Civitas Social Housing PLC Half Year Report to CIVITAS SO CIAL HOUSING PLC
Civitas Social Housing PLC ( Civitas ) is the market leading Real Estate Investment Trust investing in social housing, with a particular focus on Specialist Supported Housing in England and Wales. The properties in the portfolio provide homes and enable the provision of care to vulnerable individuals throughout England and Wales. Government legislation, most recently in the Care Act 2014, required a transition from the provision of care in large institutional settings to smaller properties based in the community, providing care for vulnerable people close to families and support networks. This change in the method of the provision of care in the UK has resulted in significant long-term demand for Specialist Supported Housing. Civitas invests in specially tailored properties that support the care needs of the residents, whether that be existing, adapted residential properties within the community, properties repurposed from other uses or newly built properties. Residents are typically expected to reside in Specialist Supported Housing for many years including in many instances whole life provision. The average age of residents within the Civitas portfolio is 36 years. The key aim of Civitas is to achieve sustainable, positive social impact by improving the outcomes for residents and enhancing the overall quality and availability of Specialist Supported Housing whilst demonstrating value for money for the public purse. Civitas aims to provide shareholders with stable returns from a well-diversified portfolio of property that achieves real social benefit. Civitas Social Housing PLC Half Year Report
Contents Financial Highlights 2 Key Achievements of 2 Chairman s Statement 4 Analysis of Property Portfolio 8 Investment Adviser s Report 12 Extract from The Good Economy Impact Report, 16 Key Performance Indicators ( KPIs ) 20 Alternative Performance Measures 21 Principal Risks and Uncertainties 22 Statement of Directors Responsibilities 23 Independent Review Report to the Members of Civitas Social Housing PLC 24 Condensed Consolidated Statement of Comprehensive Income 26 Condensed Consolidated Statement of Financial Position 27 Condensed Consolidated Statement of Changes in Equity 28 Condensed Consolidated Statement of Cash Flows 29 Notes to the Condensed Consolidated Financial Statements 30 Appendix I Notes to the Calculation of EPRA and Other Alternative Performance Measures 45 Glossary 48 Company Information inside back cover Civitas Social Housing PLC Half Year Report 1
Financial Highlights 1 31 March 2 Profit before tax 10.6 million 36.9 million Earnings per share 3.0p 10.6p Company adjusted earnings 3 10.1 million 9.1 million Company adjusted earnings per share 3 2.89p 2.60p IFRS NAV 371.2 million 369.4 million IFRS NAV per share 106.1p 105.5p IFRS property valuation 678.7 million 516.6 million Annualised rent roll 37.2 million 28.4 million Increase in rent roll 31.0% N/A Dividends declared 2.5p per share 3.0p per share Annualised total shareholder return 5.7% 10.7% 1 Six months to. 2 Period from IPO on 16 November 31 March. 3 Details of these measures are disclosed in the alternative performance measures section on page 21 and Appendix 1 to the financial statements. Key Achievements in the Period Financial highlights 678.7m Independently valued 37.2m Annualised Rent Roll Acquistions of 150.7m in the period Investment property independently valued at 678.7m Annualised Rent Roll: 37.2m based upon 678.7m of real estate at the end of the period 150.7 million of acquisitions made in the period Annualised Rent Roll 31% Increase 31% increase in the annualised rent roll in the period. 3.0p per Share Earnings 3p per Share Earnings: based on comprehensive income and property revaluations WAULT 25.1 years Weighted Average Unexpired Lease Terms: 25.1 years 2 Civitas Social Housing PLC Half Year Report
Operational highlights Civitas continues to work pro-actively with its Housing Association and care provider partners on a regular basis to offer support and encouragement for them to actively engage with Civitas and the Regulator of Social Housing ( RSH ) and follow the best practice protocols established by Civitas in all their arrangements in order to enhance the quality of their activities and the sector generally as well as further strengthening their financial standing. This is an ongoing activity and one that Civitas devotes considerable time and effort to, frequently visiting partners on site and meeting executive and operational teams and inspecting Civitas properties. Civitas is committed to playing a leading role in improving standards within the sector as well as responding to change in a professional manner. As part of the on-going review announced earlier this year being undertaken by the RSH of many of the Housing Associations that provide specialist supported living which are increasing in size to meet long-term demand, a number of grading under review notices and regulatory judgements have been issued. It is expected this will be an ongoing process with the ultimate aim of enhancing gradings and supporting Housing Associations as they expand to meet substantial demand. Civitas is committed to playing its part in this process. Added to the EPRA index. The Good Economy, the social impact advisory firm, in its third independent Social Impact Report on Civitas, noted that Civitas is delivering on its social objective. As detailed in the 31 March Financial Statements and as announced on 9 May, Civitas transferred 44 leased properties from First Priority to Falcon, on the same terms, with an option to extend the transferred leases to 40 years. Funding Floating rate revolving credit facility 40m, 3yrs 103.4m Drawn down debt reflecting gearing of 13% The Lloyds 40 million three-year floating rate revolving credit facility was extended by a further 20 million Total drawn debt of 103.4 million reflecting gearing of 13% (available loan facilities of 112.5 million) Post Balance Sheet highlights 16 properties acquired into the C share pool post the period end, totalling 28.2 million On 28 November a new HSBC 100 million three year floating rate revolving credit facility was agreed Announcement on 15 November of the triggering of the C share conversion process The Company joined the FTSE 250 on 13 November Civitas Social Housing PLC Half Year Report 3
