Civitas Social Housing PLC Interim Report 2017

www.civitassocialhousing.com Civitas Social Housing PLC Interim Report 2017

Civitas Social Housing PLC Interim Report 2017 Contents Key highlights 2-3 Chairman s Statement 4-5 Portfolio 6-7 Investment Advisor s Report 8-14 Extract from The Good Economy ( TGE ) Social Impact Report 2017 15-21 Key Performance Indicators (KPIs) 22 Principal risks and uncertainties 23-25 Corporate governance 26-28 Directors responsibilities for the interim financial statements 29 Independent review report to Civitas Social Housing PLC 30-31 Condensed Consolidated Statement of Comprehensive Income 32 Condensed Consolidated Statement of Financial Position 33 Condensed Consolidated Statement of Changes in Equity 34 Condensed Consolidated Statement of Cash Flows 35 Notes to the condensed consolidated financial statements 36-65 Glossary 66 Company information 68 Civitas Social Housing PLC ( Civitas or the Company ) is the first real estate investment trust dedicated to investing exclusively into existing portfolios of built Social Homes in England and Wales. The Company achieved admission to the premium listing segment of the Official List of the London Stock Exchange in November 2016, raising 350 million in an oversubscribed IPO and a further 302 million through a C Share issue in November 2017. As at 30 September 2017, the Company has built a diversified portfolio of 282 Social Homes across England and Wales providing high-quality accommodation for 1,827 tenants with 10 Registered Providers involving 83 Local Authorities. Civitas objective is to deliver sustainable returns to its shareholders by making socially relevant investments within the regulated Social Housing sector in England and Wales. 104 1

Civitas Social Housing PLC Interim Report 2017 Key highlights Financial highlights Operational highlights Market capitalisation 390.25m Market capitalisation of 390.25 million as at 30 September 2017 Portfolio NAV 1 109.6p/share (+11.8%) Portfolio NAV 1 per share, an increase of 11.6p or 11.8% (IPO 98p) IFRS NAV 103.2p/share (+5.3%) IFRS NAV per share, an increase of 5.2p per share or 5.3% (IPO 98p) Total shareholder return 13.7% Total shareholder return since IPO (increase in share price plus dividends) 282 285.3m 1,827 properties acquired deployed tenants 300 250 200 150 100 50 2,000 1,500 1,000 500 0 D J F M A M J J A S 0 D J F M A M J J A S Share price performance (p) 114 112 110 108 106 104 102 100 N D J F M A M J J A S O Earnings based on Portfolio NAV 13.1p/share Comprehensive income per share including revaluations based on the Portfolio NAV Earnings based on IFRS NAV 6.7p/share Comprehensive income per share including revaluations based on the IFRS NAV Dividend per share 2.25p Dividends declared for the period to 30 September 2017; targeting 3p per share for the period to 31 December 2017 and 5p per share annually thereafter, targeted to increase broadly in line with inflation 83 10 50 Local Authorities fund the rent and care services associated with our properties Housing Associations enter into long term leases on our properties Associations 12 10 8 6 4 2 0 D J F M A M J J A S Care Providers deliver care services to tenants in our properties 17.4m 6% 24.3 years annualised rental income at period end average net yield before purchase costs WAULT* of the portfolio 1 The unaudited Portfolio NAV of the Company is calculated on the basis of an independent Portfolio Valuation undertaken by Jones Lang LaSalle Ltd as at 30 September 2017, valuing the properties on the basis of a portfolio and assuming that they are held in corporate entities, in line with the Company s strategy. The condensed consolidated financial statements have been prepared on the basis of the IFRS NAV with a reconciliation to the Portfolio NAV provided in note 14 to the condensed consolidated financial statements. The IFRS NAV is based upon a valuation of each underlying investment property rather than the value ascribed to the portfolio and on the assumption of a theoretical sale of each property rather than the corporate entities in which all of the Company s investment properties are held. 2 * Weighted average unexpired lease term 3

Civitas Social Housing PLC Interim Report 2017 Chairman s Statement I am pleased to present the Company s first unaudited interim results for the period from its listing on 18 November 2016 to 30 September 2017. The Company s objective is to provide shareholders with an attractive level of income, which is expected to grow broadly in line with inflation, together with the potential for capital growth. The Company invests in a portfolio of Social Homes, which benefit from inflation adjusted long-term leases or occupancy agreements with Housing Associations or Local Authorities. The Company s launch via an oversubscribed Initial Public Offering (IPO) raised gross proceeds of 350 million. The Company was the first REIT to be listed on the London Stock Exchange offering a focused exposure to built Social Housing. It has since established itself as a leading owner of built Social Homes, providing a considerable number of people with high quality homes that suit their particular needs on a long-term basis. As at 30 September 2017, the Civitas portfolio comprised 282 properties housing 1,827 tenants, leased to 10 Registered Providers, involving 83 Local Authorities and 50 Care Providers with a focus on Specialist Support Housing. These investments were made using the net proceeds of the IPO. The current portfolio benefits from a weighted average unexpired lease term of 24.3 years. Approximately 25% of the properties held are new to the Social Housing sector. Since 30 September 2017 the Company has acquired a further 29 properties, housing 115 tenants and made significant further progress on which I report later. Dividends On 4 May 2017, the Company declared its maiden interim dividend of 0.75p per Share, and declared a further two quarterly dividends of 0.75p in both July and October in respect of the three month periods to 30 June 2017 and 30 September 2017 respectively. The target set out at launch was to pay dividends totalling 3p per share for the period through to 31 December 2017, targeting 5p per annum thereafter which the Company expects to increase broadly in line with inflation over