TIDMCSH
RNS Number : 0913D
Civitas Social Housing PLC
24 June 2019
24 June 2019
CIVITAS SOCIAL HOUSING PLC
("Civitas" or the "Company")
ANNUAL FINANCIAL REPORT
YEAR TO 31 MARCH 2019
Civitas Social Housing PLC ("Civitas" or the "Company"), a
leading supported living and social housing REIT, presents its full
year results for the year ended 31 March 2019.
The full Annual Report and Financial Statements can be accessed
via the Company's website at www.civitassocialhousing.com or by
contacting the Company Secretary by telephone on 01392 477500.
Performance Highlights
Property Valuation and Performance March 2019 March 2018 Change
Investment property (GBPm) 826.9 516.6 Up 60%
----------- ----------- --------
IFRS NAV per share (diluted)
(p) 107.08 105.54 Up 1.5%
----------- ----------- --------
Financial Performance March 2019 March 2018 Change
----------- ----------- --------
Rent roll annualised (GBPm) 45.7 28.4 Up 61%
----------- ----------- --------
Net rental income (GBPm) 35.7 18.6 Up 92%
----------- ----------- --------
EPRA earning per share (p) 3.81 1.8 Up 112%
----------- ----------- --------
EPRA earning per share (diluted)
(p) 3.63 1.44 Up 152%
----------- ----------- --------
Dividend per share (p) 5.0 3.0 Up 67%
----------- ----------- --------
Financing March 2019 March 2018 Change
----------- ----------- --------
Loan to value ratio 22% 12% -
----------- ----------- --------
Weighted average cost of debt 2.57% 2.60% -
----------- ----------- --------
-- Increased investment property portfolio
-- Portfolio value up 60% to GBP826.9 million (IFRS)
-- Valuation net initial yield of 5.27% compared to an average
net initial yield on purchase of 5.67% (5.90% before costs)
-- IFRS NAV per share (diluted) up 1.5% to 107.08 pence
-- WAULT of 24.4 years
-- All equity proceeds and GBP208m of borrowings successfully deployed
-- Diversified portfolio of 591 properties providing homes to over 4,000 people
-- 177 properties acquired during the year
-- Providing accommodation to tenants with learning
disabilities, autism, mental health disorders and also for women's
refuge with an average age of 32 years
-- Properties located across half the Local Authorities in
England and Wales and leased to 15 Housing Associations, with
support provided by 133 Care Providers
-- Rent roll and earnings up significantly
-- Annualised rent roll up 61% to GBP45.7 million
-- EPRA earnings (diluted) up 157% to GBP22.6 million
-- EPRA earnings per share (diluted) up 152% to 3.63 pence
-- Growth combined with attractive shareholder returns
-- Final dividend proposed of 1.325p per Ordinary Share - an
increase of 6% over the equivalent quarter and ahead of the
inflationary increase originally envisaged
-- Total declared dividends of 5.075 pence per Ordinary Share
-- Target dividend of 5.3 pence for the financial year ended 31 March 2020
-- The total NAV return from IPO to 31 March 2019 is 7.23% p.a. (on an IFRS basis)
-- Conservative funding structure and significant interest cover
-- LTV of 22% of gross assets
-- In discussions regarding new debt funding
-- Making a positive social contribution
-- Civitas' portfolio has produced GBP114 million of social
value - including GBP59 million each year of direct savings to the
taxpayer
-- Cost advantage enjoyed by Local Authorities and the improved
well-being of tenants and their families, compared to institutional
care
-- Working with third party consultants to provide independent verification
-- Investment Adviser team strengthened with senior industry experts
-- Including two former specialist care industry CEOs
Evolving the Business Model and Sector
-- Growing demand from tenants, backed by local and central government
-- In August 2018 the Government affirmed clear long-term
support to retain the existing system of funding for supported
housing from Housing Benefit, part of the Welfare Budget
-- Over 20 years of unbroken commitment across various political administrations
-- Decisive move away from institutionalisation and towards
community living, which is vastly preferred by tenants and their
families
-- Support from local authority commissioners for each Civitas property acquired
-- Leading various initiatives designed to help the sector mature and professionalise
-- Supporting Housing Association Boards in appointing experienced, skilled individuals
-- Private seminars for Housing Association partners to help
enhance best practice and professional standards
-- Greater interaction with care providers
-- Regular, positive and productive discussions with the Regulator of Social Housing (RSH)
-- RSH recognises that this is an evolving sector
-- RSH is supportive of our initiatives to help the sector grow and mature
-- Lease adaptations proposed for Housing Associations
-- That both preserve value and introduce mitigation via "force
majeure" clauses and cap and collar arrangements
-- Lease length and other general lease terms remain constant
Michael Wrobel, Chairman, said:
"The Company has made considerable progress through the year. We
have deployed all the equity proceeds and GBP204.8 million of
borrowings. At the end of the year, the Company's property
portfolio was valued at GBP820.1 million. This is generating
annualised rental income of GBP45.7 million together with
measurable positive social impact.
"The UK has a chronic shortage of supported housing, with demand
expected to increase further due to a range of factors including
medical advances at birth and a growing and ageing population. The
Government sponsored Personal Social Services Research Unit
projects a 55% growth in supported housing needs for working age
adults with learning disabilities between 2015 and 2030."
"This demand-supply imbalance along with continued government
commitment to fund supported accommodation provides strong
fundamentals for continued investment into the supported housing
sector."
"The Company will continue to build on the successful and
disciplined deployment to date and to seek opportunities to further
enhance the portfolio within our capital resources. The Investment
Adviser has a pipeline of properties under negotiation and in
various stages of due diligence. Our confidence is reflected in our
intention to target a dividend of 5.3p for the current financial
year to March 2020."
For further information, please contact:
Civitas Housing Advisors Limited
Paul Bridge Tel: +44 (0)20 3058 4844
Andrew Dawber Tel: +44 (0)20 3058 4846
Cenkos Securities PLC
Sapna Shah Tel: +44 (0)20 7397 1922
Tom Scrivens Tel: +44 (0)20 7397 1915
Buchanan
Helen Tarbet / Henry Harrison-Topham Tel: +44 (0) 20 7466 5000
Henry Wilson / Hannah Ratcliff civitas@buchanan.uk.com
Notes to Editors:
Civitas Social Housing PLC is the first Real Estate Investment
Trust specialising in supported living and social housing for
adults with complex care needs. Civitas enables people to live in
communities with the right care to suit their needs, rather than in
institutions. Its portfolio of properties houses 4,072 people
across England and Wales.
Civitas works with some of the largest care providers in the UK
as well as leading specialist housing providers. For the year ended
31 March 2019 Civitas reported a portfolio value of GBP826.9
million with EPRA NAV per share (diluted) up 1.5% to 107.08 pence
and WAULT of 24.4 years.
Civitas is advised by Civitas Housing Advisors Limited, who are
authorised and regulated by the Financial Conduct Authority under
Firms Reference Number 815699. The Company is listed on the premium
listing segment of the Official List of the Financial Conduct
Authority and was admitted to trading on the main market for listed
securities of the London Stock Exchange in November 2016. The
company has an approximate market capitalisation of GBP480m.
Strategic Report
Chairman's Statement
I am pleased to present the Company's second annual shareholder
report, including the audited consolidated financial statements for
the year ended 31 March 2019.
The Company has made considerable progress through the year. We
have deployed all the equity proceeds and GBP208.4 million of
borrowings, the latter representing an LTV of 22% of gross assets.
At the end of the year, the Company's property portfolio was valued
at GBP820.1 million, having increased from GBP516.2 million and
including a revaluation gain of GBP3.7 million. The valuation
represents a net initial yield of 5.27% compared to an average net
initial yield on purchase of 5.67% (after initial purchase
costs).
The Company's IFRS NAV has increased by 1.5% to 107.08p per
share. The total return from IPO to 31 March 2019 is 7.23% p.a. (on
an IFRS basis) and 11.93% p.a. (on a Portfolio Valuation basis),
incorporating profit for the period of GBP19.9 million.
During the period the annualised rent roll increased by 61% to
GBP45.7 million, resulting in EPRA earnings of GBP22.6 million and
EPRA diluted earnings per share of 3.63p. For the financial year
ended 31 March 2019, the Company's ongoing charges were 1.36%.
The Company has declared total dividends of 5.075p per Ordinary
share for the year ended 31 March 2019, comprised of three
quarterly dividends on the Ordinary shares of 1.25p (in line with
the target in the launch IPO Prospectus) and a final dividend of
1.325p per Ordinary share, an increase of 6% over the equivalent
quarter and ahead of the inflationary increase originally
envisaged. The Company intends to target a dividend of 5.3p per
Ordinary share for the financial year ending 31 March 2020.
The Board is grateful for the support and encouragement of the
Company's shareholders and the hard work of our advisers and
service providers. The Company along with its Investment Adviser is
delivering positive financial and social outcomes which are
providing direct savings to tax payers.
Portfolio
During the year, a total of 177 properties were acquired, having
met the Company's stringent due diligence requirements. At the year
end the overall portfolio comprised 591 properties located across
half the Local Authorities in England and Wales and leased to 15
Housing Associations, with support provided by 113 care providers.
As well as representing the largest and most diversified portfolio
of supported housing, the Company's reputation as a knowledgeable
and reliable counterparty has materially enhanced the levels of
incoming investment enquiry.
The Company now provides homes to over 4,000 tenants with
learning disabilities, autism, mental health disorders and also for
women's refuge.
Following the events at First Priority Housing Association,
where in May 2018 we assigned all our leases on the same terms to
Falcon Housing Association, we have increased the extent of our
interaction with the care providers who provide primary care
services to the tenants in our properties and who support payment
against voids. We have also used specialist consultants to speak
directly with all Local Authority commissioners on an individual
basis to confirm their full support for each property acquired.
Civitas's Social Impact and Continuing Political Commitment to
the Sector
The Company's provision of supported housing continues to make a
significant positive social impact. This is driven by the cost
advantage enjoyed by Local Authorities and the improved well-being
of tenants and their families, compared to institutional care. This
is based on independent verification, using HM Treasury Green Book
metrics and reports from The Social Profit Calculator and The Good
Economy Partnership. Further information is available on the
Company's website
(http://civitassocialhousing.com/investor-relations/reports-ans-publications/).
These benefits are also contributing to increasing long-term
demand. It is most likely that this growth will need to be financed
by the private sector. In this regard Laing Buisson(1) reports that
none of the political parties seeks to pose any ideological threat
to the independent social care sector and that, driven by lower
costs and better value for money, over 93% of publicly paid adult
specialist care services are now outsourced to the independent
sector.
Against this background, in 2018 the government announced that
it will continue to fund all supported housing rents through the
welfare system (Housing Benefit) and will not subject rents to
mainstream Local Housing Allowance caps.
This confirmation of the government's long-term commitment to
supported housing has been reflected by the Company's experience on
the ground, in direct interaction with Local Authorities, namely
that properly commissioned properties will achieve long-term Local
Authority commissioner support for the appropriate rent levels
required to support the Company's leases.
Regulation and Improving Industry Standards
Given the specialist sector's growth, the Regulator of Social
Housing ("RSH") has begun to review many of the Housing
Associations with whom we work, for the first time. The RSH has
also published a report on the risks facing the industry and the
consequent need for risk mitigation plans. During a panel
discussion at the Social Housing Finance Conference in London, the
RSH referred to the industry's "growing pains" and areas that
require improvement, whilst noting that there were no inherent
problems with the industry model. We are aligned with this approach
and our Investment Adviser offers its team's considerable social
housing expertise to assist our counterparties, for example, on
governance structures and adding operational skills.
The structure of the industry and inherent risks are accounted
for by Jones Lang LaSalle, when undertaking the independent
valuation of our properties. There have been no material impacts on
our ability to collect the rental income due from our leases.
Share Price and Rating
The Board notes the recent share price performance of the
Company and its peer group and the resultant move from a premium to
a discount to the Net Asset Value. The Board regularly monitors the
share rating and reviews options by which we can seek to improve
the position. All options considered will take into account the
interests of shareholders as a whole and be balanced against
protecting the Company's long-term standing in the sector and its
relationships with important counterparties with whom the Company
is negotiating asset purchases.
AGM and AGM Resolutions
The third Annual General Meeting ("AGM") of the Company will be
held at 2.00 p.m. on Thursday, 5 September 2019 at 3 More London
Riverside, London, SE1 2AQ. There will be a presentation from the
Investment Adviser, Civitas Housing Advisors Limited. The full AGM
notice has been posted to all shareholders and also can be found on
the Company's website
(http://civitassocialhousing.com/investor-relations/reports-and-publications/).
Within the AGM notice, the Company has included a shareholder
resolution asking for approval to amend the Company's investment
policy to allow investments to be made Scotland and Wales. Both
these parts of the UK have a welfare benefit system that is similar
to that in England and Wales with policies that are regarded as at
least as supportive of the provision of social housing as those in
England and Wales. The Company's core focus will remain England and
Wales.
Scotland and Northern Ireland have experienced issues of
shortage in respect of affordable housing and the Company wishes to
be in a position to consider investments in these parts of the UK,
should any meet its criteria for investment.
In addition, the Company is also seeking shareholder approval to
increase the maximum aggregate annual remuneration payable to
Directors from GBP200,000 to GBP250,000 as set out in the Company's
Articles of Association. The Board is currently in the process of
seeking to appoint at least one additional Director to broaden the
skills and diversity of the Board, and therefore this proposed
change will provide headroom for future appointments and future
increases in remuneration. As set out in the Directors'
Remuneration Report for the year ended 31 March 2019, no increase
in the current level of Directors' fees is being proposed.
Outlook
The UK has a chronic shortage of supported housing, with demand
expected to increase further due to a range of factors including
medical advances at birth and a growing and ageing population. The
Government sponsored Personal Social Services Research Unit
projects a 55% growth in supported housing needs for working age
adults with learning disabilities between 2015 and 2030.
This demand-supply imbalance along with continued government
commitment to fund supported accommodation provides strong
fundamentals for continued investment into the supported housing
sector.
The Company will continue to build on the successful and
disciplined deployment to date and to seek opportunities to further
enhance the portfolio within our capital resources. The Investment
Adviser has a pipeline of properties under negotiation and in
various stages of due diligence. Our confidence is reflected in our
intention to target a dividend of 5.3p for the current financial
year to 31 March 2020.
Michael Wrobel
Chairman
21 June 2019
(1) Laing Buisson Adult Specialist Care Third Edition 2019.
Analysis of property portfolio as at 31 March 2019
Geographically Diversified
Region Properties % of funds invested % of rental income
North West 95 10.1% 10.1%
----------- -------------------- -------------------
West Midlands 94 11.9% 11.9%
----------- -------------------- -------------------
Wales 15 8.3% 8.3%
----------- -------------------- -------------------
South West 112 14.7% 14.5%
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North East 63 7.0% 7.0%
----------- -------------------- -------------------
Yorkshire 49 10.9% 10.7%
----------- -------------------- -------------------
East Midlands 58 9.6% 9.5%
----------- -------------------- -------------------
East of England 18 2.8% 2.7%
----------- -------------------- -------------------
London 26 14.1% 14.5%
----------- -------------------- -------------------
South East 61 10.6% 10.8%
----------- -------------------- -------------------
Market Value by Region(1)
Region Market Value
South West 14.7%
-------------
London 14.1%
-------------
West Midlands 11.9%
-------------
Yorkshire 10.9%
-------------
South East 10.6%
-------------
North West 10.1%
-------------
East Midlands 9.6%
-------------
Wales 8.3%
-------------
North East 7.0%
-------------
East of England 2.8%
-------------
Assets by Region (1)
Region Assets
South West 112
-------
North West 95
-------
West Midlands 94
-------
North East 63
-------
South East 61
-------
East Midlands 58
-------
Yorkshire 49
-------
London 26
-------
East of England 18
-------
Wales 15
-------
(1) As at 31 March 2019, including completed properties
only.