Chairman s Statement Dear Shareholder The Company continued to successfully deliver on its objectives in the six months to. We invested 150.7 million in high quality Specialist Supported Housing, providing a safe and supportive environment for vulnerable people. These acquisitions continue to diversify our counterparty relationships. As at, the Company s portfolio consisted of 522 properties housing 3,440 tenants, leased to 15 Housing Associations, involving 140 Local Authorities and 93 care providers with a focus on Specialist Supported Housing. The Company generated earnings of three pence per Ordinary share for the half year. We paid dividends of 2.5 pence per Ordinary share and 1.88 pence per C share. We remain on track to deliver our full year dividend targets. Investment The 150.7 million was invested in 108 Specialist Supported Housing properties, which were selected from a wider pool of opportunities that were reviewed. These properties are a mixture of purpose-built, repurposed and traditional real estate that enable individuals with care needs to live close to their support networks within the community. The Care Act 2014 reflected the continuing views of government and other policy formers, that the provision of care to vulnerable people should continue to move from large institutional facilities, to smaller residencies within the community. This emphasis in government policy has driven significant long-term demand for Specialist Supported Housing. The Company s significant network enables it to identify where there are significant and sustainable requirements for Specialist Supported Housing and source quality property to meet this need. Civitas Housing Advisors Limited (the Investment Adviser ) has continued to strengthen its existing relationships while selectively developing new relationships where beneficial. By maintaining a strong network of contacts with proven track records and experience, the Company is able to source high quality properties primarily off-market at competitive prices which has delivered capital appreciation of 6.9 million in the period. There has been some modest yield compression within the market. 4 Civitas Social Housing PLC Half Year Report
Dividends In May a dividend of 1.25p per Ordinary share was declared for the period to 31 March, a further dividend of 1.25p per Ordinary share was declared in August for the period to 30 June. The dividends declared matched the Company s original intention to target a 5p dividend for the calendar year to 31 December. The Company s C shares are due to pay a 3% cumulative dividend up to the point of conversion to Ordinary shares. A first dividend for the C shares of 1.13p was declared in May and a second dividend of 0.75p was declared in August, in line with the target 3% dividend. Since the period end further dividends of 1.25p per Ordinary share and 0.75p per C share have been declared for the quarter ended. Financial performance Rental income of 15.7 million was generated in the period, with rental growth largely driven by acquisitions made in the period. At the period end, the annualised rent roll stood at 37.2 million, a 31% increase on the rent roll as at 31 March. Total comprehensive income for the period was 10.6 million, reflecting earnings per share for the period of 3.0 pence per share. As at, the IFRS net asset value of the Company was 106.1p which together with the dividends of 2.5p per share gives a total return since March of 5.7% on an annualised basis. C share issue In November 2017, the Company raised 296 million for investment (after deducting 2% issue costs), of which 209 million was invested into high quality Specialist Supported Housing as at end September, with a further 5 million of property exchanged awaiting completion. On 15 November it was announced that the C shares would be converted to Ordinary shares per the terms of the Company s articles of association. As at 15 November 240 million of the capital had been committed. The conversion ratio will be calculated using the portfolio net asset values as at 30 November for each share pool. It is expected that conversion will occur on or around 21 December. Further details on the C share conversion process are outlined in note 20. Civitas Social Housing PLC Half Year Report 5
Chairman s Statement continued Loan financing In June the Company extended its existing 40 million revolving credit facility by a further 20 million. Including the existing 52.5 million facility with Scottish Widows the Company had an aggregate 112.5 million of available loan facilities of which 103.4 million had been drawn at. The Company expects to put in place an average gearing of approximately 35% of the Company s gross asset value. At the period end, the Company had gearing of 13% of gross assets, excluding the C share liability. Following the period end a further 100 million three-year revolving credit facility was completed with HSBC. The Company will seek to put in place further loan facilities where it is attractive to do so, in order to enhance shareholder return, whilst not exceeding the leverage levels set out in the prospectus. Considering the strong pipeline in place, it is also likely that the Company will look to raise further equity in the future once it has reached an appropriate level of gearing. Outlook The government continues to be supportive of Specialist Supported Housing, with further funding allocated to mental health services. This increasing financial support is in reaction to continued demand for quality care in the community for people with a number of different care needs. In the market generally there remains significant uncertainty due to Britain s exit from the