A business update for the quarter ended 31 December 2019 (Q320) shows an increase in IFRS NAV per share to 107.55p. Including dividends paid the accounting total return was 1.53% (6.3% annualised). Rent indexation and portfolio acquisitions increased annualised rent roll and the run-rate of dividend cover increased further to 97%. We make no change to our forecast set out in our detailed post-interim results note.
Civitas added nine properties in Q320 for an aggregate consideration of £7.1m. The pipeline of further opportunities remains robust, comprising new and existing schemes. As Civitas gears its existing equity base towards its target 35%, the additional £60m of debt facilities arranged in H120, partly drawn, provides immediate funding and an additional £80m is under negotiation. Including the Q320 investment we forecast £123m of acquisitions by end-FY21. The growing portfolio and indexation of rents to CPI continues to lift annualised rent roll, £47.2m at endQ320 versus £46.5m at end-H120, contributing to increasing dividend cover. The company says that run-rate cover is now 97% compared with 96% at the half-year although achieved cover in the first nine months was 87%, similar to H120.
The chronic shortage of specialist supported housing (SSH) homes is forecast to increase, yet 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. Civitas continues to work closely with its housing association partner providers to help them develop and mature and is actively engaged with the regulator, which has raised sector-wide concerns over corporate governance and/or financial viability. It has recently supported the establishment of a sector community interest company (CIC) to bring together housing associations and pool industry skills, expertise and best practice. Most of Civitas’s housing association partners are profitable and it continues to operate as normal with those that are subject to regulatory notices and judgements, actively engaging with them to help effect any changes that may be necessary to allay the regulator’s concerns.
Despite recent share price strength, compared with a peer group of long income investors in social housing and healthcare property, Civitas shares provide an above-average prospective yield and trade at a larger discount to EPRA NAV.