Net Asset Value, Trading and Market Update

RNS Number : 1467Y

Civitas Social Housing PLC

11 May 2021

 

11 May 2021

CIVITAS SOCIAL HOUSING PLC

Year End Net Asset Value, Dividend Declaration,

Trading and Market Update

c.99% Rental Income Received, 100% EPRA Run-Rate Dividend Cover, Raised Dividend Target 5.55 pence per Ordinary Share

Civitas Social Housing PLC ("CSH" or the "Company") announces its net asset values ("NAV") as at 31 March 2021, a trading and market update, a dividend declaration and an increased dividend target.

Highlights:

· Strong financial and operational performance in line with expectations

Annualised rent roll  £50.4 million (31 March 2020: £48.4 million)  

· IFRS NAV per share 31 March 2021: 108.30p (31 March 2020: 107.87p)

· EPRA run-rate dividend cover 100%   as at 31 March 2021

· Rents received as expected with no COVID-19 impact

· Excellent health and safety compliance reported by housing associations

· 1.35p quarterly dividend declared in line with full year target of 5.4p

o  Intention to target a dividend of  5.55 pence per Ordinary Share for the financial year ending 31   March 2022¹ which represents an increase of 2.8% to the 2021 full year dividend

· Strong Investment Grade Credit Rating obtained from Fitch ("A"/ "A-" Secured/Unsecured)

· New M&G debt facility terms agreed and drawn

· Substantial opportunities for further high-quality transactions

Notice of Results

Results for the year ended 31 March 2021 are scheduled to be released on Wednesday 30 June 2021.

Portfolio Update

During the final quarter of the Company's financial year to 31 March 2021 and to date, the Company has experienced normal trading conditions with rental income received as expected and with a continued focus on further enhancing our portfolio whilst maintaining strong controls over costs.

As at 10 May 2021, c.99% of rents due and payable in respect of the period to 31 March 2021 had been received across CSH's 619 properties with the balance expected shortly.

On 3 March 2021, the Company announced that it had secured an Investment Grade High Quality Credit Quality rating of "A" (senior secured) and a Long-Term IDR of "A-" from Fitch Ratings Limited ("Fitch").

The Company has launched a number of important initiatives that are being led by the Company's investment adviser, Civitas Investment Management Limited ("CIM"). These will be set out in detail at the time of publication of the final results for the year ended 31 March 2021. These initiatives include:

· Working with the Company's lenders to utilise the strong investment grade credit rating to develop a debt financing strategy that encompasses the Sterling bond markets as a means of securing a reduction in the overall cost of finance whilst increasing flexibility and securing an extension of tenure;

· Building on successful pilot projects to enhance the environmental performance of the Company's portfolio with specific initiatives to permanently reduce the carbon footprint of the estate; and

· Utilising CIM's extensive knowledge and significant expertise to work in an embedded way with local authorities for the delivery of augmented service-led homeless strategies aimed at breaking the cycle of street homelessness.

Dividend Declaration and New Dividend Target 

The Board has today declared a fourth quarterly dividend for the period from 1 January 2021 to 31 March 2021 of 1.35p per Ordinary Share resulting in a total payment for the year to 31 March 2021 of 5.4p per Ordinary Share. This is consistent and in line with previous guidance provided by the Company.

The dividend will be paid on or around 11 June 2021 to holders on the register as at 21 May 2021 (the record date) with the corresponding ex-dividend date being 20 May 2021. The dividend will be paid as a REIT property income distribution ("PID").

The Board intends to target a dividend of 5.55 pence per Ordinary Share for the financial year ending 31 March 2022¹.

This reflects year-on-year target dividend growth of 2.8% and compares with the Office for National Statistics' 12-month inflation measure for the Consumer Price Index ("CPI") of 1.0% at March 2021.  Medium and longer-term predictions for CPI remain around 2% and this is consistent with the Bank of England's target for CPI.

The above inflation target dividend for the year to 31 March 2022 has been set in reflection of the Board's confidence in the future performance of the Company due to:

· Strong operational and financial performance

· Stability of rental collection

· Target gearing (c.35% gross assets) now in place

Going forward the Company retains the ambition to grow the dividend in line with inflation as measured by CPI.

Net Asset Values

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").

IFRS NAV	31 Mar 2021	31 Dec 2020
Ordinary NAV (£'000)	673,498	672,463
Ordinary NAV per share (pence)	108.30	108.17

The portfolio, based on individual asset valuations, has been valued at 31 March 2021 at an average Net Initial Yield of 5.24% (31 December 2020: 5.26%) 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 based on a range of underlying metrics including applicable discount rates and expected long-term inflation.

