Last close As at 05/08/2026
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Research: Real Estate
The COVID-19 pandemic has thus far had no impact on Civitas Social Housing’s rent collection or financial performance and the portfolio continues to grow and perform as expected. In the three months ended 31 March 2020 (Q420), IFRS NAV per share increased marginally and quarterly dividends continued. As a result of continuing acquisitions and CPI-linked rental growth, the run rate of dividend cover has reached 100% and the target DPS for the current year has been increased by 1.9% to 5.4p/share.
Civitas Social Housing |
No COVID-19 impact and increased DPS target |
Q420 NAV update |
Real estate |
20 May 2020 |
Share price performance
Business description
Next events
Analyst
Civitas Social Housing is a research client of Edison Investment Research Limited |
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The COVID-19 pandemic has thus far had no impact on Civitas Social Housing’s rent collection or financial performance and the portfolio continues to grow and perform as expected. In the three months ended 31 March 2020 (Q420), IFRS NAV per share increased marginally and quarterly dividends continued. As a result of continuing acquisitions and CPI-linked rental growth, the run rate of dividend cover has reached 100% and the target DPS for the current year has been increased by 1.9% to 5.4p/share.
Year end |
Net rental income (£m) |
EPRA earnings* (£m) |
EPRA EPS* |
EPRA NAV/ share* (p) |
DPS |
P/NAV |
Yield |
03/18 |
18.6 |
9.1 |
1.44 |
105.5 |
4.25 |
0.99 |
4.1 |
03/19 |
35.7 |
22.6 |
3.63 |
107.1 |
5.00 |
0.97 |
4.8 |
03/20e |
46.3 |
29.2 |
4.69 |
107.8 |
5.30 |
0.96 |
5.1 |
03/21e |
52.2 |
34.2 |
5.50 |
109.7 |
5.40 |
0.95 |
5.2 |
Note: *EPRA earnings and NAV are fully diluted.
Rent collection as expected
Of the rents due to be paid during Q420, more than 99% have been received and Q121 rents continue to be collected as expected. Five properties were added in the quarter for an aggregate consideration of £17.8m taking total invested capital since IPO to £789m and including CPI-linked rent increases the annualised rent roll increased to £48.4m. Dividends are now 100% covered on a run rate basis and we expect full cover of the increased DPS on a reported basis in FY21 as past acquisitions make a full year contribution and as portfolio growth continues. IFRS NAV per share was 107.87p (Q320: 107.55p) and including DPS paid the quarterly total return was 1.5%.
Demand uncorrelated with the economy
Civitas invests in specialist supported social housing (SSH) properties, providing much needed homes for vulnerable young adults. The properties are fully let on long inflation-adjusted leases and we expect the sector’s historically low correlation to the general economy, or the broader residential and commercial property sectors, to continue. In the near term, the impact of COVID-19 is mitigated by a relatively low average age of residents, less likely to suffer from the types of underlying health conditions categorised as ‘high risk’ by the NHS, and the configuration of much of the modern housing stock, around self-contained apartments and small housing clusters, which supports infection control and management. In the longer term, the chronic shortage of SSH homes is forecast to increase and compared with the alternatives of residential care or hospitals it is widely recognised to improve lives in a cost-effective manner. SSH funding comes 100% from central government via local authorities, with cross-party support.
Valuation: Stable income and attractive yield
The shares have performed strongly over the past year reflecting the stable income profile, uncorrelated with the wider economy, and improved confidence over tenant quality. Despite this the shares continue to offer an attractive yield, with a growing dividend that we expect to be fully covered, and trade at a small discount to NAV.
Further details on the update
COVID-19 resilience
Civitas properties provide homes for more than 4,200 vulnerable residents, typically working age adults with learning disabilities, autism, and mental health and other significant care needs. With an average age of 32 years they are far less likely to suffer from the types of underlying health conditions categorised as ‘high risk’ by the NHS in respect of COVID-19. Civitas’s housing association and care provider partners remain fully operational, having made various adjustments to working practices, the implementation of which is significantly assisted by the configuration of many of the portfolio properties in the form of self-contained apartments and small housing clusters.
Positive total return in Q420 and +5.7% for the year
On an IFRS basis the unaudited end-Q420 NAV was £670.6m or 107.87p per share (end-Q320: £668.6m or 107.55p per share). Including the DPS of 1.325p paid during the period, the total accounting return was 1.53% (an annualised return of 6.3%). For the FY20 year, based on the unaudited NAV, the IFRS basis NAV total return was 5.7% with positive returns in each quarter. Q420 NAV per share on an EPRA basis will be available with the full year results but at H120 included a relatively small add-back for negative mark-to-market valuation effects in respect of derivative instruments used to hedge interest cost. Given the subsequent decline in market interest rates it is possible that the full-year negative mark to market will have increased and so too the EPRA add-back to IFRS NAV per share, but we do not expect this to be material.
