Net Asset Value, Investment and Market Update

RNS Number : 3659M

Civitas Social Housing PLC

11 May 2020

 

11 May 2020

CIVITAS SOCIAL HOUSING PLC

("Civitas" or the "Company")

Net Asset Values and Dividend Declaration

Trading and Market Update

The Board of Civitas Social Housing PLC ("Board) is pleased to announce its quarterly net asset value as at 31 March 2020, a dividend declaration and to provide a trading and market update.

Highlights:

· Robust financial performance in line with expectations

· Annualised rent roll £48.4 million (31 December 2019: £47.2 million)

· IFRS NAV per share 107.87p (31 December 2019: 107.55p)

· EPRA run-rate dividend cover 100%¹ as at 31 March 2020

· Strong rental receipts in line with expectations

· 1.325p dividend declared and dividend policy reaffirmed

o  Intention to target a dividend of 5.4 pence per Ordinary Share for the financial year ending 31 March 2021²

· 5 additional properties acquired in the period for £17.8 million in the fourth quarter

· Cash balances of £49.3 million as at 31 March 2020

Introduction

The Company's property portfolio has continued to perform strongly and in line with expectations.  Rents have, to date, been received as expected, unaffected by COVID-19 and the Company is pleased to announce an increased net asset value and an uplifted dividend target for the year to 31 March 2021.

To date, the Company's financial performance has not been negatively impacted by COVID-19. The Company and its Investment Adviser, Civitas Investment Management Limited ("CIM")³ are working closely with the Company's major counterparties to monitor the position on the ground and should it be needed, to offer assistance and guidance where possible. 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.

The Board, directors and staff of CIM would like to take this opportunity to acknowledge the extraordinary work and commitment being shown by all key workers at the present time. This includes all the specialist care workers and the staff of the Company's housing association and care provider partners who are dedicated to ensuring that the tenants living in the Company's properties have a safe and supported environment - thank you from all of us. The Company, as ever, continues to seek ways to support their important work in any way it can.

Net Asset Values ("NAV"):

IFRS NAV

The unaudited IFRS NAV, disclosed below, reflects an independent RICS "Red Book" valuation prepared on an individual asset basis by Jones Laing LaSalle ("JLL").

IFRS NAV	31 Mar 2020	31 Dec 2019
Ordinary NAV (£'000)	670,564	668,592
Ordinary NAV per share (pence)	107.87	107.55

The portfolio, based on individual asset valuations, has been valued overall at 31 March 2020 at an average Net Initial Yield of 5.26% (31 Dec 2019: 5.29%) 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 positive contribution from the indexation of a range of leases in the period and the cost of discretionary capital expenditure that has been incurred to enhance further the quality of the Company's properties to reflect the individual needs of tenants for the long term. This expenditure is above and beyond the lessee's day-to-day maintenance obligations.

In the period to 31 March 2020, an Ordinary Share dividend of 1.325p per share was declared and paid, amounting to £8.2 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 2020	31 Dec 2019
Ordinary NAV (£'000)	735,704	737,561
Ordinary NAV per share (pence)	118.35	118.65

The portfolio, as a single entity, has been valued at 31 March 2020 at 5.06% Net Initial Yield (31 Dec 2019: 5.06%) reflecting the enhanced value from the aggregation of individual properties into a single portfolio 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. First, that the assumed theoretical sale costs (from Civitas 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.

Second, 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.

Revised EPRA Net Asset Value Measurement

On 4 November 2019, following an extensive consultation, EPRA announced changes to "the Net Asset Value (NAV) measurement to reflect the significant evolution of the listed real estate sector over the last 16 years, when the Best Practices Recommendations guidelines were first introduced".

The Company confirms that with effect from the publication of the six-month results to 30 September 2020 that it will report NAV under these new guidelines.

