29 June 2023

CIVITAS SOCIAL HOUSING PLC

ANNUAL FINANCIAL REPORT

YEAR TO 31 MARCH 2023

Civitas Social Housing PLC ("Civitas" or the "Company"), the UK's leading care-based and healthcare REIT, presents its full year results for the year ended 31 March 2023.

Performance Highlights

Full Year Highlights

·      Annualised contracted rent roll increased by c.6% to £56.3million

·      Portfolio value increased to £978.1million from £968.8million (IFRS)

·      NAV decreased slightly to 109.16 pence per share as at 31 March 2023 (2022: 110.30 pence per share)

·      IFRS valuation average net initial yield (NIY) of 5.55%

·      EPRA earnings per share (basic and diluted) 4.43 pence per share (2022: 4.82 pence per share)

·      Dividends of 5.70 pence per share to 31 March 2023 (2022: 5.55p) fully paid in four dividend distributions

·     In December 2022 the Company signed a new five-year £70.8 million facility with a European bank lender 

·     Maintained a high quality investment credit rating from Fitch Ratings of "A-" (stable) and "A" Secured

·   Continuation of share buybacks, with the Company acquiring 6,050,000 shares at an average of 76.89 pence per share for a total investment of £4.65 million, enhancing the NAV by 0.30%

Operational Highlights

·      Diversified portfolio of 697 properties providing homes to 4,594 residents

·      Providing lifelong homes to mostly working age adults with disabilities and complex care needs

·    High acuity focused portfolio with 40% of residents living in Civitas properties receiving over 50 hours of care per week

·   Phase two of the Company's work with E.ON continues across identified properties, targeting a 25% reduction in carbon emissions

·   CIM continues to engage actively with the Company's Approved Provider partners and care providers, offering advice and shared learning

·    CIM continues to closely and proactively asset manage the largest portfolio of specialist care based housing in the UK

Post Year End Highlights

·    On 9 May 2023 the Board announced a recommended offer for the Company at 80p in cash, from Wellness Unity Limited, a subsidiary of CK Asset Holdings Limited (CKA)

·   On 22 May 2023 the Offer Document was made available. It is intended that Civitas Investment Management ("CIM") is maintained as the Investment Adviser to Civitas so that the day-to-day management of the Civitas portfolio will continue uninterrupted, and Civitas be re‑registered as a private limited company as soon as practicable following the cancellation of the listing and trading of Civitas shares

·      On 23 June 2023 the Offer became unconditional

Please find the full 2023 Annual Report on the Civitas Social Housing plc website.

For further information, please contact:

Notes:

Civitas Social Housing PLC (CSH) was created in 2016 by Civitas Investment Management Limited as the first dedicated London listed REIT to raise long-term, sustainable, institutional capital to invest in care-based social homes and healthcare facilities across the UK. CSH's portfolio has been independently valued at £978.1 million (31 March 2023). CSH now provides homes for 4,594 working age adults with long-term care needs, in 697 bespoke properties that are supported by 131 specialist care providers, 19 approved providers and working with over 178 individual local authority partners.

Chairman's Statement

From the Chairman:

"Since November 2016, Civitas Social Housing PLC has provided vital homes and healthcare facilities across the UK, for those working age adults with significant and typically life-long care needs.

I am pleased to report that, despite a difficult economic backdrop in the UK, our portfolio has continued to

perform strongly."

This is our sixth Annual Report, covering the year to 31 March 2023. I am pleased to report that, despite a difficult economic backdrop in the UK, our portfolio has continued to perform strongly, delivering on average a 5% increase in rental income derived from our inflation adjusted leases.

Our Investment Adviser, Civitas Investment Management Limited ("CIM"), has continued to work closely with our Approved Providers to enhance further the quality of the portfolio and to assist where needed in the process of ensuring our rental income is received on a timely basis. The net asset value of the Company at 31 March 2023 was 109.16 pence, a small decrease of 1.03% from 110.30 pence per share as at 31 March 2022.

The Board declared a final dividend of 1.425p, bringing the full year dividend to 5.70p, in line with the minimum stated intention.