Diversified by Registered Provider
Rental Income by Registered Provider(1)
Registered Provider Rental Income
Falcon 20.9%
--------------
Westmoreland 19.7%
--------------
BeST 11.4%
--------------
Auckland 11.3%
--------------
Inclusion 8.3%
--------------
Encircle 6.3%
--------------
Trinity 5.7%
--------------
Pivotal 4.1%
--------------
Chrysalis 3.4%
--------------
New Walk 3.0%
--------------
Harbour Light 2.4%
--------------
My Space 1.2%
--------------
IKE 1.2%
--------------
Hilldale 1.0%
--------------
Blue Square 0.1%
--------------
Assets by Registered Provider(1)
Registered Provider Number of Properties
Falcon 115
---------------------
Westmoreland 108
---------------------
BeST 71
---------------------
Inclusion 60
---------------------
Trinity 43
---------------------
New Walk 41
---------------------
Auckland 30
---------------------
Pivotal 27
---------------------
Harbour Light 26
---------------------
Chrysalis 20
---------------------
Encircle 16
---------------------
Hilldale 15
---------------------
IKE 10
---------------------
My Space 8
---------------------
Blue Square 1
---------------------
Market Value by Registered Provider(1)
Registered Provider Market Value
Falcon 21.2%
-------------
Westmoreland 19.6%
-------------
BeST 11.5%
-------------
Auckland 11.4%
-------------
Inclusion 8.3%
-------------
Encircle 5.9%
-------------
Trinity 5.7%
-------------
Pivotal 4.1%
-------------
Chrysalis 3.4%
-------------
New Walk 3.0%
-------------
Harbour Light 2.4%
-------------
IKE 1.2%
-------------
My Space 1.2%
-------------
Hilldale 1.0%
-------------
Blue Square 0.1%
-------------
Tenancies by Registered Provider(1)
Registered Provider Tenancies
Falcon 848
----------
Westmoreland 612
----------
BeST 516
----------
Inclusion 421
----------
Auckland 296
----------
Trinity 242
----------
Pivotal 238
----------
Encirle 205
----------
New Walk 194
----------
Harbour Light 182
----------
Chrysalis 136
----------
My Space 71
----------
IKE 68
----------
Hilldale 39
----------
Blue Square 4
----------
(1) As at 31 March 2019, including completed properties
only.
Investment Adviser's Report
"Civitas Housing Advisors Limited ("CHA"), the Investment
Adviser to the Company, is pleased to report on the second period
of operation for the Company for the period from 1 April 2018 to 31
March 2019." Paul Bridge, Chief Executive Officer, Civitas Housing
Advisors Limited
Introduction
Civitas is a leading supported living and social housing
property investor which is pursuing a clear growth strategy whilst
spearheading the maturation and professionalisation of the sector
in which it operates.
We made considerable progress through the year, firstly in
implementing our strategy, and secondly in working with all
stakeholders to drive the development of supported living provision
in England and Wales.
Rental Income
The Company's rental income has grown substantially during the
year as additional properties were acquired and existing properties
enjoyed annual indexation of rents.
As at 31 March 2019, the run rate level of rental income was
GBP45.7 million (2018: GBP28.4 million) and this is anticipated to
grow further as additional bank finance is secured and invested
into supported housing properties to achieve the target average 35%
leverage based on gross assets.
The run rate rental income is supported by a broadly-based
portfolio and as at 31 March 2019 the key statistics of the
portfolio are set out below.
Key Statistics as at 31 March 2019
Period 31 March 30 June 30 September 31 December 31 March
2018 2018 2018 2018 2019
Investment
(GBPm) 472 508 619 674 755
--------- -------- ------------- ------------ ---------
Properties 414 440 521 557 591
--------- -------- ------------- ------------ ---------
Tenancies 2,621 2,845 3,440 3,746 4,072
--------- -------- ------------- ------------ ---------
Local Authorities 109 123 140 144 157
--------- -------- ------------- ------------ ---------
Housing Associations 11 12 15 15 15
--------- -------- ------------- ------------ ---------
Care Providers 64 71 93 98 113
--------- -------- ------------- ------------ ---------
WAULT (years) 24.1 25.4 25.1 24.7 24.4
--------- -------- ------------- ------------ ---------
Investment Strategy
The Company has continued to pursue the strategy to build a
high-quality and diversified portfolio of social housing with a
majority focus on housing for individuals with long-term care
needs.
As at 31 March 2019, the Company has built one of the largest
and most diversified such portfolios in England and Wales providing
long-term stable accommodation for over 4,000 underlying
tenants.
The portfolio has been structured to date with the intention of
achieving the following objectives:
-- Steady income for shareholders and capital growth
-- Properties to be within the social/government/local authority
sponsored sectors in England and Wales where the requirement to
provide accommodation is supported by government legislation
-- Achieve diversification from working with a wide range of
Local Authorities, Housing Associations and care providers
-- Provide accommodation for individuals with a range of
long-term care-based needs and support other local authority
accommodation requirements including homelessness, addiction,
domestic violence and NHS step down in addition to general needs
social housing
-- Rental income to be met wholly or substantially from state
funds. In the case of care-based Specialist Supported Housing
(almost 100% of the portfolio today), this is expected to be 100%
state funded
-- Long-term leases signed with Registered Providers (Housing
Associations and Local Authorities) to enable them to offer
accommodation on a long-term basis to individuals often with
life-long care needs
-- Leases to benefit from indexation and typically to be repairing and insuring
-- Properties whose rental income, valuation and demand profile
has a low correlation to the general economy, residential or
commercial property sectors
-- Measurable social impact that promotes the well-being of
tenants and offers value for money for the state.
Strengthening the Team
During the year we have continued to strengthen the Investment
Advisory team and to widen its skills base with expertise in social
housing and social care.
Much has been written recently of the growing importance of
Local Authority and individual preference for supported housing as
a means of delivering high-quality care in the community that also
offers value for money.
An understanding of both healthcare delivery and social housing
need is firmly built into our eight-step due diligence process that
governs how we assess and due diligence potential acquisitions of
supported housing.
To complement our expertise in social housing we have added
senior resource from the care industry both at a corporate and an
operational level, including the recruitment of two former
specialist care industry CEOs.
Reflecting the growing scale of the portfolio, we have also
appointed a new director of asset management with 30 years'
experience gained from working at a senior level in some of the
largest Housing Associations in the UK and managing large
portfolios of social homes and care homes.
Market Update
The supported housing sector continues to experience strong
growth, and this is predicted to increase significantly into the
future. The sector has recently enjoyed the most significant growth
in investment (CAGR 7.8%) of all parts of adult specialist care in
the UK(1.)
Investors of various types have responded to the strong demand
for the provision of long-term supported housing and have been
encouraged in this by the clear statements of support made by the
Government. In August 2018, the Government made the following
announcement:
"Ministers recognise that supported housing is a vital service
for some of the most vulnerable people in our communities, and last
year consulted on possible alternative funding options. Having
listened to views from providers, stakeholders and councils, the
Government has decided housing benefit will remain in place to fund
this accommodation"
Whilst there was no suggestion that state funding would not be
available to meet both care and accommodation costs of vulnerable
adults, the fact that the current system of provision from central
Government, in the form of Housing Benefit, has been reaffirmed,
was taken very positively by the sector. It is also worth noting
that no political party dissented from this view and there does not
appear to be any difference of opinion amongst the mainstream
political parties on the principle that vulnerable people who
cannot work should receive full state support for their care and
accommodation.
Against this positive macro background, smaller specialist
Housing Associations ("RPs") are becoming further engaged in the
sector as registered providers and lessees, with a number passing
the 1,000-unit milestone that brings about increased scrutiny from
the Regulator of Social Housing ("RSH").
We welcome this scrutiny as evidence of the increasingly
important role our sector plays in housing provision in England and
Wales. We interact very regularly with the RSH and are pleased to
report that we have a highly positive and productive working
relationship with them. We know the RSH is actively working through
the various issues that it has raised, and we are contributing via
our Housing Association partners to that work where that is
appropriate. We believe that the RSH is supportive of the
initiatives we are undertaking to strengthen and professionalise
the sector in which we operate.
During a panel discussion at the Social Housing Finance
Conference in London, which Civitas co-hosted, the RSH acknowledged
the industry's "growing pains" and areas for improvement, whilst
noting that there was "nothing inherently wrong" with the industry
model. We are actively involved in working with all our RP
counterparties to help them grow and improve, providing, for
example, advice on governance structures and adding operational
skills.
The initiatives we are undertaking include a series of unique
private seminars for all our 15 Housing Association partners
(RPs).
During 2018/19, these on-going seminars have focused on the
following subjects with a view to enhancing quality, best practice
and professionalism:
-- March 2018 - Governance and Regulatory Health Checks
-- June 2018 - Manchester Chartered Institute of Housing Conference/Dealing with Growth
-- October 2018 - Understanding the Civitas Eight-Step Due Diligence Protocol
-- April 2019 - The Civitas Social Value Project
-- May 2019 - Sector Perceptions and Increasing Understanding of Value Add
In addition to this ongoing activity (which complements and
supports our more formal due diligence and monitoring activities),
at our recent Capital Markets Day
(http://civitassocialhousing.com/capital-markets-day-presentation/)
we set out some of the other practical ways in which we have lent
our support to our RP partners.
In summary the activities we have undertaken in 2018/19 include
the following:
-- Engagement with asset management reviews
-- Recommendation of new independent board members with leading sector experience
-- Review of health and safety procedures and audits
-- Comment on the structure and delivery of risk appraisals and
business plans including for presentation to the RSH
-- Supporting staff recruitment
-- Assistance in the review of group and operational structures
We would anticipate that as the RPs continue to mature and
improve, this will be acknowledged and reflected in the RSH's
commentary on the sector.
Leases
The Company has typically entered into long-term inflation
adjusted leases for periods in excess of 20 years with RPs, where
management and maintenance are provided by the RPs. The Company's
portfolio currently has a WAULT of 24.4 years.
In approximately a third of the Company's portfolio, the leases
with the RPs are supported by agreements of the same 20-year-plus
length with the underlying care provider. Through these agreements,
the care provider is in effect taking responsibility for broader
lease obligations around rent and occupancy. The remainder of the
portfolio benefits from more standard underlying service level
agreements with the care provider which would be expected to be
rolled into a new service level agreement at the end of the initial
period.
Where the counterparty is a Local Authority, or where we believe
it is in the Company's interest, the Company may (as noted at the
time of IPO) consider unexpired leases of not less than 10 years.
This would reflect common constraints on Local Authorities from
entering into longer-term arrangements.
As part of our assessment of the supported housing sector we
have also given active consideration to the structure of leases
that are entered into with RPs by the Company and other landlords.
We have used our long-standing experience of different mainstream
and "alternative" real estate sectors and economic and social
infrastructure investment markets to provide a form of
benchmarking.
This has led to discussions with a number of our larger housing
association partners, with JLL, with our lenders and also directly
with the RSH who are seeking to promote better contingency planning
as opposed to commenting formally on lease-length or
constitution.
The principal objectives of this review have been two-fold.
Firstly, to set out more formally the steps we would take in the
very unlikely event that the formal action of government or local
authorities reduces directly the ability of the RPs to meet their
obligations under the leases with the Company even when all forms
of mitigation are taken into account. This has commonly been
referred to as a "Force Majeure Clause". Secondly, to ensure that
where it is deemed appropriate, there should be a form of "collar"
and "cap" on the growth of indexation under the leases.
Both of these are common features that are seen regularly in
other real estate sectors, do not affect valuations and are
acceptable to stakeholders.
From our discussions we expect that changes such as these will
be appreciated both by the RPs and by the RSH.
Working with Care Providers
The provision of care within the properties owned by the Company
is a fundamental driver of both the demand for supported housing
and the ability of properties to be defined as exempt Specialist
Supported Housing. This in turn affects the rent and service charge
levels that can be achieved and sustained.
Understanding the extent and nature of the care delivery is
therefore an essential part of the overall due diligence process.
We have placed considerable focus during the year on our
relationships with care providers, as they are a key driver of the
success of our strategy.
During the year, where we have been offered properties in which
the extent of the care provision (typically measured by care hours
per person per week) is in our view limited or marginal, we have
declined those properties on the basis that their status as exempt
Specialist Supported Housing could be open to challenge in the
future.
The provision of specialist care is a fragmented sector with
many small, local providers and a limited number of larger national
providers. The Company has sought to focus as far as possible on
the larger providers which have depth of experience and a wide
network.
The Company does not enter into any agreements directly with
care providers (these are between the care provider and the Local
Authority, Housing Association and the tenant) and has no legal or
other responsibility for the delivery or quality of care. That
said, we take an active interest in the quality and amount of care
that is being provided as part of our asset selection, due
diligence and monitoring activities.
For-profit care providers within the top 25(1) (measured by
number of beds) in the UK (as at December 2018) out of
approximately 20,000 care providers are responsible for the
delivery of care into 34% of the Company's portfolio. By
comparison, those same care providers are responsible (as at
December 2018) for 11% of the beds within the overall adult
specialist healthcare sector in the UK.
This is a result of our strategy of seeking to work with these
larger, more mature care providers whilst not ignoring the merits
of the best of breed local organisations.
In addition, the Company also works with five out of the top 10
care providers who represent 20% of the Company's portfolio.
1. Priory Group
2. Voyage Care
3. CareTech,
4. Lifeways Group
5. Exemplar
= 20%* (of Civitas Portfolio)
* This does not include National Care Group who provide care
services to approximately 12% of the Civitas properties, but who
operate via a number of individual care providers that are
separately represented in league tables but if taken together would
likely be in the top 10.
The benefits of building long-term strategic relationships with
care providers are clear:
i) They assist with the eight-step due diligence programme and with our ongoing monitoring
ii) They have also become a catalyst for the origination of
high-quality properties both built and to be acquired on
completion
iii) Most importantly, they provide a high standard of care for our tenants.
Social Impact Investing
The Investment Adviser with its Head of Impact Investment has,
since IPO, established embedded processes that evaluate the social
impact that is delivered from its investment activities and
portfolio, with a particular focus on helping tenants achieve
improved outcomes in their lives, providing value for money, cost
saving for the public purse and increasing the quality and
availability of social housing.
Specialist social impact consultants, The Good Economy, have
recently published an independent Annual Impact report which
confirms that Civitas is "an authentic impact investor according to
the IFC Principles for Impact Management".
This report has been based on extensive research undertaken by
The Good Economy incorporating site visits, meetings with tenants
and their families and discussions with local authority
commissioners, RPs, care providers and the RSH.
This report formed the backbone for a further independent study
by the Manchester-based consultants, the Social Profit Calculator,
with the aim of attaching a monetary value to the social impact and
value for money that are driven from the Company's portfolio. The
study is based upon government metrics utilising HM Treasury's
Green Book data.
The study considered a wide range of tenants in detail and
measured the monetary value from improved health and wellbeing,
reduced isolation and improved relationships, the benefits of
independent living and in certain instances the enhanced
opportunity for employment and attaining qualifications.