The run-rate of dividend cover has reached 100%
The annualised rent roll has continued to increase, to £48.4m at end-Q420 and up from £47.2m at end-Q320, driven by acquisitions as well as rent indexation to consumer price inflation (CPI). The annual rate of CPI was 1.5% in March 2020 and has shown signs of moderating over the past year, from c 2.0%.
With growing income, the end-Q420 run rate of DPS cover, factoring in the period-end contracted rents as well as normalised expenses, had reached 100% compared with 97% at the end of Q320 and 96% at the half-year stage. On an achieved/reported basis, DPS cover in the first nine months of FY20 was 87% and we expect a slight increase for FY20 as a whole. With continuing rental growth and as recent acquisitions fully contribute, the company is on track to report full dividend cover in FY21, barring unforeseen costs and without factoring in additional acquisitions.
Continuing to invest with a robust pipeline
During Q420 the company acquired a further five properties, for an aggregate consideration of £17.8m (excluding acquisition costs), situated across five local authority areas, focused on the delivery of mid-to-higher acuity care, and let to existing housing association partners. For the year as a whole, Civitas acquired 22 properties for a total consideration of £31m. Total invested capital since IPO has now reached £789m, comprising 613 properties, fully let to 15 housing associations working with 117 care providers to provide homes on behalf of 164 local authorities to more than 4,200 individual tenants. The external property valuation is subject to what has become the industry standard ‘material uncertainty’ clause implemented by the valuers at a time of economic uncertainty and a significant reduction in market transactions to provide a benchmark. On this basis, the IFRS net initial yield of the portfolio was 5.26% at end-Q420, very slightly down on the 5.29% reported for end-Q320.
Looking ahead, Civitas expects to soon take delivery of the high acuity specialist facilities in Wales, an example of the company’s proactive role in the design and delivery of new purpose-built facilities. (we had previously assumed late in FY20 in our modelling and have pushed this out to early FY21). Additionally, the company says that it is in active discussions over the potential acquisition of a range of high-quality existing and new build properties for acquisition at completion.
Strong, liquid balance sheet
With gross borrowings of £272.5m at end-Q420 Civitas has now fully deployed its existing debt facilities, increased by £60m in H120. The average cost of debt at end-Q420 was 2.46% with interest cover at 4.5x and a weighted average term to maturity of 3.4 years. Gross gearing (which the company measures as gross debt divided by gross assets including the investment properties on a portfolio valuation basis) was 26.9%, some way off the target 35%. The company has previously indicated an intention to increase debt facilities by an additional £80m to fund further accretive portfolio growth and we assume this in FY21 in our modelling. At end-Q420 properties with a value of £212m remained unencumbered and available as security for additional borrowing. The balance sheet remains liquid with cash balances of £49.3m (net of operating and financing amounts due) of which £24m is legally committed to transactions (primarily the Welsh facility) and the balance being held as a contingency buffer.
Financials and valuation
We have made only modest changes to our estimates. We had previously allowed for the completion of the acquisition of the Welsh facilities during FY20 and we have now deferred this into FY21. Our FY21 and FY22 estimates benefit positively from the recent decline in market interest rates. In our forecasts we continue to assume that Civitas will further gear its existing equity towards the target 35% LTV by increasing borrowing facilities by an additional £80m during the current year and investing the proceeds.
Exhibit 1: Forecast revisions
Net rental income (£m) |
EPRA earnings (£m) |
EPRA EPS (p) |
EPRA NAV/share (p) |
DPS (p) |
|||||||||||
New |
Old |
% chg |
New |
Old |
% chg |
New |
Old |
% chg |
New |
Old |
% chg |
New |
Old |
% chg |
|
03/20e |
46.3 |
46.7 |
(0.9) |
29.2 |
29.8 |
(2.2) |
4.69 |
4.80 |
(2.2) |
107.8 |
108.0 |
(0.1) |
5.30 |
5.30 |
0.0 |
03/21e |
52.2 |
52.2 |
(0.1) |
34.2 |
33.6 |
1.8 |
5.50 |
5.41 |
1.8 |
109.7 |
109.9 |
(0.2) |
5.40 |
5.40 |
0.0 |
03/22e |
55.6 |
55.6 |
(0.0) |
36.4 |
35.7 |
2.0 |
5.86 |
5.74 |
2.0 |
112.9 |
113.0 |
(0.1) |
5.50 |
5.50 |
0.0 |
Source: Edison Investment Research
In Exhibit 2 we show a share price performance and valuation comparison with a group of companies that we would consider to be the closest peers to Civitas. Civitas shares have outperformed the peer group average, UK property sector and FTSE All-Share Index over one, three and 12 months which we believe reflects the stable and growing income stream and a recovery from earlier investor concerns regarding regulatory intervention in the housing association sector aimed at improving corporate governance and/or financial viability of several specialist supported housing providers. Despite this strong share price performance, the shares continue to offer an attractive yield, with a growing dividend that we expect to be fully covered, while continuing to trade at a discount to NAV.