A difficult challenge during the year was the sharp increase in interest rates. I am pleased that in February 2023 the Company entered into a new debt facility for £70.9m, which was partly used to repay the loan facility with Lloyds. In addition, we also fixed our interest rate exposure to provide greater certainty. However, the overall re-financing was achieved at a material increase in ongoing interest costs. Full details are included in the Investment Adviser's Report.

Our share price has been disappointing over the year under review, reflecting in part the broad derating of real estate investments, higher interest rates and investor concern about our sector. The Board has been reviewing a number of possible actions to address this position. The Company has continued to buy back shares - over the past 12 months it has acquired 6,050,000 shares at an average of 76.89 pence per share for a total investment of £4.65 million. This has enhanced the NAV by 0.30% and benefited the EPRA earnings.

Continuation Vote

At the annual general meeting on 15 September 2022, 98.85% of those shareholders who voted have voted in favour of the continuation of the Company.

Offer for the Company

Following the year end, on 9 May 2023 the Board announced a recommended offer for the Company at 80p per share in cash, from a subsidiary of CK Asset Holdings Limited (CKA).

Whilst the Board believes that the Offer undervalues the long-term prospects of Civitas as expressed by net asset value, we also recognise that Civitas, and its sector as a whole, faces a number of challenges in sentiment which the public markets are unlikely to overcome in the short to medium term.

The Offer provides liquidity to shareholders with the opportunity to exit in full and in cash at a significant premium to the current share price, in a time of macroeconomic uncertainty.

Moreover, CKA, as a current investor in the social housing sector, has a detailed understanding of the attractive fundamentals of the real estate and the expertise of the management team. CKA does not expect there to be any disruption to tenants as a result of the Offer and will be focused on the continuation of relationships with Approved Providers, care providers and the Regulator of Social Housing following the completion of the Offer. The Board therefore considers the terms of the Offer to be fair and reasonable and we have recommended it to our shareholders.

Outlook

Demand for the type of properties within the Company's portfolio remains strong with independent forecasts predicting that there will be continued growth for many years to come in the need for additional units of adapted accommodation. The Board remains confident in the strength of the portfolio and its potential revenue generation.

Michael Wrobel

Chairman

28 June 2023

Growth

Growing Base of Global Investors

Civitas invests on behalf of a wide range of global, national and local investors seeking exposure to sustainable long-term income together with measurable social impact and high levels of ESG delivery.

Four Continents…                                                                                             …over 60 Locations

Our Strategy for Growth

Demand for the accommodation provided by Civitas is strong and expected to remain so over the long-term. The pandemic has further evidenced the need for safe and secure homes for the most vulnerable people in society.

Civitas is a go-to partner for an increasing range of major vendors and counterparties.

Civitas is the market leader with the largest portfolio and deeply ingrained relationships with care providers, local authorities, Approved Providers and charities across the UK.

The Company continues to work closely with The Social Housing Family CIC to enable it to expand and play a broader role in the sector, and becoming part of critical local authority pathways, leading to many opportunities in specialist supported living and advanced homelessness.

Civitas now works with a broader range of counterparties including charities and other not-for-profit organisations, to expand into significant markets across the UK, now including Scotland and Northern Ireland.

Our Portfolio

By UK Region as at 31 March 2023

Market Value (%)

Tenancies

Our Portfolio

By Approved Provider as at 31 March 2023

Annualised Contracted Rent Roll (%)

Properties

Tenancies

Market Value (%)

¹ Auckland and Qualitas Housing are both members of the Social Housing Family C.I.C and subject to common control.

Investment Adviser's Report

Consistent Performance

In the year to March 2023, CIM continued to work closely with the Board to manage a high-performing portfolio.

Portfolio

·      40% of residents living in Civitas properties receive over 50 hours of care per week.

·      High acuity portfolio

·      Provide homes to those who need long-term quality accommodation

·      Largest portfolio of SSH in England & Wales

·      Premium Fitch rating retained at "A" secured and "A-" unsecured

·      Average rental growth of c.5%

Social Impact

·      4,594 high quality bed spaces

·      £127.0 million savings to the public purse¹

·      5 charitable relationships

Phase two work with E.ON

·      Continued work across identified properties

·      Targeting 25% reduction in carbon emissions

·      Continued access to government grant funding sources

·      Targeting minimum EPC "A-C" by 2030

Highly Experienced Team

The asset management team set up to work with and assist our Approved Providers have

specialisms from:

·      Local authority commissioning of specialist supported housing

·      Senior level rents and housing benefit advisers

·      Housing management and compliance

·      Property asset management

·      Commissioning of care

1. Source: The Good Economy, Civitas Social Housing PLC, Annual Impact Report 2021, June 2021.

"For over six years CIM has been working with the CSH Board to invest in high-quality assets to deliver long-term affordable homes for life for the most vulnerable in society.