EU, which is due to occur in March 2019. The Company s exposure to the risk of adverse effects from Britain s exit are limited to an extent by the long tenure of tenants, demand linked to underlying care need and a focus on UK property. The Company has a diverse portfolio of high quality assets and sufficient size to give it both scale and an increasingly competitive cost base. The Company is well capitalised and positioned to continue to selectively add high quality assets to further enhance the existing portfolio. The Investment Adviser has identified a pipeline of high-quality Specialist Supported Housing that may be acquired by the Company. The Company will continue to implement a disciplined investment policy focused on quality opportunities, whilst rejecting others on the grounds of quality, location and value for money in addition to a number of other factors. Michael Wrobel Chairman 28 November 6 Civitas Social Housing PLC Half Year Report
Civitas Social Housing PLC Half Year Report 7
Analysis of Property Portfolio as at The Company s portfolio is spread across England and Wales, reflecting the Company s objective of creating a coherent yet diversified portfolio. NORTH EAST YORKSHIRE & HUMBER NORTH WEST EAST MIDLANDS WEST MIDLANDS EAST LONDON SOUTH EAST SOUTH WEST WALES 8 Civitas Social Housing PLC Half Year Report
Capital deployed as at 619.2m Excluding purchase costs Properties 522 Tenancies 3,440 WAULT* 25.1yrs * Weighted Average Unexpired Lease Term Key Region County Tenancies Properties North East Durham 396 60 North East Tyne and Wear 6 1 Yorkshire & Humber Hull 2 1 Yorkshire & Humber Lincolnshire 16 3 Yorkshire & Humber North Yorkshire 13 2 Yorkshire & Humber South Yorkshire 158 22 Yorkshire & Humber West Yorkshire 207 16 North West Cheshire 89 18 North West Greater Manchester 67 7 North West Lancashire 102 28 North West Manchester 8 1 North West Merseyside 263 37 East Midlands Derbyshire 34 6 East Midlands Leicestershire 108 18 East Midlands Lincolnshire 56 8 East Midlands Northamptonshire 44 8 East Midlands Nottinghamshire 118 14 West Midlands Staffordshire 217 21 West Midlands Warwickshire 44 11 West Midlands West Midlands 133 46 West Midlands Worcestershire 52 12 East of England Bedfordshire 25 2 East of England Cambridgeshire 25 9 East of England Essex 22 3 East of England Hertfordshire 13 1 London Greater London 326 24 South East Berkshire 29 4 South East Buckinghamshire 1 1 South East East Sussex 8 2 South East Hampshire 75 14 South East Kent 99 10 South East Oxfordshire 19 4 South East Surrey 53 8 South West Bristol 5 1 South West Cornwall 110 14 South West Devon 31 8 South West Dorset 266 39 South West Gloucestershire 126 27 South West Somerset 46 6 South West Wiltshire 3 1 Wales Gwent 10 2 Wales West Glamorgan 15 2 Total 3,440 522 Civitas Social Housing PLC Half Year Report 9
Analysis of Property Portfolio continued Portfolio review Percentage of Gross Asset Value by Housing Association ( ) 14 6 17 4 1 7 3 17 7 3 4 2 3 5 5 11 Falcon Encircle Westmoreland Supported Housing Limited IKE Supported Housing Limited Hilldale Housing Association Limited ( 1%) Trinity Housing Association Inclusion Housing CIC New Walk CIC Harbour Light Assisted Living PIVOTAL Chrysalis Supported Association Limited Auckland BeST My Space C share capital to be invested Additional C share debt to be applied Additional Ordinary share debt to be applied Blue Square <1% Percentage of Gross Asset Value by Region ( ) 13 6 8 2 12 8 6 9 10 1 East Midlands East of England London North East North West South East South West 11 8 6 Wales West Midlands Yorkshire and Humber C share capital to be invested Additional C share debt to be applied Additional Ordinary share debt to be applied 10 Civitas Social Housing PLC Half Year Report
Portfolio analysis Total investment at cost (excluding purchase costs) Ordinary share pool = Equity Total Ordinary share pool invested Total C share pool invested Ordinary share pool = Debt Ordinary share pool invested during quarter period C share pool invested during quarter period Capital deployment (million) 650 600 550 500 450 400 350 300 250 200 150 100 50 106.0m 206.0m 100.0m 106.6m 284.2m 78.1m 206.0m 430.6m 31.5m 114.9m 284.2m 471.6m 41.0m 31.5m 399.1m 0 Mar 2017 Jun 2017 Sep 2017 Dec 2017 Mar 619.2m 100.5 507.6m 36.0m 108.5 72.5m 410.0 399.1m Jun Sep Ordinary Share Pool Properties 82 167 282 384 414 440 522 Tenancies 487 1,130 1,820 2,405 2,618 2,845 3,440 Cost 106.0m 206.0m 284.0m 430.6m 471.6m 507.6m 619.2m C Share Pool Properties 33 63 89 162 Tenancies 213 347 574 1,083 Cost 31.5m 72.5m 108.5m 209.0m Security of income by lease expiry as at 30 25 81% 20 millions 15 10 5 0 4% 0-20 20-25 Years 6% 9% 25-30 30+ Civitas Social Housing PLC Half Year Report 11
Investment Adviser s Report Civitas Housing Advisors Limited ( CHA ), the Investment Adviser to the Company, is pleased to report on the six month period to. Market update The Government has continued to show its strong support for social housing generally and Specialist Supported Housing in particular through a range of measures including a return to the CPI +1% maximum annual rent inflator for general needs social housing rents, additional grant funding for Housing Associations to develop new social housing and a confirmation that the government consultation on Funding for Supported Housing had concluded that funding would continue to be provided by Central Government rather than from Local Authority budgets. The Regulator of Social Housing ( RSH ) separated from Homes England in September and will now be responsible for regulating all social housing providers whilst Homes England will focus solely on investment. The RSH is in consultation with the housing sector on a range of regulatory issues to ensure their approach is suitable for the future. This takes into account the post-grenfell environment and the increased focus on health and safety and consumer rights. The RSH has published its sector risk profile for, an annual publication which reviews what it believes to be the risks that