. What that means is that replacement costs now actually exceed valuations. At the top, we can see one of our developed assets, Sunnyside up in Telford. It's currently valued at GBP 1.5 million, but because of build cost inflation, if we were to develop that property today, it would cost GBP 1.7 million. So when we look across our portfolio of almost 500 assets, a significant number are held below build cost, and that provides a defensive underpin. So if you got the fundamentals right, you've got a defensive sustainable asset delivering market level income, but the final thing that makes a good specialized supported housing investment and lets us access that income are our specialist partners, the approved provider lessees. Here, we can see a model of how rental income flows through the specialized supported housing sector. SOHO, shown on the top right, leases its properties to the approved provider and residents occupy their homes under a tenancy agreement. For each resident in situ, the approved provider can claim rents. Those rents, as we can see on the left, are paid from government funding, immediately from the local authority through housing benefit and it's ultimately funded by the Department for Work and Pensions. On the right-hand side circled, we have the potential weak link, our approved providers. They are specialist operators, but they don't really have any financial standing, as Ben noted. So why do we need them? Put simply, they're required to make the model work. They're specialist operators providing intensive housing management services, and they alone can access housing benefit at exempt levels to pay our rents on behalf of the residents. They're regulated predominantly by the regulated social housing, and that ensures that our homes are safe, well maintained and sustainable. So they are essential, but given they're not institutional-grade covenants, they present a risk to our income, which we need to mitigate. And we do this by focusing on three key areas. Firstly, on the left, by regularly and proactively engaging with them, something that as a new manager and as part of our proactive approach, we're really enhancing. Through that engagement, we obtain current financial information, property, unit and resident level data, and we supplement this by inspecting our portfolio properties ourselves. The SOHO team complete around 200 formal inspections every year. That information helps us make informed, data-driven and timely decisions to effectively manage what our operational assets. When we identify an issue, we are proactive and decisive to make a positive change. Finally, on the right, as mentioned earlier, we're working to derisk the model by restructuring the income to enhance security. That will take some time, but we're working on it with our approved providers and the regulator, and we'll share more information on that work stream as it progresses. Hopefully, that's been a helpful recap of the sector, how it works and our approach to managing SOHO successfully. So I'm now going to hand it over to Michael to have a look at our portfolio in more detail.

