Key highlights:
Civitas Social Housing (CSH) has released its quarterly NAV and market update announcement. Key highlights are as follows:
- The IFRS NAV per share increased by 0.4% to 106.5p during the quarter (30 Sept 106.1p). This includes the recognition of two dividends in the quarter, and is equivalent to a total return of 2.6%.
- Following the c share conversion, the c share proceeds are now represented with the ordinary share IFRS NAV (see below).
- 36 additional properties were acquired during the quarter.
- A number of existing leases have seen rental increases from indexation. Annualised rent roll now £40.5 million.
In conjunction with the NAV announcement, CSH has also published its Fact Sheet for the quarter to 31 December 2018. This is available to view on the Company’s website.
C share conversion and dividends
During the quarter to 31 December 2018, a C Share dividend of 0.75p per share was declared and paid amounting to £2.3 million, and an Ordinary Share dividend of 1.25p per share was declared and paid amounting to £4.4 million. In addition, a further Ordinary dividend of 1.11p per share worth £3.9 million and a C Share dividend of 0.67p per share worth £2.0 million were announced, accrued and reflected in the Ordinary NAV figure above for the quarter to 31 December 2018.
IFRS NAV update
The table below shows the development of the ordinary share IFRS NAV during the quarter. It is based on an independent RICS “Red Book” valuation of the portfolio, prepared on an individual asset basis, by Jones Lang LaSalle Ltd. Further details are provided below.
As noted above, during the quarter ended 31 December 2018, the company’s C Shares were converted to Ordinary Shares. The proceeds have are now represented within the Ordinary NAV as at 31 December 2018.
| wdt_ID | IFRS NAV | 31 December 2018 | 30 September 2018 |
|---|---|---|---|
| 3 | Ordinary NAV (£’000) | 663,091 | 371,209 |
| 4 | Ordinary NAV per share (pence) | 106.5 | 106.1 |
| wdt_ID | PORTFOLIO NAV | 31 December 2018 | 30 September 2018 |
|---|---|---|---|
| 1 | Ordinary NAV (£’000) | 716,567 | 403,245 |
| 2 | Ordinary NAV per share (pence) | 115.1 | 115.2 |
[QD comment: CSH appears to be making good progress in developing its portfolio and growing its NAV. The NAV has grown during the quarter, despite the drag caused by the additional dividends, which were in part a consequence of the c share conversion. However, ordinary shareholders should now start to see the benefits from the combined portfolio’s increased scale (both in terms of liquidity and operational efficiency as CSH’s fixed costs are spread over a larger asset base).]
Property portfolio update
CSH continues to make progress building out its portfolio. During the period, 36 additional properties were acquired and a number of the existing leases entered into by the Company have seen their rental income increase as a result of annual indexation. CSH says that, when taken together has resulted in a run-rate of rental income at 31 December 2018 of £40.5 million (surpassing the £40m level for the first time). Importantly, the company says that this is expected to grow further as it moves to towards target leverage levels of 35% over the coming months. This should enhance shareholder returns and support the Company’s target dividends. The table below Illustrates the portfolios development since IPO.
| wdt_ID | Period | 31-Mar 2017 | 30-Jun 2017 | 30-Sep 2017 | 31-Dec 2017 | 31-Mar 2018 | 30-Jun 2018 | 30-Sep 2018 | 31-Dec 2018 |
|---|---|---|---|---|---|---|---|---|---|
| 1 | Investment* (£m) | 106 | 206 | 284 | 431 | 472 | 508 | 619 | 674 |
| 2 | Properties | 82 | 167 | 282 | 384 | 414 | 440 | 521 | 557 |
| 3 | Tenancies | 487 | 1,130 | 1,820 | 2,405 | 2,621 | 2,845 | 3,440 | 3,746 |
| 4 | Local Authorities | 32 | 68 | 82 | 99 | 109 | 123 | 140 | 144 |
| 5 | Housing Associations | 5 | 7 | 10 | 10 | 11 | 12 | 15 | 15 |
| 6 | Care Providers | 25 | 42 | 50 | 59 | 64 | 71 | 93 | 98 |
*excluding purchase costs
Market update
The following is a summary of the manager’s commentary on the market:
“The UK Housing market continues to feature prominently on the national agenda, with all major political parties indicating the provision of housing, particularly affordable housing, is a priority. There is broad consensus that the UK requires a significant number of new homes each year, accounting for new households and an existing backlog of need.
