Civitas Social Housing (CSH) has released a trading and market update, covering the quarterly period to 31 March 2020. Performance was in line with expectations, with the company saying that it has so far not been adversely impacted by covid-19. In the statement, it was noted: “The board believes that the company operates a robust and defensive business model and that social housing and specialist healthcare are proving to be some of the more resilient sectors within the market, given that they are based on non-discretionary public sector expenditure and that demand exceeds supply.”
At the period end, CSH had a portfolio of 613 properties and 4,216 residents, supported by 117 specialist care providers and 15 housing associations over 164 local authority areas.
No material change in NAV with rental receipts in line with expectations
CSH released the following figures:
- Annualised rent roll £48.4m (31 December 2019: £47.2m)
- IFRS NAV per share 107.87p (31 December 2019: 107.55p)
- EPRA run-rate dividend cover 100% as at 31 March 2020
- Strong rental receipts in line with expectations
- 1.325p dividend declared and dividend policy reaffirmed
- Intention to target a dividend of 5.4 pence per Ordinary Share for the financial year ending 31 March 2021
- 5 additional properties acquired in the period for £17.8m in the fourth quarter·
- Cash balances of £49.3m as at 31 March 2020
More than 99% of rent collected over the quarter
Over the year to 31 March 2020, CSH delivered annualised rental income of £48.4m (31 December 2019: £47.2m).
On the rent roll over the quarter, CSH said: “The company has received more than 99% of the rents due to be paid to it during the quarter to 31 March 2020. This includes some rents generated in the prior period as the Company’s leases typically require the payment of rent one month in arrears. Since the start of the current financial year on 1 April 2020 rents have continued to be collected as expected and, to date are unaffected by covid-19.”
With respect to the balance sheet, CSH made the following points:
- “As at 31 March 2020, the company held cash balances of £49.3m (net of operating and financing amounts due) of which approximately £24m is committed legally in respect of transactions due to complete in 2020 with the balance being held as a cash contingency that the Company retains as a matter of financial prudence;
- In addition, as at 31 March 2020, the company owned freehold properties with a value of £212m that were entirely unencumbered and available as security for additional borrowing in due course;
- Set out below are details of the company’s borrowings as at 31 March 2020 reflecting a gross LTV of 26.9% with interest cover of 4.5 times and a reduced average cost of borrowings of 2.46%; and
- The weighted average debt to maturity is 3.4 years and this reflects the 12-month extension of the £60m facility with Lloyds Bank that was due for renewal as planned in November 2020 and that has been extended in the normal course to November 2021. It is anticipated that this will be refinanced prior to November 2021.”
Covid-19 market update
“[CSH] is the leading provider of specialist supported housing in the UK for individuals who are working age adults with learning disabilities, autism, mental health, and other significant care needs. The 4,216 tenants within the portfolio have an average age of c.32 years and do not suffer generally from the type of underlying health conditions that would fall under the NHS definition of individuals who are at high risk from covid-19.
It has been reported recently by a leading specialist care provider active in our market that less than 3% of their service users fell into this high-risk category. This is consistent with the company’s general understanding from discussions with other specialist care providers who deliver care into the company’s properties.
With the support of local authorities, central government, housing associations and specialist care providers, the market in which the company invests remains fully operational, but with many office based staff, particularly within local authorities working from home and with a high level of ongoing need and a continuing significant demand/supply imbalance.
The company’s portfolio is specifically focused on properties that are suitable for the delivery of mid-to-higher acuity care and these services remain in high demand as usual.
In addition, the company has responded to a number of direct requests from local authorities and the NHS and as a result a number of accommodation units have been made available to support the response to covid-19.
Our housing association and specialist care provider partners have made various adjustments to working practices with the priority of preserving the health, safety and wellbeing of tenants and staff. This includes the implementation of enhanced procedures relating to hygiene, social distancing and restricting access to the company’s properties to essential visits only.
The ability to implement such practices is significantly assisted by the configuration of many of the company’s properties in the form of self-contained apartments and small housing clusters.”
Outlook and pipeline
“Civitas recently completed the acquisition of five freehold properties comprising 63 tenancies for a total consideration of £17.8m prior to purchase costs. These properties are situated over five local authority areas in Hertfordshire, Shropshire and Tyne and Wear and are focused on the delivery of mid-to-higher acuity care.
With respect to the specialist facilities in Wales that have been highlighted previously and on which contracts have been exchanged, the company is pleased to note that considerable progress has been made. The company looks forward to taking delivery of these facilities as soon as they are ready to be taken into occupation for the benefit of people with higher acuity care needs. They will then contribute to the expected growth in rental income in the year to 31 March 2021.
The evolution of the facilities in Wales typifies the manner in which the company takes a proactive role in the design and delivery of new purpose-built facilities. This relates to the Company’s focus on properties that enable the provision of mid-to-higher acuity care and has resulted in approximately one-third of the portfolio benefiting from long-term back-to-back under-leases between our care providers and our housing association partners.
In respect of additional investment opportunities, the company is in active discussions over the potential acquisition of a range of high-quality existing and new build properties to be acquired at completion without the forward financing.
The availability of these investment opportunities reflects many of the unique strategic relationships that have been established by the company over recent years, in particular with leading specialist care providers and the company’s track record in structuring and undertaking more than 120 individual transactions. It is evident that a number of significant additional vendors and their advisers wish to engage with the company as a preferred partner and this is assisting further in the continuing development of the company’s pipeline of potential transactions.”
{QD comment: Achieving a fully covered dividend on a run-rate basis is a big tick off the to-do list for CSH and one that further highlights the strength of the business model. In fact, today’s update was full of highlights. It is in one of the most covid-resilient sectors (as shown by its 99% rent collection rate) and is in growth mode. The long-term prospects for the social housing sector are sound, with demand for the specialist housing far out-stripping supply. There aren’t too many REITs around that share these characteristics right now. Its share price has jumped 3% in early trading following the announcement, but is still at a 6.4% discount to NAV. QuotedData published an update note on CSH in February. Click here to read it.]
CSH: Civitas Social Housing collects 99% of rent over March-end quarter