RNS
Civitas Social Housing PLC

Civitas Soc Hous PLC - INTERIM REPORT

RNS Number : 8435G
Civitas Social Housing PLC
30 November 2020
 

30 November 2020            

 

CIVITAS SOCIAL HOUSING PLC

 

INTERIM REPORT

Strong H1 performance, with compelling opportunities for growth

SIX MONTHS TO 30 SEPTEMBER 2020

 

 

Civitas Social Housing PLC ("CSH" or the "Company"), a leading care-based social housing REIT, presents its interim results for the six months ended 30 September 2020.

 

The full Interim Report and Financial Statements can be accessed via the Company's website at www.civitassocialhousing.com or by contacting the Company Secretary by telephone on 01392 477500.

 

 

Performance Highlights

 

Property Valuation and Performance

30 Sept 20

30 Sept 19

Change (YOY)

31 Mar 20*

Investment property IFRS (£m)

898.5

841.5

Up 6.77%

878.7

IFRS NAV per share (diluted) (p)

108.01

107.23

Up 0.73%

107.87

Financial Performance

-

-

-

-

Rent roll annualised (£m)

49.5

46.5

Up 6.45%

48.4

Rental income (£m)

24.1

22.7

Up 6.17%

45.9

EPRA earnings (£m)

15.5

14.3

Up 8.39%

28.8

Operating Cash Flow (£m)

19.5

16.9

Up 15.38%

32.9

Earnings per share (p)

2.81

2.80

Up 0.36%

6.06

EPRA earning per share (diluted) (p)

2.49

2.29

Up 8.73%

4.63

Dividends per share (p)

2.68

2.65

Up 1.13%

5.30

Financing

-

-

-

-

Loan to value ratio

26.8%

24.0%

 

26.9%

Weighted average cost of debt (%)

2.46%

2.63%

-

2.46%

*Based on annual audited financial statements for the 12 months ended 31 March 2020

 

·    Ongoing strong resilience to Covid-19

·    Very low incidence of Covid-19 across portfolio

·    Rents collected as planned

·    Minimal operational disruption from Covid-19

 

·    Increase in investment property portfolio valuation

·    IFRS property valuation increased to £898.5million 

·    IFRS valuation net initial yield of 5.26% compared to average purchase yield of 5.84% (prior to purchase costs)

·    Stable IFRS NAV per share at 108.01 pence (30 Sept 19: 107.23 pence per share)

·    Weighted Average Unexpired Lease Term (WAULT) of 22.9 years

 

·    Diversified portfolio of 618 properties providing homes to 4,292 people

·    Two additional properties (51 beds) acquired for £15.6m

·    High level of acute care carried out - average over 40 hours per week across the portfolio

·    Company portfolio providing accommodation to tenants with learning disabilities, autism and mental health disorders with an average tenant age of 32 years

·    Properties located across half the Local Authorities in England and Wales and leased to 15 Housing Associations, with support provided by 118 Care Providers

·    Over one third of the portfolio on back-to-back 25 year leases

·    High level of bespoke adaptation for individual tenants' needs reflecting high acuity nature of the portfolio

·    Over one third of the properties bought when new

 

·    Rent roll, operating cash flow and earnings up

·    Annualised rental income of £49.5m at 30 Sept 2020

·    Operational cashflow increased strongly to £19.5m (30 Sept 19: £16.9m)

·    EPRA earnings per share of 2.49 pence compared with 2.29 pence in the corresponding period in 2019

 

·    Dividend payments and dividend cover

·    Two dividends paid during period of 1.325 pence and 1.350 pence

·    Target dividend of 5.4 pence for the year to 31 March 2021

·    EPRA run-rate dividend cover of 100% as at 30 Sept 2020

 

·    Positive outlook

·    £180m pipeline identified

·    Intention that further new debt facilities will soon be in place

·    Existing £100m HSBC debt facility extended to November 2022

 

Social Impact Highlights

 

·    CSH is leading the sub-sector in measuring and reporting on social impact and social value

·    Independent specialist social impact consultant The Good Economy has found:

§ £114m in Social Value generated on an annual basis

§ £64.7m of direct savings to local and national government per year

§ £1bn+ of direct savings to the taxpayer projected over duration of CSH leases

·    Accredited Impact Investor under IFC Principles

·    Early adopter of the Sustainability Reporting Standard for Social Housing

·    Founded the Social Housing Family CIC to help improve sector practices

·    Adopted an enhanced ESG Policy that aims to achieve carbon neutrality across the portfolio by 2030

 

Michael Wrobel, Non-Executive Chairman of the Company, commented:

 

"I would like to extend my heartfelt thanks to all of our partners, especially all the staff at our housing associations and care providers who have continued to provide essential care to some of the most vulnerable people in society amid the unavoidable challenges brought by Covid-19.

 

"During the period, CSH has continued to cement its position as the market leader in care-based housing investment and management, delivering sustainable investor returns and outstanding community-based housing whilst also protecting the public purse.

