H120 results showed strong year-on-year growth in rental income and earnings. Dividend cover is increasing and full cover is in sight, with debt facilities in place to fund further portfolio growth as the company gears its existing equity. Through its investment adviser, the company continues to work closely with housing associations, other counterparties and the regulator to raise performance and delivery standards that will benefit all stakeholders over the longer term.
H120 revenues increased by 45% year on year, driven by acquisitions and rent indexation, and EPRA earnings and diluted EPRA EPS increased by just over 40%. DPS paid (up 6% year on year) was 87% covered by earnings and the period-end run rate was 96%. With debt facilities in place to fund further portfolio growth, full cover is within reach. Rent indexation also supported property valuations and EPRA NAV increased modestly to 107.3p (FY19: 107.1p) despite dividend distributions and a drag from acquisition costs. Our estimates are slightly reduced by assumed slower investment, in line with the H120 experience. We continue to expect DPS growth, in line with inflation, with run-rate full cover (on the increased DPS) achieved during the next 12 months.
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 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.