The government has continued to take steps to provide funding certainty to the social housing sector in its September 2018 green paper titled ‘A New Deal for Social Housing’. Through Homes England it announced its intention to enter into strategic partnerships with housing associations and others aimed at accelerating the delivery of affordable housing.
In December 2018, the Regulator of Social Housing (“RSH”) published the 2017/18 global accounts for the sector’s larger providers which included The Value for Money annex outlining compliance with the new Value for Money (VfM) Standard. The RSH’s new VfM Standard came into effect from 1st April 2018 and aims to drive improvements in providing value for money in the sector. At the heart of the revised Standard are expectations about the quality of governance, the development of organisational strategies and their translation into strategic objectives that can be measured.
The RSH also continues to discuss with the estimated 30+ lease-based providers of Specialist Supported Living their compliance with the Governance and Viability Standards and exercise that has been underway since May 2018.
As part of this process where improvements are required, a regulatory grading will be issued and a narrative judgment will be provided outlining the concerns the regulator has and the improvements it wishes to see made. Civitas will, on a timely basis, respond to such notices and provide an update to Shareholders.
The regulator also commented on the growth of housing associations who are entering into contracted lease arrangements for property. The RSH acknowledges lease arrangements and index linked finance are not new to the sector, it reminds Boards of the need to maintain a long-term perspective on managing risks in this context.”
[QD comment: The Regulator of Social Housing (RSH) appears to be taking a more granular approach in assessing housing associations. This has led to an uptick in the issuance of grading under review notices. While this initially raised some eyebrows, the market appears to have become quite sanguine on these developments. It seems that most of the smaller housing associations will find themselves subject to a grading under review notice as they push past 1,000 properties with some form of remedial action required. This appears to be growing pains for the sector and has seen minimal impact on funds such as CSH. CSH itself has got more responsive in reporting these developments to the market.
On 25 January 2019, the RSH issued a grading under review notice for Bespoke Supportive Tenancies (BeST – one of 15 housing associations working with CSH). CSH was prompt to announce this to the market, issuing its own statement the same day. Crucially, it reported that, as at 25 January 2019, BeST was fully up to date with all lease payments due to Civitas and that CSH expected this to continue in the future. Furthermore, CSH also clarified the extent of its exposure. Specifically, as at 31 December 2018, BeST represented 4.3% of the Civitas NAV and 3.1% of the Civitas GAV (based upon 35% leverage target). We welcome this new clarity from CSH.]
Dividend
CSH has declared a fifth dividend in respect of the Ordinary Shares for the period from 21 December 2018 to 31 December 2018 of 0.14p per Ordinary Share (being the balance of the 31 December 2018 quarterly dividend of 1.25p). The dividend will be paid on or around 28 February 2019 to holders as at 8 February 2019 (the record date) and the corresponding ex-dividend date being 7 February 2019. The dividend will be paid as a REIT property income distribution (“PID”).
In due course, the Board intends to recommend a dividend in respect of the quarter to 31 March 2019 that is expected to benefit from an upward adjustment to reflect the effects of inflation.
About Civitas Social Housing
Civitas Social Housing PLC describes itself as the first Real Estate Investment Trust offering pure play exposure to social housing in England and Wales. The Company is managed by Civitas Housing Advisors Limited and is listed on the premium listing segment of the London Stock Exchange. The social homes owned by Civitas are provided on a long-term basis to Housing Associations with a wide range of tenants who vary in age profile and in the level of support that each receives. By acquiring these social homes, and working with Housing Associations, Civitas says that it seeks for tenants to experience a stable, high-quality living environment that offers good visibility of tenure.