Onwards and upwards at Civitas – on the face of it, the second quarter of 2019 was a relatively quiet one for Civitas Social Housing. Its NAV at the end of June 2019 rose to 107.21p, up from 107.08p and the annualised rent roll went from £45.7m to £46m. The quarterly dividend was 1.325p, in line with forecasts. Behind the scenes, the adviser has been working to secure the next tranche of debt facilities that will help push Civitas’s borrowings towards their target 35% loan-to-value level. This will then be used to buy additional properties, increasing the rental income and helping Civitas achieve full dividend cover (for this last quarter dividend cover was running at 0.88x).
Debt facilities
Civitas has deployed £208m of its current £212.5m debt facilities. The advisers have been negotiating with lenders and are close to securing a £60m facility that can be extended to £100m and a separate £70m facility. As you might expect, the lenders do a considerable amount of due diligence on the underlying portfolio before parting with their cash. The adviser says that the new borrowings will be on similar terms to existing facilities. It has a pipeline of property that it wants to buy, worth about £200m.
Yields edge up
The weighted average yield on the portfolio at the end of June was 5.28%, up from 5.27%. The adviser says that this just reflects rent increases in higher yielding properties.
You might remember that Civitas used to value its properties on a portfolio basis, before moving to a more conventional IFRS basis (the portfolio NAV reflects what a buyer might pay for the whole portfolio rather than the value they might get if they sold the portfolio off piecemeal). They still publish this, however, and the weighted average portfolio yield rose to 5.03% from 5.01%. The valuers look across the wider healthcare property market for indications of value and the small shift in yield reflects the prices that some care homes have changed hands at recently.
No new regulatory problems
Talking about regulation, the adviser had this to say “We continue to work closely with our Housing Association partners as they develop and strengthen their financial, governance and regulatory status. We are actively involved in helping with this work, and we expect that our and their efforts will be reflected in some measure in the future views expressed by the Regulator of Social Housing (RSH) with whom the company continues to be in regular, productive and collaborative dialogue. The RSH has indicated publicly more than once in the period that it does not have an issue with the lease-based model for the delivery of supported housing, although it is keen to see the sector evolve and mature, as are we.”
[QD comment: A quiet quarter with no surprises, more of the same might help narrow the discount. Achieving its target gearing and full dividend cover would mark the end of the investment phase that began with the second fundraising. We are sure that Civitas would love to expand further and we are equally sure that there is real and pressing need for further investment in the sector but first the discount must be eliminated.]
CSH : Onwards and upwards at Civitas
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