We have developed in-depth knowledge of the sector along with extensive relationships with Approved Providers, care providers and local authorities, which has directly led to improvements in the sector."

Paul Bridge - CEO, Social Housing - Civitas Investment Management Limited

Introduction

Civitas Investment Management Limited ("CIM") is the Investment Adviser to Civitas Social Housing PLC ("CSH") and is the leading provider of care-based housing in the UK. CIM comprises a team of 39 individuals with a range of expertise in specialist supported housing, real estate management and complex care needs CIM has the capacity and specialist knowledge to manage the CSH portfolio at a granular level and has cultivated strong professional relationships across the sector over the last decade.

Overview of Results

In the UK prior to the launch of the Company, equity and private capital played a very small part in the social housing sector. Over time, UK demographics changed and the number of adults with long-term, complex care needs has been steadily increasing.

This is reflected in a number of institutional investors including aspects of social housing within their

investment strategies.

Results Highlights

·      Six years of consistent rental growth and progressive dividend payments that have increased from an initial 3.00p per share to 5.70p per share for the year ended 31 March 2023.

·      A retained high-quality investment credit rating from Fitch Ratings of A secured and A- unsecured since March 2021, which CSH was the first to secure in this sector.

·      An actively managed portfolio of operational real estate with a sector-leading team of professionals assisting and enabling high quality and longevity of homes and income.

·      Professional support to enable Approved Providers to enhance the quality of their delivery and demonstrate long-term financial and operational independence.

·      Targeting investments and homes which enable the delivery of higher end care as this is where the greatest need exists and where the applicability of exempt rents is clearly demonstrated.

·      An active and continuing programme working with E.ON to permanently reduce carbon emissions across the portfolio, leading to lower energy costs for residents and a more carbon neutral portfolio.

·      Sector leading partnerships with national and local charities delivering real change and continuing to enhance CSH's reputation as the most experienced investor in social infrastructure in the UK.

·      CIM has a highly experienced asset management team which has overseen some £25 million of physical improvements to the portfolio since inception largely paid for by the vendors of the properties.

Sector Leading Social Outcomes

ESG

Our ESG Policy is located at www.civitassocialhousing.com. It provides an overview of the Company's

investment procedures and sets out the Board's commitment to a continuous improvement process in its

approach to ESG integration.

ESG Rating Providers

CIM engages with the leading ESG rating providers to set out the activities that are undertaken by CSH and to ensure these are profiled and evaluated correctly. Notably, active participation in the 2022 GRESB Public Disclosure Assessment has resulted in CSH retaining an A score previously attained in 2021, whilst the peer group average score has moved up to B. CSH is up to second position within its Comparison Group (UK Residential). Meanwhile, the Risk Rating Score for CSH by Sustainalytics remains at 14.9 (Low Risk) as was reported in February 2023.

The latest independent report by The Good Economy on CSH was published in November 2022 and notes

CSH's continued progress in delivering measurable social impact. Social value analysis by The Good Economy, carried out in March 2021, found that, overall, the portfolio generated £127 million of social value per year, including fiscal savings to public budgets of £75.9 million per year.

Of particular note with respect to the portfolio:

·      41% of CSH's 697 properties have been brought into the specialist housing sector for the first time

·      CSH continues regular engagement with its Approved Providers to monitor the quality of its stock

·      Improvement works have enhanced the energy efficiency of homes

·      87% of respondents to the survey of residents carried out by CIM in March 2021 reported that they were satisfied with the quality of their home

·      CSH Approved Provider partners have reported 99% statutory compliance - considerably better than the wider affordable housing sector

Environmental: Carbon Reduction/ Energy Cost Savings

CIM continues to work with E.ON (a leading UK energy and solutions company) under a national framework agreement in partnership with CSH tenants, to improve the environmental performance of the portfolio. The "fabric first" approach to reducing the portfolio's carbon footprint includes the installation of cavity wall insulation, loft insulation, external wall insulation, air source heat pumps and solar PV and battery storage to identified properties within the portfolio. The installation of these energy efficient measures, utilising available government grants and other funding sources, will optimise value for the Company, our counterparties and our shareholders. The collaboration with E.ON is delivering significant environmental enhancements without any cost to our Approved Providers.