exist within the sector as guidance for Housing Associations. This includes appropriate and sensible matters that Housing Associations should consider before entering into lease arrangements. Demand for high-quality Specialist Supported Housing is high and there is increasing competition for assets. The Company continues to decline unsuitable transactions and utilises its relationships, existing agreements and buying power to acquire good quality properties at competitive prices that remain within the yield range set out at the time of IPO in 2016, whilst noting that there has been an element of yield compression within the market. Investment strategy The Company s key aim is to improve the standard and availability of Specialist Supported Housing, while providing value for money to the public purse. At the same time the Company seeks to provide shareholders with consistent returns from a well-diversified portfolio of real estate assets, which provide real social benefit. The Company was the first REIT to be listed on the London Stock Exchange to offer a focused exposure to social housing in England and Wales and has benefitted from this first mover advantage. The Company has established a strong and wide-ranging network of relationships that operate in the Specialist Supported Housing sector enabling the Company to acquire properties off-market at favourable prices. In the wider market there has been a rise in competition for high-quality property, increasing property prices and reducing yields. The Company has utilised its reputation, track record and strong network to continue buying properties within the target yields set out in the prospectus with 150.7 million of property acquired in the last six months, whilst noting an element of yield compression within the market. During the period the Company has grown its high-quality portfolio to 522 properties, with these new acquisitions the Company now operates in 140 Local Authorities with 15 different Housing Associations. The Company s properties are mixed between residential properties that have been modified and enhanced, with properties that have been repurposed from an alternative use such as offices, or newly built properties designed to provide long-term care. 12 Civitas Social Housing PLC Half Year Report
In instances where new properties are developed or converted the Company will commit to acquire the property once completed, subject to all necessary standards being met. By contracting to acquire a property once complete the developer is the only party exposed to the development or forward funding risk and the Company has an income generating property from day one. At the time of IPO the Company stated that it would invest at least 75% in Specialist Supported Housing; at the date of this report almost the entire portfolio is invested in Specialist Supported Housing. Specialist Supported Housing Specialist Supported Housing is housing that has been adapted to make it suitable to provide care for a range of individuals with varying care needs. This type of property enables vulnerable individuals to receive the same level of care they would normally receive in an institutional setting, within the community close to family and friends, while encouraging their independence. Typically, the rent, cost of property maintenance and the care (paid to the care provider and usually representing the largest element of the overall funding) for each tenant within Specialist Supported Housing is funded by the government. Costs are paid from the Department for Communities and Local Government and the Department for Work and Pensions to the relevant Local Authority, which then passes funds on to the Housing Association and care provider. The Local Authority is responsible for paying the care provider directly for its provision of services to the tenant. The Company does not undertake responsibility for the operations of the care provider or care for the individual tenants. The Housing Association typically enters into a service level agreement with the care provider. The care provider itself comes under the regulation of the Care Quality Commission. Tenants within Specialist Supported Housing are typically working age and as such they could be in residence for the length of the lease and beyond, as such the leases are typically 25 years in length or longer and subject to annual CPI uplifts. The Company targets acquisition yields for Specialist Supported Housing in the region of 5.5% to 6.5%. Due to the Company s strong network and proven track record it has been able to continue to invest at yields in this range. As the sector has matured the yields at which transactions have been occurring have reduced, with some larger portfolios being seen at significantly lower yields. The Company will continue to maintain its buying discipline to provide good quality property at the right rents to deliver value for money to the public purse. Long-term leases The Company has typically entered into longterm inflation adjusted leases for periods in excess of 20 years with Housing Associations, where all management and maintenance obligations are serviced by the Housing Associations. The Company will look to actively engage with tenants where appropriate to extend existing leases, where acquired leases may have shorter unexpired lease lengths or to diversify lease end dates for the portfolio as a whole. The Company s portfolio currently has a WAULT of 25.1 years. The nature of the lease arrangements with the Housing Associations are that the Housing Association, and not the Company, is the landlord under applicable landlord and tenancy legislation. Civitas Social Housing PLC Half Year Report 13