Thanks, Adrian, and good morning. So as Ben said earlier, we're really excited to take on SOHO. We've now had a good chance to review the portfolio, and I'm delighted to take you through it in a bit more detail. So in summary, SOHO owns 494 properties comprising over 3,000 lettable units. It has a contracted rent roll of GBP 42.6 million, all of which is inflation linked. And also 71% of the portfolio is EPC C or above. So in terms of location, the map on the left shows the geographical spread of the portfolio. As you can see, this is highly diverse with properties in every region of the U.K., which really highlights the national demand for SSH. Moving to the chart in the middle, you can see that 64% of our properties are self-contained and 36% shared. And then lastly, the chart on the right shows a diverse range of needs of the residents that we house, which, as you can see, include learning difficulties, mental health, autism, and in some case, a combination of all three. So in the next few slides, we'll focus on SOHO's income streams. So as mentioned earlier, 100% of SOHO's income is inflation linked with reviews every single year. This means, as you can see from the graph on the right, that SOHO's rents have kept up with inflation since 2018, which makes us an incredibly defensive asset class. And we, of course, expect this to continue into the future. So key to SOHO's income stream is its occupancy levels. And by that, we mean how many vulnerable residents are living in the properties. First of all, it's worth noting that due to the complex needs of the residents, this is not a sector where you should expect 100% occupancy. In fact, 80% is a reasonable and profitable expectation. So if we focus on the last 3 years, you can see that occupancy is steadily growing year-on-year and currently sits at a sustainable level of 86%, which is comfortably ahead of sector norms. It is also important to note that My Space and the former Parasol properties account for over half of the current voids. So therefore, once our solution for both these approved providers progresses, we expect overall occupancy to improve significantly over the next 12 months. So we've looked at rent levels and occupancy, and now we look at how that translates into rent collection. So as you can see on the graph, the issues with Parasol and My Space have resulted in rent collection dropping below 100% over the last 3 years. So to improve this and walking through the boxes on the right, the Parasol leases have now been assigned to Westmoreland. And at the end of February, rent collection was 72% of the Parasol contracted amount, and we expect this to continue to grow to above the target of 75% in the short term. And then on My Space. They stopped paying rent entirely in June '24 and formally went into a CVA on the 7th of March '25. We've now taken control of the situation by agreeing an option to sign all SOHO's leases away from My Space and to a better performing approved provider. Now moving to the third box. It is key to ensure that what has happened with Parasol and My Space doesn't happen again. The approved providers, whilst they are specialists at what they do and, of course, vital to the SSH model, are not institutional entities. And at any one point, it's quite possible that one of them will need some form of help hence this being operational real estate. Therefore, it's very important that SOHO is proactive in our engagement with the approved providers. So when an issue does arise, we act quickly and decisively to ensure that we don't have a repeat of Parasol and My Space. Now all of this will see rent collection improve throughout 2025. Therefore, in summary, this, combined with cheap debt and annual rent inflation provides a really strong underpin to earnings growth. So moving on to valuation. As Nat mentioned earlier, net initial yield has moved up by 51 bps to 6.22%. And the My Space and Parasol issues have caused some of that movement, both in terms of rent roll and yield on those individual properties. But we've also worked with JLL, utilizing our sector relationships to identify more transactions. And as a result, we believe that a 6.22% net initial yield better reflects where the SSH market is today. Having said that, given the improvements we are making and the potential for structural changes to protect our cash flows, we believe SSH offers incredible relative value when compared to yields for other living sectors, as you can see from the graph on the right-hand side. Now one of the reasons we are in this sector is that we can do genuine, measurable social good. And as part of that, it is important to remember that these are people's homes. So as part of the annual social impact report, a third-party consultant called Good Economy, go to the properties and survey some of the residents to get their perspective about the homes they live in. So as you can see from the slide, these are direct quotes from our residents, which is clearly fantastic feedback to see. Also, as part of the Good Economy's remit, they look at the saving that SOHO creates for the U.K. taxpayer. The graph on the left shows the potential cost saving of SSH per week when compared to the alternatives of residential care or NHS beds. However, what the Good Economy have done is look at SOHO's actual saving. And as you can see on the right they have estimated this to be a massive GBP 71.6 million per annum, which is, of course, a significant saving to the public purse. So as we said, we're looking to improve transparency around the portfolio. So in the next few slides, we'll look at three case studies and highlight why they make good SSH properties or don't. So the first one is very typical SSH property. It's a purpose-built block of 16 self-contained flats in Yorkshire. They're fully occupied, have an EPC rating of B and over 100 hours of care is delivered every single week for mental health. But what is key here is to understand why this makes a good SSH property. So looking across the bottom, as you can see, it's in the right location. It's suitably adapted. There's demand and a sustainable level of rent is paid by a specialist approved provider. So the next case study is an interesting one. At first glance, this looks like any other standard residential house, whereas in reality, this is a highly adapted specialist home where 24-hour 3:1 care is provided to a person with extremely complex needs. So again, focusing on the bottom of the slide, this property also ticks the relevant boxes that make it a good SSH property. Now lastly, as we said, not all properties in our portfolio will tick those boxes and work for SSH. So this is a property we own in the Southwest. Now whilst there is demand and the rent is set at the right level, it is in the wrong location and is not suitably adapted for the identified cohort. So this is a property as part of a [ Triple Point ] strategy where we will be decisive and sell. I think at this point, it's also important to say that we are currently in the process of triaging the whole portfolio. And of the 494 properties, 27 require active asset management with only 9 of these currently being considered for sale. So the good news is that we expect only a handful of properties will be sold, which will have a de minimis impact on value. I'll now hand back to Ben to conclude the presentation.

