TIDMCSH
RNS Number : 0188L
Civitas Social Housing PLC
11 May 2022
11 May 2022
CIVITAS SOCIAL HOUSING PLC
("Civitas" or the "Company")
Quarterly Portfolio Update
New Lease De-Risking Initiatives and Expansion of Investment
Adviser Team
Civitas Social Housing PLC ("Civitas" or the "Company"), the
UK's leading care-based and healthcare REIT, is pleased to announce
its quarterly net asset value ("NAV") update as at 31 March 2022,
with performance continuing to be robust and dividend declared in
line with full year target.
Highlights:
-- Consistently robust financial and operational performance, in
line with the Board's expectations
-- Unaudited IFRS NAV per share continues to be resilient at 110.30p (31 March 2021: 108.30p)
-- Fourth 1.3875p quarterly dividend declared in line with full
year target of 5.55p (2021: 5.40p)
-- New dividend target of at least 5.70p [1] for financial year
ending 31 March 2023 (2.7% increase)
-- Initiatives launched to promote greater regulatory alignment and address perceived lease risk
-- Investment Adviser team strengthening to support enhanced portfolio delivery
-- Acquisition of 47 properties in the quarter for c.GBP8.1m to deliver asylum accommodation
Introduction
The Company is pleased to announce an increased unaudited NAV of
110.30 pence per share (1.85% annual increase) and a fourth
quarterly dividend of 1.3875 pence per share as targeted,
consistent with the Board's stated target of paying a total
dividend of 5.55 pence per share for the year ended 31 March
2022.
The Civitas portfolio continues to benefit from inflation
adjusted long-term leases or occupancy agreements with Approved
Providers (housing associations and other not-for-profit
organisations) and the Company aims to deliver returns broadly in
line with inflation over the long-term.
Over the past year the Company and its investment adviser,
Civitas Investment Management Limited (the "Investment Adviser" or
"CIM") have worked closely with several leading housing
associations and sector counterparties to develop a consensus on a
universal approach that seeks to enhance sector regulatory
compliance. This has most recently included meeting with the
Regulator of Social Housing ("RSH").
Further details regarding the impact of inflation and the
Company's sector initiatives are set out below.
Completed Transactions
During the quarter to 31 March 2022, the Company completed the
acquisition of 47 four-bed properties in Yorkshire and Humberside
for a total consideration of c.GBP8.1 million (excluding purchase
costs).
The properties are subject to indexed leases with Qualitas
Housing (an existing counterparty) and benefit from an underlease
with a leading national housing provider holding a long-term
Government contract to deliver asylum accommodation. The properties
are immediately income generating with a net initial yield in line
with the Company's present expectations.
Properties providing homeless/asylum seeker accommodation
represent 3.7% of the Company's portfolio in terms of the IFRS
valuation at 31 March 2022.
Net Asset Values ("NAV"):
IFRS NAV
The unaudited IFRS NAV, disclosed below, reflects an independent
RICS "Red Book" valuation prepared on an individual asset basis by
Jones Lang LaSalle ("JLL").
31 31
Mar Dec
IFRS NAV 2022 2021
Ordinary NAV (GBP'000) 675,547 669,650
------- -------
Ordinary NAV per share (pence) 110.30 108.78
------- -------
The portfolio, based on individual asset valuations, has been
valued overall at 31 March 2022, at an average Net Initial Yield of
5.28% (31 December 2021: 5.29%), after taking into account the
initial costs of property acquisitions incurred by the Company and
the assumed costs of a subsequent theoretical sale. The individual
valuations are determined by JLL and are based on a range of
underlying metrics including applicable discount rates and expected
long-term inflation.
The IFRS NAV reflects the contribution from the indexation of
leases in the period, less the cost of discretionary capital
expenditure that has been incurred to enhance further the quality
of the Company's properties to reflect the individual needs of
tenants for the long-term.
During the financial year to 31 March 2022, the Company also
purchased 10,025,000 shares into Treasury at an average price of
92.36p, being a discount to the Company's prevailing NAV per share.
The impact of the share repurchases at 31 March 2022 has been to
enhance IFRS NAV per share by 0.26p. The Company also released
565,000 shares from Treasury during the year reflecting a positive
0.03p impact to IFRS NAV per share since 31 March 2021.