Investment Adviser s Report continued The investment pipeline A number of assets have been identified for the investment pipeline, which meet the Investment Objective and Investment Strategy, including off-market portfolios identified through our contacts and relationships in the sector. The assets identified for acquisition come from an increasingly broad range of sources, complementing the existing proven counterparties the Company has historically transacted with. This diversification of acquisition sources enables the Company to continue to source high-quality real estate in the face of increasing competition. The Investment Adviser continues to build relationships with potential vendors, particularly care providers who today form a growing element of the pipeline overall in addition to Housing Associations and other private vendors. The Investment Adviser has a good pipeline of opportunities and is engaged presently in conducting detailed due diligence on a number of transactions that are expected to complete in the near term. A number of longer-term prospects within the pipeline are also being evaluated further for potential purchase later in 2019. We look forward to continued progress over the forthcoming months and to deploying further capital to improve the quality and availability of social housing across England and Wales. Civitas Housing Advisors Limited Investment Adviser 28 November 14 Civitas Social Housing PLC Half Year Report
Civitas Social Housing PLC Half Year Report 15
Extract from The Good Economy Impact Report, The full Impact Report can be found at www.civitassocialhousing.com Providing a home and support for up to 3,440 people, the majority of whom have learning or physical disabilities and medium to high care needs (mostly consisting of 24/7 care) Residents are supported through care and support provision from 93 care providers Executive summary Civitas Social Housing PLC (Civitas) is delivering on its social objective of increasing the availability of high-quality social housing for vulnerable people in England and Wales. It was launched in November 2016 as the first Real Estate Investment Trust (REIT) specialised in investing in social housing for people with care and support needs referred to as Specialist Supported Housing (SSH). Since its launch, Civitas has continued to play a leading role in raising private finance to increase and secure the supply of SSH providing both positive social impact and financial returns to its investors. As of, Civitas has achieved the following results: 678.7 million worth of property, representing 522 properties managed by 15 Housing Associations located across 140 local authorities. Civitas has an investment strategy with a clear social purpose. This is backed up by Civitas s commitment to better understand, measure and report the social impact of its investments. By focusing on investment in SSH Civitas is able to support the most vulnerable members of society. There is strong independent evidence that SSH improves the quality of life of its tenants compared to institutional care. This is backed up by The Good Economy s first-hand interviews of residents and support workers. In addition, there are also significant cost savings for the Local Authority when a tenant moves into SSH from institutional care. Findings from The Good Economy s most recent impact review can be found in the Impact Report, November. Civitas is an evergreen fund which is taking a long-term approach to its investments which is welcomed by all stakeholders. The average lease of 25 years provides tenants and housing associations security of tenure. Civitas s investment strategy also frees up capital within the sector to encourage further development of SSH. 16 Civitas Social Housing PLC Half Year Report
The quality of the property and the care that a tenant in SSH receives are important factors in achieving positive outcomes and improving an individual s wellbeing. Civitas has continued to sharpen its focus on the due diligence of each property it buys and actively reviews the financial strength, senior leadership and organisational strategy of all potential housing association partners. Civitas is aware of its role within the wider support system surrounding its tenants and is actively looking to engage and support its Housing Association partners. To that end it has developed and shared a Best Practice Protocol aimed at safeguarding their longterm financial strength and the quality of social housing delivery. Civitas also engages with and supports the work of the Regulator of Social Housing (RSH) to promote transparency and strong governance of registered housing providers in the SSH sector. In addition to the regular monitoring of its Housing Associations, Civitas is also actively building closer relationships with the 93 care operators which work across its properties. Alongside its core business, Civitas is committed to supporting charities and projects seeking to tackle social housing issues, such as homelessness. Civitas provides grant funding to Crisis and The Choir with No Name and is supporting the growth of Next Meal. It looks to form partnerships where it can leverage its network and resources to maximise its impact beyond just financial contributions. This strategic approach to corporate giving is a positive attribute and will help build the ecosystem of organisations tackling the housing crisis in the UK. Civitas Social Housing PLC Half Year Report 17
Extract from The Good Economy Impact Report, continued About Civitas Social Housing PLC Civitas Social Housing PLC is a real estate investment trust (REIT) that was created to raise private capital to invest in social homes across England and Wales. Its social objective is to help tackle the chronic shortage of social housing in the UK, particularly Specialist Supported Housing for vulnerable adults. In November 2016, Civitas was admitted to the London Stock Exchange in a 350 million offering, making it the first social housing Real Estate Investment Trust (REIT). In November 2017, Civitas raised a further 302 million in a C-share offering followed by 110 million of debt, such that it has raised a total 762 million for investment as of. In September they were included on the FTSE EPRA Nareit Global Real Estate Index Series. By funding social housing, Civitas aims to provide investors with sustainable financial returns