time. Financial results The Company s financial performance over the period has been very encouraging. On a Portfolio Valuation basis, which assumes that properties are held within SPVs and valued as a discreet portfolio, the unaudited Portfolio Net Asset Value per Share as at 30 September 2017 was 109.6p. This represents an increase since IPO (based on 98.0p per Ordinary Share) of 11.8%. On an IFRS Valuation basis, which assumes that properties are valued individually and structured without the benefit of the SPVs in which they are actually held, the unaudited IFRS Net Asset Value per Share as at 30 September 2017 was 103.2p. This represents an increase since launch (based on 98.0p per Ordinary Share) of 5.3%. The Group has now reached operating profitability: the operating profit for the Group excluding revaluations for the period from 18 November 2016 to 30 September 2017 was 2.6 million, with total comprehensive income of 45.9 million on a Portfolio Valuation basis and 23.6 million on an IFRS Valuation basis implying Net Earnings per Share for the period of 13.1p and 6.7p, respectively. Approximately 99% of the Company s income is ultimately derived from either local or central Government, which is paid directly to the Registered Providers. Progress since the end of September We are pleased that the Company is on course to achieve its target to be fully invested within the timescales indicated at IPO and has delivered on its stated objectives through investment in a high quality diversified portfolio of Social Homes throughout England and Wales. C Share Issue The Board is delighted that shareholders have supported our growth plans by subscribing for a further 302 million of equity in November 2017. We believe that this reflects the Company s prospects and its consistent delivery against its objectives since it was listed. We believe the issue will place the Company in the best possible position to capitalise on the pipeline of potential investment opportunities over the next 12 months; thereby continuing to deliver for tenants and shareholders alike. Loan financing On 3 November 2017, the Company agreed a 52.5 million term loan facility with Scottish Widows Limited, with a term of 10 years, an interest rate of 2.99% representing leverage of 30% (as calculated on the loan to market value of the property portfolio). This facility is secured against certain of the Group s properties and the SPVs in which those properties are held and forms part of the programme to achieve an overall level of indebtedness in the order of c.25% loan to market value. On 16 November 2017, the Company further agreed a 40 million revolving credit facility with Lloyds Bank plc, available for a term of three years, at a floating rate above 3-month LIBOR. This facility is secured against certain of the Group s properties and the SPVs in which those properties are held. Negotiations are in process with additional lenders in relation to further facilities, expected to be announced in due course. The additional financing will allow the Company to continue its strong deployment momentum and the Board considered the terms of the facilities fair and reasonable. Outlook There remains a chronic shortage of all forms of Social Housing in the UK, including specialist Social Housing, with estimated demand from 4.5 million people awaiting allocation of a social home. We continue to build the pipeline of quality investments that meet our investment criteria. Our Investment Advisor has identified more than 500 million of Social Homes that may be acquired by the Group over the next 12 months, of which approx. 100 million is expected to be available in the near term. Our Investment Advisor will continue to implement a disciplined policy focused on quality opportunities, whilst rejecting others on the grounds of quality, location and value for money. The Company has strengthened its position further through additional investment. We continue to be the only listed investment company focused on this sector that is not exposed to development and forward funding. The Board is grateful for the support and encouragement of the Company s shareholders and the hard work of the Investment Advisor and our other advisors. Michael Wrobel Chairman 23 November 2017 4 5

Civitas Social Housing PLC Interim Report 2017 Portfolio as at 30 September 2017 As depicted in the table below and map opposite, the Company s Portfolio is spread across England and Wales, reflecting the Company s objective of creating a coherent yet diversified portfolio. KEY REGION COUNTY PROPERTIES TENANCIES 1 North East Durham 57 360 2 York & Humber South Yorkshire 11 81 Capital deployed 285.3 million 1 3 York & Humber West Yorkshire 7 62 4 North West Lancashire 24 77 5 North West Merseyside 28 191 6 East Midlands Derbyshire 3 10 7 East Midlands Leicestershire 3 10 8 East Midlands Northamptonshire 2 8 9 East Midlands Nottinghamshire 10 82 Properties 282 Tenancies 1,827 5 4 3 2 10 West Midlands Staffordshire 7 50 11 West Midlands Warwickshire 7 28 12 West Midlands Worcestershire 2 7 13 East Bedfordshire 1 19 14 East Cambridgeshire 9 25 WAULT* 24.3 years 10 6 9 7 15 15 East Lincolnshire 1 13 16 East Hertfordshire 3 19 17 Greater London Greater London 11 160 18 South East Berkshire 4 29 12 11 8 13 14 19 South East East Sussex 1 5 20 South East Hampshire 12 66 21 South East Kent 3 31 22 South East Oxfordshire 2 11 23 South East Surrey 5 32 24 South West Cornwall 7 80 25 South West Devon 2 7 26 South West Dorset 35 232 27 South West Gloucestershire 19 81 30 25 28 27 29 26 22 20 18 16 23 17 19 21 28 South West Somerset 3 33 29 South West Wiltshire 1 3 30 Wales West Glamorgan 2 15 Total 282 1,827 Excluding purchase costs * Weighted Average Unexpired Lease Term 24 6 7