The Phase 2 retrofit surveys will help to refine the implementation programme and identify the best method for reducing the total carbon dioxide emissions (and fuel costs) associated with individual properties over the medium or long term. The overall energy performance of the portfolio, as identified on Environmental Performance Certificates ("EPC") reports data has improved over the last 12 months. The proportion of properties with EPC Rating A-C is currently c.55% and the carbon footprint (estimated from property characteristics) has reduced by 2% per Civitas tenancy (from 2.65 tonnes of CO²/tenancy in March 2022 to 2.61 tonnes of CO²/tenancy). The whole social housing sector, and indeed the whole housing sector, continues to require significant public investment if it is to meet the current government guidelines on achieving net zero carbon emissions by 2050.

Government Policy and Regulation

Reforming the Mental Health Act

Current mental health legislation results in many people with mental health issues or learning disability needs being detained in large institutions that are often inappropriate for the individuals. It is estimated by NHS Digital that there was a rise in annual mental health detentions from 45,864 in 2016/2017 to over 53,239 in 2020/2021.

Once people are sectioned into an institution it becomes very difficult and costly to move them into a supported living community setting.

As a result of these concerns, the Government commissioned an independent body chaired by Professor Sir Simon Wessley in 2017. Currently in draft form in the Houses of Parliament, the Mental Health Reform Act seeks to raise the threshold for detaining people with a learning disability and/or autism unless they have a coexisting psychiatric disorder.

We believe that this Act will drive even more demand for community housing and care settings which are already in short supply, further securing the value and importance of the CSH portfolio.

The CSH portfolio will further benefit from the following broader market dynamics:

Social Housing Regulation Bill 2023

The overall regulation of social housing is under review with the main objective of delivering transformational change for social housing residents and fulfilling the Government's 2019 manifesto pledge to "empower residents, provide greater redress, better regulation and improve the quality of social housing".

The implication of this review for CSH's portfolio is expected to be positive as it aims to bring landlords closer to their tenants and more focused on addressing their needs quickly. Our Approved Providers are very close to their residents' needs and work in partnership with care providers to ensure good quality service outcomes, all supported by the granular asset management provided by CIM every day.

Supported Housing (Regulatory Oversight) Bill

This bill, which is under review, seeks to improve the regulation and outcomes of supported exempt accommodation. This follows reported cases, particularly of temporary housing, that should not qualify as

exempt accommodation.

Financial Review

As at 31 March 2023 the Net Asset Value of the Company was £661.9 million, being 109.16 pence per share, a 1.03% decrease on the 110.30 pence per share at 31 March 2022. A net fair value gain on investment properties of £2.6 million (2022: £12.3 million) was recorded in the year.

Operational cash flows increased moderately to £39.5 million (2022: £39.1 million). Ongoing rental collections throughout the year supported the Company's healthy operating cash flows despite further increases to the cost of debt as all facilities were put onto a fixed basis.

Rental Growth and Dividend

The portfolio generated rental income (excluding any insurance and service charge rechargeables) of £53.1

million, representing c.5% increase over the corresponding period last year.

The contracted rent roll now increases through indexation only as no new equity has been raised and therefore no new investments have been made in the period.

During the year, the Company declared and paid four dividend distributions including one dividend of 1.3875p and three instalments of 1.4250p.

Debt Fixing and Reducing Risk

CIM arranged the following debt facilities which fixes debt on the portfolio at an average rate of 3.92% until August 2024 as is prudent in the current interest rate environment.

We have received terms from lenders to refinance the NatWest facility which is due to expire in August 2024.

Governance

CIM continues to engage actively with the Company's Approved Provider partners and care providers, offering advice and shared learning.

The Board, comprised of five independent non-executive Directors, carries out an annual Board performance evaluation exercise and hosts periodic strategy sessions in addition to regular planned Board meetings.

Summary

CIM continues to closely and proactively asset manage the largest portfolio of specialist care-based housing in the UK.