 

"The demand for care-based housing continues to grow, with Covid-19 having reinforced the benefits of safe, secure homes over long-term institutionalisation. We have identified an attractive pipeline of approximately £180m, of which we intend to take advantage and are considering options for funding these high quality properties including through a new debt facility. We are now also able to extend our counterparty relationships to such organisations as the NHS and leading charities and examples of these properties are included in the present pipeline.

 

"We see compelling opportunities for growth, and we look forward to the future with confidence."

 

 

For further information, please contact:

 

Civitas Investment Management Limited

Paul Bridge                                                     Tel: +44 (0)20 3058 4844

Andrew Dawber                                              Tel: +44 (0)20 3058 4846

 

Panmure Gordon

Sapna Shah                                                         Tel: +44 (0)20 7886 2783

Tom Scrivens                                                     Tel: +44 (0) 20 7886 2648

 

Liberum Capital Limited

Gillian Martin / Chris Clarke                         Tel: +44 (0) 20 3100 2222

 

Buchanan

Helen Tarbet / Henry Wilson                       Tel: +44 (0) 20 7466 5000

Hannah Ratcliff / George Beale                  civitas@buchanan.uk.com

 

 

Notes:

Civitas Social Housing PLC (CSH) 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, CSH 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 £898.5 million. CSH provides homes for 4,292 working age adults with long-term care needs, in 618 bespoke properties that are supported by 118 specialist care providers, 15 housing associations over 164 individual local authority areas.

 

 

 



 

 

Chairman's Statement

Dear Shareholder

 

On behalf of everyone associated with CSH, we give our heartfelt thanks to all key workers during this challenging time of the COVID-19 pandemic. We owe special recognition to those who provide care, day in and day out, to our 4,292 residents. There has been a very low level of incidence of COVID-19 cases amongst our tenants and the Care Quality Commission ("CQC") confirms a similar position across the industry (COVID-19 Insight: Issue 2 June 2020).

 

In accordance with Government guidelines issued in March 2020, our Investment Adviser, CIM, moved all its business operations online, with staff working from home until its offices reopened in September 2020. The Manager continued to operate effectively, maintaining dialogue and supporting our Housing Association and care provider partners.

 

During the six-month period under review, we invested £15.6 million to acquire two properties with 51 beds. Some works across our portfolio that were agreed at the time of acquisition and all paid by vendors, had to be rescheduled during the full lockdown period and are now being completed.

 

We continue to focus on Environmental, Social and Governance ("ESG") issues. The Board adopted an

enhanced ESG Policy that includes an objective to achieve carbon neutrality across the portfolio by 2030. We became a founding partner of The Big Exchange and having contributed to the development of the Sustainability Reporting Standard for Social Housing, we have confirmed our commitment to become an Early Adopter.

 

Financial Performance

Financial performance has continued to be robust. During the period, rents have been received as expected, with no COVID-19 impact. The overall continuity of rental receipts reflects the positive performance of our Housing Association partners and the commitment of Government and Local Authorities who regard supported living as the preferred means to deliver housing and care in the

community.

 

Rental income of £24.1 million was generated in the period, a 6% increase over the corresponding period (30 September 2019: £22.7 million) as a result of new investments made in the period, on-track indexation of rents and the effect of rental income on properties purchased prior to the period, being included for the full six months.

 

Net cash generated from operating activities was £19.5 million (30 September 2019: £17 million), a 15% increase on the prior year.

 

The IFRS NAV of the Company increased from 107.9 pence per ordinary share as at 31 March 2020 to 108.01 pence per ordinary share as at 30 September 2020.

 

As noted previously the Company intends to put in place additional debt facilities and is currently in discussions with potential lenders.

 

During the reporting period we declared and paid two dividends, one of 1.325 pence per share and one of 1.350 pence per share, in line with our target for the full year.

 

Improving the Industry

Our Investment Adviser is at the forefront of supporting improvements in the specialist Housing Association sector.  It was instrumental in the establishment of The Social Housing Family CIC, to which it provides high level skills and resources. The first members are two of our partner Housing organisations, Auckland Home Solutions CIC and Qualitas Community Interest Company. Other Housing Associations and charities are in discussions about joining, which will expand its capabilities and shared expertise.

 

The RSH continues to publish notices where it considers a Housing Association needs to demonstrate improvements. Recent notices on the Rent Standard have reminded Housing Associations across the sector that in order to claim exempt rents, they need to meet the relevant criteria for Specialist Supported Housing and evidence this. We are confident that all of our properties meet the standard due to our sector-leading due diligence and the high level of care carried out in all the properties.

 

Outlook

The coronavirus pandemic has reinforced the need to provide safe, high quality homes for the most vulnerable people in our society, and to bring new properties into the sector. Demand amongst those needing care-based housing continues to rise, notably amongst younger people reaching adulthood and wanting their own independence. On the 23 October 2020, the CQC published a report entitled 'Out of sight - who cares?: Restraint, segregation and seclusion review', which once again highlighted the plight of the thousands of people with learning disabilities and mental health issues who are stuck in inappropriate institutions and urgently require community-based care and supported living housing.