A dividend of 1.3875p per Ordinary Share was declared, as
targeted, on 9 February 2022 in respect of the quarter ended 31
December 2021 and paid on 11 March 2022, amounting to GBP8.5
million.
Portfolio NAV
The unaudited Portfolio NAV, disclosed below, reflects an
independent RICS "Red Book" valuation prepared on a portfolio basis
by JLL.
31 31
Mar 2022 Dec
PORTFOLIO NAV 2021
Ordinary NAV (GBP'000) 752,331 741,346
--------- -------
Ordinary NAV per share (pence) 122.84 120.43
--------- -------
The portfolio, as a single entity, has been valued at 31 March
2022 at 5.06% Net Initial Yield (31 December 2021: 5.06%),
reflecting the enhanced value from the aggregation of individual
properties into a single portfolio company and the positive effects
of the stamp duty adjustment noted below.
The JLL portfolio valuation incorporates two additional
assumptions when considering Red Book valuation. Firstly, that the
assumed theoretical sale costs (from Civitas to a subsequent buyer)
are reduced as the portfolio is assumed to be sold (with all
properties within SPVs) with stamp duty being charged at 0.5% on
the sale of shares in SPVs, as opposed to 5.0% for the sale of each
underlying property. Secondly, that the portfolio is sold in its
entirety rather than as individual properties (making it better
suited to a wider group of institutional buyers) and so attracting
more competitive pricing. This assumption is supported by
transactional evidence that JLL has observed in the market.
Dividend Declaration
The Board has today declared a fourth quarterly dividend for the
period from 1 January 2022 to 31 March 2022 of 1.3875p per Ordinary
Share as part of the previously stated dividend target of 5.55p per
Ordinary Share for the year ended 31 March 2022.
The dividend will be paid on or around 28 June 2022, to holders
on the register as at 20 May 2022 (the "record date"), with the
corresponding ex-dividend date being 19 May 2022. The dividend will
be paid as a REIT property income distribution. The Company
operates a Dividend Reinvestment Plan ("DRIP"), which is managed by
its registrar, Link Group. For shareholders who wish to receive
their dividend in the form of shares, the deadline to elect for the
DRIP is 7 June 2022.
The Board intends to target a dividend of at least 5.70 pence
per Ordinary Share for the financial year ending 31 March 2023 [2]
, an increase of 2.7%.
Notwithstanding the significant recent jump in inflation, the
average increase in CPI since March 2019 (when the Company
completed payment of the first full dividend of 5 pence per share)
to end March 2022 was 2.6% p.a. and compares to an average increase
in the Company's dividend of 3.3% p.a. over the same period.
Investment Performance and Inflation
As the Company approaches its sixth year of operations the Board
is pleased to note that the Company continues to deliver a positive
financial and operational performance in line with expectations.
The Company, in the Board's view, is successfully implementing its
strategy of delivering investor returns whilst doing social good by
providing homes for the most vulnerable in society.
Rental income has continued to be generated as planned, with CPI
based indexation being achieved in the usual manner on the
anniversary of the inception of each lease (the CPI rate is usually
backdated two months to ensure availability of data).
Across the Company's portfolio 27% of rents benefit from
indexation at CPI+1, with the balance of 73% at CPI. Additionally,
31% of rents are subject to a collar/cap at 0%-4%.
For many years, inflation as reported by the Office for National
Statistics, has remained subdued. In the Company's financial year
to 31 March 2022 monthly CPI rates reflected this with reported
inflation in many months close to, or at, or below zero but with a
well reported uplift toward the end of this period.
Today, inflation, as measured by CPI, is increasing at an even
faster rate with the Bank of England forecasting further increases
during 2022 before an anticipated decline later in 2023. The Office
for Budget Responsibility retains a medium-term forecast of 2% for
CPI based inflation, a level that is often adopted for longer-term
financial and business planning.
Within the Specialist Supported Housing ("SSH") sector, housing
associations, charities and specialist care providers typically
agree annual settlements with local authorities adjusted for
inflation. This has been the norm for many years and is expected to
continue in the future.
