Civitas Social Hsng. - Trading Update
30/01/2023 07:00
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RNS Number : 1762O Civitas Social Housing PLC 30 January 2023
30 January 2023
Civitas Social Housing PLC
("CSH" or the "Company")
Trading Update
Introduction
Civitas Investment Management Limited ("CIM") the investment adviser of
Civitas Social Housing PLC ("CSH" or the "Company"), the UK's leading
care-based and healthcare REIT, is pleased to provide a market update
reaffirming the continued robust financial position of the Company and of the
Company's counterparties. Rents received have continued to grow, with
collections in line with the expectations of the Company's lease terms and in
line with relevant CPI indexation. The recent exception of My Space Housing
Solutions (1.3% of rent roll) is referred to in more detail below.
CSH's business model and portfolio has always been directed to supporting the
delivery of high levels of care for vulnerable individuals in bespoke, adapted
care-based housing. The average number of care hours provided in a typical CSH
property is 50 hours per week. It is for this reason that the Company's
portfolio qualifies as Specialist Supported Housing and is exempt from caps on
housing benefit.
The Company will publish its Net Asset Value as at 31 December 2022 on 8
February 2023.
Growth in Rental Income
At the time of publication of the Company's Interim Results on 6 December
2022, the Company noted that it had experienced net rental uplifts in the
six-month period to 30 September 2022 of 6.0% and that further growth in rents
was anticipated in the remainder of 2022 and 2023.
We are pleased to note that, as expected, this trend has continued in the same
manner in the three-month period to 31 December 2022 when net rental uplifts
have been achieved at a similar level to those reported previously.
This net rental outcome reflects the combination of leases that are uncapped
together with those that are capped at 4%. It also reflects selective smaller
adjustments that have been agreed to create greater timing alignment between
the date of lease indexation and the date that the Approved Provider ("AP")
itself secures rental uplifts with local authorities. This is part of our
long-term detailed ongoing engagement with APs to act as a constructive
partner.
At a time of double-digit inflation (which is expected to decline
significantly throughout 2023) we do engage with APs to ensure that they have
the requisite information to support claims for rental indexation. The Company
will offer an element of flexibility to ensure we maintain strong and positive
relationships with APs and with local authorities to provide long-term value
for money. Given the current level of CPI inflation, this is not expected to
change our overall view of the current trendline in the Company's rental
growth.
Our approach to managing the Company's rent roll is to utilise our specialist
teams within CIM to work closely with our AP partners and to draw upon the
extensive property data sets that we hold with respect to the Company's
properties. We work in a sector that is very operational in nature and we
believe that the correct approach to managing the portfolio is to engage in an
informed and very granular way and for these skills and services to be
maintained and delivered in-house within CIM and at a cost to CIM.
The delivery of active and long-term care within our adapted properties is a
key differentiator for the Company in supporting the rent roll and we invest
considerable resource in maintaining a detailed understanding of the
operations of the care sector in the UK.
The Company's portfolio has been positioned to provide buildings that are
typically suitable for the delivery of higher acuity care. The average number
of care hours provided in a typical CSH property is 50 hours per week. We have
a very small number of properties that are directed towards services such as
accommodation for asylum seekers leased to large national support services
entities that in turn are backed by Government contracts (around 1% of the
portfolio) and where care or support services are not needed in the same
manner. For these properties we do not seek to achieve exempt rents and rather
charge rent at a much lower level that reflects the nature of the provision,
and which is often less than £50 a week.
Based on the above we consider that the model operated by the Company is very
different and distinct to other entities which provide low levels of support
or support-free accommodation, for which it could be more difficult to achieve
exempt rents.
Confidence in Current & Future Rent Roll
CIM has continued to actively manage the Company's portfolio of 697 separate
properties that provide homes for 4,594 individuals almost all of which have
identified long-term, significant care needs.
Utilising a specialist in-house asset management team together with in-house
credit control, CIM works closely with its 18 APs and with the Company's
diverse care providers in a supportive and pro-active manner. This includes
regular on-site visits to APs with detailed, granular analysis being
undertaken in support of the Company's rent roll and the nature and
quality-of-service delivery. This, in turn, provides evidence for the
appropriateness of the Company's rents and their value for money analysis.
At a time of rising inflation, the Company seeks to ensure that in respect of
the Company's properties APs can fully represent their claims with relevant
local authorities and achieve uplifts that reflect inflation and the level of
services being delivered. This includes drawing on the specialist housing
benefit experts that have been hired into CIM over recent years and provide a
framework to work through any specific issues that may arise on any particular
property or with a particular local authority in a constructive and informed
manner. This is intended to be supportive without affecting the primary role
and independence of the APs.