Civitas Social Housing PLC Interim Report 2017 Investment Advisor s Report We are pleased to present our Investment Advisor s report and to reflect on a first year of substantial progress. Building on our first mover advantage we have created a diversified portfolio of high-quality Social Homes, achieved a number of important social impact gains and in doing so have invested the great majority of the capital raised at the time of IPO" Paul Bridge, Chief Executive Officer, Civitas Housing Advisors Limited CHA, the Investment Advisor to the Company, is pleased to report on progress in the period from IPO in November 2016 to 30 September 2017. During this period we have acquired 282 properties, leased to 10 Registered Providers and housing 1,827 tenants across 83 Local Authorities, with care support provided by 50 Care Providers. Since the period end we have acquired a further 29 properties housing 115 tenants and, as a result when taken together with the pipeline, all capital raised at IPO is either deployed or allocated to specific acquisitions. As a result the Company is on track to meet the dividend targets set at IPO of 3p per share in aggregate for the period from IPO to 31 December 2017 and 5p per share annually thereafter. Investment Objective An investment in the Company enables investors to gain exposure to a diversified portfolio of Social Homes in England and Wales. The Investment Objective is to provide shareholders with an attractive level of income, together with the potential for capital growth from investing in a portfolio of Social Homes, which benefit from inflation-adjusted longterm leases and occupancy agreements with Registered Providers. After 2017 the Company aims to deliver a targeted dividend of 5p per annum, which it expects to increase broadly in line with inflation and with the objective for that to be paid from income generated as opposed to capital growth of the portfolio. 8 Investment Strategy The Group has acquired and will continue to seek to acquire existing Social Homes in locations across England and Wales where the Investment Advisor believes there to be long-term demand. As the Social Homes sector is highly fragmented, developing long-term relationships with Housing Associations, Local Authorities, Care Providers and private owners is important in acquiring suitable portfolios of Social Homes. This is aided by the fact that the Group 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 as such is seen to have a first mover advantage. It is also supported by a broadly based team within the Investment Advisor including a number of figures from within the Social Housing sector who have held senior roles and positions of responsibility. The depth of relationships that have been established in the sector is reflected in the various long-term arrangements that the Investment Advisor has been able to enter into to secure high quality properties at attractive yields. This complements the broader array of relationships that have led to significant incoming investment opportunities and enabled the Group to acquire all properties off-market to date. The Social Housing sector contains a variety of property types and tenures. At the time of IPO the Group stated that it would invest at least 75% in Specialist Supported Housing. That has proven to be the case and at the date of this report almost the entire portfolio is invested in Specialist Supported Housing. As part of the due diligence programme undertaken by the Group it is frequently the case that the legal arrangements between the various parties within a Specialist Supported Housing project will be updated and revised to enable the Group to reach its target of receiving investment grade cash flows. This will be undertaken prior to the announcement of a purchase and typically contributes to any increase in value of the property reported subsequently at the quarterly valuation date. The Group also seeks to ensure that all acquired properties are of a high standard and where necessary it will agree a schedule of works by way of improvement that will typically be undertaken by the respective Housing Association and monitored by the Group s property advisors, Jones Lang LaSalle Ltd. The need for Social Housing The UK Housing market continues to feature prominently on the national agenda, with all major political parties indicating the provision of housing is a priority. There is broad consensus that the UK requires up to 300,000 new homes each year to meet current and projected demand. The Department of Communities and Local Government statistics as of March 2017 show that housing supply has been on an upward trajectory in recent years with 162,880 completed units in 2016/17 but this still falls well below the widely accepted target. Civitas has acquired Social Homes in locations across England and Wales where the Investment Advisor believes there to be long-term demand (clockwise from top left): Brickwall Lane, Ruislip; Greyhound Lane, Streatham; Holloway Road, London; Golders Green, London. 9

Civitas Social Housing PLC Interim Report 2017 Investment Advisor s Report At the same time the lack of supply and funding, together with changes to how welfare is delivered, means housing options for vulnerable people remain limited. Indeed the need for Specialist Supported Housing continues to grow (currently around 10,000 people with a learning disability are on waiting lists for housing with support) as councils struggle to rehouse vulnerable people within suitable community settings (an obligation placed on adult social services teams under the Care Act 2014). This is further reflected by the existence and cost of NHS bed blocking which is estimated to be in the region of 900 million per annum. As a result, patients are left in hospital with needs that would be better and more cost-effectively served via care in the community. Lord Patrick Specialist Supported Housing: Rental Income Tenant Carter s 2016 review included an estimate of the cost of caring for all delayed transfer patients in a residential care setting at 835 million over five years to 2020/21, compared to c. 3.3 billion for acute care in hospitals; this is before considering the benefits for patients in terms of quality of care which are significant. Encouragingly, and in line with our expectations, the Government announcement of 25 October 2017 reversed an earlier proposal to cap social rents at the local housing allowance rate, providing reassurance to existing providers; and accepting that specialist housing costs more to deliver than general needs housing. The Government has further announced on 4 October 2017 that for the five years from 2020 the general needs rent settlement will be set at CPI plus 1%. Tenancy Agreement (Housing Management) Rental/Lease Net Rent Agreement (Av. 25 years) Specialist Supported Housing