They reported that Civitas' portfolio has produced GBP114
million of social value - including GBP59 million each year of
direct savings to the taxpayer, and when projected over the course
of our leases it equates to more than GBP1 billion in potential
savings to the taxpayer. This reflects the fact that enabling
disabled people to live in the community is not only much better
for their wellbeing, but also significantly cheaper for the
taxpayer than other forms of accommodation such as
institutions.
The Social Profit Calculator and The Good Economy Partnership
calculated that GBP3.50 is created in social value for every GBP1
which Civitas has invested.
Further information on the social value created by the Civitas
portfolio can be found in the Good Economy's latest Impact Report,
available on the Company's Website
(http://civitassocialhousing.com/investor-relations/reports-and-publications/)
Looking Ahead: The Investment Pipeline
The Investment Adviser has been successful in establishing
strategic relationships with a wide range of property vendors
including national care providers, regional and local developers,
RPs and Local Authorities.
Having led the completion of over 100 transactions, the Company
enjoys a leading reputation in the markets in which it operates and
has demonstrated a proven ability to design and structure
transactions that have led to successful acquisitions for the
Company.
As we mention at the start of the report, the Investment
Adviser's team has been expanded so that it now includes senior
professionals with both operational care and social housing
experience in addition to skills in real estate, investment funds
and corporate finance.
This combination has been noted by asset owners, sector
professionals and advisers and has resulted in an increase in the
range and depth of projects to which we are introduced, often being
the first or only party to be approached. The sources of potential
property purchases, both built and in construction to be acquired
on completion, is today being obtained from four main sources:
-- National and Regional Care Providers
-- Housing Associations and Local Authorities
-- Regional and Local Specialist Developers
-- National and Regional Charities
-- Other Private Sector owners of Assets
As a result of the Company's strategic relationships in the
sector, the investment pipeline continues to build and today stands
at GBP210 million of potential transactions in various stages of
due diligence. These transactions, which are subject to the
successful completion of the Company's due diligence process,
reflect non-legally binding commitments and are representative of
the Company's reputation in the sector. The first of these
transactions are likely to be able to complete in the next couple
of months.
As part of the Company's plans to seek further diversification
within the specialist areas of the regulated social housing sector,
we anticipate that, in due course, pipeline transactions will
include not just homes for tenants with care needs based around
learning disability and autism, but also dependency, homelessness,
key worker 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 or similar model with a
Housing Association entering into a long-term arrangement with the
Company and providing on the ground property services.
We are also exploring opportunities in both Scotland and
Northern Ireland.
We look forward to continued progress over the forthcoming
months as we continue to implement our strategy and grow and
diversify our portfolio.
Civitas Housing Advisors Limited
Investment Adviser
21 June 2019
(1) Laing Buisson Adult Specialist Care Third Edition 2019.
Corporate Social Responsibility Report
Sustainability
The business model of the Company is to provide long-term
suitable homes for individuals with care needs; acting in a
sustainable manner is key to achieving this aim. The property of
the Company is tailored to meet the future needs of the tenants and
where required is actively asset managed to provide long-term
functionality and value to the wider community.
Environment
During the investment due diligence phase the Company looks
closely at the environmental impact of each potential acquisition,
and encourages a sustainable approach for maintenance and upgrading
properties. Through partnering with specialist developers and
vendors, the high standards the Company expects from each
investment in the supported housing sector is adopted by other
companies in the sector.
Once within the portfolio, the properties of the Company are
actively asset managed, with opportunities to improve environmental
efficiencies factoring heavily in addition to other asset
management initiatives.
The Board has considered the requirements to disclose the annual
quantity of emissions; further detail on this is included in the
Report of the Directors in the full Annual Report.
Diversity
The Company does not have any employees or office space, as such
the Company does not operate a diversity policy with regards to any
administrative, management and supervisory functions.
Whilst recognising the importance of diversity in the boardroom,
the Company does not consider it to be in the interest of the Group
and its shareholders to set prescriptive diversity criteria or
targets. The Board will continue to monitor diversity, taking such
steps as it considers appropriate to maintain its position as a
meritocratic and diverse business.
The Board's objective is to maintain effective decision-making,
including the impact of succession planning. All Board appointments
will be made on merit and have regard to diversity regarding
factors such as gender, ethnicity, skills, background and
experience.
The Board comprises three male and one female non-executive
Directors.
The boards of directors of the Company's subsidiaries each
comprise up to four male and no female directors.
Human Rights
The Company is not within the scope of the Modern Slavery Act
2015 because it has not exceeded the turnover threshold and is
therefore not obliged to make a slavery and human trafficking
statement.
The Board is satisfied that, to the best of its knowledge, the
Company's principal advisers, which are listed in the Company
Information section of the full Annual Report, comply with the
provisions of the UK Modern Slavery Act 2015.
The Company's business is solely in the UK and therefore is
considered to be low risk with regards to human rights abuses.
Community and Employees
The Company's properties enable the provision of care to some of
the most vulnerable people in the community, ensuring safe and
secure accommodation, tailored to meet individual care needs. The
Company has increased the provision of Specialist Supported
Housing, bringing new supply to the sector and providing homes to
over 4,000 people. All of the Company's properties enable the
provision of high levels of care, generating local jobs and helping
to support local economies.
The Company has no employees and accordingly no requirement to
separately report on this area.
The Investment Adviser is an equal opportunities employer who
respects and seeks to empower each individual and the diverse
cultures, perspectives, skills and experiences within its
workforce.
Investment Objective and Policy
Investment Objective
The Company's 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
benefits from inflation adjusted long-term leases or occupancy
agreements with Registered Providers and to deliver, on a fully
invested and geared basis, a targeted dividend yield of 5% per
annum, which the Company expects to increase broadly in line with
inflation.
Investment Policy
The Company's investment policy is to invest in a diversified
portfolio of social homes throughout England and Wales. The Company
intends to meet the Company's investment objective by acquiring,
typically indirectly via Special Purpose Vehicles ("SPVs"),
portfolios of social homes and entering into long-term inflation
adjusted leases or occupancy agreements for terms primarily ranging
from 10 years to 40 years with Registered Providers, where all
management and maintenance obligations will be serviced by the
Registered Providers. The Company will not undertake any
development activity or assume any development or construction
risk. However, the Company may engage in renovating or customising
existing homes, as necessary.
The Company may make prudent use of leverage to finance the
acquisition of social homes and to preserve capital on a real
basis.
The Company is focused on delivering capital growth and expects
to hold its Portfolio over the long term and therefore it is
unlikely that the Company will dispose of any part of its
Portfolio. In the unlikely event that a part of the Portfolio is
disposed of, the Directors intend to reinvest proceeds from such
disposals in assets in accordance with the Company's investment
policy.
Investment restrictions
The Company invests and manages the Portfolio with the objective
of delivering a high quality, diversified Portfolio through the
following investment restrictions:
-- the Company only invests in social homes located in England and Wales;
-- the Company only invests in social homes where the
counterparty to the lease or occupancy agreement is a Housing
Association or Local Authority;
-- no lease or occupancy agreement shall be for an unexpired
period of less than 10 years, unless the shorter leases or
occupancy agreements represent part of an acquisition of a
portfolio which the Investment Adviser intends to reorganise such
that the average term of lease or occupancy agreement is increased
to 15 years or above;
-- the aggregate maximum exposure to any single Local Authority
or single Housing Association is 25% of the Gross Asset Value, once
the capital of the Company is fully invested;
-- no investment by the Company in any single geographical area,
in relation to which the houses and/or apartment blocks owned by
the Company are located on a contiguous or largely contiguous
basis, exceeds 20% of the Gross Asset Value of the Company;
-- the Company only acquires completed social homes and will not
forward finance any development of new social homes;
-- the Company does not invest in other alternative investment
funds or closed-end investment companies; and
-- the Company is not engaged in short selling.
The investment limits detailed above apply at the time of the
acquisition of the relevant investment in the Portfolio once fully
invested. The Company would not be required to dispose of any
investment or to rebalance the Portfolio as a result of a change in
the respective valuations of its assets.
Gearing limit
The Directors seek to use gearing to enhance equity returns. The
level of borrowing is set on a prudent basis for the asset class
and seeks to achieve a low cost of funds, whilst maintaining the
flexibility in the underlying security requirements and the
structure of both the Portfolio and the Company.
The Company may, following a decision of the Board, raise debt
from banks and/or the capital markets and the aggregate borrowings
of the Company is always subject to an absolute maximum, calculated
at the time of drawdown, of 40% of the Gross Asset Value.
Debt is secured at asset level, whether over a particular
property or a holding entity for a particular series of properties,
without recourse to the Company and also potentially at Company
level with or without a charge over the Portfolio (but not against
particular assets), depending on the optimal structure for the
Company and having consideration to key metrics including lender
diversity, cost of debt, debt type and maturity profiles. Otherwise
there will be no cross-financing between investments in the
Portfolio and the Company will not operate as a common treasury
function between the Company and its investments.
Use of derivatives
The Company may choose to utilise derivatives for efficient
portfolio management. In particular, the Directors may engage in
full or partial interest rate hedging or otherwise seek to mitigate
the risk of interest rate increases on borrowings incurred in
accordance with the gearing limits as part of the management of the
Portfolio.
Cash management
Until the Company is fully invested, and pending re-investment
or distribution of cash receipts, the Company invests in cash, cash
equivalents, near cash instruments and money market
instruments.
REIT status
The Directors conduct the affairs of the Company so as to enable
it to remain qualified as a REIT for the purposes of Part 12 of the
CTA 2010 (and the regulations made thereunder).
Key Performance Indicators ("KPIs")
Measure Explanation Result
Capital deployed Target of deploying the The C share proceeds were
C share proceeds by 31 materially deployed by
December 2018 or earlier. 31 December 2018. Total
of GBP754.8 million invested
to 31 March 2019, representing
Ordinary and C share equity
and debt.
--------------------------------- --------------------------------
Increase in IFRS Target to achieve capital IFRS NAV increase of 9.1p
and Portfolio appreciation whilst maintaining per share or 9.3% from
NAV per share a low risk strategy from IPO. Portfolio NAV increase
enhancing the quality of of 21.1p per share or 21.5%
cash flows from investments, from IPO.
by physical
improvement of properties
and by creating a significantly
diversified, high-quality
portfolio.
--------------------------------- --------------------------------
Dividend per share Targeting 5p per share Dividends of 5p per share
per annum for the second declared for the calendar
year growing broadly in year to 31 December 2018.
line with inflation.
--------------------------------- --------------------------------
Number of Local Target risk mitigation As at 31 March 2019:
Authorities, Housing through a diversified portfolio
Associations and (once fully invested) with -- 157 Local Authorities
care providers no more than 25% exposure -- 15 Housing Associations
to any one Local Authority -- 113 care providers
or single Housing Association
and no more than 20% exposure The Company's largest single
to any single geographical exposure is to Falcon Housing
area, once the capital Association and currently
of the Company is fully stands at 21%. The largest
invested. geographical concentration
is in the South West, being
14.7%.
--------------------------------- --------------------------------
Loan to Gross Target debt drawn of 35% Leverage as at 31 March
Assets of gross assets. 2019 of 22% of gross assets
with facilities in negotiation
to achieve the target in
due course.
--------------------------------- --------------------------------
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:
EPRA
Performance EPRA Performance 31 March 31 March
Measure Definition Measure 2019 2018
------------------ ----------------------------- ---------------------- --------------- ---------------
Earnings Earnings from operational EPRA Earnings GBP16,212,000 GBP6,293,000
activities.
EPRA Earnings
per share (basic) 3.81p 1.80p
EPRA Earnings
per share (diluted) 3.63p 1.44p
EPRA NAV Net Asset Value adjusted EPRA Net Asset GBP666,508,000 GBP668,147,000
to include properties Value
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 per
share (diluted) 107.08p 105.54p
----------------------------------------------------------------------- --------------- ---------------
EPRA NNNAV EPRA NAV adjusted EPRA NNNAV GBP665,858,000 GBP667,435,000
to include the fair
values of (i) financial
instruments, (ii)
debt and (iii) deferred
taxes.
EPRA NNNAV per
share (diluted) 106.97p 105.43p
Annualised rental
income based on the
cash rents passing
at the balance sheet
date, less non-recoverable
property operating
expenses, divided
by the market value
EPRA Net of the property with
Initial (estimated) purchasers' EPRA Net Initial
Yield costs. Yield 5.27% 5.27%
------------------ ----------------------------- ---------------------- --------------- ---------------
This measure incorporates
an adjustment to the
EPRA NIY in respect
of the expiration
of rent-free-periods
(or other unexpired
lease incentives such
as discounted rent
EPRA 'Topped-up' periods and stepped EPRA 'Topped-up'
NIY rents). Net Initial Yield 5.27% 5.27%
------------------ ----------------------------- ---------------------- --------------- ---------------
Estimated Market Rental
Value ("ERV") of vacancy
EPRA Vacancy space divided by ERV EPRA Vacancy
Rate of the whole portfolio. Rate 0% 0%
------------------ ----------------------------- ---------------------- --------------- ---------------
Administrative & operating
costs (including &
excluding costs of
EPRA Costs direct vacancy) divided
Ratio by gross rental income. EPRA Costs Ratio 26.95% 47.80%
------------------ -----------------------------
EPRA Costs Ratio
(excluding direct
vacancy costs) 26.98% 47.80%
----------------------------------------------------------------------- --------------- ---------------
For detailed workings reconciling the above measures to the IFRS
results please see Appendix 1 to these financial statements.
Adjusted
Performance Performance 31 March 31 March
Measure Definition Measure 2019 2018
-------------- ------------------------ ------------------- --------------- ---------------
Portfolio IFRS NAV adjusted Portfolio NAV GBP741,170,000 GBP398,505,000
NAV to reflect investment
property valued
on a portfolio
basis rather than
on an individual
asset basis
-------------- ------------------------ -------------------
Portfolio NAV
per share 119.07p 113.86p
----------------------------------------------------------- --------------- ---------------
Company Company Specific Adjusted Earnings GBP22,612,000 GBP9,085,000
Adjusted Earnings Measure
Earnings which adds back
the finance costs
associated with
the C share financial
liability
-------------- ------------------------
Adjusted Earnings
per share 3.63p 2.60p
----------------------------------------------------------- --------------- ---------------
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.
Principal Risks and Risk Management
The Board considers that the risks detailed below are the
principal risks facing the Group currently, along with the risks
detailed in note 33 to the financial statements. These are the
risks that could affect the ability of the Company to deliver its
strategy. The Board confirms that the principal risks of the
Company, including those which would threaten its future
performance, solvency or liquidity, have been robustly assessed
throughout the year ended 31 March 2019, and that processes are in
place to continue this assessment. Further detail of risk
management processes that are in place can be found in the
Corporate Governance Statement in the full Annual Report. The
principal risks and uncertainties relating to the Group are
regularly reviewed by the Board along with the internal controls
and risk management processes that are used to mitigate these
risks. The principal risks and management of those risks are
described below:
Principal risks and uncertainties
1. Strategy and Impact How managed/mitigated
competitiveness
risks
-------------------------- ----------------------------- ----------------------------- ---------------
The Company and Any change in the The Company focuses Impact:
its operations laws, regulations on niche real estate Very High
are subject to and/or government sectors where it
laws and regulations policy affecting believes the regulatory Probability:
enacted by national the Company and its framework to be robust. Unlikely
and local governments operations may have
and government a material adverse The Board obtains
policy. effect on the ability regular updates from
of the Company to professional advisers
successfully pursue to monitor developments
its investment policy in regulation and
and meet its investment legislation.
objective and on
the value of the
Company and the shares.