There is demonstrable demand in excess of supply and significant further legislation that is likely to

continue to increase demand for the properties in the Company's portfolio.

We continue to undertake our work with a view to both enhancing the value of the portfolio and protecting the interest of our underlying tenants.

Civitas Investment Management Limited

Investment Adviser

28 June 2023

Asset Management Initiatives

As part of the ongoing active management of the CSH portfolio, CIM has developed an extensive asset management resource that covers all the key disciplines that are apparent within specialist supported housing and the residential care sectors.

Capital works are undertaken on a rolling basis with much of the work being undertaken around the time of initial acquisition and paid for by the original vendors as part of the purchase agreement. This ensures that appropriate adaptations are made to deliver a bespoke property that is suitable for the user's needs over the long term. Capital works are also undertaken, from time to time, during the life of the property where it is deemed appropriate to undertake improvement works or repositioning of the asset. In some cases this also leads to an immediate uplift in contracted rent roll and a commensurate increase in capital values.

Set out below are some examples of projects that have been undertaken.

The Asset Management Team understand the value of a good home. With nearly 100 years' experience between them working in the housing field, there is a lot of knowledge we can share.

As part of our active asset management of the CSH portfolio, we work with and support our partners tackling issues and finding solutions to help sustain the tenancies of the most vulnerable people living in our homes.

A recent example of this was with Cole Street and Hampden Road. These properties are managed by Trinity Housing Association and are popular properties with long standing residents. However, Trinity had struggled to meet its housing benefit potential. Officers from the team worked closely with Trinity and supported them to put the information and evidence together for tribunal. Trinity won the tribunal and the matter was resolved with a full backdate and rent agreed. This was a great result for the team and for the tenants at the schemes.

Case Study

York Mews, Clacton-on-Sea

A detached two storey block of seven self-contained flats constructed around the 1950's. Some external works were identified as being required and a review was undertaken at the asset. Assessment reports obtained suggested that replacing the heaters within the flats and other minor works would improve the energy efficiency and, in most cases, improve the EPC ratings at the same time. We therefore tendered a programme of works over two phases - the first phase just before the previous Winter period to replace the existing heaters with high heat retention storage heaters - the second phase during the following Spring/Summer period was to undertake the external works to remove the existing render, replace and

decorate to improve the exterior of the building.

Corporate Social Responsibility Report

Sustainability

The business model of the Company is to provide long--term suitable homes for individuals with care needs; acting in a sustainable manner is key to achieving this aim. Properties that are owned by the Company are tailored to meet the future needs of the tenants and, where required, are actively asset managed to provide long-term functionality and value to the wider community.

Environment

During the investment due diligence phase, the Company looks closely at the environmental impact of each potential acquisition, and encourages a sustainable approach for maintenance and upgrading properties. Through collaborating with specialist developers and vendors, the high standards the Company expects from each investment in the care-based housing sector is adopted by other companies in the sector.

Once within the portfolio, the properties of the Company are actively managed, and the Investment Adviser assesses whether there are opportunities to improve the environmental efficiency of the properties, in addition to other asset management initiatives. The Company has an Environment, Social and Governance Policy which can be found on the Company's website. This goes into further detail about the Company's ESG approach and how it integrates with investment strategy. Further details on the Company's ESG approach can also be found in the full Annual Report.

The Board has considered the requirements to disclose the annual quantity of emissions; further detail on this is included in the Report of the Directors as set out in the full Annual Report.

Diversity

The Company does not have any employees or office space and, as such, the Company does not operate a diversity policy with regards to any administrative and management functions.

Whilst recognising the importance of diversity in the boardroom, the Company does not consider it to be

in the interest of the Group and its shareholders to set prescriptive diversity criteria or targets. The Board has adopted a diversity policy in respect of appointments to be made to the Board and will continue to monitor diversity, taking such steps as it considers appropriate to maintain its position as a meritocratic and diverse business. The Board's objective is to maintain effective decision-making, including the impact of succession planning. All Board appointments will be made on merit and have regard to diversity regarding factors such as gender, ethnicity, skills, background and experience. This includes Director appointments to the Audit and Management Engagement Committee and Nomination and Remuneration Committee. See Corporate Governance Statement in the full Annual Report.