The Group has and will continue to seek to acquire Specialist Supported Housing portfolios, which includes housing for some of the most vulnerable in society. Typically, government funding for each tenant under this categorisation represents 100% of the cost. This includes, housing (rent and property maintenance) as well as the cost for care (paid to the Care Provider and usually representing the largest element of the overall funding). Costs are paid from the Department for Communities and Local Government and the Department of Work and Pensions to the relevant Local Authority, which then passes funds on to the Registered Provider and Care Provider. Net rental yields in the Specialist Supported Housing sector are typically in the region of 5.5% to 6.5% and are indexed in line with CPI or CPI+1%. Larger portfolios managed by major Housing Associations may trade below these levels. In each instance the Local Authority is responsible for paying the Care Provider directly for its provision of services to the tenant. The Care Provider itself comes under the regulation of the Care Quality Commission. The Registered Provider typically enters into a service level agreement with the Care Provider. The Group does not undertake responsibility for the operations of the care provider or care for the individual tenants. The diagram opposite shows the parties involved in the provision of Specialist Supported Housing and the flows of funding from Government directly to the relevant institutions. Long-term leases and occupancy agreements We expect that the Group will continue to typically enter into long-term inflation adjusted leases or in certain instances long-term inflation adjusted occupancy agreements for periods in excess of 20 years with Registered Providers, where all management and maintenance obligations will be serviced by the Registered Providers. The nature of the lease arrangements with the Registered Providers will be such that the Registered Providers, and not the Company, will be the landlord under applicable landlord and tenancy legislation. Where the counterparty is a Local Authority, or where we believe it is in the Group s interest, Regulates Care Providers Care Provider Nomination Agreement and Void Guarantee Registered Provider (Housing Association) Agreement for Provision of Care Housing Benefit (Av. 100% of rent) Housing Benefit administration by the Local Authority Local Authority Funding under Local Government Finance Settlement (including for care and for housing support) Denmark Road, Gloucester Hendon Way, London 10 11

Civitas Social Housing PLC Interim Report 2017 Civitas facilitating growth Civitas is able to support Social Housing providers, such as PASHA, to restructure their portfolio so that the maximum amount of resources can be directed towards providing vital tenancy and support services. In August 2017, Civitas completed the purchase of 21 of PASHA s supported living facilities, with 183 tenancies, for a total consideration of 22.9 million. The properties in this portfolio, which have been adapted for use as specialist supported housing with facilities for those with physical and/or mental disabilities or other needs, will be leased back to PASHA, who will be responsible for management and maintenance of the properties. Investment Advisor s Report the Group may consider unexpired leases of not less than 10 years. This may be due to the constraints on Local Authorities from entering into longer terms arrangements. The Investment Pipeline We have established a significant investment pipeline and identified a number of new assets which meet the Investment Objective and Investment Strategy, including off-market portfolios identified through our contacts and relationships in the sector. These assets come from an increasingly broad range of sources reflecting the enhanced profile of the Group and CHA within the Social Housing sector. Opportunities are being sourced through Registered Providers (due to mergers, stock rationalisation and capital release), Local Authorities, Care Providers and private companies. We have strengthened the Group s relationship with particular Registered Providers, which is enabling the Company to benefit from more investment opportunities from these same Registered Providers. As part of this broadening network CHA, on behalf of the Company, has established commercial understandings with specific Registered Providers, independent owners, developers and suppliers of Social Homes including Care Providers, which are expected to deliver a significant quantity of opportunities to acquire Social Homes. Together the various sources of pipeline opportunities account for more than 500 million of Social Homes that have the potential to be delivered over the next 12 months, with approximately 100 million potentially in the near term. As part of the Company s plans to seek further diversification within the specialist areas of the regulated Social Housing sector, we anticipate that pipeline transactions will include not just homes for tenants with care needs based around learning disability and autism but also dependency, homelessness and the desire to release hospital beds through the use of step down accommodation associated with the NHS. In each case the Company intends to operate the same model with a Registered Provider entering into a long-term arrangement with the Company and providing on the ground property services. It should be noted that the Company may or may not proceed with the acquisition of any such pipeline opportunities. The Company currently has no mutually binding contractual Kyles Way, Bartley Green, Birmingham. Hersham Road, Walton-on-Thames, Surrey 12 13

