Civitas identifies expansion potential

With thousands of individuals with learning disability and mental health issues that are stuck in inappropriate institutions, according to a recent report by the Care Quality Commission, it is unsurprising that Civitas Social Housing (CSH) has identified ample opportunities to expand its portfolio. The social housing provider has a pipeline of £180m in properties, which it plans to fulfil by the end of 2021. Those acquisitions will partly be funded by new debt facilities of around “£80m plus”, according to Civitas director Andrew Dawber, which it hopes to secure early next year. However, the real estate investment trust would also consider looking to the market to raise capital.

It was acquisitions that took place during the six months to September, together with rises in rent in line with consumer price inflation, that drove a 6 per cent rise in rental income. Rent collection has been undisturbed by the pandemic and there have been very low instances of the virus among residents across the portfolio, management said.   

Given the social housing sector’s ESG credentials and comparatively secure income stream, it is unsurprisingly an area the UK’s largest listed asset manager, Schroders (SDR), is also seeking to gain greater exposure to. It has appointed specialist impact asset manager Big Society Capital to launch the Schroder BSC Social Impact Trust, hoping to raise £100m to invest in private market impact funds and make direct co-investments. That will include social housing for individuals such as survivors of domestic abuse and the homeless.  

Tackling homelessness is one area in which Civitas is seeking to expand its housing provision by signing leases with a greater range of counterparties including charities and community interest organisations. It is also in discussions with the NHS around providing housing for individuals with special care needs, including “step-down” accommodation for those that have recovered from a condition, before they return home.   

The social housing Reit paid dividends of 2.68p a share in respect of the six months but that was only covered 93 per cent by EPRA earnings. Nevertheless, it is on track to pay a total dividend of 5.4p this financial year, which at the current share price is equivalent to a potential dividend yield of 5.2 per cent. Panmure Gordon expects the annual payment to rise to 5.9p a share the following financial year. Social housing Reits are not without risk, but that is accounted for in the discount attached Civitas’s shares versus its net asset value. Buy.

Last IC view: Buy, 110p, 30 Jun 2020