The Board comprises three male and two female non-executive Directors. Throughout the year, the Company complied with the Hampton-Alexander Review's target of a minimum 33% representation of women on FTSE 350 boards.

The Board is aware of the recommendations of the Parker Review, which will be taken into consideration as part of the Board's succession planning. See Corporate Governance Statement as set out in the full Annual Report

The Board of Directors of the Company's subsidiaries, which are non-operational, each comprise one female and up to four male directors.

Human Rights

Given the Company's turnover for the year under review, it now falls within the scope of the Modern Slavery Act 2015. The Company published its modern slavery statement on 22 September 2021.

The Board is satisfied that, to the best of its knowledge, the Company's principal advisers, which are listed in the Company Information section, comply with the provisions of the UK Modern Slavery Act 2015.

The Company's business is solely in the UK and therefore is considered to be low risk with regards to human rights abuses.

Community and Employee
The Company's properties enable the provision of care to some of the most vulnerable people in the community, ensuring safe and secure accommodation, tailored to meet individual care needs. The Company has increased the provision of care-based housing, bringing new supply to the sector and providing homes to over 4,500 people. All of the Company's properties enable the provision of high levels of care, generating local jobs and helping to support local economies.

The Company has no employees and accordingly no requirement to separately report on this area.

The Investment Adviser is an equal opportunities employer who respects and seeks to empower each individual and the diverse cultures, perspectives, skills and experiences within its workforce.

Section 172(1) Statement and stakeholder engagement

Overview
The Directors' overarching duty is to act in good faith and in a way that is most likely to promote the success of the Company as set out in section 172 of the Companies Act 2006. In doing so, Directors must take into consideration the interests of the various stakeholders of the Company, the impact the Company has on the community and the environment, take a long-term view on consequences of the decisions they make, as well as aim to maintain a reputation for high standards of business conduct and fair treatment between the members of the Company.

Fulfilling this duty naturally supports the Company in achieving its investment objective and helps to ensure that all decisions are made in a responsible and sustainable way. In accordance with the requirements of the Companies (Miscellaneous Reporting) Regulations 2018, the Company explains how the Directors have discharged their duties under section 172 below.

To ensure that the Directors are aware of, and understand, their duties, they are provided with the pertinent information when they first join the Board as well as receiving regular and ongoing updates and training on the relevant matters. Induction and access to training is provided for new Directors. They also have continued access to the advice and services of the Company Secretary and, when deemed necessary, the Directors can seek independent professional advice at the Company's expense. The Schedule of Matters Reserved for the Board, as well as the Terms of Reference of its committees, are reviewed regularly and further describe Directors' responsibilities and obligations and include any statutory and regulatory duties. The Audit and Management Engagement Committee has the responsibility for the ongoing review of the Company's risk management systems and internal controls and, to the extent that they are applicable, risks related to the matters set out in section 172 are included in the Company's risk register and are subject to periodic and regular reviews and monitoring.

Long-term Success
The strategy of the Company can be found below. Any deviation from, or amendment to, that strategy is subject to Board and, if necessary, shareholder approval. The Company's business model, which can be found below, provides that the Board considers the long-term consequences of its investment decisions.

The Company grants long-term leases, generally 20 years in length, to its tenants. The Company seeks to maintain lasting relationships with its tenants and supports its tenants in adapting properties to meet their needs, particularly improving and enhancing properties. Further details can be found in the full Annual Report.

Stakeholders
A company's stakeholders are normally considered to comprise its shareholders, its employees, its customers and its suppliers as well as the wider community in which the company operates and impacts. The Company is different in that as an investment trust it has no employees and, in terms of suppliers, the Company receives professional services from a number of different providers, principal among them being the Investment Adviser.

Through regular engagement with its stakeholders, the Board aims to gain a rounded and balanced understanding of the impact of its decisions. Feedback from stakeholders is gathered by the Investment Adviser in the first instance and communicated to the Board in its regular quarterly meetings and otherwise as required.

The importance of stakeholders is taken into account at every Board meeting, with discussions involving careful consideration of the longer-term consequences of any decisions and their implications for stakeholders. The following section explains why these stakeholders are considered of importance to the Company and the actions taken to ensure that their interests are taken into account by the Board as part of its decision making.

Principal Decisions

Principal decisions have been defined as those that have a material impact to the Group and its key stakeholders.