Exhibit 2: Peer group valuation and performance
Price (p) |
Market cap. (£m) |
P/NAV* (x) |
Yield** (%) |
Share price performance |
||||
1 month |
3 months |
12 months |
From 12M high |
|||||
Assura |
76 |
2016 |
1.42 |
3.6 |
-2% |
-7% |
25% |
-14% |
Impact Healthcare |
101 |
321 |
0.94 |
6.1 |
13% |
-7% |
-6% |
-13% |
Primary Health Properties |
156 |
1894 |
1.44 |
3.6 |
-1% |
-3% |
17% |
-7% |
Residential Secure Income |
85 |
146 |
0.80 |
5.9 |
-7% |
-14% |
-12% |
-15% |
Triple Point Social Housing |
95 |
333 |
0.90 |
5.4 |
0% |
-2% |
1% |
-11% |
Target Healthcare |
94 |
430 |
0.87 |
7.0 |
-11% |
-24% |
-18% |
-25% |
Average |
1.06 |
5.3 |
-2% |
-10% |
1% |
-14% |
||
Civitas Social Housing |
104 |
647 |
0.96 |
5.1 |
5% |
4% |
23% |
-2% |
UK property index |
1,352 |
4.3 |
-6% |
-30% |
-21% |
-31% |
||
FTSE All-Share Index |
3,311 |
4.6 |
3% |
-20% |
-17% |
-22% |
||
Source: Civitas Social Housing data, Refinitiv. Note: Prices at 20 May 2020. *Based on last reported EPRA NAV. **Based on trailing 12-month DPS declared.
Exhibit 3: Financial summary
Period ending 31 March (£'000s) |
2018 |
2019 |
2020e |
2021e |
2022e |
INCOME STATEMENT |
|||||
Revenue |
18,606 |
35,738 |
46,311 |
52,180 |
55,559 |
Directors' remuneration |
(205) |
(163) |
(168) |
(168) |
(168) |
Investment advisory fees |
(5,773) |
(6,457) |
(6,164) |
(6,163) |
(6,291) |
General & administrative expenses |
(2,915) |
(3,022) |
(3,310) |
(2,900) |
(2,958) |
Total expenses |
(8,893) |
(9,642) |
(9,642) |
(9,231) |
(9,417) |
Total recurring expense ratio (TER) |
1.36% |
1.39% |
1.36% |
1.36% |
|
Operating profit/(loss) before revaluation of properties |
9,713 |
26,096 |
36,669 |
42,950 |
46,142 |
Change in fair value of investment properties |
30,633 |
3,652 |
8,361 |
10,700 |
17,664 |
Operating profit/(loss) |
40,346 |
29,748 |
45,030 |
53,649 |
63,806 |
Net finance expense |
(628) |
(3,484) |
(7,485) |
(8,749) |
(9,709) |
C share amortisation |
(2,792) |
(6,400) |
0 |
0 |
0 |
PBT |
36,926 |
19,864 |
37,545 |
44,900 |
54,097 |
Tax |
0 |
0 |
0 |
0 |
0 |
Net profit |
36,926 |
19,864 |
37,545 |
44,900 |
54,097 |
Adjusted for: |
|||||
Change in fair value of investment properties |
(30,633) |
(3,652) |
(8,361) |
(10,700) |
(17,664) |
C share amortisation |
2,792 |
6,400 |
0 |
0 |
0 |
EPRA earnings |
9,085 |
22,612 |
29,184 |
34,201 |
36,433 |
Average number of shares (m) |
350.0 |
425.4 |
622.1 |
621.6 |
621.6 |
Average diluted shares (m) |
633.1 |
622.5 |
622.1 |
621.6 |
621.6 |
Basic IFRS EPS (p) |
10.55 |
4.67 |
6.04 |
7.22 |
8.70 |
Diluted EPRA EPS (p) |
1.44 |
3.63 |
4.69 |
5.50 |
5.86 |
DPS declared (p) |
4.25 |
5.00 |
5.30 |
5.40 |
5.50 |
EPRA EPS/DPS |
0.34 |
0.73 |
0.89 |
1.02 |
1.07 |
BALANCE SHEET |
|||||
Investment properties |
516,222 |
820,094 |
865,100 |
979,484 |
997,148 |
Other receivables |
0 |
6,824 |
8,079 |
8,193 |
8,307 |
Total non-current assets |
516,222 |
826,918 |
873,179 |
987,677 |
1,005,455 |
Trade & other receivables |
3,315 |
5,723 |
7,074 |
7,994 |
8,376 |
Cash & equivalents |
249,608 |
54,347 |
68,994 |
47,334 |
50,809 |
Total current assets |
252,923 |
60,070 |
76,068 |
55,329 |
59,186 |
Trade & other payables |
(10,176) |
(15,324) |
(9,433) |
(10,659) |
(11,168) |
C shares |
(298,752) |
0 |
0 |
0 |
0 |