 

The drive for more community-based housing with care has full support across political parties and Local Authorities have a statutory duty to house the homeless and most vulnerable. CSH is pleased to play an important role in providing suitable accommodation. I would like to thank our shareholders, our staff and indeed all of our stakeholders, for their ongoing support.

 

CSH sees compelling opportunities to invest further in this sector. A pipeline of £180 million has now been developed which will be partly satisfied when the new debt facilities come into place and leaves open the prospect of future equity raises subject to market conditions and investors' views.

 

We remain committed to generating growth and shareholder value through ethical investing. We look to the future with confidence.

 

Michael Wrobel

Chairman

27 November 2020

 

 



 

 

Analysis of Property Portfolio1
as at 30 September 2020

 

Geographically Diversified

Region

Properties

Tenancies

% of funds invested

North West

99

592

10.3

North East

64

462

6.1

Yorkshire and the Humber

49

422

10.3

West Midlands

101

502

11.8

East Midlands

58

374

8.9

East of England

20

122

2.9

Wales

17

307

10.0

South West

120

759

16.0

London

26

338

13.2

South East

64

414

10.5

 

Market Value by Region1

South West

16.4%

London

12.7%

West Midlands

11.9%

South East

10.5%

Yorkshire/Humber

10.3%

North West

9.6%

Wales

9.5%

East Midlands

9.4%

North East

6.7%

East of England

3.0%

 

Assets by Region1

South West

120

West Midlands

101

North West

99

North East

64

South East

64

East Midlands

58

Yorkshire/Humber

49

London

26

East of England

20

Wales

17

 

 

Diversified by Registered Provider

 

Rental Income by Registered Provider1

Registered Provider

Rental Income

Auckland

24.0%

Falcon

20.2%

BeST

12.2%

Inclusion

8.8%

Westmoreland

6.2%

Encircle

6.0%

Trinity

5.4%

Pivotal

3.9%

Harbour Light

3.7%

Chrysalis

3.4%

New Walk

2.8%

My Space

1.2%

IKE

1.1%

Hilldale

1.0%

Blue Square

0.1%

 

Assets by Registered Provider1

Registered Provider

Number of Properties

Falcon

117

Auckland

103

BeST

74

Inclusion

72

Trinity

43

Westmoreland

41

New Walk

41

Pivotal

27

Harbour Light

27

Chrysalis

23

Encircle

16

Hilldale

15

IKE

10

My Space

8

Blue Square

1

 



 

Market Value by Registered Provider1

Registered Provider

Market Value

Auckland

24.6%

Falcon

20.5%

BeST

12.5%

Inclusion

8.8%

Westmoreland

6.1%

Trinity

5.3%

Encircle

5.0%

Pivotal

3.9%

Harbour Light

3.7%

Chrysalis

3.5%

New Walk

2.8%

IKE

1.1%

My Space

1.1%

Hilldale

1.0%

Blue Square

0.1%

 

Tenancies by Registered Provider1

Registered Provider

Tenancies

Falcon

858

Auckland

718

BeST

591

Inclusion

466

Trinity

242

Westmoreland

239

Pivotal

238

Harbour Light

214

Encirle

205

New Walk

194

Chrysalis

145

My Space

71

IKE

68

Hilldale

39

Blue Square

4

 

1 As at 30 September 2020, including completed properties only.

 

 



 

Investment Adviser's Report

 

Civitas Social Housing REIT (CSH) is the market leader in care-based housing investment and management delivering sustainable returns and outstanding community-based housing to the most vulnerable people in society whilst protecting the public purse.

 

Thank you

To all of our partners. As the Chairman has said in this report, the work of everyone is valued but we would like, in particular, to thank all the staff who work at our care provider and Housing Association partners to ensure the most vulnerable people in society are cared for, protected and nurtured in their lives.

 

Overview of Results

CSH is the market leader in providing much-needed housing with care in the United Kingdom and leading the charge for ethical investment in the sector. These interim results show a number of key achievements:

•     Strong resilience to the COVID-19 pandemic, both operationally and financially;

•     Rents indexed at CPI and collected as planned with no disruption from COVID-19;

•     A growing, market-leading portfolio of high-quality properties;

•     Two additional properties (51 beds) acquired for £15.6 million;

•     High levels of care provided to each and every resident, on average 40 - 50 hours per week;

•     Rapidly improving performance on ESG metrics;

•     A growing team with a mix of high-level skills from real estate, fund management, social housing, care and asset management, unrivalled in terms of size and breadth in the sector;

•     EPRA run rate dividend cover at c.100%, expected to increase further following the subsequent deployment of additional debt facilities;

•     The Company paid two dividends, one of 1.325 pence per share and one of 1.350 pence per share during the period fully in line with the distribution target of 5.4p announced for the year to 31 March 2021;

•     IFRS NAV increased to 108.01 pence per Ordinary share;

•     Total Expense Ratio of 1.33%; and

•     Further progress on new debt facilities and investment pipeline.