-------------------------- ----------------------------- ----------------------------- ---------------
2. Strategy and Impact How managed/mitigated
competitiveness
risks
-------------------------- ----------------------------- ----------------------------- ---------------
As a result of The rate of capital The Company has strong Impact:
competition from deployment would links with vendors High
other purchasers drop, decreasing and a robust pipeline
of social housing returns to shareholders. of future acquisitions. Probability:
properties the Unlikely
Company's ability The Board regularly
to deploy capital reviews the pipeline
effectively within of potential acquisitions.
a reasonable timeframe
may be restricted
or the net initial
yields at which
the Company can
acquire properties
may decline such
that target returns
cannot be met.
-------------------------- ----------------------------- ----------------------------- ---------------
3. Investment Impact How managed/mitigated
management risk
-------------------------- ----------------------------- ----------------------------- ---------------
Tenant defaulting Loss of rental income The portfolio is Impact:
under the terms in the short term. diversified to reduce Medium
of a lease. the impact of default.
Extensive diligence Probability:
is undertaken on Likely
all assets, which
is reviewed and challenged
by the Board.
The Board is provided
with regular updates
on the tenants with
any concerns raised
for discussion.
-------------------------- ----------------------------- ----------------------------- ---------------
4. Investment management Impact How managed/mitigated
risk
-------------------------- ----------------------------- ----------------------------- ---------------
The value of the The valuation of The Company invests Impact:
investments made the Company's assets in projects with High
by the Company would fall decreasing stable predetermined,
may change from the Net Asset Value long-term leases Probability:
time to time according of the Company. in place with CPI Unlikely
to a variety of or CPI plus 1% indexation
factors, including and its strategy
movements in interest is not focused on
rates and in inflation sale of properties.
and general market
pricing of similar The Board receives
investments. regular updates on
factors that might
impact investment
valuations.
-------------------------- ----------------------------- ----------------------------- ---------------
5. Investment management Impact How managed/mitigated
risk
-------------------------- ----------------------------- ----------------------------- ---------------
Due diligence may The Company would The Company undertakes Impact:
not reveal all over pay for assets detailed due diligence High
facts and circumstances impairing shareholder on the properties,
that may be relevant value, reducing rental their condition, Probability:
in connection with income and therefore the proposed rental Unlikely
an investment and returns. levels - benchmarking
may not prevent against comparable
an acquisition schemes using both
being materially external consultants
overvalued or rental where required and
streams being at its own proprietary
risk. database - and on
the Registered Providers
and care providers
involved in each
property to ensure
that the purchase
price is robust.
The Board considers
the due diligence
undertaken when approving
acquisitions.
-------------------------- ----------------------------- ----------------------------- ---------------
6. Investment management Impact How managed/mitigated
risk
-------------------------- ----------------------------- ----------------------------- ---------------
Loss of key staff Negative investor The Board considers Impact:
at the Investment sentiment leading the risk of the Investment High
Adviser. to a reduction in Adviser losing key
share price. Reduction staff and the succession Probability:
in ability to source plans the Investment Unlikely
off market and favourable Adviser has in place.
deals.
-------------------------- ----------------------------- ----------------------------- ---------------
7. Investment management Impact How managed/mitigated
risks
-------------------------- ----------------------------- ----------------------------- ---------------
Failure to monitor Deterioration in Contingent actions Impact:
that contingent the underlying quality, are regularly monitored Medium
activities are and therefore value and followed up.
completed by the of the Company's The Board is kept Probability:
RPs or other parties. property. appraised of any Unlikely
breach of lease obligations
-------------------------- ----------------------------- ----------------------------- ---------------
8. Investment management Impact How managed/mitigated
risks
-------------------------- ----------------------------- ----------------------------- ---------------
Lack of availability The rate of capital The Company has strong Impact:
for debt financing deployment would links with a number Medium
or other capital. drop decreasing returns of banks and other
to shareholders. capital sources. Probability:
Unlikely
The Board closely
considers any new
loan facility proposed
and receives regular
updates on debt and
capital markets for
consideration.
-------------------------- ----------------------------- ----------------------------- ---------------
9. Accounting, Impact How managed/mitigated
legal and regulatory
risks
-------------------------- ----------------------------- ----------------------------- ---------------
If the Company Any change in the The Company has been Impact:
fails to remain tax status of the structured to be High
qualified as a Company or any of REIT compliant and
REIT, its rental its underlying investments continuously monitors Probability:
income and gains or in tax legislation the tax status using Very unlikely
will be subject or practice (including professional taxation
to UK corporation in relation to taxation advisers. The Board
tax. rates and allowances) has ultimate responsibility
or in accounting for ensuing adherence
standards could adversely to the UK REIT regime
affect the investment and monitors the
return of the Company. compliance reports
provided by the Investment
Adviser and other
third party providers.
-------------------------- ----------------------------- ----------------------------- ---------------
10. Operational Impact How managed/mitigated
risks, including
cyber crime
-------------------------- ----------------------------- ----------------------------- ---------------
Disruption to, Loss of operational The Board monitors Impact:
or failure of the capabilities, potential the services provided Medium
systems or general regulator actions. by the Investment
operations of third Adviser and other Probability:
party providers Alternative service service providers Unlikely
could prevent accurate providers would need and the key elements
reporting and monitoring to be identified which are designed
of the Company's and activities transferred. to provide effective
financial position. internal control.
This includes the All service providers
risk of cyber crime are required to have
and potential threat robust IT security
to security, business and disaster recovery
continuity and contingency plans
reputation. in place.
-------------------------- ----------------------------- ----------------------------- ---------------
Going Concern and Viability Statement
Going Concern
The Board regularly reviews the position of the Company and its
ability to continue as a going concern in Board meetings. The
financial statements set out the current financial position of the
Company.
The Company acquires high-quality property with a particular
focus on property providing care for the long term. The properties
acquired are on long-term full repairing and insuring leases in a
sector of the market with very high levels of need. The cost base
of the Company is proportionately low compared to revenue and there
is a high level of certainty over cost to be incurred. On this
basis the Company is expected to be viable well beyond the five
year terms considered in the Company's testing below.
The cash balance of the Company at the period end was GBP47
million that was readily available for use. As stated in the
Strategic Report, the Investment Adviser has identified a pipeline
of GBP210 million of attractive investment opportunities for
acquisition over the next twelve months. The Board has evaluated
the financial position of the Company and is confident in the
ability to raise debt and/or equity capital in order to fund the
Company's investments for the next 12 months and to facilitate the
payment of dividends to shareholders at the targeted rate. Based on
this, the Board believes that the Company is in a position to
manage its financial risks.
The Directors believe that there are currently no material
uncertainties in relation to the Company's ability to continue in
operation for a period of at least 12 months from the date of
approval of the Company's financial statements and therefore have
adopted the going concern basis in the preparation of the financial
statements.
Viability Statement
In accordance with the UK Corporate Governance Code (2016)
("Code"), the Directors present the Company's viability statement
which summarises the results of their assessment of the Company's
current position, its principal risks and prospects over a period
to 31 March 2024. The prospects were assessed over a five year
period, acknowledging that the Company will have its first
continuation vote in 2022, for the following reasons:
(i) the Company's long-term forecast covers a five year period;
(ii) the length of service level agreements between Housing
Associations and care providers is typically five years; and
(iii) the Company's leases are typically 25 years on fully
repairing and insuring leases enabling reasonable certainty of
income over the next five years.
The Company's five year forecast incorporates assumptions
related to the Company's investment strategy and principal risks
from which performance results, cash flows and key performance
indicators are forecast. The principal risks are set out above. Of
these risks, those which are expected to have a higher impact on
the Company's longer-term prospects are those related to future
government housing policies. The Company has considered its
strategy over a longer term and, in light of the inherent demand
for the Company's properties and the vulnerable nature of the
ultimate tenant, the risk of change in future housing policy is
considered to be limited. The principal risks are mitigated by the
Company's risk management and internal control processes which
function on an ongoing basis. The Board, via delegation to the
Audit and Management Engagement Committee, monitors the
effectiveness of the Company's risk management and internal control
processes on an ongoing basis. The monitoring activities are
described in the Report of the Audit and Management Engagement
Committee in the full Annual Report and include direct review and
challenge of the Company's documented risks, risk ratings and
controls and review of performance and compliance reports prepared
by the Company's advisers and the independent external
auditors.
In accordance with the Code, the Board of Directors has carried
out a robust assessment of the principal risks facing the Company,
including those that would threaten its business model, future
performance, solvency and liquidity.
Where appropriate, the Company's forecasts are subject to
sensitivity analysis which involves applying severe conditions and
flexing a number of assumptions simultaneously. The sensitivities
performed were designed to provide the Directors with an
understanding of the Company's performance in the event of severe
but plausible scenarios, taking full account of mitigating actions
that could be taken to avoid or reduce the impact or occurrence of
the underlying risks outlined below:
-- Reduction in availability of suitable assets for acquisition
-- Tenant defaulting under a lease
-- Lack of availability for debt financing or other capital
-- Deterioration in economic outlook, such as any negative
impact due to Brexit, or change in government housing policy which
could impact the fundamentals of the social housing sector,
including a negative impact on valuations and rental uplifts.
The remaining principal risks and uncertainties, whilst having
an impact on the Company's business, are not considered by the
Directors to have a reasonable likelihood of impacting the
Company's viability over the five year period, therefore the
scenarios outlined above are the only ones that have been
specifically tested.
Based on the results of their assessment, the Directors have a
reasonable expectation that the Company will be able to continue in
operation and meet its liabilities as they fall due over the five
year period of their assessment.
Approval of Strategic Report
The Group Strategic Report was approved by the Board and signed
on its behalf by:
Michael Wrobel
Chairman
21 June 2019
Board of Directors
Michael Wrobel (Chairman)
Caroline Gulliver (Director and Chairman of the Audit and
Management Engagement Committee)
Peter Baxter (Senior Independent Director)
Alastair Moss (Director)
Extracts from the Report of the Directors
Results and Dividends
The results for the year are shown below.
The following dividends were paid on the Ordinary shares during
the year:
First dividend on the Ordinary 1.25p paid on 8 June 2018
shares
-------------------------------- -------------------------------
Second dividend on the Ordinary 1.25p paid on 7 September 2018
shares
-------------------------------- -------------------------------
Third dividend on the Ordinary 1.25p paid on 30 November 2018
shares
-------------------------------- -------------------------------
Fourth dividend on the Ordinary 1.11p paid on 11 January 2019
shares
-------------------------------- -------------------------------
Fifth dividend on the Ordinary 0.14p paid on 28 February 2019
shares
-------------------------------- -------------------------------
The following dividends were paid on the C shares during the
year:
First dividend on the C shares 1.13p paid on 8 June 2018
------------------------------- -------------------------------
Second dividend on the C 0.75p paid on 7 September 2018
shares
------------------------------- -------------------------------
Third dividend on the C shares 0.75p paid on 30 November 2018
------------------------------- -------------------------------
Fourth dividend on the C 0.67p paid on 11 January 2019
shares
------------------------------- -------------------------------
Since the year end, the Company has declared the following
dividend:
Quarterly dividend on the 1.325p paid on 7 June 2019
Ordinary shares
-------------------------- ---------------------------
No final dividend is being recommended on the Ordinary
shares.
Capital Structure
Changes to share capital
On 21 December 2018, the 302,000,000 C shares in issue were
converted into Ordinary shares at the ratio of 0.902190 new
ordinary shares for every C share. As a result, 272,461,380
Ordinary shares were issued.
Following the conversion, and as at 31 March 2019, the Company
had 622,461,380 Ordinary shares in issue, none of which were held
in treasury.
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law and
regulation.
Company law requires the Directors to prepare financial
statements for each financial period. Under that law, the Directors
have prepared the Group financial statements in accordance with
International Financial Reporting Standards ("IFRSs") as adopted by
the European Union and the Company financial statements in
accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards, comprising FRS 101
"Reduced Disclosure Framework", and applicable law). Under company
law, the Directors must not approve the financial statements unless
they are satisfied that they give a true and fair view of the state
of affairs of the Group and Company and of the profit or loss of
the Group and Company for that period. In preparing the financial
statements, the Directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- state whether applicable IFRSs as adopted by the European
Union have been followed for the Group financial statements and
United Kingdom Accounting Standards, comprising FRS 101, have been
followed for the Company financial statements, subject to any
material departures disclosed and explained in the financial
statements;
-- make judgements and accounting estimates that are reasonable and prudent; and
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group and Company
will continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group and
Company's transactions and disclose with reasonable accuracy at any
time the financial position of the Group and Company and enable
them to ensure that the financial statements and the Directors'
Remuneration Report comply with the Companies Act 2006 and, as
regards the Group financial statements, Article 4 of the IAS
Regulation.
The Directors are also responsible for safeguarding the assets
of the Group and Company and hence for taking reasonable steps for
the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity
of the Company's website. Legislation in the United Kingdom
governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
The Directors consider that the Annual Report and financial
statements, taken as a whole, is fair, balanced and understandable
and provides the information necessary for shareholders to assess
the Group and Company's position and performance, business model
and strategy.
Each of the Directors, whose names and functions are listed
above, confirm that, to the best of their knowledge:
-- the Company financial statements, which have been prepared in
accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards, comprising FRS 101
"Reduced Disclosure Framework", and applicable law), give a true
and fair view of the assets, liabilities, financial position and
profit of the Company;
-- the Group financial statements, which have been prepared in
accordance with IFRSs as adopted by the European Union, give a true
and fair view of the assets, liabilities, financial position and
profit of the Group; and
-- the Strategic Report includes a fair review of the
development and performance of the business and the position of the
Group, together with a description of the principal risks and
uncertainties that it faces.
Approval
This Statement of Directors' Responsibilities was approved by
the Board and signed on its behalf by:
Michael Wrobel
Chairman
21 June 2019
NON-STATUTORY ACCOUNTS
The financial information set out below does not constitute the
Company's statutory accounts for the year ended 31 March 2019 or
the period ended 31 March 2018 but is derived from those accounts.
Statutory accounts for the period ended 31 March 2018 have been
delivered to the Registrar of Companies and those for the year
ended 31 March 2019 will be delivered in due course. The Auditor
has reported on those accounts; their report was (i) unqualified,
(ii) did not include a reference to any matters to which the
Auditor drew attention by way of emphasis without qualifying their
report and (iii) did not contain a statement under Section 498 (2)
or (3) of the Companies Act 2006. The text of the Auditor's report
can be found in the Company's full Annual Report and financial
statements at www.civitassocialhousing.com.
Consolidated Statement of Comprehensive Income
For the year ended 31 March 2019
From
18 November
For the 2016
year ended to 31 March
31 March 2019 2018
Note GBP'000 GBP'000
--------------- -------------
Revenue
Rental income 5 35,738 18,606
--------------- -------------
Net rental income 35,738 18,606
Directors' remuneration 6 (163) (205)
Investment advisory fees 8 (6,457) (5,773)
General and administrative expenses 9 (3,022) (2,915)
--------------- -------------
Total expenses (9,642) (8,893)
Change in fair value of investment
properties 15 3,652 30,633
--------------- -------------
Operating profit 29,748 40,346
Finance income 10 491 413
Finance expense - relating to
bank borrowings 11 (3,975) (1,041)
Finance expense - C shares amortisation 11 (6,400) (2,792)
--------------- -------------
Profit before tax 19,864 36,926
Taxation 12 - -
--------------- -------------
Profit being total comprehensive income
for the period 19,864 36,926
--------------- -------------
Earnings per share - basic 13 4.67p 10.55p
Earnings per share - diluted 13 4.22p 6.27p
------ -------
All amounts reported in the Consolidated Statement of
Comprehensive Income above arise from continuing operations.