As part of its monitoring activities, the Investment Adviser has
engaged with a range of housing association partners who have
confirmed that, after making appropriate submissions, they have in
recent months continued to achieve positive settlements with local
authorities that reflect both the current higher levels of
inflation and the requirement to provide value for money for the
public purse.
The investment Adviser intends to continue its active engagement
and to monitor the level of settlements that are being achieved.
This activity is led by experienced staff within the Investment
Adviser who have previously held senior roles within local
authorities, housing associations and specialist care providers and
so are particularly well placed to undertake this analysis.
Rent Levels
The Company's lease rents are tested for reasonableness (against
the Investment Adviser's detailed database and further with
independent consultants as required) and agreed with housing
associations and other leaseholders. The housing associations and
other leaseholders in turn seek sign-off from the relevant housing
benefit officers within each local authority in which they operate.
The objective is to confirm both the specific rent level and exempt
rent status for the delivery of each specialist supported housing
property.
To assist this process, the Investment Adviser employs, at its
own cost, full-time specialist staff in this sector including most
recently the former head of housing benefit for a leading London
local authority and other specialists with a track record within
local government, housing associations and the care industry.
Rent levels vary significantly in both general needs and SSH
social housing due to a number of factors, particularly location in
the UK (reflecting the cost of delivering the accommodation) and
the use of the properties. Properties that require little
adaptation and are entirely conventional are much cheaper to
deliver than those that require bespoke adaptation to make them
suitable for high acuity care.
The Company has sought to construct a portfolio that is focussed
on the delivery of high acuity care in the belief that this most
effectively meets the needs of individuals with critical
requirements and achieves a comparative cost saving for the public
purse against the alternatives of institutional or hospital care.
This is reflected in the most recently reported average delivered
care hours across the Company's portfolio of 43 hours per person
per week.
The Company has previously indicated that the average weekly
rent for a mid-acuity SSH property is GBP194 (which is in-line with
rents quoted by Mencap (GBP185.60 - GBP194.43) in the "Funding
Supported Housing for All" in April 2018) and GBP311 a week for
very high acuity residential care accommodation. In both cases,
this represents a significantly lower cost than other forms of
accommodation such as institutional or hospital care. The
accommodation cost also usually forms a small part (c. 10% - 15%)
of the overall cost of the delivery of high acuity care
provision.
Average Weekly Rent by Region across the Civitas Portfolio (SSH
and Residential Care)
Region Average weekly
rent
Midlands GBP203
---------------
East of England GBP244
---------------
London GBP394
---------------
North East GBP135
---------------
North West GBP152
---------------
South East GBP266
---------------
South West GBP215
---------------
Wales GBP217
---------------
Yorkshire & the GBP116
Humber
---------------
Within the portfolio, and as noted above, the Company has, by
way of diversification, invested in a small number of properties
that provide accommodation for services such as homelessness or
those individuals with refugee status, usually in support of
established and long-term Government programmes. In these
instances, the level of adaptation needed to deliver the care
required is much lower than equivalent care-based accommodation and
this is reflected in the weekly rent levels that commence at around
GBP107 a week with an average of GBP124 a week, depending on
location in the UK.
Maintaining detailed information in respect of rents enables the
Company to ensure that rents are set at a reasonable level in
relation to the facilities provided and this in turn ensures that
they are correctly based when annual indexation is applied. This is
important to demonstrate value for money at a time of rising
inflation.
Investment Policy
The Company's existing Investment Policy already provides
significant flexibility both in terms of the length and the nature
of lease and occupancy agreements that can be entered into with
counterparties.
The Investment Policy states that:
"The Directors intend that the Group will meet the Company's
investment objective by acquiring 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 Registered Providers."
The Investment Policy was, with shareholder approval, updated in
May 2020 to broaden the range of potential lease counterparties
beyond Registered Providers (housing associations and local
authorities) to include not-for-profit entities such as charities
and the NHS together with private care providers on the basis that
their principal source of income is from public funds.
As with all sectors, the delivery of specialist supported
housing has continued to evolve but with a consistent theme of high
levels of underlying demand for properties capable of supporting
the delivery of high-quality community care for working age adults
with long-term care needs.
The demand for such accommodation is predicted to continue to
grow in the future with individuals often being in residence for
several decades. The average age of a resident within the Company's
portfolio is a little over 30 years and this supports the need to
provide stable accommodation over the long-term.