whilst putting their capital to use for positive social benefit. Civitas investments are responding to the need to tackle the chronic shortage of social housing in the UK, particularly SSH for vulnerable adults. By moving into SSH, vulnerable adults have an increased chance of improving their overall wellbeing, whilst being able to take steps towards independence with the appropriate support available. Civitas s tenants include people with learning and physical disabilities, people with mental health problems, those suffering from drug and alcohol addiction and individuals at risk of homelessness. Many such people face difficulties finding a home that meets their needs. Civitas works with registered housing providers, care providers and local authority commissioners who are committed to providing high quality SSH. Wider market and Policy Context The key policy driver for Civitas s investment strategy is the Government s recognition of the need to move vulnerable individuals out of large institutional facilities, such as residential homes and secure hospital units, into communitybased social housing. This Government focus followed on from the Winterbourne View scandal and Stephen Bubb s review which recognised vulnerable people can be at risk of abuse in institutional care. The Care Act 2014 and the Government s Transforming Care Agenda has sought to encourage this shift towards increasing the availability of community-based, supported housing. A report by Mencap, a leading UK charity for people with learning disabilities, shows that demand for the type of SSH that Civitas funds is rising. It projects that demand for SSH will increase from a baseline of 22,000-30,000 SSH units (typically occupied by multiple people) in 2017/18 in England to 25,500 33,500 units by 2021/22 and to 29,000 37,000 units by 2027/28. This is driven by: The population of people with learning disabilities is growing due to higher survival rates at birth and increasing life expectancy Government policy, particularly the Transforming Care Agenda, which promotes moving people out of institutional settings to community-based housing alternatives that promote independent living Decline in informal support networks and athome care, with more working mothers and increases in single-parent families Unlike regular social housing, SSH is developed directly in accordance with local authorities or the health services strategic priorities. For most tenants of SSH, the alternatives would be care homes or long-stay NHS beds. Neither of these environments promote independent living. 18 Civitas Social Housing PLC Half Year Report
the report, there is strong evidence that SSH both delivers social impact and is a costeffective way of providing housing to those with complex needs. SSH has a lower overall cost to local authorities compared to residential or institutional care. The Mencap report found that a person living in SSH requires, on average, state funding of 1,569 per week for care and housing costs. This is a reduction of 191 per week when compared to a residential care placement, or 1,931 per week when compared to an inpatient place. Most if not all of people living in SSH will be eligible for and claim Housing Benefit to cover the cost of their accommodation. In August the Government published a briefing paper Funding for Supported Housing: Government Response to Two Consultations confirming this funding mechanism would continue. The decision was taken that all supported housing will have its core rent and additional housing costs funded through Housing Benefit rather than being devolved to a Local Authority controlled budget. This has been a welcome safeguard and is a positive sign the government acknowledges the importance of funding SSH for vulnerable people. In August, the government also published the social housing green paper A New Deal for Social Housing. A key theme in this was the need to expand the supply of social housing overall. The government continues to target the building of 300,000 new homes per year with greater emphasis on the need for additional social homes. To stimulate the growth in Social Housing overall, the government has also announced it intends to make it easier for Local Authorities to build new homes by raising their borrowing cap by 1 billion this will be distributed across areas of high demand. Private finance will have a key role to play if the government is to reach its target of 300,000 homes a year and increasing the availability of SSH. Civitas has an important role to play as a funder of SSH. It has demonstrated its committed to being a responsible investor by delivering high-quality social housing that provides value for money and has a positive impact on people s wellbeing. Civitas Social Housing PLC Half Year Report 19
Key Performance Indicators ( KPIs ) Measure Explanation Result Capital deployed Increase in IFRS and Portfolio NAV per share Dividend per share Target of deploying the C share proceeds by 31 December or earlier. Target to achieve capital appreciation whilst maintaining a low risk strategy from enhancing the quality of cash flows from investments, by physical improvement of properties and by creating a significantly diversified, high-quality portfolio. Targeting 5p per share in the year ending 31 March 2019; growing broadly in line with inflation thereafter. Number of Target risk mitigation through a diversified portfolio Local Authorities, (once fully invested) with no more than 25% Housing Associations exposure to any one Local Authority or single Housing and care providers Association and no more than 20% exposure to any single geographical area, once the capital of the Company is fully invested. 213 million of the C share proceeds have been deployed by with sufficient pipeline in place to deploy the majority of the C share proceeds in the target time frame. IFRS NAV: increase of 0.5p per share or 0.5% from March. Portfolio NAV: increase of 1.4p per share or 1.2% from March. Dividends of 2.5p per share declared for the six months to, in line with target. As at : 140 Local Authorities 15 Housing Associations 93 care providers Westmoreland Housing Association and Falcon Housing Association both currently represents 23% of the Company s rental income. Loan to Gross Assets Target debt drawn of 30% of gross assets. Loan to gross assets of 13%. 20 Civitas Social Housing PLC Half Year Report
