The business model involves buying homes currently owned by registered providers such as local authorities and housing associations, with a view to generating income by taking the rent currently paid to those bodies by the government.
Civitas has a target of generating a dividend yield of around 5 per cent on an issue price of 100p. Income would be underpinned by leases and occupancy agreements ranging from 10 to 40 years. For existing social housing providers, the scheme has the attraction of freeing up funds tied up in the housing stock that can then be used to fund new construction.
Existing stock
The social housing market is worth around £300bn, and Civitas will confine its business model to buying existing stock, so there is no development risk or forward funding element.
A pipeline of potential opportunities has been identified and demand for social housing suggests that there will be little shortage of investment opportunities.
The only shortage at the moment is reflected in the gap between the 4.5m people on the social housing waiting list and the 17,000 social homes built in the year to April 2016.
Cast-iron budgets?
That said, with the government still keen on fiscal discipline and budget constraint - unless we hear something different in the Autumn Statement this month from the new chancellor Philip Hammond - it's unclear over the long term whether government payments to housing associations (and thus substitutes such as Civitas) will be maintained at present levels.
Not only this, but housing associations often have very strong credit ratings, meaning they're not always forced to sell stock to build more properties. According to architects Chapman Taylor, in 2014 Notting Hill Housing Trust borrowed £250m on the bond market. It used £175m of this to fund the development of around 1,400 homes each year until 2020 and £75m to refinance existing debts. This means it will be interesting to see how the appetite of housing associations to sell their stock to Civitas develops.
Beyond this, if the extension of the right-to-buy scheme is taken up by more people, there will potentially be fewer properties which housing associations and companies such as Civitas will be able to claim rent from the government for - until more social housing is built, anyway.