As the leading provider of SSH accommodation in the UK, the
Company will continue to monitor the sector closely and where
appropriate make proposals (such as those noted below) that are
believed to be consistent with delivering improvements to the
sector and that support the core investment themes that were
established by the Company at the time of IPO.
New Initiatives - Supporting Additional Regulatory Compliance
and Addressing Perceptions of Risk
During 2021 and 2022, the Company's Investment Adviser has
engaged with relevant counterparties, including several
shareholders, lending banks, valuers and the RSH and undertaken
detailed negotiations with several housing association partners, to
explore how the Company can assist those organisations to be better
positioned to achieve regulatory compliance under the RSH's
Governance and Financial Viability Standard (the "Standard").
The consensus result of these discussions and negotiations is
the development of an approach with a new draft lease clause whose
principal objectives are to enable housing associations to:
-- achieve greater alignment between income receipts and lease liabilities
-- set achievable capital solvency requirements against lease obligations
-- demonstrate a further degree of risk sharing
Each with the objective of seeking to demonstrate compliance
with the Standard (expressed as gradings V1 - V4 and G1 - G4).
Meanwhile, the draft lease clause will provide the Company
with:
-- counterparties better able to achieve regulatory compliance
-- enhanced information and step in rights (having regard to
tenant welfare) in addition to existing lease transfer and
assignment rights
-- unchanged lease and property values supported by strong underlying demand
The draft clause once enacted will operate on a
property-by-property basis to provide for a temporary pass through
of lease rent in certain limited circumstances when the housing
association is not in receipt of full payment whilst at the same
time ensuring that the Company does not become responsible for
obligations that are rightly owed by others such as void cover by
care providers. Furthermore, this applies only after an initial
period of time during which all rents remain the responsibility of
the vendor/housing association and then only if paying the rent in
full would cause the housing association to fail to meet the
Regulator's standards.
The draft clause also contains provision for the reimbursement
of rental income if that is subsequently recovered by the housing
association.
Implementation of the clause will codify much of the general
asset management work and the Company's approach to sector
collaboration that already takes place on a day-to-day basis and is
reflected in the Company's existing rent roll but which has to date
not been included within the terms of the Company's leases and so
have not received formal recognition. It is anticipated that the
clause will only be relevant to a small number of properties at any
time and will not have any material impact on the Company's rent
roll.
The Company has sought and obtained formal written confirmation
from valuers that the inclusion of the clause 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. Indeed, the
Company considers that enhanced regulatory alignment would be
consistent with asset appreciation over the medium term.
At the present time the clause is in draft form and is subject
to further discussion and refinement with several housing
association boards assisted by leading sector lawyers together with
other relevant approvals.
It is intended that the clause will be incorporated initially
into a limited number of existing leases on a retrospective basis
commencing with properties that are unencumbered.
On the assumption that it is well received by relevant parties
within the sector and has the potential to achieve the objectives
set out above it will be further rolled out in a controlled manner
over time to Approved Providers and in respect of new and existing
leases on a retrospective basis. The Company will provide further
updates in due course once the final form of the clause has been
settled.
The Investment Adviser - Investing in Sector Specialists and
Investment Professionals
CIM has continued to invest heavily in the recruitment of
experienced professionals who bring further in-depth operational
knowledge of the social housing sector together with additional
senior fund investment and real estate expertise. This team of
diverse people is available to support the activities of the
Company. CIM now comprises 35 professionals including the founding
directors and board members.
The team includes:
TOM FALCONER - Head of Asset Management - Previously Group
Property Manager at Lifeways (leading UK specialist care
provider)
Tom is a former local authority commissioner with over 12 years
of experience in asset management, specialist housing delivery
together with health and social care integration across the UK. At
CIM, Tom leads the asset management team, working closely with
local authorities and housing associations supporting them in their
requirement to meet the demand for SSH and residential care
accommodation.
CHARLES REID - Senior Partnership Officer - Previously Housing
Benefit Appeals Officer at London Borough of Southwark Council
Charles is a housing benefit specialist with a 30-year track
record in assessing housing benefit claims and appeals across many
of the largest London local authorities. At CIM he works within the
asset management team to assist property due diligence and to
support the work of Approved Provider partners in determining
housing benefit claims and setting appropriate rent levels.