 

Introduction

This six-month period has been dominated by the COVID-19 pandemic. Against this backdrop, CSH has

focused upon the following priorities:

 

Ensure safety: Ensuring full support is given to our counterparties in managing their response to the

pandemic and ensuring every person continued to receive the care they need and deserve.

 

Ensure business continuity: Maintaining and improving the portfolio whilst ensuring the safety of our team through home working and managing a socially-distanced return to the office.

 

Achieve financial objectives: Grow rental income, deliver strong operational cash flow, meet dividend targets, drive dividend cover and enhance asset values.

 

Deliver social value: Maintain our evidenced-based approach with independent analysis of the positive impact and cost savings generated by the Company's portfolio and our broader activities in the sector, along with a particular focus on improving environmental performance.

 

Business continuity and safety

Although the impact of COVID-19 on CSH has been low, we were saddened to learn that Mike Doran, the Chairman of Westmoreland Housing Association, passed away in April 2020 of COVID-19 complications. CIM had formed an excellent working relationship with Mike and he will be missed by all he worked with. Our thoughts are with his family and friends.

 

The primary concern during the continuing pandemic has been to ensure the safety and resilience of the sector, and the ongoing maintenance and improvement of CSH's portfolio. We continue to see very low incidences of cases amongst residents. This was confirmed as a sector-wide phenomenon by the CQC in June 20201 (COVID-19 Insight: Issue 2). The type of personalised care that is being provided, the bespoke nature of the buildings adapted for care use and the focussed and efficient response from our partners has resulted in a high resilience to the virus. Coupled with this, our residents are young, with an average age of 32, living in self-contained homes and community environments. Our Housing Association partners have continued to report excellent levels of compliance with health and safety measures.

 

CSH took the following measures to support its partners during the pandemic:

 

•     Established weekly contact calls with key providers;

•     Used the Housing Association network established three years ago as a forum to share best practice on responses to COVID-19 and working practices;

•     Liaised with Local Authorities to assist them in housing homeless people who as part of the Government's response to the pandemic were required to be housed immediately under the "bring everyone in" policy.  CSH continues to provide 29 bed spaces in Islington and is in discussion with a number of other Local Authorities who wish to house homeless people in longer-stay housing to ensure they receive the care they deserve.

 

CSH's investment manager, CIM relocated to home working with full technological support and video conferencing in March 2020. The office was made COVID-19 compliant and a phased return to working in the office was achieved in September 2020.

 

During the period, key Housing Associations have continued to work effectively and in partnership with CIM. Weekly calls have ensured any operational issues that have arisen through the pandemic have been addressed. All Housing Associations have been able to work from home and adopt working protocols which minimise unnecessary visits and delegate key on-site functions to care providers.

 

Financial Review

Rental income in the period grew to £24.1 million, a 6% increase over the corresponding period (30 September 2019: £22.7 million) with annualised rental income of £49.5 million at 30 September 2020.

 

This increase has been generated as a result of new investments made in the period, on track indexation of rents and the effect of rental income on properties purchased prior to the period, being included for the full six months.

 

A net fair value gain of £3.6 million was recorded in the period, lower than the £4.3 million recorded in the corresponding period reflecting less yield compression for the same period. Operational cash flow increased strongly to £19.5 million (30 September 2019: £17.0 million) adjusted for non-cash items.

 

Earnings per share was 2.81 pence for the six-month period compared to 6.06 pence for the full year to 31 March 2020. EPRA earnings per share was 2.49 pence over the six-month period compared to 4.63 pence for the full year to 31 March 2020 and 2.29 pence for the six months to 30 September 2019.

 

The Company paid two dividends, one of 1.325 pence per share and one of 1.35 pence per share during the period fully in line with the distribution target of 5.4p announced for the year to 31 March 2021. Our priority is to reach a fully covered dividend as soon as possible and we are pleased to note that the EPRA run rate dividend cover at 30 September 2020 was 100%.

 

As at 30 September 2020, the IFRS NAV of the Company was 108.01 pence per share, a slight increase on the 107.87 pence per share at 31 March 2020. Together with the dividends of 1.325 pence and 1.350 pence paid in the period, this gives a total return since IPO of 26.52% on an IFRS basis and 34.38% on a Portfolio basis.

 

The Total Expense Ratio reflecting total costs expressed as a percentage of the average NAV over the six-month period was 1.33% in the period compared to 1.36% in the year to 31 March 2020.

 

The portfolio was independently valued on an individual IFRS asset basis by JLL at £898.5 million as at 30 September 2020 reflecting a net initial yield of 5.26%. This compares to an average purchase yield of 5.84% (prior to purchase costs) and reflects the ability of the Company to use its scale and market position to buy well, often off-market, and avoid taking part in auctions.

 

The acquisition programme has continued with two assets acquired at an average yield of 5.5% during the period.

 

The pandemic slowed, temporarily, the ability of lenders to consider new facilities with their focus being applied to existing borrowers who required support and with most or all staff working remotely. More recently, lenders have been more open to consider new funding opportunities on competitive rates and the Company is now working with parties to finalise a new debt facility. A further announcement will be made in due course.