Thank you. So to recap, we're on a mission to restore investor confidence in the sector and in SOHO. We're fixing the immediate and well-publicized issues around our problem tenants, and we'll be taking rapid action on any issues with the properties. We believe there's a lot of value here. SOHO is well positioned for EPS growth. There's that highly attractive long-term debt. There's the material reduction in investment management fees, which we've already delivered, and the leases are all subject to annual inflation uplifts, and that's on 100% of the income. Of course, if we can deliver that EPS growth, we're optimistic that we can then return to a progressive dividend policy. And if we can deliver a long-term solution for the approved provider counterparty risk, there's the potential for a massive re-rate of this sector. We believe that will make the portfolio extremely attractive to low-cost private capital. That's the end of our prepared presentation. We're very happy to take questions. They're on the screen in front of me. We've got quite a lot already, so I will get cracking on those.

Right. I just want to sort of group them together a bit. So one from a private investor, which is a good question here, which is saying that we're currently undertaking a full review of the portfolio. As a shareholder, I want to be sure there are no more My Spaces lurking in the portfolio waiting to explode at a future date. Maybe I'll just take that. From a high level, none of the approved providers are strong counterparties. This is a sector where we think we should expect there to be bumps in the road with the approved providers. And the key is two things: One is that we're confident the underlying properties are the right properties, as occupancy. So they've got -- it's really an operational real estate thing. And the second then is taking really proactive steps quickly to resolve those issues. And that's really been the problem in the past. The My Space issue was allowed to fester for far too long. It could have been resolved a long time ago in our view. We won't allow that to happen again. So we can't rule out there being other issues with approved providers. We will commit to be much more proactive in solving them. And then there's also that question around what we can do to secure the cash flows, which actually was another question from [ Martin Edison ] what the structural solutions might be. So just to kind of touch on that, the key issue here is that when the approved providers collect rent on SOHO's properties, those rental cash flows are not segregated and the approved provider can use them for other purposes. So actually, what we're finding with My Space is that in many cases, the properties are cash flow generating that My Space wasn't paying the rent to SOHO. If we can put in some steps to segregate those cash flows, it's going to much better protect SOHO and shareholders from those kinds of issues going forward. Of course, that's all subject to getting approval from the regulator. And so we're currently in discussions with a couple of approved providers and the regulator about implementing that solution. We'll provide you with more updates as we can move along. How about a couple on the asset management side. So one around the approved providers, maybe for Adrian. So will the national insurance increase caused additional risk to the service providers? Does that cause any concerns?

I think it's very much -- it's a good question. I think it's very much a live situation. I think we're seeing those costs come through. The registered providers and -- we're focused just on the registered providers rather than the care providers. But the RPs are able to submit their housing benefit claims and then they're also able to submit their margins to their costs on top. And those costs can under the current rent settlement rise by CPI plus 1. So there is margin within there to be able to compensate for the increase in NII. On the care provider side, actually, the care packages for the residents are in our properties, there are multiple times the size of the actual housing benefit claims. So there's an even greater margin in there to absorb the rising cost. But it's something that we're looking at carefully. And as part of our just general approach to be more -- have a stronger enhanced counterparty management, we're collecting further information on financials and so we'll be able to see the impact of that coming through with the approved providers as we speak to them on a regular basis.

Okay. And maybe one for Mike to follow up on the review of the portfolio. So how many homes do you think are unsuitable for SSH? What are they currently being operated as? And are they concentrated on any particular providers?

Yes, they are focused on certain providers, My Space and Parasol, some of those properties that were part of the transfers make up the 9 properties that we think might currently be suitable for -- sorry, unsuitable for SSH. So we're in the process of seeing whether they have an alternative supported housing use. So it might be for homeless or some other form of supported housing. If they don't work for that use, we would look to sell the properties at that point. But the answer to the question is 9 are currently being considered.

And then a question on the transfer to Westmoreland. So what percentage -- I'm sure whether this is a public number or not. So what percentage of the original Parasol contracted rent do we expect to end up getting on the transfer to Westmoreland? We made a statement on that?

So the original target was between 75% and 85%. Since the transfer in August, we've collected 72% of the contracted amount. So we're confident that we're going to hit that minimum target of 75%. It's difficult to put an exact number on what we think -- where we think that will end up, but we're confident that we're going to remain within target. Probably -- well, I think it's fair to say that we're more likely to end up at the 85% mark than we are at 75%.

And then there's a related question, which is how quickly do we hope to start getting rent on the My Space assets?

