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Civitas Social Housing adds 331 tenants with £85.6m deal

Civitas Social Housing adds 331 tenants with £85.6m deal – Civitas Social Housing has announced that has completed the purchase of 19 regulated social housing properties at a cost of £73.5m and has exchanged contracts on two further properties at a cost of £12.1m (completion on these two properties is expected after “certain works” have been undertaken). The deal is being financed from Civitas Social Housing’s existing debt facilities. After these deals, Civitas will have an annualised rent roll of £45m. These properties come with inflation-linked rents (based on CPI) but, unusually for Civitas Social Housing, the majority of these annual rent increases are limited to minimum of 1% and a maximum of 4% (technically a cap and collar).

The properties, 266 in the first batch and 65 in the second, are located in 14 different local authorities and supported by six different care providers (every property has a care provider assigned to it). The announcement suggests that Civitas Social Housing will have a more geographically diversified portfolio following these two deals.

The counterparties to the leases (the registered providers) are Encircle Housing, Chrysalis Supported Association, Inclusion Housing and Bespoke Supported Tenancies – all of which Civitas is already working with but none of which account for a particularly large part of Civitas Social Housing’s portfolio.

Civitas is working towards a capital structure of 35% debt:65% equity (there is a hard cap of 40:60). To get itself closer to this target (currently it is at 22:78), it is working towards securing additional debt facilities and believes it can get these on terms that will be “favourable” and that it will have about £170m to deploy into new supported living properties.

Dividend uplift?

Also included within this morning’s announcement, is a statement on its upcoming dividend (due to be announced early in May 2019). The company says that the dividend will include an upward adjustment to reflect inflation and the strength of the company’s cash flows. Our notes had been talking about a 5p total dividend for the year ended 31 March 2019 but we think, on the strength of this, this could be 5.25p. Whether that is entirely covered by earnings will be revealed when Civitas publishes it annual accounts. However, given that Civitas is yet to achieve its target capital structure, we think full dividend cover might be attained in its next accounting period, ending 31 March 2020.

More large deals to come?

In our last note Regulatory action is positive, we noted on page 2 that the advisers were looking at larger deals and that care providers with medium-sized portfolios might be looking to sell these on as a way of freeing up capital. Today’s deal is an illustration of that (the vendors here were a variety of care providers). The advisers have pointed out to us that there are other even more substantial portfolios that might become available to Civitas Social Housing, from a number of diverse sources.

[QD comment: The positive news on the dividend is very welcome and we will be watching closely to see what figure Civitas comes out with in May. This deal helps improve dividend cover, diversifies the portfolio geographically and by registered provider. It also takes Civitas one step closer to being fully invested. This is a fund that we think should expand. The benefit to shareholders would come from increased liquidity in the shares and lower average running costs. The benefit to society could be much greater. There is still a desperate shortage of suitable supported living accommodation in most parts of the country and this needs to be addressed.]

Paul Bridge, chief executive officer of Civitas Housing Advisors, said: “We are delighted to have completed our largest deal so far, and to have acquired properties which are of the highest quality, run by focused and operationally robust Registered Providers. For investors, these properties will be immediately income-generating; for tenants, they offer the opportunity to live as independently as possible within their communities.”

CSH : Civitas Social Housing adds 331 tenants with £85.6m deal

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