 

Social Impact and Social Value

The Company's latest independent report from The Good Economy was published today and provides details of CSH's portfolio and the continued success in delivering measurable social impact. Findings include:

 

1)    Five properties, housing up to 76 people, have been added to the CSH portfolio. 33% of CSH's

618 properties have been brought into the social housing sector for the first time.

2)    CSH's regular engagement with its Registered Providers to monitor the quality of its stock continued through the COVID-19 pandemic.

3)    Improvement works have enhanced the energy efficiency of homes, with 99.5% of homes with an EPC rating of E+.

4)    CSH's homes continue to serve vulnerable individuals and play a significant role in improving resident wellbeing, particularly when individuals are coming out of higher-acuity facilities.

5)    Social value analysis revealed that, overall, the portfolio generates £114 million of social value per year, including fiscal savings to public budgets of £64.7 million per year.

Environmental, Social and Governance

Earlier this year, the Board of CSH set out its commitment to a continuous improvement process in its approach to ESG integration. CIM is responsible for the implementation of the commitment to integrate ESG considerations in its investment strategy.

 

To this end, we have increased engagement with ESG Rating Agencies including GRESB (formerly known as Global Real Estate Sustainability Benchmark), MSCI (formerly known as Morgan Stanley Capital International) ESG and EPRA in recent months. We expect to receive confirmation of CSH's EPRA's BR 2020 Award, 2020 GRESB Public Disclosure Score and MSCI ESG ratings shortly.  We have maintained CSH's accreditation as an impact investor under International Finance Corporation ("IFC") Principles.

 

We contributed to the development of the Sustainability Reporting Standard for Social Housing and have confirmed CSH's commitment to become an Early Adopter. The unified standard approach to ESG and impact reporting in social housing is aligned to the investment strategy and CIM will integrate these Standards into its processes, as appropriate.

 

Additionally, CIM has been engaged in a collaborative project to produce a sector standard impact measurement approach for equity investments in social and affordable housing. The project aim is to develop a framework to inform the engagement process between investors, intermediaries and investees. It will also help articulate, measure and actively manage positive social impact contributions. The project is in the final phase and will be shared for wider consultation during the autumn.

 

Over the last six months, we have collated all data on the environmental performance of CSH properties. This has informed proactive engagement with counterparties to assess the environmental impact of the portfolio. This has also enabled CIM to explore initiatives to achieve zero carbon across all properties by 2030 through deep retrofit programmes. These will be piloted in the next period.

 

In the same period, we have reduced the carbon footprint of our portfolio with 99.5% of CSH homes meeting the Government's minimum energy efficiency standard of EPC grade E (up from 98% in March 2020). Work is underway to achieve 100% compliance by the end of the year.

 

In terms of our counterparties, we have promoted the adoption of the Civitas Best Practice Protocol designed to safeguard the long-term financial strength and social delivery of Housing Associations and the supported housing they provide. The protocol brings a measure of consistency in standards and investor relations to the SSH sector as a whole.

 

The Portfolio - Asset Management and Future Proofing

We are, and always will be, an active manager of the portfolio and undertake property assessments on a regular basis with our Housing Association partners and surveyors to determine whether properties are achieving an optimal outcome. We have expanded our asset management team with senior individuals from the real estate and care sectors to ensure we have a sector leading approach to capital works and enhancements.

 

We continue to invest further in order to expand properties and to ensure that they are as future proofed as possible. This might include small adaptations to enable a building to function better for a Housing Association or a care provider and this modest investment is typically above and beyond the repair and maintenance obligations in the lease.

 

We also undertake reviews to ensure that each property is working in an optimal manner within the overall sector ecosystem in terms of interaction with the local authority as well as the Housing Association and the care provider.

 

To complement this work, we have upgraded our asset management software, which enables us to monitor building, investment and performance on a live basis with direct access to all key counterparties.

 

Now that CSH has established a substantial portfolio, we have taken opportunities to move certain properties between Housing Associations, based on lease assignments on the same lease terms.

 

This action is taken where a particular Housing Association has, for example, a strong relationship with

a particular local authority that facilitates engagement or where we can achieve concentrations that assist Housing Associations in undertaking maintenance and repairs and also to bring together properties that deliver high acuity care with Housing Associations that are particularly skilled in working with such residents and care providers.

 

We will also respond to requests from Housing Associations who might themselves want to reduce or reshape their geographic coverage so that they can become more efficient and have a business that is more easily managed and can better meet the requirements set by the RSH.

 

We transferred 69 properties from Westmoreland Supported Housing (Westmoreland) to Auckland Home Solutions (Auckland). Westmoreland wished to reduce the number of Local Authorities with which they worked and rightsize their business. Auckland, amongst other Housing Associations, was keen to take on the responsibilities with Local Authorities with which they have good relationships

and concentrations of management responsibilities. Auckland is also a member of The Social Housing Family CIC receiving additional support in relation to professional expertise and platform assistance.

 

Westmoreland has significantly improved its business since this transfer and is now trading at a small surplus with full compliance in health, safety and governance.