I think you touched on that. The My Space portfolio has actually got a good degree of occupancy. So it's around 60% occupied already. The challenge with My Space is that we weren't receiving the rent for those occupied properties. We have now post the CVA, which was supported by creditors a few weeks ago. We're now in a position where we move to a pass-through rent basis. So the income that they received net of cost, we will start to receive some rental income. And as soon as we can affect that transfer, which we have the option agreement, so we control the timing of that as soon as we can affect that transfer, we can then move to an approved provider where we would start to see that, rental income start to tick up, and it will probably follow a similar process to the Parasol to Westmoreland transfer in terms of timing and also in terms of the trajectory of how that rental income will increase over time.

And one more question, I think, on rents from Andrew Saunders at Shore Capital. So are there any risks to rental for -- the rental model from the forthcoming changes in the welfare budget?

Not currently planned or telegraphed by the government. I think -- what we have seen over probably the past 7, 8, 10 years is that the residents that we have in our sectors, some of the most vulnerable residents of society, whenever there have been, for example, consultations or changes to the rent levels across the broader social housing sector, specialized supported housing is always exempted from those conversations because, quite simply, and as we've shown, it provides a great saving to the public purse. It's the cheapest alternative to all of the settings that those residents could be in. And so actually, the government who have that obligation to house these individuals, to be an element of shooting themselves in the foot if they were to seek to not make this model viable. So residents are in situ, rents are in payment, and we don't expect that to change, but we've certainly got no indication of that from the government at this point.

Okay, a couple I'll take here. So one around the previously muted portfolio sale. So saying -- are we not looking to sell properties even at reduced NAV, it sounds as though we're now looking to sell lower quality properties. So that is correct that the strategy right now is to deal with the problem properties which are indeed like the lower quality properties, some of those are really unsuitable. It's not going to make a material difference to valuation or realize a significant amount of cash in selling those. On larger portfolio sales, we're working with the Board on a broader strategy for SOHO. We've only been in place for 11 weeks so far. We're completely open-minded as to what the right outcome might be here. It could be selling portfolios of properties, it could be actually winding up the entire REIT and returning cash to shareholders. What we feel is that the sector is in such a poor position at the moment in terms of perception that, that is really unlikely to deliver the best value for shareholders. Right now, that's why we've talked a lot about our mission being repositioning this sector. If we can successfully reposition the sector, and we believe we can through managing it better, being more proactive and coming up with structural solutions around the cash flow, that is going to deliver a much better value outcome for shareholders than selling any material amount of the portfolio right now, even if that was possible because it's very hard to source any kind of material amount of investment into the sector right now. And there was a follow-up question around the portfolio review and whether we'll provide a shareholder update. I just -- I don't want to commit to anything right now on that. I think what we've said is that we're only expecting there to be a handful of problem properties. Obviously, if we uncover anything material, we will provide a shareholder update. So no news should be taken as good news from that point of view. As I say, we've only been in seat for 11 weeks. It's quite possible we'll provide a full update later in the year. But I just don't want to commit to timing on that right now. And the final question is around the EPRA cost ratio, one for Nat. I think you're expecting that from [ Martin Edison ]. So the EPRA cost ratio is very high right now. What are we going to do about it and kind of where do we expect it to go?

So the EPRA cost ratio currently includes the termination fees, which, as I touched on, were obviously sort of an exceptional item, and we would not expect to reoccur. But even removing that, we come down to about 21%, which again, as we set out, we still believe to be too high. Now the new management fee structure is based on share capital -- sorry, market capitalization. And roughly speaking, that would save us about GBP 2 million a year if we had that in place last year, which would take that EPRA cost ratio below 17%. And we are also looking at other line items within the fund and targeting cost savings wherever possible. So we are very much focused on reducing those costs and getting that ratio down to a much more acceptable level that is in line with our peers.

Great. There are no more questions on the portal. So thank you very much, everyone, for your time this morning. We very much appreciate your time and you as shareholders, I say, we're at the beginning of a journey here, taking on the mandate. We're incredibly excited about the value that is embedded in this portfolio, and we look forward to speaking with you soon. We are available on e-mail for any follow-up questions. And obviously, we'd also love to have one-to-one meetings, so please get in touch with Stifel to arrange those if you would like to meet with the team. Thank you.