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Connell C - LB Mar 2022

Civitas’s strategies as we go forward through the year

London listed care and healthcare REIT Civitas Social Housing (CSH) recently published its full-year results for the year ended 31 March 2022, reporting valuation growth, financial performance in line with expectations, a raised dividend target and ongoing positive social impact. HealthInvestor catches up with the Civitas Investment Management (CIM) team, the investment manager to CSH, to find out more about the fund manager’s forward strategies.

Andrew Dawber, group director at CIM tells us: “We’ve come through the Covid-19 pandemic with solid results, and we continue to collect the rents, work with the Regulator for Social Housing and deal with the new lease clause which seeks to enhance Housing Association’s regulatory compliance and address perceived risk.

“Strategically our objective is to have a sector where the regulator is more comfortable with Housing Association compliance. So, the next step is to introduce a variation to our leases, that will not impact revenues or asset values but aims to strengthen the industry by addressing concerns expressed by the regulator.

He adds: “Over the year, we’ve been also investing heavily in our team. Today we are one of the most in-depth teams operating in social housing and certainly the most in-depth team in specialist-supported housing.”

Paul Bridge, chief executive of social housing at CIM adds: “We’ve also published the independent measurement of social impact through our fifith full report with the Good Economy demonstrating the enormous savings to the taxpayer, and our continued efforts to reduce carbon emissions  utilizing government grants.”

Asked about Civitas’ forward forecast, Andrew said CSH does not make forward forecasts but sets strategic objectives. “The board has an objective to have a fully covered dividend. Under the EPRA measure, we have a run-rate dividend cover of 97% in March 2022.

He continues: “Looking at how we sensibly utilize some of the capital that we’ve got to deploy is the other part of the objective – working closely with the housing associations, enabling  standards to improve, playing our part as a responsible landlord working in a social sector. Obviously, this is a different sector than purely commercial real estate with several different drivers and therefore different decisions”.

 “We carry quite a bit of cash on the balance sheet at the end of March 2022 – just over £50 million of free cash. And in due course, the board will consider how some of that is used. It’s important to have a conservative balance sheet and always have cash available. Nonetheless, the board would not want to keep £50 million in the long term. So, there will be strategies around that as we as we go forward through the year.”

CIM currently has approximately £3.5 billion of committed capital in both the UK and now Europe.

CIM is currently looking at Scandinavia and Germany, Tom Pridmore, group director of CIM, tells HealthInvestor following up on our discussion in March.

“The area that we continue to focus on is specialist care, “he says. “That’s the key focus for us – critical care services supplied to individuals who are supported by governments in the UK and Europe, and on a non-discretionary funding basis.

“As a fund manager, we provide the quality of lifelong care and accommodation and also a value for money for the governments and local municipalities that are paying for this accommodation. When we’re investing in the sector, we always think about what we’ve seen over the last six to 12 months. From how local authorities in the UK and Europe have met inflationary costs and recognized increasing employment costs and goods and services to how they are supporting care providers appropriately with an inflationary gap which of course is key to keeping the quality of service throughout these facilities.”

Commenting on CSH’s share price fall, Pridmore says it is a symptom of the market generally adding that Civitas’ leases are inflation-protected. “As inflation rises, so do our rents to where we are generally protected in that regard, which is very important.”

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