The notes below are an integral part of these consolidated
financial statements.
Consolidated Statement of Financial Position
As at 31 March 2019
31 March 2019 31 March 2018
Note GBP'000 GBP'000
-------------- --------------
Assets
Non-current assets
Investment property 15 820,094 516,222
Other receivables 17 6,824 -
-------------- --------------
826,918 516,222
Current assets
Trade and other receivables 17 5,723 3,315
Cash and cash equivalents 18 54,347 249,608
-------------- --------------
60,070 252,923
Total assets 886,988 769,145
-------------- --------------
Liabilities
Current liabilities
Trade and other payables 19 (15,324) (10,176)
C shares 21 - (298,752)
-------------- --------------
(15,324) (308,928)
Non-current liabilities
Bank and loan borrowings 20 (205,156) (90,822)
-------------- --------------
Total liabilities (220,480) (399,750)
-------------- --------------
Total net assets 666,508 369,395
-------------- --------------
Equity
Share capital 22 6,225 3,500
Share premium reserve 23 292,405 -
Capital reduction reserve 24 331,625 331,625
Retained earnings 25 36,253 34,270
-------------- --------------
Total equity 666,508 369,395
-------------- --------------
Net assets per share - basic 26 107.08p 105.54p
Net assets per share - diluted 26 107.08p 105.54p
-------- --------
These consolidated financial statements were approved by the
Board of Directors of Civitas Social Housing PLC and authorised for
issue on 21 June 2019 and signed on its behalf by:
Michael Wrobel
Chairman and Independent Non-Executive Director
21 June 2019
Company No: 10402528
The notes below are an integral part of these consolidated
financial statements.
Consolidated Statement of Changes in Equity
For the year ended 31 March 2019
Share Capital
Share premium reduction Retained Total
capital reserve reserve earnings equity
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------- ---------- ---------- --------- ---------
Balance at 18 November 2016 - - - (31) (31)
Profit and total comprehensive income for
the period - - - 36,926 36,926
Issue of Ordinary shares
Issue of share capital 22 3,500 346,500 - - 350,000
Share issue costs 23 - (7,000) - - (7,000)
Cancellation of share premium reserve 23 - (339,500) 339,500 - -
Dividends paid
Total interim dividends for the period ended
31 March 2018 (3.00p) 14 - - (7,875) (2,625) (10,500)
-------- ---------- ---------- --------- ---------
Balance at 31 March 2018 3,500 - 331,625 34,270 369,395
-------- ---------- ---------- --------- ---------
Profit and total comprehensive income for
the period - - - 19,864 19,864
Issue of Ordinary shares
Issue of share capital 22 2,725 292,461 - - 295,186
Share issue costs 23 - (56) - - (56)
Dividends paid
Total interim dividends for the period ended
31 March 2019 (5.00p) 14 - - - (17,881) (17,881)
-------- ---------- ---------- --------- ---------
Balance at 31 March 2019 6,225 292,405 331,625 36,253 666,508
-------- ---------- ---------- --------- ---------
The notes below are an integral part of these consolidated
financial statements.
Consolidated Statement of Cash Flows
For the year ended 31 March 2019
For the From
year ended 18 November 2016
31 March 2019 to 31 March 2018
Note GBP'000 GBP'000
--------------- ------------------
Cash flows from operating activities
Profit for the period before
taxation 19,864 36,926
- Change in fair value of investment
properties (3,652) (30,633)
- Rent and incentive straight
line adjustments (314) (332)
Finance income (491) (413)
Finance expense 10,375 3,833
Increase in trade and other receivables (2,789) (2,540)
(Decrease)/increase in trade
and other payables (149) 803
--------------- ------------------
Cash generated from operations 22,844 7,644
Interest received 491 413
--------------- ------------------
Net cash flow generated from
operating activities 23,335 8,057
--------------- ------------------
Investing activities
Purchase of investment properties (267,098) (458,564)
Acquisition costs (9,421) (19,051)
Purchase of subsidiary company (25,470) -
Sale proceeds on sale of subsidiary 4,336 -
company
Lease incentives paid (3,178) -
Restricted cash held as retention
money (936) (6,283)
--------------- ------------------
Net cash flow used in investing
activities (302,577) (483,898)
--------------- ------------------
Financing activities
Proceeds from the issue of Ordinary
share capital 22 - 350,000
Share issue costs paid 23 (56) (7,000)
Dividends paid to equity shareholders (17,591) (10,073)
Proceeds from the issue of C
shares 21 - 302,000
C share issue costs paid 21 - (6,040)
Dividends paid to C shareholders 21 (9,966) -
Bank borrowings advanced 20 115,990 92,457
Bank borrowing issue costs paid 20 (2,374) (1,761)
Loan interest paid (2,958) (417)
--------------- ------------------
Net cash flow generated from
financing activities 27 83,045 719,166
--------------- ------------------
Net (decrease)/increase in cash
and cash equivalents (196,197) 243,325
Unrestricted cash and cash equivalents
at the start of the period 18 243,325 -
--------------- ------------------
Unrestricted cash and cash equivalents
at the end of the period 18 47,128 243,325
--------------- ------------------
The notes below are an integral part of these consolidated
financial statements.
Notes to the Consolidated Financial Statements
For the year ended 31 March 2019
1. Corporate information
Civitas Social Housing PLC (the "Company") was incorporated in
England and Wales under the Companies Act 2006 as a public company
limited by shares on 29 September 2016 with company number 10402528
under the name Civitas REIT PLC which was subsequently changed to
the existing name on 3 October 2016.
The address of the registered office is Beaufort House, 51 New
North Road, Exeter, EX4 4EP. The Company is registered as an
investment company under section 833 of the Companies Act 2006 and
is domiciled in the United Kingdom.
The Company did not begin trading until 18 November 2016 when
the shares were admitted to trading on the London Stock Exchange
("LSE").
The Company's Ordinary shares are admitted to the Official List
of the Financial Conduct Authority ("FCA") and traded on the
LSE.
The principal activity of the Company is to act as the ultimate
parent company of Civitas Social Housing PLC and its subsidiaries
(the "Group"), whose principal activity 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.
2. Basis of preparation
The Group's consolidated financial statements have been prepared
on a going concern basis in accordance with the Disclosure Guidance
and Transparency Rules of the FCA and with International Financial
Reporting Standards ("IFRS") and IFRS Interpretation Committee
("IFRS IC") interpretations as issued by the IASB and as adopted by
the European Union ("EU"), and in accordance with Article 4 of the
IAS Regulation and the Companies Act 2006 as applicable to
companies using IFRS.
The comparative information disclosed in the consolidated
financial statements relates to the period from 18 November 2016 to
31 March 2018. The period covered by the comparative information
varies in length and the level of activities and therefore is not
comparable to the current period.
The Group's consolidated financial statements have been prepared
on a historical cost basis, as modified for the Group's investment
properties at fair value through profit or loss.
The Group has chosen to adopt EPRA best practice guidelines for
calculating key metrics such as net asset value and earnings per
share. These are disclosed above with supporting calculations in
Appendix 1 below.
2.1 Functional and presentation currency
The financial information is presented in Pounds Sterling which
is also the functional currency of the Company, and all values are
rounded to the nearest thousand pounds (GBP'000s), except where
otherwise indicated.
2.2 Going concern
The Group benefits from a secure income stream from long leases
with the Housing Associations, which are not overly reliant on any
one tenant and present a well-diversified risk. The Group's cash
balances as at 31 March 2019 were GBP54.3 million, of which GBP47.1
million was readily available and it had bank borrowings of
GBP208.4 million.
As a result, the Directors believe that the Group is well placed
to manage its financing and other business risks and that the Group
will remain viable, continuing to operate and meet its liabilities
as they fall due.
The Directors believe that there are currently no material
uncertainties in relation to the Group's ability to continue for
the period of at least 12 months from the date of the Group's
consolidated financial statements. The Board is, therefore, of the
opinion that the going concern basis adopted in the preparation of
the consolidated financial statements is appropriate.
2.3 New standards, amendments and interpretations
The following new standards are now effective and have been
adopted for the year ended 31 March 2019.
-- Adoption of IFRS 9 Financial Instruments: The standard
replaced IAS 39 Financial Instruments and contains two primary
measurement categories for financial assets.
Management have reviewed the requirements of IFRS 9. The
adoption of IFRS 9 from 1 April 2018 resulted in no adjustments to
the amounts recognised in the financial statements. In accordance
with the transitional provisions, comparative figures have not been
restated. The Group's principal financial assets comprise trade
receivables, which will continue to be measured at amortised cost.
The following changes have been identified.
Under IFRS 9 the Group now applies an expected credit loss model
when calculating impairment losses on its trade and other
receivables and considers the probability of default occurring over
the contractual life of its trade receivables and contracts. The
specific situation of each tenant has been evaluated using a
provision matrix as allowed under IFRS 9. This did not result in a
material change in the loss allowance recognised under IFRS 9
compared to the previous impairment provision held under IAS39.
-- Adoption of IFRS 15 Revenue from Contracts: The standard
replaced IAS 11 Construction Contracts, IAS 18 Revenue. The
standard introduces a new revenue recognition model that recognises
revenue either at a point in time or over time.
As all of the Group's revenue derives from leases which are
outside the scope of IFRS 15 there is no change to accounting
policies arising from the adoption of IFRS 15.
-- Adoption of Amendment to IAS 40, Investment Property: The
amendment to IAS 40 Investment Property, clarifies when assets are
transferred to, or from, investment properties.
Management have assessed the impact of the amendment to IAS 40
on the classification of existing property at 1 April 2018 and has
concluded that no reclassifications are required on adoption of the
amendment.
2.4 New standards, amendments and interpretations effective for
future accounting periods
The following are new standards, interpretations and amendments,
which are not yet effective and have not been early adopted in this
financial information, that will or may have an effect on the
Group's future financial statements:
-- IFRS 16 Leases: Introduction of a single, on-balance sheet
accounting model (effective for annual periods beginning on or
after 1 January 2019).
The Directors have assessed that the adoption of this will not
have a material impact on the Group's financial statements as the
Group does not hold any material operating leases as lessee.
-- IFRIC 23 Uncertainty over Income Tax Treatments: Clarifies
the application of recognition and measurement requirements in IAS
12 Income Taxes, when there is uncertainty over income tax
treatments (effective for annual periods beginning on or after 1
January 2019).
The Directors have assessed that the adoption of this new
interpretation will not have a material impact on the Group's
financial statements.
-- Amendments to IFRS 3 Business Combinations: Clarifies the
definition of a business. A significant change in the amendment is
the option for an entity to assess whether substantially all of the
fair value of the gross assets acquired is concentrated in a single
asset or group of similar assets. If such a concentration exists,
the transaction is not viewed as an acquisition of a business and
no further assessment of the business combination guidance is
required. This will be relevant where the value of the acquired
entity is concentrated in one property, or a group of similar
properties (effective for periods beginning on or after 1 January
2020 with earlier application permitted).
There will be no impact on transition since the amendments are
effective for business combinations for which the acquisition date
is on or after the transition date.
2.5 Segmental information
IFRS 8 Operating Segments requires operating segments to be
identified on the basis of internal financial reports about
components of the Group that are regularly reviewed by the Chief
Operating Decision Maker, which in the Group's case is delegated to
the Investment Adviser, who has formed an Executive Team, in order
to allocate resources to the segments and to assess their
performance.
The internal financial reports received by the Investment
Adviser's Executive Team contain financial information at a Group
level as a whole and there are no reconciling items between the
results contained in these reports and the amounts reported in the
consolidated financial statements.
The Directors consider the Group's property portfolio represents
a coherent and diversified portfolio with similar economic
characteristics and as a result these individual properties have
been aggregated into a single operating segment. In the view of the
Directors there is accordingly one reportable segment under the
provisions of IFRS 8.
All of the Group's properties are based in the UK. Geographical
information is provided to ensure compliance with the
diversification requirements of the Company, other than this no
geographical grouping is contained in any of the internal financial
reports provided to the Investment Adviser's Executive Team and,
therefore no geographical segmental analysis is required by IFRS
8.
3. Significant accounting judgements, estimates and
assumptions
In the application of the Group's accounting policies, which are
described in note 4, the Directors are required to make judgements,
estimates and assumptions about the carrying amounts of assets and
liabilities that are not readily apparent from other sources. The
estimates and associated assumptions that have a significant risk
of causing a material adjustment to the carrying amounts of assets
and liabilities within the next financial year are outlined
below:
3.1 Significant estimate - Valuation of investment property
The Group uses the valuation carried out by its independent
valuers as the fair value of its property portfolio. The valuation
is based upon assumptions including future rental income and the
appropriate discount rate. The valuers also make reference to
market evidence of transaction prices for similar properties.
Further information is provided in note 15.
The Group's properties have been independently valued by Jones
Lang LaSalle Ltd. ("JLL" or the "Valuer") according to the
definitions published by the Royal Institute of Chartered
Surveyors' ("RICS") Valuation - Professional Standards, July 2017,
Global and UK Editions (commonly known as the "Red Book"). JLL is
one of the most recognised professional firms within social housing
valuation and has sufficient current local and national knowledge
of both social housing generally and Specialist Supported Housing
("SSH") and has the skills and understanding to undertake the
valuations competently.
With respect to the Group's consolidated financial statements,
investment properties are valued at their fair value at each
balance sheet date in accordance with IFRS 13 which recognises a
variety of fair value inputs depending upon the nature of the
investment. Specifically:
Level 1 - Unadjusted, quoted prices for identical assets and
liabilities in active (typically quoted) markets.
Level 2 - Quoted prices for similar assets and liabilities in
active markets.
Level 3 - External inputs are "unobservable". Value is the
director's best estimate, based on advice from relevant
knowledgeable experts, use of recognised valuation techniques and a
determination of which assumptions should be applied in valuing
such assets and with particular focus on the specific attributes of
the investments themselves.
Given the bespoke nature of each of the Group's investments, the
particular requirements of due diligence and financial contribution
obtained from the vendors together with the recent emergence of
SSH, all of the Group's investment properties are included in Level
3.
3.2. Significant judgement - Business combinations
The Group acquires subsidiaries that own investment properties.
At the time of acquisition, the Group considers whether each
acquisition represents the acquisition of a business or the
acquisition of an asset. Management considers the substance of the
assets and activities of the acquired entity in determining whether
the acquisition represents the acquisition of a business.
The Group accounts for an acquisition as a business combination
where an integrated set of activities is acquired in addition to
the property. Where such acquisitions are not judged to be the
acquisition of a business, they are not treated as business
combinations. Rather, the cost to acquire the corporate entity is
allocated between the identifiable assets and liabilities of the
entity based upon their relative fair values at the acquisition
date. Accordingly, no goodwill or additional deferred tax
arises.
With the exception of one acquisition detailed below, all other
corporate acquisitions during the year have been treated as asset
purchases rather than business combinations because no integrated
set of activities was acquired.
During the year, the Group entered into a purchase of TLC Care
Homes Limited which carried out operational activities. Upon
acquisition, investment properties were transferred into another
Group company and the company was sold. Further details are shown
in note 15.1 to the financial statements.
3.3. Significant judgement - Operating lease contracts - the
Group as lessor
The Group has acquired investment properties that are subject to
commercial property leases with Registered Providers. The Group has
determined, based on an evaluation of the terms and conditions of
the arrangements, particularly the duration of the lease terms and
minimum lease payments, that it retains all the significant risks
and rewards of ownership of these properties and so accounts for
the leases as operating leases.