Alternative Performance Measures EPRA The Company is a member of the European Public Real Estate Association ( EPRA ). EPRA has developed and defined the following performance measures to give transparency, comparability and relevant financial reporting across entities which may use different accounting standards. The Company is pleased to disclose the following measures which are calculated in accordance with EPRA guidance. For detailed workings reconciling the measures below to the IFRS results please see Appendix 1 to these financial statements. EPRA Performance Measure Definition EPRA Performance Measure EPRA Earnings EPRA NAV EPRA NNNAV EPRA Vacancy Rate Earnings from operational activities. Net Asset Value adjusted to include properties and other investment interest at fair value and to exclude certain items not expected to crystallise in a long-term investment property business model. EPRA NAV adjusted to include the fair values of (i) financial instruments, (ii) debt and (iii) deferred taxes. Estimated Market Rental Value ( ERV ) of vacancy space divided by ERV of the whole portfolio. EPRA Earnings EPRA Earnings per share (basic) EPRA Earnings per share (diluted) EPRA Net Asset Value EPRA NAV per share (diluted) EPRA NNNAV EPRA NNNAV per share (diluted) 3,658,000 1.05p 1.63p 670,743,000 107.81p 672,050,000 108.02p 31 March 6,293,000 1.80p 1.44p 668,147,000 105.54p 667,435,000 105.43p EPRA Vacancy Rate 0% 0% For detailed workings reconciling the Portfolio NAV to the IFRS results please see note 16 to these financial statements. For detailed workings reconciling the Company Adjusted Earnings to the IFRS results please see Appendix 1 to these financial statements. Adjusted Performance Measure Definition Performance Measure Portfolio NAV Company Adjusted Earnings IFRS NAV adjusted to reflect investment property valued on a portfolio basis rather than on an individual asset basis. EPRA Earnings which adds back the finance costs associated with the C share financial liability. 31 March Portfolio NAV 115.21p 113.86p Adjusted Earnings Adjusted Earnings per share (basic) 10,116,000 2.89p 9,085,000 2.60p Civitas Social Housing PLC Half Year Report 21
Principal Risks and Uncertainties The principal risks facing the Company are substantially unchanged since the date of the Annual Report for the financial period ended 31 March and continue to be as set out on pages 32 to 34 of that report. Risks faced by the Company include, but are not limited to, strategy and investment risks, investment management risks, accounting, legal and regulatory risks and operational risks, including cyber crime. Financial risks include market risks in relation to investment in property and liquidity funds, interest rate risk, credit risk and liquidity risk, portfolio diversification, gearing, discount, market risk, market price volatility, currency, liquidity risk, interest rate and credit and counterparty risk. Details of the Company s management of these risks are set out in the Annual Report. 22 Civitas Social Housing PLC Half Year Report
Statement of Directors Responsibilities The Directors confirm that these condensed consolidated financial statements have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting, as adopted by the European Union and that the Half Year Report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely: an indication of important events that have occurred during the first six months and their impact on the condensed consolidated financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and material related party transactions in the first six months and any material changes in the related party transactions described in the last annual report. The Directors of the Company are listed on page 48. This Half Year Report was approved by the Board of Directors on 28 November and the above responsibility statement was signed on its behalf by: Michael Wrobel Chairman 28 November Civitas Social Housing PLC Half Year Report 23
Independent Review Report to Civitas Social Housing PLC Report on the condensed consolidated financial statements Our conclusion We have reviewed Civitas Social Housing PLC s condensed consolidated financial statements (the interim financial statements ) in the Half Year Report of Civitas Social Housing PLC for the six month period ended. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, Interim Financial Reporting, as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom s Financial Conduct Authority. What we have reviewed The interim financial statements comprise: the Condensed Consolidated Statement of Financial Position as at ; the Condensed Consolidated Statement of Comprehensive Income for the period then ended; the Condensed Consolidated Statement of Cash Flows for the period then ended; the Condensed Consolidated Statement of Changes in Equity for the period then ended; and the explanatory notes to the interim financial statements. The interim financial statements included in the Half Year Report have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting, as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom s Financial Conduct Authority. As disclosed in note 2 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards ( IFRSs ) as adopted by the European Union. 24 Civitas Social Housing PLC Half Year Report