Civitas Social Housing PLC Interim Report 2017 Investment Advisor s Report obligations with Registered Providers or other potential vendors of Social Housing for the acquisition of Social Homes, but we are confident that sufficient suitable housing portfolios will be identified, assessed and acquired to substantially invest or commit the net issue proceeds from the C Share raise and the proceeds of the debt raise within 12 months following admission. This confidence is based in part on the success that the Group has achieved in investing the net IPO proceeds and in the commercial understandings already established. Beach Road, Weston Super Mare 14 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 Advisor 23 November 2017 Snow Hill, Leicester Extract from The Good Economy ( TGE ) Social Impact Report 2017 Generating positive social impact from our investments is as important to us as it is to our partner housing providers. In our view successful investment in the sector should provide a fair return to our shareholders and discernible benefit for the people who live in the properties that we own. To this end, we are incorporating a social impact evaluation within the regular monitoring of our investments Michael Wrobel, Chairman The Company aims to help tackle the chronic shortage of social housing in the UK. Social homes, those supplied by Housing Associations and Local Authorities in England and Wales, account for approximately 17.5% of total housing stock (approx. 2.65 million properties). These homes are provided by around 1,500 Housing Associations and many Local Authorities. Despite the scale of the sector there is today a widely recognised significant shortfall of all types of social housing in England and Wales, with approximately 4.5 million people having qualified for social housing sitting on Local Authority housing waiting lists. Over the last 10 years the proportion of social housing has fallen from 45% to 20% of all new homes built. This fall is partly due to the level of capital subsidy, which has been progressively reduced as governments of all political persuasion have pushed Housing Associations towards replacing public subsidy with private finance. The Company is providing part of the funding solution to the social housing crisis. Its strategy is to acquire portfolios of built Social Homes in England and Wales that are managed by Housing Associations or Local Authorities (also referred to as Registered Providers ). Working in partnership with Registered Providers, the Company helps them unlock capital held in existing Social Homes for new development. The Company also purchases existing private properties and brings them into the social housing sector to be managed by Registered Providers and provided to social tenants on a long-term basis. The Company invests in Social Homes designed for specialist supported living, typically both for those with mid- and upper-level care needs or with other support requirements as well as general needs homes. Revenue is generated from rental income from long-term leases and occupancy agreements of typically in excess of 20 years. Today almost 100% of rental income is from central or local government which supports low-income and vulnerable people to meet the costs of housing and care that they are unable to afford themselves. The Company s focus is on preserving the availability of Social Homes within the social sector and ensuring that they continue to be made available to the low-income and vulnerable people for whom they were intended. It is also increasing the availability of Social Homes through investing in properties to be newly managed by Registered Providers. Civitas properties are spread across all regions of England and Wales, with 71% of properties located in the 40% most deprived Local Authorities. In addition 26% of properties have, as a result of being brought by Civitas into the regulated Social Housing sector for the first time, been converted to a Care Setting with a capacity for a further 341 residents. The Company is also committed to supporting the work of relevant charities in the homelessness and social housing sector and plays an active role in supporting research, policy and action to solve the UK social housing crisis. This is reflected in the partnership with the national homelessness charity Crisis. Civitas sponsors the Crisis Renting Ready programme, designed to assist homeless clients to achieve a home, and also contributes more broadly to the work of Crisis. 15

Civitas Social Housing PLC Interim Report 2017 Extract from The Good Economy ( TGE ) Social Impact Report 2017 CHA is the Investment Advisor to Civitas and is responsible for the origination of the investment portfolio and its day-to-day management and improvement. Social impact assessment methodology Civitas is a social impact investor that aims to deliver positive social impact alongside a financial return. Impact investing adds a third dimension impact to the traditional financial investment considerations of risk and return. Civitas integrates social value considerations into all stages of the investment process. It is committed to measuring, managing and reporting on its social performance, ensuring transparency and accountability to all its stakeholders, including residents, Registered Providers and shareholders. Civitas three principal social objectives are to: 1. Increase the availability of social housing across England and Wales, particularly for vulnerable people. 2. Improve the quality of social housing. 3. Offer value for money for the public purse. Increase the availability of social housing across England and Wales, particularly for vulnerable people Civitas aims to have a national footprint, investing in social homes throughout England and Wales, particularly in lower income areas where tenants cannot typically afford private accommodation or care. It also aims to bring new properties into the regulated social housing sector, increasing the availability of social housing overall. Improve the quality of social housing Civitas is committed to ensuring all properties are renovated to high-quality standards. It achieves this by commissioning independent inspections of all properties it is considering purchasing, including checking the overall condition of the property, as well as the gas and electricity fittings and other safety aspects. Civitas arranges for payment of the costs of any improvements needed and ensures these are fully inspected. It enters into full repairing and insuring leases with the Registered Providers giving due consideration to how these are funded and in particular working closely with the Registered Providers to evaluate underlying long-term need for the services being provided under the leases. Offer value for money for the public purse Civitas aims to deliver Social Housing that has lower costs than alternatives (often long-stay institutional