 

The Portfolio - Rental Income

The annualised rental income as at 30 September 2020 increased to £49.5 million and this is expected to increase further as additional indexation is applied and the balance of the existing debt is invested. The Company has advanced several positive discussions regarding the provision of additional debt facilities including with one UK institutional lender where outline commercial terms have been agreed subject to various further approvals and documentation to be completed over the coming weeks.

 

Rental income is generated from leases with 15 Housing Associations with the top three representing 56.4% (Falcon 20.2%, Auckland 24.0%, BeST 12.2%).

 

Falcon is a well-established, profitable and cash generative organisation that was formed in 2008 and has developed a strong track record of delivery. Today it provides long-term homes for more than 1,300 residents. As at 30 September 2020, it had net assets of £1.9 million including owned properties that Falcon has started to purchase to complement the leased properties. As at 30 September 2020, Falcon held cash balances in excess of £1 million. We have worked closely with Falcon and expect to continue to do so in the future.

 

Auckland is also a well-established, profitable and cash generative Housing Association that was formed in 2010 and recently became the first member of The Social Housing Family CIC. Today, it provides long-term homes for more than 950 residents, has net assets of £1 million and cash balances in excess of £1 million.

 

Portfolio Characteristics

The key features of the CSH portfolio can be summarised as follows:

•     Fully converted and specially adapted for care use;

•     High number of care hours: over 40 hours a week on average;

•     Median rents tested where required;

•     Properties always well located within the community and with commissioner support;

•     Over one-third of the portfolio on back to back 25-year leases with care providers mirroring the obligations in the lease to Housing Associations;

•     An own front door policy;

•     Over one-third of properties bought when new, without development risk;

•     At least three counterparties tested for each lease.

 

The high quality of our portfolio reflects the ability of the Company to source off market transactions through its extensive network of care provider relationships, with the aim of achieving value growth over time.

 

Building characteristics

CSH has 618 properties across 164 local authority areas. The average building size comprises seven bed spaces and are either small houses or apartment blocks, typically of between 10 and 15 flats with individual front doors.

 

The nature of community-based housing with care is that acquiring traditional properties in traditional streets near community facilities and infrastructure is vital to providing the homes that Local Authorities, those with care needs and their families require.

 

As with all properties CSH acquires, a full independent condition survey is carried out prior to acquisition. As a result, over £500 million of transactions have been rejected as they did not meet our standards with regards to either the rent levels, building location, layout/suitability or reputation of the selling party.

 

Where a building proceeds to acquisition, a full condition report specifying all works that must be carried out at the vendor's cost is undertaken. This may include bespoke adaptations for the resident, health and safety works and environmental enhancements to improve thermal efficiency. These works will then be carried out and inspected by a separate independent surveying practice before final handover.

 

All of the portfolio is traditional construction with no system built properties or cladding and is residential property suitable for all types of residential accommodation.

 

Counterparties

CSH works with 15 Housing Association partners and recently, shareholders extended its mandate to work with a wider group of counterparties, such as the NHS and registered charities. The primary reason for this is that SSH is managed by a range of counterparties under different regulatory regimes. A table is provided below of the regulatory landscape for potential and existing

counterparties.

 

Organisation type

Regulatory Body

Registered Housing Associations

Regulator of Social Housing

Unregistered Housing Associations

Companies House

Registered Charities

Charities Commission

Community Interest Companies

Financial Conduct Authority

Community Benefit Societies

Financial Conduct Authority

Local Authorities

Regulator of Social Housing

Arm's Length Management Organizations (ALMOS)

Regulator of Social Housing

 

 

The Social Housing Family CIC ("SHF CIC")

As previously reported, Auckland Homes Solutions was the founding member of the SHF CIC in September 2019. Since then, Auckland has benefited from the additional infrastructure and skills the

SHF CIC has been able to provide to further its business, including recruiting a new executive team, growing its portfolio in an orderly way and increasing its surplus operating margin.

 

In August 2020, the CIC was joined by Qualitas Housing, a CIC dedicated to management of housing with care. SHF CIC members benefit from assistance and knowledge sharing in the following areas:

 

•     Group procurement processes

•     IT and finance platforms

•     Governance advice and support

•     Advice regarding transfer of obligations where appropriate

•     Due diligence processes

•     Management upskilling

 

Regulation

CSH always welcomes the engagement of the RSH with our Housing Association counterparties and we support the work the RSH has undertaken in making recommendations for improvements in the sector over the last three years.

 

It is clear that the RSH will rightly publish information as to the improvements it wishes to see and whenever this occurs, CSH will provide support to its partners as appropriate. The SHF CIC has placed us at the heart of supporting Housing Associations to improve their organisations and management and we are glad to see that encouraging progress is being made.

 

CSH has been at the forefront of addressing the RSH's concerns about the long-term risk planning of Housing Associations by pioneering the implementation of the force majeure clause and caps and collars on the indexation of rents of between 1% and 4%. We will continue to work with our counterparties and the RSH to ensure that we fulfill our intentions as the largest owner of SSH in the

country to enable the sector to evolve and to maintain the improvements already made.