4. Summary of significant accounting policies
The principal accounting policies applied in the preparation of
the consolidated financial statements are set out below. The
policies have been consistently applied to all periods presented,
unless otherwise stated.
4.1. Basis of consolidation
The consolidated financial statements comprise the financial
information of the Group as at the period end date.
Subsidiaries are all entities over which the Group has control.
The Group controls an entity when the Group is exposed to, or has
rights to, variable returns from its involvement with the entity
and has the ability to affect those returns through its power to
direct the activities of the entity. All intra-group transactions,
balances, income and expenses are eliminated on consolidation. The
financial information of the subsidiaries is included in the
consolidated financial statements from the date that control
commences until the date that control ceases.
If an equity interest in a subsidiary is transferred but a
controlling interest continues to be held after the transfer then
the change in ownership interest is accounted for as an equity
transaction.
Accounting policies of the subsidiaries are consistent with the
policies adopted by the Company.
4.2. Investment property
Investment property, which is property held to earn rentals
and/or for capital appreciation, is initially measured at cost,
being the fair value of the consideration given, including
expenditure that is directly attributable to the acquisition of the
investment property. After initial recognition, investment property
is stated at its fair value at the balance sheet date. Gains and
losses arising from changes in the fair value of investment
property are included in profit or loss for the period in which
they arise in the Consolidated Statement of Comprehensive
Income.
Subsequent expenditure is capitalised only when it is probable
that future economic benefits are associated with the expenditure.
Ongoing repairs and maintenance are expensed as incurred.
An investment property is derecognised upon disposal or when the
investment property is permanently withdrawn from use and no future
economic benefits are expected from the disposal. Any gain or loss
arising on derecognition of the property (calculated as the
difference between the net disposal proceeds and the carrying
amount of the asset) is incurred in profit or loss in the period in
which the property is derecognised.
Significant accounting judgements, estimates and assumptions
made for the valuation of investment properties are discussed in
note 3.
4.3. Leases
Leases are classified as finance leases whenever the terms of
the lease transfer substantially all the risks and rewards of
ownership to the lessee. All other leases are classified as
operating leases.
The Company has determined that it retains all the significant
risks and rewards of ownership of the properties and accounts for
the contracts as operating leases as discussed in note 3.
Properties leased out under operating leases are included in
investment property in the Consolidated Statement of Financial
Position. Rental income from operating leases is recognised on a
straight line basis over the term of the relevant leases.
4.4. Financial Assets
Classification
From 1 April 2018, the Group classifies its financial assets in
the following measurement categories:
-- those to be measured subsequently at fair value (either
through other comprehensive income or through profit or loss);
and
-- those to be measured at amortised cost.
The classification depends on the entity's business model for
managing the financial assets and the contractual terms of the cash
flows. For assets measured at fair value, gains and losses will
either be recorded in profit or loss or other comprehensive
income.
Trade and other receivables
Trade and other receivables are amounts due in the ordinary
course of business. If collection is expected in one year or less,
they are classified as current assets. If not, they are presented
as non-current assets.
Trade receivables are recognised initially at fair value and
subsequently are measured at amortised cost using the effective
interest method, less impairment provision. The Group holds the
trade receivables with the objective to collect the contractual
cash flows.
Impairment
The Group's financial assets are subject to the expected credit
loss model.
For trade receivables, the Group applies the simplified approach
permitted by IFRS 9, which requires expected lifetime losses to be
recognised from initial recognition of the receivables.
The expected loss rates are based on the payment profiles of
sales over a period of up to 36 months before 31 March 2019 or 1
April 2018, respectively, and the corresponding historical credit
losses experienced within this period. The historical loss rates
are adjusted to reflect current and forward-looking information on
macroeconomic factors affecting the liability of the tenants to
settle the receivable. Such forward-looking information would
include: changes in economic, regulatory, technological and
environmental factors, (such as industry outlook, GDP, employment
and politics); external market indicators; and tenant base.
Trade receivables are written off when there is no reasonable
expectation of recovery.
Indicators that there is no reasonable expectation of recovery
include, among others, the probability of insolvency or significant
financial difficulties of the debtor. Impaired debts are
derecognised when they are assessed as uncollectible.
Cash and cash equivalents
Cash and cash equivalents include cash in hand, cash held by
lawyers and liquidity funds with a term of no more than three
months that are readily convertible to a known amount of cash and
which are subject to an insignificant risk of changes in value.
Cash held by lawyers is money held in escrow for expenses
expected to be incurred in relation to investment properties
pending completion. These funds are available immediately on
demand.
4.5. Financial liabilities
The Group recognises a financial liability when it first becomes
a party to the contractual rights and obligations in the
contract.
All financial liabilities are initially recognised at fair
value, minus (in the case of a financial liability that is not at
fair value through profit or loss) transaction costs that are
directly attributable to issuing the financial liability. Financial
liabilities are subsequently measured at amortised cost, unless the
Group opted to measure a liability at fair value through profit or
loss.
A financial liability is derecognised when the obligation under
the liability is discharged or cancelled or expires.
Trade and other payables
Trade and other payables are classified as current liabilities
if payment is due within one year or less. If not, they are
presented as non-current liabilities. Trade and other payables are
recognised initially at their fair value and subsequently measured
at amortised cost until settled. The fair value of a non-interest
bearing liability is its discounted repayment amount. If the due
date of the liability is less than one year, discounting is
omitted.
Bank and other borrowings
All bank and other borrowings are initially recognised at fair
value less directly attributable transaction costs. After initial
recognition, all bank and other borrowings are measured at
amortised cost, using the effective interest method. Any
attributable transaction costs relating to the issue of the bank
borrowings are amortised through the Group's Statement of
Comprehensive Income over the life of the debt instrument on a
straight-line basis.
C share financial liability
C shares are convertible preference shares and under IAS 32
Financial Instruments: Presentation, meet the definition of a
financial liability. C shares are recognised on issue at fair value
less directly attributable transaction costs. After initial
recognition, C shares are subsequently measured at amortised cost
using the effective interest rate method. Amortisation is credited
to or charged to finance income or finance costs in the
Consolidated Statement of Comprehensive Income. Transaction costs
are deducted from proceeds at the time of issue.
4.6. Provisions
Provisions are recognised when the Group has a present
obligation (legal or constructive) as a result of a past event, it
is probable that the Group will be required to settle that
obligation and a reliable estimate can be made of the amount of the
obligation.
The amount recognised as a provision is the best estimate of the
consideration required to settle the present obligation at the
balance sheet date, taking into account the risks and uncertainties
surrounding the obligation.
4.7. Taxation
Taxation on the profit or loss for the period not exempt under
UK REIT regulations is comprised of current and deferred tax. Tax
is recognised in the Consolidated Statement of Comprehensive Income
except to the extent that it relates to items recognised as a
direct movement in equity, in which case it is recognised as a
direct movement in equity. Current tax is expected tax payable on
any non REIT taxable income for the period, using tax rates enacted
or substantively enacted at the balance sheet date, and any
adjustment to tax payable in respect of previous periods.
The current tax charge is calculated on profits arising in the
period and in accordance with legislation which has been enacted or
substantially enacted at the balance sheet date.
Deferred tax is provided on temporary differences between the
carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes. The amount of
deferred tax that is provided is based on the expected manner of
realisation or settlement of the carrying amount of assets and
liabilities, using tax rates enacted or substantively enacted at
the balance sheet date.
4.8. Capital management
The Group's objectives when managing capital are to safeguard
the Group's ability to continue as a going concern in order to
provide returns for shareholders and to maintain an optimal capital
structure to reduce the cost of capital.
Capital assets comprise the following:
31 March 2019 31 March 2018
GBP'000 GBP'000
-------------- --------------
Proceeds from the issue of Ordinary shares
and retained earnings thereon 666,508 369,395
Proceeds from the issue of C shares and
retained earnings thereon - 298,752
Bank and loan borrowings 205,156 90,822
-------------- --------------
871,664 758,969
-------------- --------------
Until the Group is fully invested and pending re-investment or
distribution of cash receipts, the Group will invest in cash, cash
equivalents, near cash instruments and money market
instruments.
The Directors may use gearing to enhance equity returns. The
level of borrowing will be on a prudent basis for the asset class
and will seek to achieve a low cost of funds, whilst maintaining
the flexibility in the underlying security requirements and the
structure of the Group.
The Group may, following a decision of the Board, raise debt
from banks and/or the capital markets and the aggregate borrowings
of the Group will always be subject to an absolute maximum,
calculated at the time of drawdown, of 40% of the Gross Asset Value
on a fully invested basis.
4.9. Dividends payable to shareholders
Dividends to the Company's shareholders are recognised as a
liability in the Group's consolidated financial statements in the
period in which the dividends are approved. In the UK, interim
dividends are recognised when paid.
4.10. Rental income
Rental income from investment property is recognised on a
straight-line basis over the term of ongoing leases and is shown
gross of any UK income tax. Lease incentives are spread evenly over
the lease term.
4.11. Finance income
Finance income is recognised as interest accrues on cash and
cash equivalent balances held by the Group.
4.12. Finance costs
Finance costs consist of interest and other costs that the Group
incurs in connection with bank and other borrowings. Bank interest
and bank charges are recognised on an accruals basis. Borrowing
transaction costs are amortised over the period of the loan.
After initial recognition, C shares are subsequently measured at
amortised cost using the effective interest rate method.
Amortisation is credited or charged to finance income or finance
costs. Transaction costs are amortised to the earliest conversion
period.
4.13. Expenses
All expenses are recognised in the Consolidated Statement of
Comprehensive Income on an accruals basis.
4.14. Investment advisory fees
Investment advisory fees are recognised in the Consolidated
Statement of Comprehensive Income on an accruals basis.
4.15. Share issue costs
The costs of issuing or reacquiring equity instruments (other
than in a business combination) are accounted for as a deduction
from equity.
5. Rental income
From
For the 18 November
year ended 2016 to
31 March 2019 31 March 2018
GBP'000 GBP'000
--------------- ---------------
Rental income from investment property 35,424 18,274
Rent straight line adjustments 459 332
Lease incentive adjustments (145) -
--------------- ---------------
Total 35,738 18,606
--------------- ---------------
As per the lease agreements between the Group and the Registered
Providers, the Registered Providers are responsible for the
settlement of all present and future rates, taxes, costs and other
impositions payable in respect of the property. As a result, no
direct property expenses were incurred.
6. Directors' remuneration
From
For the 18 November
year ended 2016 to
31 March 2019 31 March 2018
GBP'000 GBP'000
--------------- ---------------
Directors' fees 150 190
Employer's National Insurance Contributions 13 15
--------------- ---------------
Total 163 205
--------------- ---------------
The Directors are remunerated for their services at such rate as
the Directors shall from time to time determine.
At IPO, the Chairman was entitled to a fee of GBP35,000 per
annum, and the other Directors of the Board to a fee of GBP30,000
per annum (with the exception of the Chairman of the Audit and
Management Engagement Committee who was entitled to an additional
fee of GBP2,500 per annum).
At a Board meeting on 26 July 2017, a resolution was passed
authorising an increase to the fees of the Chairman to GBP50,000
per annum, the Chairman of the Audit and Management Engagement
Committee and the other Directors to GBP36,000 per annum and
GBP32,000 per annum respectively effective from 1 August 2017.
7. Particulars of employees
The Group had no employees during the period (31 March 2018
period: nil) other than the Directors.
8. Investment advisory fees
From
For the 18 November
year ended 2016 to
31 March 2019 31 March 2018
GBP'000 GBP'000
--------------- ---------------
Advisory fee 6,457 5,773
--------------- ---------------
Total 6,457 5,773
--------------- ---------------
Civitas Housing Advisors Limited ("CHA") is appointed as the
Investment Adviser of the Company. Under the current Investment
Management Agreement, the Advisory Fee shall be an amount
calculated in respect of each Quarter, in each case based upon the
Portfolio Net Asset Value (further explained in note 16) most
recently announced to the market at the relevant time (as adjusted
for issues or repurchases of shares in the period between the date
of such announcement and the date of the relevant calculation), on
the following basis:
a) on that part of the Portfolio Net Asset Value up to and
including GBP250 million, an amount equal to 1% of such part of the
Portfolio Net Asset Value;
b) on that part of the Portfolio Net Asset Value over GBP250
million and up to and including GBP500 million, an amount equal to
0.9% of such part of the Portfolio Net Asset Value;
c) on that part of the Portfolio Net Asset Value over GBP500
million and up to and including GBP1,000 million, an amount equal
to 0.8% of such part of the Portfolio Net Asset Value;
d) on that part of the Portfolio Net Asset Value over GBP1,000
million, an amount equal to 0.7% of such part of the Portfolio Net
Asset Value.
The appointment of the Investment Adviser shall continue in
force unless and until terminated by either party giving to the
other not less than 12 months' written notice, such notice not to
expire earlier than 30 November 2021.
Changes to the Investment Advisory fee and changes to the
appointment period effective from 26 April 2019 are detailed in
note 35.
9. General and administrative expenses
From
For the 18 November
year ended 2016 to
31 March 2019 31 March 2018
GBP'000 GBP'000
--------------- ---------------
Legal and professional fees 1,049 1,136
Administration fees 717 581
Consultancy fees 176 274
Audit fees 211 308
Abortive costs 18 168
Bad debts 421 -
Valuation fees 96 96
Depositary fees 60 83
Grants and donations 28 79
Insurance 65 32
Marketing 101 71
Regulatory fees 19 29
Sundry expenses 61 57
Directors' expenses - 1
--------------- ---------------
Total 3,022 2,915
--------------- ---------------
Abortive costs represent legal and professional fees incurred in
relation to acquisition of investment properties that were
considered but subsequently aborted.
Services provided by the Company's auditors and their
associates
The Group has obtained the following services from the Company's
auditors and their associates:
From
For the 18 November
year ended 2016 to
31 March 2019 31 March 2018
GBP'000 GBP'000
--------------- ---------------
Audit of the financial statements 180 273
Review of the half year financial
statements 31 35
Corporate services relating to the
C share conversion 10 -
Corporate services relating to the
initial launch - 55
Corporate services relating to the
C share fund raise - 200
--------------- ---------------
Total 221 563
--------------- ---------------
10. Finance income
From
For the 18 November
year ended 2016 to
31 March 2019 31 March 2018
GBP'000 GBP'000
--------------- ---------------
Interest and dividends received on
liquidity funds 486 413
Bank interest received 5 -
--------------- ---------------
Total 491 413
--------------- ---------------
11. Finance expense
From
For the 18 November
year ended 2016 to
31 March 2019 31 March 2018
GBP'000 GBP'000
--------------- ---------------
Bank charges 2 4
Interest paid and payable on bank
borrowings 3,048 902
Bank borrowing commitment fees 207 9
Amortisation of loan arrangement fees 718 126
--------------- ---------------
Finance expenses associated with bank
borrowings 3,975 1,041
Amortisation of C share liability 6,400 2,792
--------------- ---------------
Total 10,375 3,833
--------------- ---------------
12. Taxation
As a UK REIT, the Group is exempt from corporation tax on the
profits and gains from its property investment business, provided
it meets certain conditions as set out in the UK REIT regulations.
For the current period ended 31 March 2019, the Group did not have
any non-qualifying profits and accordingly there is no tax charge
in the period. If there were any non-qualifying profits and gains,
these would be subject to corporation tax.