The growth in IFRS NAV reflects the contribution from the indexation of leases in the period (based on the current low level of CPI inflation) and the cost of modest discretionary capital expenditure that has been incurred to further enhance the quality of the Company's properties to reflect the individual needs of tenants for the long term. It also reflects a deferred consideration capital payment (with increased rental income) made in respect of two new facilities in Wales which had previously been acquired by the Company in August 2020.

In the period to 31 March 2021, an Ordinary Share dividend of 1.35p per share was declared in respect of the period ended 31 December 2020 and paid in February 2021, amounting to £8.4 million.

Portfolio NAV

The unaudited Portfolio NAV, disclosed below, reflects an independent RICS "Red Book" valuation prepared on a portfolio basis by JLL.

PORTFOLIO NAV	31 Mar 2021	31 Dec 2020
Ordinary NAV (£'000)	736,768	736,363
Ordinary NAV per share (pence)	118.47	118.45

The portfolio, as a single entity, has been valued at 31 March 2021 at 5.07% Net Initial Yield (30 December 2020: 5.09%) 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 NAV valuation incorporates two additional assumptions when considering Red Book valuation. Firstly, that the assumed theoretical sale costs (from CSH 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.

Market Update

As we move through the Government's staged approach to easing the lockdown, the sector, in which the Company is the market leader, continues to display very strong fundamentals in terms of current and long-term demand and very strong resilience to the worst effects of the pandemic.

Demand for high quality homes in the community to provide lifelong housing for people with learning disabilities, mental health conditions and autism is continuing to grow and will remain a core focus for the Company. This growth is the result of a number of key long-term drivers: the closure of old remote hospitals; an increasing number of young people requiring adult care services; and as parents and guardians themselves require elderly care support, the need for people to move from family homes into permanent care-based accommodation.

From an investment perspective, the Company's activities take place within an asset backed sector that has very low correlation to the broader economy or general equity market movements, benefiting from 100% government funding whilst offering independently evidenced value for money for the public purse and transformational personal outcomes for residents.

Expansion into Homelessness Services

In addition to the focus on care based housing, substantial demand exists for housing for those who have suffered homelessness and also require long term suitable housing in the community, but with significant additional support to prevent them from returning to homelessness. In partnership with a number of local authorities and specialist charities CSH is leading the establishment of advanced homelessness facilities where the causes of homelessness are tackled at their roots.

This will assist CSH in diversifying into working with new counterparties and with a new client group which has the same dynamics as specialist supported housing in that there is high long term structural demand, extensive care is required, the social outcome of addressing the issue will be transformational for people's lives and considerable savings are achievable  for the taxpayer.

Caring for Residents

CSH has continued an extensive dialogue throughout the period with all key counterparties, including housing associations, key care providers, not-for-profit community benefit societies and community interest companies. 

The result of this dialogue is reassurance that the impact of Covid on CSH's residents has continued to be minimal with the high levels of care and the design of the homes protecting people. In addition, high levels of compliance have been maintained as reported to us by our partner housing providers.

The vaccination programme has been extensively rolled out to both residents and staff reflecting their status as a vulnerable group and as frontline key workers. The average age of a CSH resident remains c.32 years.

With all its housing association counterparties, CSH continues to be a catalyst for improvements in governance, management and sharing best practice. Since inception CSH has held quarterly seminars for all of its partners, ensuring all our staff are available to work closely with housing associations in respect of the CSH portfolios. This has included considerable joint working during the pandemic to maximise the use of best practice and shared learning.

Quarterly Factsheet

The Company has today published its Factsheet for the quarter to 31 March 2021 and this is available to view on the  Company's website .

Paul Bridge, CEO (Social Housing), Civitas Investment Management Limited, said:

"This strong performance reflects the high level of structural demand for good quality homes for vulnerable people, and our expertise in providing this service. In addition, we are enthused about the work we are undertaking to enhance the environmental performance of our properties, and also about our further diversification into specialist homelessness services. We continue to see further opportunities to enhance shareholder returns and to create a beneficial impact for society as a whole through our activities."

Notes

¹   This is a target and not a formal dividend forecast or a profit forecast

ENDS

For further information, please contact:

Civitas Investment Management Limited

Paul Bridge                                          Tel: [phone]

Andrew Dawber                                 Tel: [phone]

Panmure Gordon

Sapna Shah                                          Tel: [phone]

Tom Scrivens                                        Tel: [phone]

Liberum Capital Limited

Gillian Martin / Chris Clarke Tel: [phone]

Buchanan

Helen Tarbet / Henry Wilson  Tel: [phone]

Hannah Ratcliff / George Beale  [e-mail]

Notes:

Civitas Social Housing PLC ("Civitas") 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 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 on an IFRS basis at  £915.6million   (31 March 2021). Civitas now provides homes for 4,346 working age adults with long-term care needs, in 634 bespoke properties that are supported by 119 specialist care providers, 16 approved providers and working with over 172 individual local authorities.

 

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