Trading Update

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: [phone]

Andrew Dawber   Tel: [phone]

Panmure Gordon

Sapna Shah  Tel: [phone]

Tom Scrivens      Tel: [phone]

Liberum Capital Limited 

Chris Clarke   Tel: [phone]

Darren Vickers

Owen Matthews    

Buchanan

Helen Tarbet / Henry Wilson     Tel: [phone]

Hannah Ratcliff / Verity Parker      [e-mail]

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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