care) but with high-quality social care delivery. It benchmarks 100% of rents and also commissions Support Solutions UK to carry out an independent rent review for all properties to ensure rents are affordable and fair value. Investing in specialist supported housing rather than institutional care can result in real cost savings for government and better social outcomes for residents. The Good Economy (TGE), the independent social advisory firm will work with Civitas and its partners to evidence and provide more data on both the financial and social outcomes of Civitas portfolio over time. The policy context Civitas is supporting delivery of the National Transforming Care and Specialist Supported Housing Programmes. The Winterbourne View Scandal and resultant report by Sir Stephen Bubb exposed systemic issues in the care system. It revealed that many people with learning disabilities or challenging behaviour were being placed in inappropriate care settings, staying far too long in hospitals or institutional care homes and, in some cases, were subject to physical and mental abuse. In 2016, to achieve the substantial reduction in reliance on residential and inpatient care, the Department for Health published the National Transforming Care Programme. This sets out a clear programme of work which will encourage system-wide change to enable more people requiring care to live within communities, with the right support whilst being close to their friends and family. A key element in the delivery of these aims is Specialist Supported Housing. This differs from conventional general supported housing in that it is developed directly in accordance with Local Authorities strategic priorities and there is no capital subsidy provided. Specialist Supported Housing offers a high-level of support and is designed, structurally altered, or refurbished to offer specialised services to allow people requiring care to live, or adjust to living, independently in the community. Civitas is one of the first providers of private capital for Specialist Supported Housing. Activities Outputs Outcomes Ultimate goal/impact Raise capital on LSE Purchase properties that are maintained as or increase social housing stock Build relationships with housing providers to ensure quality of housing and support Increased supply of good quality social housing 100% of properties inspected spent on improvements 100% of properties undergo affordability checks Number of housing units (by location and type) Demographies of individuals housed Residents are happy in their home and are able to live as independently as possible Evidence of positive outcomes for residents Value for money for the public purse Local authorities are satisfied with the cost and quality of accommodation and care Evidence of cost savings Improved quality of life for low-income people and those with special needs Wood Lane, Ferryhill Mount Ephrain Road, Streatham 16 17

Civitas Social Housing PLC Interim Report 2017 Extract from The Good Economy ( TGE ) Social Impact Report 2017 Civitas has allowed Westmoreland Supported Housing Association to reach out and provide good quality homes and supported living to a far larger number of people than we otherwise would have been able to. Yvonne Lee, CEO of WSHA Westmoreland Supported Housing Association Portfolio case study Westmoreland Supported Housing Association (WSHA) How WSHA began Westmoreland Supported Housing Association (WSHA) was established in 2002 as a not-forprofit housing provider by Pat and John Finney. The inspiration for this came from their son Nigel, who was born prematurely and suffered brain damage at birth, leaving him with learning difficulties and limited physical ability. As Nigel grew up and aspired to move on from the care of parents Pat and John, it became apparent that there was a lack of suitable supported living facilities. Pat and John therefore decided to convert their six-bedroomed family home into a house suitable for supported living. Nigel moved into the property, together with three friends from the local community also requiring care, along with a support provider, and Westmoreland Supported Housing was born. Growing to meet an unmet social need As other families with disabled children began to approach Pat and John about options for From the original conversion of the Finney family home 15 years ago, today WSHA provides for the care of over 900 residents in more than 200 properties all over England and Wales supported living, it became obvious there was a genuine demand for this type of facility. More specifically, there was a clear demand for the kind of specialist supported housing which would allow disabled adults a greater degree of independence, and their parents a greater degree of freedom from the commitment of round-the-clock care. The family ethos of Westmoreland remains. WSHA works closely and regularly with the tenants themselves, their family members, and their support providers to cater most effectively for the type of support required. Many of WSHA s employees are themselves parents of disabled children or have direct experience of the difficulties of finding appropriate care and living facilities, which lends a personable and empathetic touch to the nature of the support provided. Our staff have personal experience of disability so we re on the same side as our clients, says Yvonne Lee, CEO of WSHA. All of our properties are designed to be a home from home and we like our tenants to treat their house as their home. Civitas providing funding for scale-up In 2016, WSHA was ready to expand to meet demand, however, it didn t have the funds to purchase more properties. Civitas has proved an ideal partner and working in partnership, Civitas and WSHA identify properties that are suitable for supported living. Civitas then purchases the properties, facilitates renovation and arranges for them to be fitted out to meet the individual s care needs and leases them back to WSHA. WSHA uses its expertise and experience to manage the properties and liaises with the Local Authority to ensure appropriate care is provided by qualified external support providers. 18 19