 

Outlook

We are still in uncertain times in relation to COVID-19 and its impact upon society in the short, medium and long term. What is absolutely certain is that the extraordinary shortage of social housing in general and SSH in particular is a challenge that society needs to address now.

 

The evidence is overwhelming that housing the most vulnerable individuals in our society in proper homes in the community is of paramount importance and not only transforms people's lives but also is more cost-effective for the public purse.

 

CSH sees compelling opportunities to invest further in this sector. A pipeline of £250 million has now been developed which will be partly satisfied when the new debt facilities come into place and leaves open the prospect of future equity raises subject to market conditions and investors' views.

 

We remain committed to generating growth and shareholder value through ethical investing. We look to the future with confidence.

 

Civitas Investment Management Limited

Investment Adviser

27 November 2020



 

 

Key Performance Indicators ("KPIs")

 

Measure

Explanation

Result

Increase in IFRS NAV per share

Target to achieve capital appreciation whilst maintaining a low risk strategy from enhancing the quality of cash flows from investments, by physical improvement of properties and by creating a significantly diversified, high-quality portfolio.

IFRS NAV increase of 10.01p per share or 10% from IPO.

Dividends per share

Targeting 5.4p per share per annum for the current year growing broadly in line with inflation.

Dividends of 2.68p per share declared for the six-month

period.

Number of Local Authorities, Housing Associations and care providers

Target risk mitigation through a diversified portfolio (once fully invested) with no more than 25% exposure to any one Local Authority or single Housing Association and no more than 20% exposure to any single geographical area.

As at 30 September 2020:

 

• 164 Local Authorities

• 15 Housing Associations

• 118 Care Providers

 

The Company's largest single exposure is to Auckland Housing Association and currently stands at 25%. The largest geographical concentration is in the South West, being 16%.

Loan to Gross Assets

Assets Target debt drawn of 35% of gross assets.

Leverage as at 30 September 2020 of 28.63% of gross assets.

 

Alternative Performance Measures

 

Adjusted

Performance

Measure

Definition

Performance

Measure

30 September

2020

30 September

2019

31 March

2020

Portfolio NAV

IFRS NAV adjusted to reflect investment property valued on a portfolio basis rather than on an individual asset basis.

Portfolio NAV

 

Portfolio NAV per share

£735,913,000

 

118.38p

£736,392,000

 

118.30p

£735,704,000

 

118.35p

 

For a reconciliation of the Portfolio NAV to the IFRS results please see note 6 to Appendix 1 below.

 

EPRA

The Company is a member of the EPRA. EPRA has developed and defined the following performance measures to give transparency, comparability and relevance of financial reporting across entities which may use different accounting standards. The Company is pleased to disclose the following measures which are calculated in accordance with EPRA guidance:

 

EPRA Performance Measure

Definition

Purpose

EPRA Performance Measure

30 September 2020

30 September

2019

31 March

2020

EPRA Earnings 

Earnings from operational activities. 

A key measure of a company's underlying operating results and an indication of the extent to which current dividend payments are supported by earnings.

EPRA Earnings

 

EPRA Earnings

per share (Basic and diluted)

£15,495,000

 

2.49p

£14,279,000

 

2.29p

£28,814.000

 

4.63p

EPRA Net Reinstatement Value ("NRV")

EPRA NAV metric which assumes that entities never sell assets and aims to represent the value required to rebuild the entity.

The EPRA NAV set of metrics make adjustments to the NAV per the IFRS financial statements to provide stakeholders with the most relevant information on the fair value of the assets and liabilities of a real estate investment company, under different scenarios.

EPRA NRV

 

EPRA NRV per share (diluted)

£672,798,000

 

108.23p

£667,621,000

 

 107.26p

£671,042,000

 

107.95p

EPRA Net Tangible Assets ("NTA")

EPRA NAV metric which assumes that entities buy and sell assets, thereby crystallising certain levels of unavoidable deferred tax.

EPRA NTA

 

EPRA NTA per share (diluted)

£672,798,000

 

108.23p

£667,621,000

 

107.26p

£671,042,000

 

107.95p

EPRA Net Disposal Value ("NDV")

EPRA NAV metric which represents the shareholders' value under a disposal scenario, where deferred tax, financial instruments and certain other adjustments are calculated to the full extent of their liability, net of any resulting tax.

EPRA NDV

 

EPRA NDV per

share (diluted)

£667,202,000

 

107.33p

£664,536,000

 

106.76p

£667,560,000

 

107.39p

 

Past performance is not a reliable indicator of future performance

 

For reporting periods starting on or after 1 January 2020, EPRA NAV and EPRA NNNAV have been replaced with three specific new EPRA NAV measures. The table above shows the new metrics and the new measure most comparable to the EPRA NAV is EPRA Net Tangible Assets.