From our activity across the specialist supported housing sector, it is
evident that demand for quality adapted accommodation within a community
environment remains strong whilst availability of suitable accommodation has
reduced. The decline in supply in part reflects the current effects of
inflation on the cost of building and adaptation works and the ability of
specialist developers to deliver highly adapted properties within a tight
rental framework.
Independent research further confirms the long-term demand trends that exist
in the sector in which the Company is a market leader and which provides
confidence over the Company's future rent roll.
Rent Collections
The CIM finance/credit control teams work closely with the fund administrator
LINK Group in the active monitoring and management of rent collection.
In respect of the three-months ended 31 December 2022 rent collections have
taken place in the ordinary course and the Company has not experienced any
material changes to its rent collection of the nature that has recently been
reported elsewhere in the homeless accommodation sector which is not a service
generally provided by the Company.
As at 31 December 2022, trade debtor days averaged 39 days; however, this
reduced to 20 days as a result of significant receipts made in the period
following Christmas. This compares to 28 days for the period ended 30
September 2022 and 26 days for the twelve months ended 31 March 2022.
Within these averages there will as usual be a range of individual debtor
days, including some payments in advance. Where debtor balances have been
outstanding for a longer period of time, the CIM finance/credit control teams
and asset management teams will work with the respective AP to understand the
specific issues and to agree a plan to bring those balances back into line.
This represents a regular form of detailed engagement for the CIM teams that
has been evolved with success over several years.
Improving Performance of Our Approved Providers
The APs with whom the Company works are separate independent entities that are
well established within a regional or national framework and who typically
specialise in the management of care-based housing for vulnerable adults.
Other than My Space Housing Solutions (see below) they do not themselves
provide direct care services but in the case of the Company's portfolio, work
with 130 dedicated care providers to support the delivery of those services.
The APs have each progressed at different paces, reflecting their individual
histories and ambitions with the largest now demonstrating substantial
turnover above £50 million with significant profits and cash reserves. The
majority are reporting growing profits whilst a small number still report
deficits in part relating to provisioning for the costs of maintenance and
repairs.
At the time of publication of the Company's interim results to 30 September
2022 CIM set out a schedule demonstrating the financial performance of APs and
it is intended that this will be updated at the time of the annual results to
31 March 2023.
My Space Housing Solutions
My Space Housing Solutions ("My Space") is the only AP that the Company works
with that is both a housing association and an integrated care provider.
As noted previously My Space represents 1.3% of the Company's rent roll and
this relates to nine properties that were acquired in 2017 and 2018 and which
have enjoyed strong occupation and rental delivery until recent months when My
Space stopped passing through rental income that is being generated.
On 19 December 2022 and 17 January 2023, the Company provided updates with
respect to My Space that followed on from various forms of regulatory
intervention.
As previously announced, CIM is engaging with My Space to monitor the position
and is considering whether it is appropriate to take steps to reassign leases
over the nine properties so that the Company can continue to receive the
rental income that is being generated by these assets.
New Debt Facilities Secured
In December 2022, the Company signed a new five-year £70.8 million facility
with a new major bank lender in the UK with the intention that this new
facility will be utilised to redeem the existing facility with Lloyds Bank as
well as providing additional liquidity for the Company.
Our work in this regard remains on-track and it is intended that this will be
drawn mid-February 2023 as planned and a further announcement will be made at
that time.
Progress Regarding New Lease Clause
CIM seeks to support housing associations in their desire to achieve
regulatory compliance with the Regulator of Social Housing.
Following the adoption of the new regulatory clause by two leading housing
associations discussions are being held with the Regulator of Social Housing
to ascertain if this can form the basis upon which Approved Providers can move
further towards compliance.
Conclusion
CIM manages the largest portfolio of specialist care-based housing in the UK
and has built a dedicated, in-house, well-staffed resource to provide active
management and engagement across the sector and specifically with APs, care
providers and local authorities.
The Company's business model and portfolio has always been directed to support
the delivery of high levels of care for vulnerable individuals in bespoke,
adapted care-based housing. We do this in a granular manner, drawing on the
in-house expertise of managers experienced in housing benefits, property
management and care management.
The Board has noted the recent share price weakness and along with Civitas
Investment Management continues to actively explore opportunities to preserve
and enhance value to shareholders.
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
Chris Clarke
Tel: +44 (0)20 3100 2000
Darren Vickers
Owen
Matthews
Buchanan
Helen Tarbet / Henry Wilson
Tel: +44 (0)20 7466 5000
Hannah Ratcliff / Verity Parker
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 and healthcare facilities across the UK. CSH's portfolio has been
independently valued at £999.5million (30 September 2022). CSH now provides
homes for 4,594 working age adults with long-term care needs, in 697 bespoke
properties that are supported by 130 specialist care providers, 18 approved
providers and working with over 178 individual local authority partners.
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