In taking these decisions, the Directors considered their duties under section 172 of the Act. Principal decisions made during the year were as follows:

New Regulatory Clause Initiative

In 2022, the Board considered and agreed a new approach to the Company's lease model with the goal of supporting additional regulatory compliance and addressing perceptions of risk. The new regulatory clause enables Approved Providers to achieve greater alignment between income receipts and lease liabilities, set achievable capital solvency requirements against lease obligations and demonstrate a further degree of risk sharing.

The new lease clause has, following detailed negotiation including legal input, received approval from the board's of two initial housing associations with whom it had been discussed. The Company had previously sought and obtained formal written confirmation from its valuers that the inclusion of a clause of this type within the Company's new and existing leases will not of itself cause a diminution in the value of those leases or in the underlying assets.

Takeover Offer

As announced on 9 May 2023, the Board made the decision to recommend to shareholders an all-cash offer of 80 pence for each share of the Company by Wellness Unity Limited (a wholly owned subsidiary of CK Asset Holdings Limited).

Although the Board believes the offer undervalues the long-term prospects of the Company, the Board

recognises that the Company and the sector in which it operates faces a number of challenges in light of the current macro environment and outlook. This includes the considerable negative sentiment in the public markets towards the Company and the social housing sector which the Board believes are unlikely to be overcome in the short to medium term and will continue to have a material impact on the Company's share price prospects. In addition, despite delivering on revenue, NAV and dividend growth since IPO, the Company's shares have traded for some time at an entrenched discount to NAV.

On 23 June 2023, the Offer became unconditional.

Updates to Debt Arrangements

During the year, the Board considered and closed a new five year term debt facility of c.£71 million with a major European bank lender.

The facility was deployed in full to redeem the Company's existing facility with Lloyds Bank of

£60 million as well as providing additional liquidity. As a result, all of the Company's debt facilities are at 100% fixed or capped rates.

Buyback Programme

During the year, the Board monitored the decline in the Company's share price and in response, the Board agreed the implementation of a share buyback programme under certain parameters, which is being operated by the Company's Joint Brokers.

Further information on the Company's buyback programme can be found in the full Annual Report.

Strategic Overview

Purpose of the Company

The Company was established in 2016 with the purpose of delivering long-term responsible, stable returns to investors and achieving positive measurable social impact and ESG benefits on a large scale. It should achieve this as a result of introducing long-term equity capital into the social housing sector with a particular focus on care-based community housing. By doing so, this would form a bridge between equity investors and the social housing sector and bring together aspects of healthcare with social housing.

The Company has since developed the largest portfolio of care-based community housing in the UK that provides long-term homes for more than 4,500 individuals across half the local authorities in England and Wales.

As a result of this success, the Company has recently extended its mandate to be able to enter into transactions directly with the NHS and with leading charities with an interest in the provision of specialist housing that has a strong care or support element, is consistent with public policy and whose costs are met by the public purse for which it offers value for money.

Investment Objective

The Company's investment objective is to provide shareholders with an attractive level of income, together with the potential for capital growth from investing in a portfolio of Social Homes, which benefits from inflation adjusted long-term leases or occupancy agreements with Approved Providers and to deliver, on a fully invested and geared basis, a targeted dividend yield of 5% per annum¹, which the Company expects to increase broadly in line with inflation.

¹The dividend yield is based on the original IPO price of 100 pence per Ordinary share. The target dividends are targets only and do not represent a profit forecast. There can be no assurance that the targets can or will be met and should not be taken as an indication of the Company's expected or actual future results. Accordingly, potential investors should not place any reliance on these targets in deciding whether or not to invest in the Company or assume that the Company will make any distributions at all, and should decide for themselves whether or not the target dividend yields are reasonable or achievable.

Investment Policy

The Company's investment policy is to invest in a diversified portfolio of Social Homes throughout the United Kingdom. The Company intends to meet the Company's investment objective by acquiring, typically indirectly via Special Purpose Vehicles, portfolios of Social Homes and entering into long-term inflation adjusted leases or occupancy agreements for terms primarily ranging from 10 years to 40 years with Approved Providers, where all management and maintenance obligations will be serviced by the Approved Providers. The Company will not undertake any development activity or assume any development or construction risk. However, the Company may engage in renovating or customising existing homes, as necessary.