 

EPRA Performance Measure

Definition

Purpose

EPRA Performance Measure

30 September 2020

30 September 2019

31 March 2020

EPRA Net Initial

Yield ("NIY")

Annualised rental income based on the cash rents passing at the balance sheet date, less non-recoverable property operating expenses, divided by the market value of the property with (estimated) purchasers' costs.

A comparable measure for portfolio valuations. These measures should make it easier for investors to judge themselves, how the valuation of portfolio X compares with portfolio Y.

EPRA NIY

5.26%

5.29%

5.26%

EPRA 'Topped-up' NIY

This measure incorporates an adjustment to the EPRA NIY in respect of the expiration of rent-free periods (or other unexpired lease incentives such as discounted rent periods and stepped rents).

EPRA 'Topped-up' NIY

5.26%

5.29%

5.26%

EPRA Vacancy Rate

Estimated Market Rental Value ("ERV") of vacancy space divided by ERV of the whole portfolio.

A 'pure' (%) measure of investment property space that is vacant, based on ERV.

EPRA Vacancy Rate

0%

0%

0%

EPRA Costs Ratio

Administrative and operating costs (including and excluding costs of direct vacancy) divided by gross rental income.

A key measure to enable meaningful measurement of the changes in a company's operating costs.

EPRA Costs Ratio

 

EPRA Costs Ratio (excluding direct vacancy costs)

19.22%

 

 

19.22%

 

21.58%



21.58%

 

21.48%

 

 

21.48%

 

 

Past performance is not a reliable indicator of future performance

 

For detailed workings reconciling the above measures to the IFRS results, please see Appendix 1 to these financial statements below

 

 

Principal Risks and Uncertainties

The principal risks facing the Company are substantially unchanged since the date of the Annual Report for the financial year ended 31 March 2020 and continue to be as set out on pages 52 to 54 of that report. Risks faced by the Company include, but are not limited to, strategy and competitiveness risks, investment management risks, accounting, legal and regulatory risks and operational risks, including cyber crime. Financial risks include market risks in relation to investment in property and liquidity funds, interest rate risk, credit risk and liquidity risk. Details of the Company's management of these risks are set out in the 2020 Annual Report.

 

 

Statement of Directors' Responsibilities

The Directors acknowledge responsibility for the Half-Year Financial Report and confirm that, to the best of their knowledge, these condensed consolidated financial statements have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and give a true and fair view of the assets, liabilities, financial position and profit for the period of the Group as required by DTR 4.2.4R. The Directors confirm that the Interim Management Report (including the Chairman's Statement and the Investment Manager's Report)

includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:

 

•     an indication of important events that have occurred during the six-month period to 30 September 2020 and their impact on the condensed consolidated financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

•     material related party transactions in the first six months and any material changes in the related party transactions described in the last annual report.

 

The Directors of the Company are listed below.

 

The principal risks and uncertainties facing the Group are consistent with those outlined in the Group's most recent annual financial statements for the year ended 31 March 2020, reflecting the information required by DTR 4.2.7R.

 

This Half Year Report was approved by the Board of Directors and the above responsibility statement was signed on its behalf by:

 

 

Michael Wrobel

Chairman

27 November 2020

 

 

Independent review report to Civitas Social Housing PLC

Report on the condensed consolidated financial statements

 

Our conclusion

We have reviewed Civitas Social Housing PLC's condensed consolidated financial statements (the "interim financial statements") in the Half Year Report for the six months ended 30 September 2020 of Civitas Social Housing PLC for the 6 month period ended 30 September 2020. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

 

What we have reviewed

The interim financial statements comprise:

·    the Condensed Consolidated Statement of Financial Position as at 30 September 2020;

·    the Condensed Consolidated Statement of Comprehensive Income for the period then ended;

·    the Condensed Consolidated Statement of Cash Flows for the period then ended;

·    the Condensed Consolidated Statement of Changes in Equity for the period then ended; and

·    the explanatory notes to the interim financial statements.

 

The interim financial statements included in the Half Year Report for the six months ended 30 September 2020 have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

 

As disclosed in note 2 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

 

Responsibilities for the interim financial statements and the review

 

Our responsibilities and those of the directors

The Half Year Report for the six months ended 30 September 2020, including the interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the Half Year Report for the six months ended 30 September 2020 in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

 

Our responsibility is to express a conclusion on the interim financial statements in the Half Year Report for the six months ended 30 September 2020 based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose.  We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

 

What a review of interim financial statements involves

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

 

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

We have read the other information contained in the Half Year Report for the six months ended 30 September 2020 and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

 

PricewaterhouseCoopers LLP

Chartered Accountants

London

27 November 2020

 



 

 

 

Condensed Consolidated Statement of Comprehensive Income
For the period from 1 April 2020 to 30 September 2020

 


Note

From 1 April 

2020 to 

30 September 

2020 

Unaudited

£'000 

From 1 April 

2019 to 

30 September 

2019 

Unaudited

£'000 

For the

year ended 

31 March 

2020 

Audited

£'000 

Revenue





Rental income

4

24,301

22,729 

46,165

Less direct property expenses

4

(237)

-

(259)

Net rental income


24,064

22,729 

45,906