Total current liabilities |
(308,928) |
(15,324) |
(9,433) |
(10,659) |
(11,168) |
Bank loan & borrowings |
(90,822) |
(205,156) |
(269,245) |
(350,445) |
(351,645) |
Total non-current liabilities |
(90,822) |
(205,156) |
(269,245) |
(350,445) |
(351,645) |
Net assets |
369,395 |
666,508 |
670,570 |
681,902 |
701,828 |
Adjust for: |
|||||
C shares |
298,752 |
0 |
0 |
0 |
0 |
Fair value of interest rate derivatives |
0 |
0 |
180 |
180 |
180 |
Diluted EPRA NAV |
668,147 |
666,508 |
670,750 |
682,082 |
702,008 |
Period-end basic number of shares (m) |
350.0 |
622.5 |
621.6 |
621.6 |
621.6 |
Period end diluted number of shares (m) |
633.1 |
622.5 |
621.6 |
621.6 |
621.6 |
Basic IFRS NAV per share (p) |
105.5 |
107.1 |
107.8 |
109.7 |
112.9 |
Diluted EPRA NAV per share (p) |
105.5 |
107.1 |
107.8 |
109.7 |
112.9 |
CASH FLOW |
|||||
Net cash flow from operating activity |
8,057 |
23,335 |
35,838 |
43,142 |
46,155 |
Cash flow from investing activity |
(483,898) |
(302,577) |
(42,795) |
(103,684) |
0 |
Net proceeds from equity issuance |
343,000 |
(56) |
0 |
0 |
0 |
Net proceeds from C share issuance |
295,960 |
0 |
0 |
0 |
0 |
Loan interest paid |
(417) |
(2,958) |
(6,079) |
(7,549) |
(8,509) |
Bank borrowings drawn/(repaid) |
92,457 |
115,990 |
64,000 |
80,000 |
0 |
Share repurchase |
(694) |
0 |
0 |
||
Dividends paid to ordinary shareholders |
(10,073) |
(17,591) |
(32,883) |
(33,569) |
(34,171) |
Dividends paid to C shareholders |
0 |
(9,966) |
0 |
0 |
0 |
Other cash flow from financing activity |
(1,761) |
(2,374) |
(1,111) |
0 |
0 |
Cash flow from financing activity |
719,166 |
83,045 |
23,234 |
38,882 |
(42,680) |
Change in cash |
243,325 |
(196,197) |
16,277 |
(21,659) |
3,475 |
Opening cash |
0 |
243,325 |
47,128 |
63,405 |
41,745 |
Closing cash (excluding restricted cash) |
243,325 |
47,128 |
63,405 |
41,745 |
45,220 |
Restricted cash |
6,283 |
7,219 |
5,589 |
5,589 |
5,589 |
Cash as per balance sheet |
249,608 |
54,347 |
68,994 |
47,334 |
50,809 |
Debt as per balance sheet |
(90,822) |
(205,156) |
(269,245) |
(350,445) |
(351,645) |
Unamortised loan arrangement costs |
(1,635) |
(3,291) |
(3,202) |
(2,002) |
(802) |
Total debt |
(92,457) |
(208,447) |
(272,447) |
(352,447) |
(352,447) |
Net (debt)/cash excluding restricted cash |
150,868 |
(161,319) |
(209,042) |
(310,702) |
(307,227) |
Net LTV (IFRS valuation basis) |
n.m. |
19.5% |
23.9% |
31.5% |
30.6% |
Source: Civitas Social Housing historical data, Edison Investment Research forecasts
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Research: Real Estate
Lower trade volumes resulted in Deutsche Grundstücksauktionen (DGA) reporting an almost 70% y-o-y decrease in net profit for FY19 (€0.5m). The decline is almost fully attributable to the parent company, which in H219 started to suffer from declining demand in anticipation of the Berlin rent cap, effective from February 2020. This was in part offset by the improved performance of the fully owned subsidiaries, which collectively doubled their income in FY19 due to real estate market development in up-and-coming cities. As a result of the coronavirus outbreak management decided to recommend a dividend pay-out ratio below 50%, resulting in dividend per share of €0.15 against €1.0 paid from FY18 income.