It is assumed that the Group will continue to be a group UK REIT
for the foreseeable future, such that deferred tax has not been
recognised on temporary differences relating to the property rental
business. No deferred tax asset has been recognised in respect of
the unutilised residual current period losses as it is not
anticipated that sufficient residual profits will be generated in
the future.
From
For the 18 November
year ended 2016 to
31 March 2019 31 March 2018
GBP'000 GBP'000
--------------- ---------------
Corporation tax charge/(credit) for
the period - -
--------------- ---------------
Total - -
--------------- ---------------
The tax charge for the period is less than the standard rate of
corporation tax in the UK of 19%. The differences are explained
below.
For the From
year ended 18 November
31 March 2016 to
2019 31 March 2018
GBP'000 GBP'000
------------ ---------------
Group
Profit/(loss) before taxation 19,864 36,926
------------ ---------------
UK corporation tax rate 19.00% 19.27%
Theoretical tax at UK corporation
tax rate 3,774 7,116
Effects of:
Change in value of exempt investment
properties (694) (5,903)
Exempt REIT income (4,702) (2,352)
Amounts not deductible for tax
purposes 1,296 691
Unutilised residual current period
tax losses 326 448
------------ ---------------
Total - -
------------ ---------------
The standard rate of corporation tax was reduced from 20% to 19%
from 1 April 2017. The Government has announced that the
corporation tax standard rate is to be reduced to 17% with
effective date from 1 April 2020.
REIT exempt income includes property rental income that is
exempt from UK corporation tax in accordance with Part 12 of CTA
2010.
13. IFRS Earnings per share
Earnings per share ("EPS") amounts are calculated by dividing
profit for the period attributable to ordinary equity holders of
the Company by the weighted average number of Ordinary shares in
issue during the period.
Diluted EPS is calculated by adjusting earnings and the number
of shares for the effects of dilutive options and other dilutive
potential Ordinary shares (i.e. the C shares).
The calculation of basic and diluted earnings per share is based
on the following:
From
18 November
For the 2016
year ended to 31 March
31 March 2019 2018
--------------- -------------
Calculation of Basic Earnings per share
Net profit attributable to Ordinary
shareholders (GBP'000) 19,864 36,926
Weighted average number of Ordinary
shares 425,393,423 350,000,000
Earnings per share - basic 4.67p 10.55p
--------------- -------------
Calculation of Diluted Earnings per
share
Net profit attributable to Ordinary
shareholders (GBP'000) 19,864 36,926
Add back finance costs associated with
the C share liability (GBP'000) 6,400 2,792
--------------- -------------
Total (GBP'000) 26,264 39,718
--------------- -------------
Weighted average number of Ordinary
shares 425,393,423 350,000,000
Effects of dilution from C shares 197,067,957 283,065,815
--------------- -------------
622,461,380 633,065,815
--------------- -------------
Earnings per share - diluted 4.22p 6.27p
--------------- -------------
14. Dividends
From
18 November
For the 2016
year ended to 31 March
31 March 2019 2018
GBP'000 GBP'000
--------------- -------------
Dividend of 1.25p for the 3 months
to 31 March 2018
(0.75p 3 months to 31 March 2017) 4,375 2,625
Dividend of 1.25p for the 3 months
to 30 June 2018
(0.75p 3 months to 30 June 2017) 4,375 2,625
Dividend of 1.25p for the 3 months
to 30 September 2018
(0.75p 3 months to 30 September 2017) 4,375 2,625
Dividend of 1.25p for the 3 months
to 31 December 2018
(0.75p 3 months to 31 December 2017) 4,756 2,625
--------------- -------------
Total 17,881 10,500
--------------- -------------
On 10 May 2018 the Company announced a dividend of 1.25 pence
per share in respect of the period 1 January 2018 to 31 March 2018.
The dividend payment was made on 8 June 2018 to shareholders on the
register as at 18 May 2018.
On 3 August 2018 the Company announced a dividend of 1.25 pence
per share in respect of the period 1 April 2018 to 30 June 2018.
The dividend payment was made on 7 September 2018 to shareholders
on the register as at 17 August 2018.
On 1 November 2018 the Company announced a dividend of 1.25
pence per share in respect of the period 1 July 2018 to 30
September 2018. The dividend payment was made on 30 November 2018
to shareholders on the register as at 8 November 2018.
On 29 November 2018 the Company announced a dividend of 1.11
pence per share in respect of the period 1 October 2018 to 21
December 2018. The dividend payment was made on 11 January 2019 to
shareholders on the register as at 7 December 2018.
On 31 January 2019 the Company announced a dividend of 0.14
pence per share in respect of the period 22 December 2018 to 31
December 2018. The dividend payment was made on 28 February 2019 to
shareholders on the register as at 8 February 2019.
On 8 May 2019 the Company announced a dividend of 1.325 pence
per share in respect of the period 1 January 2019 to 31 March 2019.
The dividend payment was made on 7 June 2019 to shareholders on the
register as at 17 May 2019. The financial statements do not reflect
this dividend.
15. Investment property
For the From
year ended 18 November 2016
31 March 2019 to 31 March 2018
GBP'000 GBP'000
--------------- ------------------
Balance at beginning of period 516,554 -
Property acquisitions 289,304 465,522
Acquisition costs 10,916 20,067
Change in fair value during the period 10,144 30,965
--------------- ------------------
Value advised by the property valuers 826,918 516,554
Adjustments for lease incentive assets
and rent straight line assets recognised (6,824) (332)
--------------- ------------------
Total 820,094 516,222
--------------- ------------------
For the From
year ended 18 November 2016
Change in fair value of investment 31 March 2019 to 31 March 2018
properties: GBP'000 GBP'000
--------------- ------------------
Change in valuation during the period 10,144 30,965
Adjustment for lease incentives and
rent straight line
adjustments recognised in assets as:
Start of the period 332 -
End of the period (6,824) (332)
--------------- ------------------
3,652 30,633
--------------- ------------------
In accordance with "IAS 40: Investment Property", the investment
property has been independently valued at fair value by JLL, an
accredited external valuer with recognised and relevant
professional qualifications and recent experience of the location
and category of the investment property being valued, however the
valuations are the ultimate responsibility of the Directors.
JLL valued the Civitas Social Housing PLC property portfolio on
the basis of each individual property and the theoretical sale of
the properties without the benefit of any corporate wrapper at
GBP826,918,000 as at 31 March 2019 (31 Match 2018:
GBP516,554,000).
JLL has provided valuation services to the Company with regards
to the properties during the period. In relation to the period
ended 31 March 2019, the proportion of the total fees payable by
the Company to JLL's total fee income was less than 5% and is
therefore minimal. Additionally, JLL has a rotation policy in place
whereby the signatories on the valuations rotate after seven
years.
All corporate acquisitions during the period have been treated
as asset purchases rather than business combinations because they
are considered to be acquisitions of properties rather than
businesses.
The following table provides the fair value measurement
hierarchy for investment property:
Quoted prices Significant Significant
in observable unobservable
active markets inputs inputs
Total (Level 1) (Level 2) (Level 3)
GBP'000 GBP'000 GBP'000 GBP'000
---------- ----------------- ------------ --------------
Investment properties
measured at fair value:
31 March 2019 820,094 - - 820,094
---------- ----------------- ------------ --------------
31 March 2018 516,222 - - 516,222
---------- ----------------- ------------ --------------
There have been no transfers between Level 1 and Level 2 during
any of the periods, nor have there been any transfers between Level
2 and Level 3 during any of the periods.
The valuations have been prepared in accordance with the RICS
Valuation - Professional Standards (incorporating the International
Valuation Standards) by JLL, one of the leading professional firms
engaged in the social housing sector.
As noted previously all of the Group's investments are reported
as Level 3 in accordance with IFRS 13 where external inputs are
"unobservable" and value is the Directors' best estimate, based
upon advice from relevant knowledgeable experts.
In this instance, the determination of the fair value of
investment property requires an examination of the specific merits
of each property that are in turn considered pertinent to the
valuation.
These include:
i) the regulated social housing sector and demand for the
facilities offered by each SSH property owned by the Group;
ii) the particular structure of the Group's transactions where
vendors, at their own expense, meet the majority of the
refurbishment costs of each property and certain purchase
costs;
iii) detailed financial analysis with discount rates supporting
the carrying value of each property;
iv) underlying rents for each property in comparison to the
market rent, with consideration given as whether a property is over
rented; and
v) a full repairing and insuring lease with annual indexation
based on CPI or CPI+1% and effectively 25 years outstanding in most
cases with a Housing Association itself regulated by the Homes and
Communities Agency.
The following descriptions and definitions relating to valuation
techniques and key unobservable inputs made in determining fair
values are as follows:
Valuation techniques: market value method
The estimated amount for which a property should exchange
between a willing buyer and a willing seller in an arm's length
transaction after proper marketing wherein the parties had acted
knowledgeably, prudently and without compulsion. Such marketing to
be structured such that the sale is undertaken in such a manner and
in a specific market with a view to maximising the value
achieved.
There are two main unobservable inputs that determine the fair
value of the Group's investment property:
i) The rate of inflation as measured by CPI; it should be noted
that all leases benefit from either CPI or CPI+1 indexation.
ii) The discount rate applied to the rental flows.
Key factors in determining the discount rates applied include
the regulated social housing sector and demand for each SSH
property owned by the Group, costs of acquisition and refurbishment
of each property, the anticipated future underlying cash flows for
each property, benchmarking of each underlying rent for each
property (passing rent), and the fact that all of the properties
within the Group's portfolio have the benefit of full repairing and
insuring leases entered into by a Housing Association.
As at the balance sheet date the lease lengths within the
Group's portfolio ranged from an effective 22 years to 25 years
with a weighted average unexpired lease term of 24.4 years (2018:
24.1). The greater the length then, all other metrics being equal,
the greater the value of the property.
Sensitivities of measurement of significant unobservable
inputs
As set out within significant accounting estimates and
judgements at 3.1 above, the Group's property investment valuation
is open to judgements and is inherently subjective by nature. As a
result the following sensitivity analysis has been prepared:
Average discount rate and range
The average discount rate used in the Group's property Portfolio
Valuation is 5.3% (2018: 6.5%).
The range of discount rates used in the Group's property
Portfolio Valuation is from 4.9% to 6.0% (2018: 5.6% to 9.1%).
The table below illustrates the change to the value of
investment properties if the discount rate and CPI used for the
portfolio valuation calculations are changed:
-0.5% in +0.5% in
discount discount +0.25% in -0.25% in
rate rate CPI CPI
GBP'000 GBP'000 GBP'000 GBP'000
---------- ---------- ---------- ----------
Increase/(decrease) in the
IFRS fair value of investment
properties at:
31 March 2019 33,203 (30,788) 25,651 (24,711)
---------- ---------- ---------- ----------
31 March 2018 20,634 (19,158) 16,062 (15,412)
---------- ---------- ---------- ----------
15.1 Subsidiary resale
For the From
year ended 18 November 2016
31 March 2019 to 31 March 2018
GBP'000 GBP'000
-------------- -----------------
Balance at the beginning of the period - -
Acquisition 25,470 -
Transfer to investment property (21,134) -
Sale proceeds (4,336) -
-------------- -----------------
- -
-------------- -----------------
The table above shows the transactions concerning the purchase
and sale of TLC Care Homes Limited. On 7 December 2018, the Group
acquired a subsidiary, TLC Care Homes Limited, for GBP25,470,000
consisting of investment property and a care home business with the
exclusive intent to sell the subsidiary business. At acquisition,
the fair value of the investment property was GBP21,134,000 and the
fair value of the assets and liabilities less selling costs of the
care home business was GBP4,336,000. The care home business was
sold immediately following acquisition for GBP4,336,000.
16. Portfolio Net Asset Value
The objective of the Portfolio Net Asset Value ("Portfolio NAV")
measure is to highlight the fair value of the net assets on an
ongoing, long-term basis, which aligns with the Group's business
strategy as an ongoing REIT with a long-term investment outlook.
This Portfolio NAV is made available on a quarterly basis on the
Company's website and announced via RNS.
For the period from 14 November 2017 to 21 December 2018 the
Company had 302,000,000 C shares in issue. During that period the
results, assets and liabilities attributable to the C shares were
accounted for in a separate pool to those of the Ordinary shares
and thus the Company announced a quarterly Portfolio NAV for both
share classes.
Under IFRS accounting rules, the C shares are recognised in the
financial statements as a liability valued at amortised cost which
represents the value of the assets and liabilities attributable to
the C share pool (see note 21). Thus, the net assets of the Company
disclosed in the financial statements are equal to the net assets
attributable to the Ordinary shareholders.
On 21 December 2018 the C shares were converted to Ordinary
shares as detailed in note 21.
In order to arrive at Portfolio Net Asset Value for each share
class, adjustments are made to the IFRS Net Asset Value ("IFRS
NAV") reported in the consolidated financial statements such
that;
i) The C share liability, equivalent to the net assets
attributable to the C shareholders is added back to net assets,
because under IFRS accounting rules the C shares are recognised as
a liability. (Please refer to note 21 for more details).
ii) The hypothetical sale of properties will take place on the
basis of a sale of a corporate vehicle rather than a sale of
underlying property assets. This assumption reflects the basis upon
which the Company's assets have been assembled within specific
SPVs.
iii) The hypothetical sale will take place in the form of a single portfolio disposal.
31 March 2019 31 March 2018
GBP'000 GBP'000
-------------- --------------
Net asset value per the consolidated
financial statements 666,508 369,395
Add back C share liability - 298,752
-------------- --------------
Value of asset pools 666,508 668,147
Effects of the adoption to the assumed,
hypothetical sale of properties as
a portfolio and on the basis of sale
of a corporate vehicle 74,662 33,124
-------------- --------------
Portfolio Net Asset Value 741,170 701,271
-------------- --------------
After reflecting these amendments, the movement in net assets
since inception is as follows:
For the From
18 November
year ended 2016
to 31 March
31 March 2019 2018
GBP'000 GBP'000
-------------- ------------
Opening reserves at start of period 701,271 (31)
Net issue (costs)/proceeds (56) 638,960
Operating profits (excluding capital
appreciation) 26,096 9,713
Capital appreciation 45,190 63,757
Finance income 491 413
Finance costs (3,975) (1,041)
Dividends paid to Ordinary and C
shareholders (27,847) (10,500)
-------------- ------------
Portfolio Net Assets at 31 March
2019 741,170 701,271
-------------- ------------
Value is represented by:
31 March 2019 31 March 2018
GBP'000 GBP'000
-------------- --------------
Investment property using the portfolio
valuation method 901,580 549,346
Net current assets 44,746 242,747
Bank borrowings (205,156) (90,822)
-------------- --------------
Portfolio Net Assets 741,170 701,271
-------------- --------------
Shares in issue 622,461,380 See below
-------------- --------------
Portfolio Net Asset Value per share 119.07p See below
-------------- --------------
The table below shows the figures at 31 March 2018 split between
the asset pools.
Value is represented by:
Ordinary
share C share
pool pool Total
GBP'000 GBP'000 GBP'000
------------ ------------ ----------
Investment property using the portfolio
valuation method 471,525 77,821 549,346
Net current assets 17,802 224,945 242,747
Bank borrowings (90,822) - (90,822)
------------ ------------ ----------
Portfolio Net Assets 398,505 302,766 701,271
------------ ------------ ----------
Shares in issue 350,000,000 302,000,000
------------ ------------
Portfolio Net Asset Value per share 113.86p 100.25p
------------ ------------
17. Trade and other receivables
Amounts falling due in less than one 31 March 2019 31 March 2018
year GBP'000 GBP'000
-------------- --------------
Rent receivable 2,954 175
Less provision for impairment (421) -
-------------- --------------
Net rent receivable 2,533 175
Accrued income 2,778 2,398
Debtor arising from rent straight line
adjustments - 332
Prepayments and other receivables 412 410
-------------- --------------
Total 5,723 3,315
-------------- --------------
Prepayments and other receivables amount above includes prepaid
legal and professional fees of GBP343,000 (2018: GBP393,000) that
have been incurred in connection with the acquisitions yet to be
completed.