Civitas Social Housing PLC Interim Report 2017 Extract from The Good Economy ( TGE ) Social Impact Report 2017 Case study Crisis: Together we will end homelessness Crisis is a national charity for the homeless. It works to provide vital support so that people can rebuild their lives and are supported out of homelessness for good. With 50 years experience of working with homeless people, Crisis campaigns for permanent change, as well as offering one-to-one support, advice and courses for homeless people across England, Scotland and Wales. In 2016, Crisis helped 10,000 people on their journey out of homelessness, with 1,000 of those progressing to external education or securing a paid job. Yet, today homelessness in Britain is increasing. The combination of welfare reforms and the cost of private rental accommodation are resulting in growing numbers of people at risk of becoming homeless. Crisis estimates that 160,000 households 0.25 million people are in an acute housing situation. Rough sleeping levels in England alone have increased 132% since 2010 and 16% since 2015 according to official figures. The cost of inaction is severe. What has impressed me about Civitas is not only do they want to build social purpose into their business model, but they are trying to solve the housing problem on all fronts. Jon Sparkes, CEO, Crisis Civitas has entered into a partnership with Crisis. Jon Sparkes, CEO of Crisis describes how Civitas value has three dimensions: 1. Grant funding Civitas is funding one Housing Trainer position for Renting Ready, a training course run by Crisis that helps vulnerable people build the skills they need to live independently and successfully manage their tenancies. Last year, through the work of these coaches, Crisis was able to place 800 homeless people into secure housing. 2. Knowledge sharing CHA s senior management have offered the Crisis team their thoughts and advice on how to get political, business and investor stakeholder engagement towards ending homelessness. Civitas have offered us free advice, particularly around business strategy and investment, that is tremendously valuable and goes far beyond how the average corporate engages with a charity. It feels like an equal relationship with us both committed to solving the problem of homelessness. 3. Raising awareness Civitas marketing strategy and its presence more broadly within the corporate and financial sector brings the challenge of homelessness, and the work of Crisis, to the attention of audiences who may otherwise remain largely ignorant of such issues. Jon Sparkes comments: It is too soon to judge if this exposure will have any real impact but it s an area we will watch closely. Both parties are committed to building the partnership over the long term. Final reflections Civitas has proven that commercial investment models can be used to achieve social good. The first REIT to raise private capital to invest in social housing in England and Wales, Civitas is meeting the urgent need for more funding for affordable homes. TGE s first Social Impact Report provides encouraging evidence that Civitas can deliver on its social objective of increasing the provision of high-quality social housing to improve the quality of life for lowincome and vulnerable people in social need while delivering financial returns to long-term investors. TGE have learnt that: Having shared social objectives and shared values is key. Civitas is selective about the partners it works with and will only proceed with an investment when it is confident that the Registered Provider is also committed to delivering the best quality housing and care to residents. Integrating social impact considerations into all phases of the investment process is critical to delivering on social outcomes. Civitas invests considerable resources into appraising the geography and quality of properties, ensuring works are carried out on all properties to meet high quality and safety standards. Being person-centred is vital. Civitas always takes a long-term view of the investment and only invests in properties that are intended to remain as social homes for residents with a significant proportion of investments being made in areas of high deprivation. In summary Civitas intends to continue to enhance its monitoring and reporting of social outcomes and will continue to report to shareholders and other stakeholders through future impact reports. Civitas has developed an innovative financial model that is helping to tackle the challenge of a lack of affordable housing and quality care for those in need. As a listed investment vehicle it offers all investors both institutional and retail the opportunity to invest for both a financial and social return. This is a new social investment market bringing together the private, public and social sectors. It requires building awareness, trust and understanding but already Civitas is demonstrating, through its multi-disciplinary team and approach, that it can deliver both financial and social value. 20 21

Civitas Social Housing PLC Interim Report 2017 Key Performance Indicators (KPIs) Principal risks and uncertainties Measure Explanation Result Investment Management risks How managed/mitigated Capital deployed Increase in Portfolio NAV per share and IFRS NAV per share Dividends per share Number of Local Authorities, Housing Associations and Care Providers Target of deploying the IPO proceeds by 31 December 2017 and the C Share proceeds by 31 December 2018 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 significant diversified, high-quality portfolio Targeting 3p per share in the period from IPO to 31 December 2017; 5p per share per annum from the second year onwards growing broadly in line with inflation Target risk mitigation through a diversified portfolio (once fully invested) with no more than 25% exposure to any one Local Authority or single Housing Association and no more than 20% exposure to any single geographical area, once the capital of the Company is fully invested 285.3 million before costs deployed by 30 September 2017 Portfolio NAV, 11.6p per share, an increase of 11.8% from IPO IFRS NAV, 5.2p per share, an increase of 5.3% from IPO Dividends of 2.25p per share declared for the period from IPO to 30 September 2017 As at 30 September 2017: 83 Local Authorities 10 Housing Associations 50 Care Providers The growth of the Company depends upon the ability of the Group to