Material Valuation Uncertainty

Both the IFRS and Portfolio NAV valuations are subject to the now standard "Material Valuation Uncertainty due to Novel Coronavirus (COVID-19)" clause that professional valuation firms, including JLL, are adopting across the world in respect of valuations at this time.

In this regard the Board is pleased to note that JLL have confirmed to the Company that the declaration "does not mean that the valuation cannot be relied upon" and that specialist supported housing "remains an attractive sector and arguably more so in the current climate".

Dividend Declaration and Affirmation of Dividend Policy

The Board has declared a fourth quarterly dividend for the period from 1 January 2020 to 31 March 2020 of 1.325p per Ordinary Share resulting in a total payment for the year to 31 March 2020 of 5.3p per Ordinary Share. This is consistent and in line with previous guidance provided by the Company.

The dividend will be paid on or around 12 June 2020 to holders on the register as at 22 May 2020 (the record date) with the corresponding ex-dividend date being 21 May 2020. The dividend will be paid as a REIT property income distribution ("PID").

The Company has now met its stated objective of achieving 100%¹ dividend cover as at 31 March 2020 as measured on an EPRA earnings run-rate basis.

The Board now takes the opportunity to announce that the Company intends to target a dividend of 5.4 pence per Ordinary Share for the financial year ending 31 March 2021².

This reflects year-on-year target dividend growth of 1.9% and compares with the Office of National Statistics' 12-month inflation measure for the Consumer Price Index ("CPI") of 1.5% at March 2020.  Medium and longer-term predictions for CPI remain around 2% and this is consistent with the Bank of England's target for CPI.

The target dividend for the year to 31 March 2021 reflects both the strong underlying cash generation that the Company continues to achieve and the Board's view, at the present time of the Company's prospects in the current financial year.

Trading Update (Unaudited)

In the year to 31 March 2020 the Company achieved annualised rental income of £48.4 million (31 December 2019: £47.2 million) and this is reflected in a diversified portfolio of 613 properties and 4,216 residents, supported by 117 specialist care providers and 15 housing associations over 164 local authority areas.

As at the date of this announcement, 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.

As at 31 March 2020, the Company held cash balances of £49.3 million (net of operating and financing amounts due) of which approximately £24 million 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 £212 million 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%.

The weighted average debt to maturity is 3.4 years and this reflects the 12-month extension of the £60 million 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.

	31 Mar 2020	31 Dec 2019
Average cost of debt (%)	2.46%	2.57%
Loan to value (%)	26.9%	23.3%
Weighted average interest cover (times)i	4.5	4.6
Weighted average debt to maturity (years)ii	3.4	3.7
Total debt drawn down (£m)	272.5	228.4
Unencumbered assets (£m)	212.0	193.9

^I Weighted average interested cover is based on secured assets only

ⁱⁱ Weighted average debt to maturity excluding unexercised extensions under respective facility agreements

Market Update and COVID-19

Civitas 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.

Investments/ Pipeline

Civitas recently completed the acquisition of five freehold properties comprising 63 tenancies for a total consideration of £17.8 million 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.

Quarterly Fact Sheet

The Company has today published its Factsheet for the quarter to 31 March 2020 and this is available to view on the   Company's website .

Notes

¹ 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

² This is a target and not a formal dividend forecast or a profit forecast

³ On 7 May 2020 the name of the Company's investment adviser was changed from Civitas Housing Advisors Limited to Civitas Investment Management Limited to better reflect the range of investment management activities now undertaken.

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  Tel: [phone]

Buchanan

Helen Tarbet / Henry Wilson  Tel: [phone]

Hannah Ratcliff / George Beale  [e-mail]

Notes:

The Company was admitted to trading on the main market for listed securities of the London Stock Exchange in November 2016.  The Company is listed on the premium listing segment of the Official List of the Financial Conduct Authority. The Company is advised by Civitas Investment Management Limited, who are authorised and regulated by the Financial Conduct Authority under Firms Reference Number 815699.

 

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