The Company may make prudent use of leverage to finance the acquisition of Social Homes and to preserve capital on a real basis.

The Company is focused on delivering capital growth and expects to hold its Portfolio over the long-term and therefore it is unlikely that the Company will dispose of any part of the Portfolio. In the unlikely event that a part of the Portfolio is disposed of, the Directors intend to reinvest proceeds from such disposals in assets in accordance with the Company's investment policy.

Investment Restrictions

The Company invests and manages the Portfolio with the objective of delivering a high quality, diversified Portfolio through the following investment restrictions:

·      the Company only invests in Social Homes located in the United Kingdom;

·      the Company only invests in Social Homes where the counterparty to the lease or occupancy agreement is an Approved Provider;

·      no lease or occupancy agreement shall be for an unexpired period of less than 10 years, unless the shorter leases or occupancy agreements represent part of an acquisition of a portfolio which the Investment Adviser intends to reorganise such that the average term of lease or occupancy agreement is increased to 15 years or above;

·      the aggregate maximum exposure to any single Approved Provider is 25% of the Gross Asset Value, once the capital of the Company is fully invested;

·      no investment by the Company in any single geographical area, in relation to which the houses and/or apartment blocks owned by the Company are located on a contiguous or largely contiguous basis, exceeds 20% of the Gross Asset Value of the Company;

·      the Company only acquires completed Social Homes and will not forward finance any development of new Social Homes;

·      the Company does not invest in other alternative investment funds or closed-end investment companies; and

·      the Company is not engaged in short selling.

The investment limits detailed above apply at the time of the acquisition of the relevant investment in the Portfolio once fully invested. The Company would not be required to dispose of any investment or to rebalance the Portfolio as a result of a change in the respective valuations of its assets.

Gearing Limit

The Directors seek to use gearing to enhance equity returns. The level of borrowing is set on a prudent basis for the asset class and seeks to achieve a low cost of funds, whilst maintaining the flexibility in the underlying security requirements and the structure of both the Portfolio and the Company.

The Company may, following a decision of the Board, raise debt from banks and/or the capital markets and the aggregate borrowings of the Company is always subject to an absolute maximum of 40% of Gross Asset Value calculated at the time of drawdown. Current gearing is 35.61% (2002: 34.43%).

Debt is secured at asset level, whether over a particular property or a holding entity for a particular series of properties, without recourse to the Company and also potentially at Company level with or without a charge over the Portfolio (but not against particular assets), depending on the optimal structure for the Company and having consideration to key metrics including lender diversity, cost of debt, debt type and maturity profiles. Otherwise there will be no cross-financing between investments in the Portfolio and the Company will not operate as a common treasury function between the Company and its investments.

Use of Derivatives

The Company may choose to utilise derivatives for efficient portfolio management. In particular, the Directors may engage in full or partial interest rate hedging or otherwise seek to mitigate the risk of interest rate increases on borrowings incurred in accordance with the gearing limits as part of the management of the Portfolio.

Cash Management

The Company invests in cash, cash equivalents, near cash instruments and money market instruments.

REIT Status

The Directors conduct the affairs of the Company so as to enable it to remain qualified as a REIT for the purposes of Part 12 of the Corporation Tax Act 2010 (and the regulations made thereunder).

Culture
The Directors agree that establishing and maintaining a healthy corporate culture among the Board and in its interaction with the Investment Adviser, shareholders and other stakeholders will support the delivery of its purpose, values and strategy. The Board seeks to promote a culture of openness, debate and integrity through ongoing dialogue and engagement with its service providers, principally the Investment Adviser.

As detailed in the Corporate Governance Statement, the Company has a number of policies and procedures in place to assist with maintaining a culture of good governance, including those relating to diversity and Directors' conflicts of interest. The Board assesses and monitors compliance with these policies as well as the general culture of the Board through Board meetings and, in particular, during the annual evaluation process which is undertaken by each Director (for more information, see the performance evaluation section in the full Annual Report).

The Board's culture itself is one of openness, collaboration and constructive debate to ensure the

effective contribution of all Directors, particularly in respect of the Board's decision making. Consideration

of our Stakeholders is embedded in the Board's decision making process. Please see our section 172 Statement above.