Civitas Social Housing – Regulatory action may be net positive

Civitas Social Housing – Regulatory action is positive

Civitas Social Housing (CSH) has met its dividend targets, grown its NAV and invested over £674m into 557 properties (housing almost 3,750 tenants) since its launch in November 2016. It has now merged its C shareand ordinary share portfolios and is focused on making best use of its capital structure (it plans to borrow more money so that its loan to value ratio rises to 35%), which should further strengthen its revenue account (as the income it generates on the properties it buys should be meaningfully higher than the interest it pays on its loans).

Over the past few months, a number of the Registered Providers that are counterparties to CSH’s leases have been issued with grading under review notices by the Regulator for Social Housing. This note takes a look at this issue and offer some thoughts as to why the regulator’s actions should have minimal direct impact on CSH but, in the medium-term, should serve to enhance the quality of its earnings.

Income and capital growth from social housing

CSH aims to provide its shareholders with an attractive level of income, together with the potential for capital growth from investing in a portfolio of social homes. The company expects that these will benefit from inflation adjusted long-term leases or occupancy agreements with Registered Providers (see page 2) and that they will deliver, on a fully-invested and geared basis, a targeted dividend yield of 5% per annum on the issue price. CSH intends to increase the dividend broadly in line with inflation.

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