SEAN CORNEY - Director, Asset Management - Previously an
executive within Savills' Asset Management Team
Sean is a specialist in the delivery of asset management within
a residential environment. He is an Associate of the Royal
Institute of Chartered Surveyors (RICS) and a member of the
Institution of Residential Property Management (IRPM). At CIM as
part of the asset management team he is responsible for the
oversight of capital works that supports the enhancement of the
Company's portfolio.
CONNELL GROGAN - Senior Portfolio Manager - Previously Senior
Portfolio Manager at Resonance Ltd (leading specialist impact
investor)
Connell is a Chartered Surveyor and experienced senior portfolio
manager with over 20 years in real estate. He has worked previously
with a leading impact fund manager with a focus on homelessness and
specialist supported housing. At CIM Connell works within the asset
management team focusing on delivering enhancements to the property
portfolios.
DARYL QUARRY - Senior Portfolio Manager - Previously Head of
Change & Transformation at Falcon Housing Association
C.I.C.
Daryl has worked within the social housing sector for over 16
years in business development and change management. Daryl works
collaboratively with the asset management team to support Approved
Providers in implementing software and developing internal
processes to contribute to the organisation achieving optimal
performance as part of increased independence.
MATTHEW FILKIN - Fund Director - Previously COO at Almacantar
(Property investment and development company)
Matthew has over 20 years of real estate experience covering
investment, development, finance and corporate matters. At CIM he
has an active day-to-day involvement in the operations of the
existing investment strategies working closely with the asset
management team to provide a broad real estate overview. He is also
engaged with a number of specific asset management projects.
DIPESH DEVCHAND - Group CFO - Previously Managing Director, Head
of Fund Finance & Operations for Intermediate Capital Group plc
(FTSE 100 listed alternative asset manager)
Dipesh has over 20 years' experience in finance at a senior
strategic level within a financial services and investment
management environment. At CIM Dipesh leads the finance function,
working closely with CIM's founders and shareholder partners to
deliver the strategic mission of the group. He brings a wealth of
experience covering financing, regulatory reporting, taxation and
operational matters.
NAZLIN NAZRI - Associate Director, Finance - Previously Head of
Financing Reporting at Tritax Group
Nazlin has over fifteen years of experience in real estate
finance, including financial reporting under various GAAPs,
financial management, group consolidation and fund accounting. At
CIM she works within the finance team as an associate director with
accounting responsibility for Civitas Social Housing PLC.
Ongoing Engagement with Approved Providers
Civitas continues to take a proactive and collaborative approach
towards the Approved Providers holding Civitas leases in support of
their objective to enhance their financial and operational
performance and, where relevant for certain housing associations,
to respond to comments made by RSH. Approved Providers have
continued in the quarter to report high levels of health and safety
compliance.
Quarterly Factsheet
The Company has today published its Factsheet for the quarter to
31 March 2022 and this is available to view on
the Company's website .
ENDS
For further information, please contact:
Civitas Investment Management
Limited
Andrew Dawber Tel: +44 (0)20 3058 4846
Paul Bridge Tel: +44 (0)20 3058 4844
Panmure Gordon
Sapna Shah Tel: +44 (0)20 7886 2783
Tom Scrivens Tel: +44 (0) 20 7886 2648
Liberum Capital Limited
Chris Clarke / Darren Vickers Tel: +44 (0) 20 3100 2000
/ Owen Matthews
Buchanan
Helen Tarbet / Henry Wilson Tel: +44 (0) 20 7466 5000
Hannah Ratcliff / George Beale civitas@buchanan.uk.com
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. So far, Civitas has completed more than 120 individual
transactions to build the largest portfolio of its kind that has
been independently valued at GBP946.3million (30 September 2021).
CSH now provides homes for 4,592 working age adults with long-term
care needs, in 696 bespoke properties that are supported by 130
specialist care providers, 18 approved providers and working with
over 178 individual local authorities.
[1] This is a target and not a formal dividend forecast or a
profit forecast
[2] This is a target and not a formal dividend forecast or a
profit forecast
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