Acquisition, Dividend & Investment Policy Update

RNS Number : 8225G

Civitas Social Housing PLC

19 March 2020

 

CIVITAS SOCIAL HOUSING PLC

("Civitas" or the "Company")

£19.6m Acquisition of Regulated Social Housing Properties

Dividend Cover (EPRA run rate) increased to 100%

Widening Investment Policy to include the NHS

Business Update and Covid-19

Introduction

Civitas Social Housing PLC is providing an update in respect of recent acquisitions, the move to full dividend cover on a run-rate basis and a short business commentary that notes that despite the global challenge presented by Covid-19, the Company continues to deliver on its plans and objectives while continuing to secure the wellbeing of our tenants and partners.

£19.6m Acquisition of Regulated Social Housing Properties

Civitas has, after a detailed programme of due diligence and negotiation undertaken over recent months, completed the purchase of 5 freehold properties comprising 63 tenancies for a total consideration of £17.8 million.

In addition, the Company has also exchanged contracts on 3 freehold properties comprising 11 tenancies for a consideration of £1.8 million, with completion expected in due course following the undertaking of certain works (together the "Properties" or the "Transaction").

The Properties are situated in Hertfordshire, Shropshire and Tyne and Wear over 5 local authority areas with funding originated from a greater number of local authorities. The Transaction provides accommodation that serves individuals with mid and higher acuity care needs, in each case as usual, reflected by the extent of the care hours being delivered and the housing services being provided.

Civitas continues to focus on the acquisition of properties that have been purpose-built or significantly adapted for the delivery of mid to higher acuity care. This typically demonstrates the greatest cost saving for the state as well as enabling the freeing up of NHS long-term facilities. It also offers the potential for significantly improved personal outcomes for those individuals who are then able to receive more personalised care in a setting better suited to their long term needs.

The Properties are leased to Registered Providers (RPs) Inclusion Housing, Auckland Home Solutions C.I.C and Harbour Light Assisted Living. All of these RPs are regulated by the Regulator of Social Housing and are counterparties to existing leases within the Company's portfolio.

The completed properties are immediately income-generating with initial net yields in line with the Company's expectations. The Properties were sourced by Civitas Housing Advisors Limited, the Company's Investment Adviser as a result of existing strategic relationships.

All the Properties that have been acquired are either purpose built or have been adapted for use as accommodation for tenants with life-long learning disabilities and other care needs who are expected to remain in occupation for the long-term and who receive 100% state funding. The Properties are subject to long-term leases with rents adjusted annually in line with CPI over the full-term and are subject to a lower limit of inflation of 0% per annum and a maximum indexation of 4% per annum.

The Properties have been financed from the Company's existing debt facilities as all equity capital raised to date has, save for a meaningful cash contingency reserve that the Company intends to maintain, been invested in income generating properties. In addition to the cash contingency, the Company has separately already provided for all contracted payments due in respect of properties that are anticipated to complete over coming months.

Following this transaction, the Company's gross LTV is approximately 28%. Civitas maintains a conservative target for average gross indebtedness of 35% of portfolio value with a hard cap on average of 40% of portfolio value. 

At the present time the Company has unencumbered properties within the portfolio to a value of approximately £212 million. The Company intends to implement its long-term debt strategy over coming months in terms of additional facilities in a prudent manner taking full regard of prevailing circumstances.

Dividend Cover (EPRA run rate) 100%

Following the Transaction, the Company is pleased to confirm that Civitas has now met its stated objective of achieving 100% *dividend cover as measured on an EPRA earnings run-rate basis.

The actual dividend cover for the year to 31 March 2020 will be made available at the time of publication of the full year financial results. As at the half-year to 30 September 2019 the dividend cover was 96% on an EPRA run-rate basis and 87% on an EPRA actual basis.

The Company's dividend policy remains based on a progressive approach that is related to the inflationary growth in the underlying rental income. This is intended to enable the Company to maintain its level of EPRA dividend cover.

The Company is expected to declare its quarterly dividend for the 3 months ending 31 March 2020 in May, as per previous years.

Widening Investment Policy to include the NHS

The Company has noted previously an ambition to own freehold properties that facilitate not just the delivery of care for long-term conditions such as learning disability, autism and mental health but also in respect of other urgent needs with significant unmet demand including homelessness and step-down accommodation for the NHS.

Whilst discussions can be strategic and therefore take considerable time to result in specific transactions the Company has now engaged with a number of parties and considers that the time is right to seek a widening of the investment counterparties with whom the Company is able to enter into leases and other commitments.

This would, in due course, enable Civitas to enter into long-term leases with the NHS which may be structured in the form of specific joint venture arrangements and also with registered charities operating within areas of investment interest to the Company.

The engagement with the NHS and other care providers in particular reflects the Company's focus on properties that facilitate the delivery of mid and higher acuity care and the level of knowledge and operational experience within the Company's Investment Adviser relating to the operation of specialist care businesses.

Accordingly, it is intended that the Company will in due course seek to convene an EGM with the purpose of seeking shareholder approval to amend the Company's investment policy, subject to regulatory approvals, for this expansion of investment counterparties which will better reflect the Company's ambitions in terms of the continued development of the portfolio into areas of critical care need with the added potential to deliver long term returns to shareholders.

Business Update

The requirement to provide accommodation for individuals with long-term care needs remains urgent with an increasing number of people requiring such accommodation and a broad understanding that demand outstrips supply. For many local authorities this model remains the form of provision of choice whenever it is available.

By working in a mid to higher acuity environment the existing working practices of our partners are based around the continuing need for the highest levels of hygiene and medical practice and this has been further reinforced and acted upon as a result of the Covid-19 pandemic. As ever, the safety and well-being of our tenants and partners remains of the utmost importance to the Company.

Both our housing association and care provider partners are making appropriate adjustments to working practices to ensure a direct continuity of service whilst seeking to build in contingency wherever possible. This is helped in some cases by the typically higher levels of staffing that is available within these active care environments.

The Company is working as usual to deliver the NAV for the quarter to 31 March 2020 in mid-May 2020 and for the publication of the full year results in late June/early July 2020

* note: the calculation of run-rate dividend cover is based on all properties that have exchanged and completed and the further delivery of certain properties to a value of approximately £12.1 million that are legally committed and expected to complete shortly

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For further information, please contact:

Civitas Housing Advisors Limited

Paul Bridge  Tel: [phone]

Andrew Dawber    Tel: [phone]

Liberum Capital Limited

Gillian Martin  Tel: [phone]

Panmure Gordon

Sapna Shah  Tel: [phone]

Tom Scrivens                         Tel: [phone]

Buchanan

Helen Tarbet / Henry Wilson  Tel: [phone]

Hannah Ratcliff / George Beale  [e-mail]

Notes:

Civitas Social Housing PLC is the first Real Estate Investment Trust offering pure play exposure to social housing across the UK.  The Company is advised by Civitas Housing Advisors Limited, who are authorised and regulated by the Financial Conduct Authority under Firms Reference Number 815699. The Company is listed on the premium listing segment of the Official List of the Financial Conduct Authority and was admitted to trading on the main market for listed securities of the London Stock Exchange in November 2016.  

 

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