Responsibilities for the interim financial statements and the review Our responsibilities and those of the directors The Half Year Report, including the interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the Half Year Report in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom s Financial Conduct Authority. Our responsibility is to express a conclusion on the interim financial statements in the Half Year Report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom s Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. What a review of interim financial statements involves We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. We have read the other information contained in the Half Year Report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements. PricewaterhouseCoopers LLP Chartered Accountants London 28 November Civitas Social Housing PLC Half Year Report 25
Condensed Consolidated Statement of Comprehensive Income For the period from 1 April to Revenue Note 1 April to 2017 31 March Audited Rental income 4 15,675 7,033 18,606 Net rental income 15,675 7,033 18,606 Directors remuneration (78) (119) (205) Investment advisory fees (3,223) (2,982) (5,773) General and administrative expenses (1,124) (1,511) (2,915) Total expenses (4,425) (4,612) (8,893) Change in fair value of investment properties 5 6,908 20,979 30,633 Operating profit 18,158 23,400 40,346 Finance income 399 183 413 Finance expense relating to bank borrowings 6 (1,533) (2) (1,041) Finance expense C shares amortisation 6 (6,458) (2,792) Profit before tax 10,566 23,581 36,926 Taxation 7 Profit being total comprehensive income for the period 10,566 23,581 36,926 All amounts reported in the Condensed Consolidated Statement of Comprehensive Income above arise from continuing operations. Earnings per Ordinary share basic 8 3.02p 6.74p 10.55p Earnings per Ordinary share diluted 8 2.74p 6.74p 6.27p The notes on pages 30 to 43 are an integral part of these condensed consolidated financial statements. 26 Civitas Social Housing PLC Half Year Report
Condensed Consolidated Statement of Financial Position As at Assets Non-current assets Note 31 March Audited 2017 Investment property 10 673,872 516,222 321,000 Other receivables 4,783 Current assets 678,655 516,222 321,000 Trade and other receivables 4,898 3,315 1,707 Cash and cash equivalents 11 104,349 249,608 46,406 109,247 252,923 48,113 Total assets 787,902 769,145 369,113 Liabilities Current liabilities Trade and other payables (15,602) (10,176) (7,813) C shares 12 (299,532) (298,752) (315,134) (308,928) (7,813) Non-current liabilities Bank and loan borrowings 13 (101,557) (90,822) Total liabilities (416,691) (399,750) (7,813) Total net assets 371,211 369,395 361,300 Equity Share capital 14 3,500 3,500 3,500 Share premium reserve Capital reduction reserve 331,625 331,625 334,250 Retained earnings 36,086 34,270 23,550 Total equity 371,211 369,395 361,300 Net assets per Ordinary share basic and diluted 15 106.06p 105.54p 103.23p The notes on pages 30 to 43 are an integral part of these condensed consolidated financial statements. Civitas Social Housing PLC Half Year Report 27
Condensed Consolidated Statement of Changes in Equity For the period from 1 April to Note Six month movements in equity (unaudited) Share capital Share premium reserve Capital reduction reserve Retained earnings Total equity Balance at 1 April 3,500 331,625 34,270 369,395 Profit and total comprehensive income for the period 10,566 10,566 Dividends paid Total interim dividends for the period (2.50p) 9 (8,750) (8,750) Balance at 3,500 331,625 36,086 371,211 Balance at 2016 (31) (31) Profit and total comprehensive income for the period 23,581 23,581 Issue of Ordinary shares Issue of share capital 14 3,500 346,500 350,000 Share issue costs (7,000) (7,000) Cancellation of share premium reserve (339,500) 339,500 Dividends paid Total interim dividends for the period (1.50p) 9 (5,250) (5,250) Balance at 2017 3,500 334,250 23,550 361,300 Prior year movements in equity (audited) Balance at 2016 (31) (31) Profit and total comprehensive income for the period 36,926 36,926 Issue of Ordinary shares Issue of share capital 14 3,500 346,500 350,000 Share issue costs (7,000) (7,000) Cancellation of share premium reserve (339,500) 339,500 Dividends paid Total interim dividends for the period (3.00p) 9 (7,875) (2,625) (10,500) Balance at 31 March 3,500 331,625 34,270 369,395 The notes on pages 30 to 43 are an integral part of these condensed consolidated financial statements. 28 Civitas Social Housing PLC Half Year Report
Condensed Consolidated Statement of Cash Flows For the period from 1 April to Cash flows from operating activities Note 1 April to 2017 31 March Audited Profit for the period before taxation 10,566 23,581 36,926 Change in fair value of investment properties (6,908) (20,979) (30,633) Rent and incentive straight line adjustments (284) (332) Finance income (399) (183) (413) Finance expense 7,991 3,833 Increase in trade and other receivables (1,996) (1,557) (2,540) (Decrease)/increase in trade and other payables (288) 6,668 803 Cash generated from operations 8,682 7,530 7,644 Interest received 399 182 413 Net cash flow generated from operating activities 9,081 7,712 8,057 Investing activities Purchase of investment properties (144,398) (285,710) (458,564) Acquisition costs (2,953) (13,346) (19,051) Restricted cash held as retention money (1,945) (6,115) (6,283) Lease incentives paid (2,053) Net cash flow used in investing activities (151,349) (305,171) (483,898) Financing activities Proceeds from the issue of Ordinary share capital 14 350,000 350,000 Share issue costs paid (7,000) (7,000) Dividends paid to equity shareholders (8,602) (5,250) (10,073) Proceeds from issue of C shares 12 302,000 C share issue costs paid 12 (6,040) Dividends paid to C shareholders (5,678) Bank borrowings advanced 13 10,990 92,457 Bank borrowing issue costs paid (432) (1,761) Loan interest paid (1,214) (417) Net cash flow (used in)/generated from financing activities (4,936) 337,750 719,166 Net (decrease)/increase in cash and cash equivalents (147,204) 40,291 243,325 Unrestricted cash and cash equivalents at the start of the period 243,325 Unrestricted cash and cash equivalents at the end of the period 11 96,121 40,291 243,325 The notes on pages 30 to 43 are an integral part of these condensed consolidated financial statements. Civitas Social Housing PLC Half Year Report 29