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Civitas backs social housing not-for-profit to help raise housing associations’ game

3 December 2019

Specialist real estate investment trust looks to raise governance standards in a sector under regulatory pressure as it improves the strength of its dividends.

Civitas Social Housing (CSH), has backed the launch of the Social Housing Family Community Interest Company (CIC) as the specialist real estate investment trust looks to raise governance standards in a sector under pressure from its regulator.

The not-for-profit company will be governed by Paul Bridge, chief executive of Civitas Housing Advisors, CSH’s investment adviser, but will be independent of that company and will not receive funding from the £558 million investment trust.

It will aim to bring together regulated housing associations and help them address the governance and financial reporting failings identified by Regulator of Social Housing on numerous occasions.

Auckland Home Solutions, a housing association that comprises 20% of CSH’s rent roll, joined the Social Housing Family in August.

The regulator’s questioning of the financial model behind housing associations taking long leases on properties from real estate investment trusts has worried investors and hurt the shares of CSH and rival Triple Point Social Housing (SOHO).

CSH shares have declined 13% this year to trade 15% below net asset value (NAV), although this is an improvement on the 24% discount they reached in August.

Half-year results released yesterday showed a slowdown in investment by the company, with £10.2 million of properties acquired compared to £150 million in the same period last year.

Investec analyst Ben Newell said: ‘We believe this is primarily a result of housing associations engaging with the regulator and seeking to address its concerns, although the investment adviser highlighted a delay in securing the most recent tranche of debt which was put in place in September.’

CSH arranged a £60 million, five-year loan facility with NatWest bank in September and is deploying the money. It plans to borrow another £80 million of debt in the first quarter of next year to raise its gearing to the target level of 35%, up from its current 24%.

This will raise investment and rental income to the level necessary to cover the full-year dividend target of 5.3p per share which supports a 6% yield on the depressed shares.

The company paid two dividends of 1.325p in the six months to 30 September, covered just 87% by earnings per share of 2.29p, although it says the current ‘run rate’ is 96% suggesting full cover could be achieved by the financial year-end on 31 March.

During the half year the trust’s NAV including dividends increased by 2.2% to 107.23p. This lifted the underlying total return from the portfolio to 6.9% since its flotation in November 2017, although the shares have slid nearly 10% to just over 90p from their initial offer price of 100p.

Since September, CSH has stepped into the market to buy back 715,000 shares in a bid to narrow the discount.

Andrew Dawber, Civitas group director, said the trust’s board could decide to purchase more of its shares. ‘I’m sure that it is expected that we will do a bit more [buying back] but we also have the view that buybacks do not narrow the discount and keep it narrow. It is what we do on the ground,’ he told Investment Trust Insider.

Bridge said the general election did not pose a threat as there was broad political consensus behind supporting the vulnerable tenants for whom it provided housing. CSH currently houses 4,000 tenants with learning and mental difficulties.

‘We have commissioned independent academic research that can show the portfolio saves the taxpayer £59 million a year,’ he said.
‘We can show what we are doing is socially beneficial and supported by families,’ Bridge added.

CSH has signed a £25 million contract to buy a specialist care facility in Wales, which is home to a full rehabilitation unit and aquatic centre.

It is also focusing on buying properties in Scotland and Northern Ireland after changing its mandate to include the regions after requests from their respective governments to invest in social housing in the areas.

Investment company news brought to you by Citywire Financial Publishers Limited.


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