identify, select, acquire and manage investments that offer the potential for satisfactory returns, including the ability to enter into suitable lease and/or management arrangements with Registered Providers. The Group may face competition from other investors to acquire investments available in the Social Housing sector, which may restrict its ability to deploy capital effectively within a reasonable timescale. The Company and its operations are subject to laws and regulations enacted by national and local governments and government policy. Any change in the laws, regulations and/or government policy affecting the Company may have a material adverse effect on the ability of the Company to successfully pursue its investment policy and meet its investment objective and on the value of the Company and the shares. A sizeable proportion of investments made by the Group may comprise interests in the legal title to Social Housing and residential property assets that are not publicly traded or freely marketable and these investments are often subject to restrictions on who may own and/or operate the property assets concerned and may, therefore, be difficult to value and/or realise at the value attributed to such investments, or at all. The Investment Advisor has established strong links with the market in order to identify and execute new transactions and has established a significant pipeline of over 500 million and has deployed or allocated all of the net IPO proceeds within the envisaged timescale. The Group focuses on niches where it believes the regulatory framework to be robust. The Government announced on 25 October 2017 that social rents to the local housing allowance would not be capped; the Government has further announced that for the five years from 2019 the General Needs rent settlement will be set at CPI plus one. Both developments are supportive to the Civitas strategy and in line with the Group s expectations. The long term strategy of the Company is to own Social Housing with long term inflation indexed leases in place with robust counterparties. The strategy is not therefore dependent on being able to dispose of properties, which are funded entirely by equity as at 30 September 2017 and, once the envisaged debt facilities are in place, will be conservatively leveraged thereby minimising the risk of forced sale. 22 23

Civitas Social Housing PLC Interim Report 2017 Principal risks and uncertainties Investment Management risks How managed/mitigated Accounting, legal and regulatory risks How managed/mitigated Due Diligence may not reveal all facts and circumstances that may be relevant in connection with an investment and may not prevent an acquisition being materially overvalued. The Company is reliant on the Investment Advisor and third-party service providers to identify assets, structure transactions, complete due diligence and manage the portfolio. The Group undertakes detailed due diligence on the properties, their condition, the proposed rental levels benchmarking against comparable schemes using both external consultants where required and its own proprietary database and on the Registered Providers and Care Providers involved in each property to ensure that the purchase price is robust. The Board liaises closely with the Investment Advisor to review and approve transactions and due diligence, and monitor the portfolio. The Investment Advisor has assembled a team of professionals with a broad range of experience and third-party advisors engaged by the Group are all leading firms with significant expertise in the Social Housing sector. If the Company fails to qualify, or remain qualified, as a REIT, its rental income and gains will be subject to UK corporation tax. Any change in the tax status of the Company or any of its underlying investments or in tax legislation or practice (including in relation to taxation rates and allowances) or in accounting standards could adversely affect the investment return of the Company. The Company may not achieve full compliance with all applicable legislation leading to reputational or financial consequences. Operational risks, including cyber crime The Group has been structured to be REIT compliant and continuously monitors the tax status using professional taxation advisors. The Board has ultimate responsibility for ensuring adherence to the UK REIT regime and monitors the compliance reports provided by the Investment Advisor and other third party providers. The Board monitors compliance information provided by its advisors and legal counsel and thereby monitors regulatory developments in the UK as well as listing rules and FCA marketing rules. How managed/mitigated Strategy and competitiveness risks As a result of competition from other purchasers of Social Housing properties the Group s ability to deploy capital effectively within a reasonable timeframe may be restricted or the net initial yields at which the Group can acquire properties may decline such that target returns cannot be met. How managed/mitigated The Investment Advsior has established strong links with vendors and has completed over 300 million of acquisitions to date and established a pipeline of future acquisitions such that all of the net IPO proceeds have been deployed or allocated within the envisaged timescale and all of which are at net initial yields that meet the target return criteria. Disruption to, or failure of the systems of third party providers could prevent accurate reporting and monitoring of the Company s financial position. This includes the risk of cyber crime and potential threat to security, business continuity and reputation. The Board monitors the services provided by the Investment Advisor and other service providers and the key elements which are designed to provide effective internal control. The value of the investments made by the Company may change from time to time according to a variety of factors, including movements and expected movements in interest rates and in inflation and general market pricing of similar investments. Such changes could impact the value of the Company s investment portfolio. The Group invests in projects with stable predetermined, long term leases in place with CPI or CPI plus 1% indexation and its strategy is not focused on sale of properties. 24 25