31 March 2019 31 March 2018
GBP'000 GBP'000
-------------- --------------
Amounts falling due after more than one
year
Debtor arising from straight line adjustments 791 -
Lease incentives 6,033 -
-------------- --------------
6,824 -
-------------- --------------
The aged analysis of trade receivables that are past due but not
impaired was as follows:
31 March 2019 31 March 2018
GBP'000 GBP'000
-------------- --------------
Current 991 -
< 30 days 353 175
30-60 days 499 -
> 60 days 1,111 -
-------------- --------------
2,954 175
Less provision for impairment (421) -
-------------- --------------
Total 2,533 175
-------------- --------------
The Directors consider the fair value of receivables equals
their carrying amount.
The table above shows the aged analysis of trade receivables
included in the table above which are past due. The provision for
impairment principally relates to First Priority Housing
Association ("First Priority").
Other categories within trade and other receivables do not
include impaired assets.
18. Cash and cash equivalents
31 March 2019 31 March 2018
GBP'000 GBP'000
-------------- --------------
Cash held by solicitors 17,031 12,262
Liquidity funds 13,394 210,969
Cash held at bank 16,703 20,094
-------------- --------------
Unrestricted cash and cash equivalents 47,128 243,325
Restricted cash 7,219 6,283
-------------- --------------
Total 54,347 249,608
-------------- --------------
Liquidity funds refer to money placed in money market funds.
These are highly liquid funds with accessibility within 24 hours
and subject to insignificant risk of changes in value.
Cash held by lawyers is money held in escrow for expenses
expected to be incurred in relation to investment properties
pending completion. These funds are available immediately on
demand.
Restricted cash represents retention money held by lawyers in
relation to deferred payments subject to achievement of certain
conditions, other retentions and cash segregated to fund repair,
maintenance and improvement works to bring the properties up to
satisfactory standards for the Group and the tenants. Currently
that amount of cash is held in escrow.
19. Trade and other payables
31 March 2019 31 March 2018
GBP'000 GBP'000
-------------- --------------
Deferred income 14 225
Acquisition costs accrued 10,074 8,366
Lease incentives payable 3,000 -
Finance costs 798 498
Dividends payable 717 427
Accruals 616 660
Income tax and corporation tax payable* 105 -
-------------- --------------
Total 15,324 10,176
-------------- --------------
Acquisition costs accrued includes the balance of retention
monies (as represented by GBP7,219,000 (2018: 6,283,000),
restricted cash as per note 18) and acquisition costs
capitalised.
* Represents tax liabilities incurred by subsidiary companies
prior to acquisition by the Group.
20. Bank and loan borrowings
Bank borrowings are secured by charges over individual
investment properties held by certain asset-holding subsidiaries.
The banks also hold charges over the shares of certain subsidiaries
and any intermediary holding companies of those subsidiaries. Any
associated fees in arranging the bank borrowings unamortised as at
the period end are offset against amounts drawn on the facilities
as shown in the table below:
From
For the 18 November
year ended 2016 to
31 March 2019 31 March 2018
GBP'000 GBP'000
---------------- ---------------
Balance at start of period 92,457 -
Bank borrowings drawn 115,990 92,457
---------------- ---------------
Bank borrowings drawn at end of period 208,447 92,457
Balance at start of period (1,635) -
Less: loan issue costs incurred (2,374) (1,761)
Add: loan issue costs amortised 718 126
---------------- ---------------
Unamortised costs at end of period (3,291) (1,635)
---------------- ---------------
At end of period 205,156 90,822
---------------- ---------------
31 March 2019 31 March 2018
GBP'000 GBP'000
-------------- --------------
Maturity of bank borrowings:
Repayable within 1 year - -
Repayable between 1 to 2 years 55,947 -
Repayable between 2 to 5 years 100,000 39,957
Repayable after 5 years 52,500 52,500
-------------- --------------
Total 208,447 92,457
-------------- --------------
The Group is party to the following loan facility
agreements:
A 10-year Sterling Term Facility Agreement dated 2 November 2017
for up to GBP52,500,000 with Scottish Widows Limited. Interest is
fixed at a total of 2.9936% per annum.
The borrowings include amounts secured on investment property to
the value of GBP169,999,000 (2018: GBP163,812,000).
A 3-year Sterling Revolving Facility Agreement dated 15 November
2017 for up to GBP40,000,000 with Lloyds Bank plc. Interest is
charged at LIBOR +1.50% margin. During the year a GBP20,000,000
increase of this facility was agreed.
The borrowings include amounts secured on investment property to
the value of GBP144,166,000 (2018: GBP97,400,000).
A 3-year Revolving Credit Facility Agreement dated 28 November
2018 for up to GBP100,000,000 with HSBC Bank PLC. Interest charged
at LIBOR +1.70% margin.
The borrowings include amounts secured on investment property to
the value of GBP208,953,000.
A number of covenants are in place under the three agreements.
Under the 10-year facility, historical and projected interest cover
must be at least 325% and the loan to value ratio must not exceed
40%. Under the Lloyds Bank plc 3-year revolving credit facility,
historical and projected interest cover must be at least 250% and
the loan to value ratio must not exceed 55%. Under the HSBC Bank
PLC 3-year facility, historical and projected interest cover must
be at least 250% and the loan to value ratio must not exceed
60%.
21. C shares
From
18 November
For the 2016
year ended to 31 March
31 March 2019 2018
GBP'000 GBP'000
---------------- -------------
At beginning of period 298,752 -
Proceeds from issue of C shares - 302,000
C share issue costs - (6,040)
Dividends paid to C shareholders (9,966) -
Amortisation of C share liability 6,400 2,792
Conversion to Ordinary shares (295,186) -
---------------- -------------
At end of period - 298,752
---------------- -------------
On 10 November 2017 the Company announced the issue of
302,000,000 C shares, issued at GBP1 per share. The C shares are
convertible preference shares. The shares were listed on the London
Stock Exchange and dealing commenced on 14 November 2017.
Holders of C shares are not entitled to receive notice of,
attend, speak or vote at general meetings of the Company.
Under IAS 32 Financial Instruments: Presentation, the C shares
meet the definition of a financial liability rather than equity and
are presented in the financial statements as a liability of the
Company carried at amortised cost.
The funds were raised in order to finance a number of property
acquisitions and C shares were issued rather than Ordinary shares
so that the issue costs associated with the fund raise and the
costs associated with the property acquisitions did not dilute the
Ordinary share NAV.
In order to calculate the net assets attributable to each share
class, the results, assets and liabilities attributable to the C
shares are identified in a separate pool to the results, assets and
liabilities of the Ordinary shares. A share of fund level expenses
for the period is allocated to the C shares based on the net assets
of each share class pool.
It should be noted that these financial statements include all
results, assets and liabilities of both share class pools, however,
as the C shares are classified as a liability, net assets are
reduced by the value of the C shares liability which is also
equivalent to the net assets of the C share pool.
On 21 December 2018 the C shares were converted to Ordinary
shares in the ratio 0.902190 new Ordinary shares for every 1 C
share held. The conversion ratio was calculated with reference to
the respective portfolio net asset values of the C shares and
Ordinary shares at close of business on the calculation date.
Accordingly, 272,461,380 Ordinary shares were issued.
22. Share capital
Share capital represents the nominal value of consideration
received by the Company for the issue of Ordinary shares.
From
18 November
For the 2016
year ended to 31 March
31 March 2019 2018
GBP'000 GBP'000
---------------- -------------
Share capital
At beginning of period 3,500 -
Shares issued 2,725 3,500
---------------- -------------
At end of period 6,225 3,500
---------------- -------------
Number of shares issued and fully
paid
Ordinary shares of GBP0.01 each
At beginning of period 350,000,000 100
Shares issued 272,461,380 349,999,900
---------------- -------------
At end of period 622,461,380 350,000,000
---------------- -------------
The Company's Ordinary shares were admitted to the premium
listing segment of the Official List of the FCA and to trading on
the London Stock Exchange on 18 November 2016, raising GBP350
million. As a result of the IPO, on 18 November 2016, 349,999,900
shares at GBP0.01 per share were issued, fully paid.
On 21 December 2018 the Company issued 272,461,380 Ordinary
shares in respect of the conversion of 302,000,000 C shares. The
fair value of assets representing the C share pool at that date was
GBP295,186,000.
23. Share premium reserve
The share premium reserve represents the amounts subscribed for
Ordinary share capital in excess of nominal value less associated
issue costs of the subscriptions.
For the From
year ended 18 November 2016
31 March 2019 to 31 March 2018
GBP'000 GBP'000
---------------- ------------------
At beginning of period - -
Premium arising on shares issued 292,461 346,500
Share issue costs (56) (7,000)
Transfer to capital reduction reserve - (339,500)
---------------- ------------------
At end of period 292,405 -
---------------- ------------------
At a Board meeting on 15 November 2016, a resolution was passed
authorising the cancellation of the share premium account and it
was conditional upon the three following terms:
-- admission of the Ordinary shares to listing on the UK Listing
Authority's Official List;
-- trading on London Stock Exchange's Main Market for listed
securities; and
-- approval of the Court for the reduction of share capital.
In order to cancel the share premium account the Company needed
to obtain a court order, which was received on 1 February 2017. An
SH19 form was sent to Companies House with a copy of the court
order on 1 February 2017 and the certificate of cancellation was
issued by Companies House on 13 February 2017.
Upon cancellation of the share premium account, the funds were
transferred to the capital reduction reserve and these funds are
classified as amounts available for distribution.
24. Capital reduction reserve
The capital reduction reserve is a distributable reserve to
which the value of the cancelled share premium has been
transferred. Dividends can be paid from this reserve.
For the From
year ended 18 November 2016
31 March 2019 to 31 March 2018
GBP'000 GBP'000
---------------- ------------------
At beginning of period 331,625 -
Transfer from the share premium reserve - 339,500
Dividends paid in the period (as per
note 14) - (7,875)
---------------- ------------------
At end of period 331,625 331,625
---------------- ------------------
25. Retained earnings
This reserve represents the profits and losses of the Group.
From
18 November
For the 2016
year ended to 31 March
31 March 2019 2018
GBP'000 GBP'000
---------------- -------------
At beginning of period 34,270 (31)
Profit for the period 19,864 36,926
Dividends paid in the period (as
per note 14) (17,881) (2,625)
---------------- -------------
At end of period 36,253 34,270
---------------- -------------
26. Net asset value
Basic NAV per share is calculated by dividing net assets in the
Consolidated Statement of Financial Position attributable to
ordinary equity holders of the parent by the number of Ordinary
shares outstanding at the end of the period.
Diluted NAV per share is calculated by adjusting net assets for
the conversion of the C shares.
Net asset values have been calculated as follows:
31 March 2019 31 March 2018
-------------- --------------
Net assets (GBP'000) 666,508 369,395
Number of Ordinary shares in issue
at end of period 622,461,380 350,000,000
NAV - basic 107.08p 105.54p
-------------- --------------
Net assets (GBP'000) 666,508 369,395
Adjust for the effect of the C shares
converting (GBP'000) - 298,752
-------------- --------------
Adjusted net assets (GBP'000) 666,508 668,147
-------------- --------------
Number of Ordinary shares in issue
at end of period 622,461,380 350,000,000
Number of Ordinary shares that would
be issued on the conversion of C shares - 283,065,815
-------------- --------------
Total 622,461,380 633,065,815
-------------- --------------
NAV - diluted 107.08p 105.54p
-------------- --------------
27. Reconciliation of liabilities to cash flows from
financing
For the
C share Bank year ended
liability borrowings 31 March 2019
GBP'000 GBP'000 GBP'000
---------- ----------- --------------
Balance at the beginning of
the period 298,752 90,822 389,574
Cash flows from financing activities
Loan draw down - 115,990 115,990
Loan arrangement costs paid - (2,374) (2,374)
Dividends paid to C shareholders
in the period (9,966) - (9,966)
Non cash movements
Amortisation of loan arrangement
costs - 718 718
Amortisation of C shares liability 6,400 - 6,400
C share conversion (295,186) - (295,186)
---------- ----------- --------------
- 205,156 205,156
---------- ----------- --------------
Summary of non-cash transactions
On 21 December 2018 the C shares were converted to Ordinary
shares in the ratio 0.902190 new Ordinary shares for every 1 C
share held. The conversion ratio was calculated with reference to
the respective portfolio net asset values of the C shares and
Ordinary shares at close of business on the calculation date. The
fair value of assets represented by the C share pool, being the
deemed consideration, was GBP295,186,000.
28. Operating leases
The Group is party to a number of operating leases on its
investment properties with Registered Providers. The future minimum
lease payments under non-cancellable operating leases receivable by
the Group are as follows:
31 March 2019 31 March 2018
GBP'000 GBP'000
-------------- --------------
Amounts receivable
< 1 year 45,685 28,203
1-2 years 45,720 28,801
2-5 years 137,356 86,399
> 5 years 882,407 554,050
-------------- --------------
At end of period 1,111,168 697,453
-------------- --------------
Leases are direct-let agreements with Registered Providers for a
term between 15 to 25 years with indexed linked annual rent
reviews. All current leases are full repairing and insuring ("FRI")
leases, the tenants are therefore obliged to repair, maintain and
renew the properties back to the original conditions.
The following table gives details of percentage of annual rental
income per Registered Provider:
31 March 2019 31 March 2018
% %
-------------- --------------
Westmoreland Supported Housing Limited 19.66 35.02
Falcon Housing Association CIC 20.89 14.44
First Priority Housing Association* - 10.66
Bespoke Supportive Tenancies 11.37 -
Auckland Home Solutions 11.26 -
Inclusion Housing CIC 8.34 8.70
Encircle Housing Limited 6.33 -
Trinity Housing Association Limited 5.74 9.04
PAS Housing Association 4.09 6.04
Chrysalis Supported Association Limited 3.41 4.43
New Walk Property Management CIC 2.95 4.59
Harbour Light Assisted Living CIC 2.42 3.76
My Space Housing Solutions 1.24 -
IKE Supported Housing Limited 1.20 1.89
Hilldale Housing Association Limited 1.03 1.43
Blue Square Limited 0.07 -
-------------- --------------
Total 100.00 100.00
-------------- --------------
* Leases transferred to Falcon Housing Association CIC in the
year.
The Group is also party to a number of operating leases on its
long leasehold properties. The ground rent payment commitments
under these operating leases are negligible so the future minimum
lease payments under these leases have not been disclosed in these
financial statements.
29. Controlling parties
As at 31 March 2019 there is no ultimate controlling party.
30. Related party disclosures
The Directors are remunerated for their services at such rate as
the Directors shall from time to time determine. The aggregate
remuneration and benefits in kind of the Directors of the Company
(in each case, solely in their capacity as such) in respect of the
period ended 31 March 2019 payable out of the assets of the Company
is not expected to exceed GBP200,000. At IPO, the Chairman was
entitled to a Director's fee of GBP35,000 per annum, and the other
Directors of the Board to a fee of GBP30,000 per annum (with the
exception of the chairman of the Audit and Management Engagement
Committee who was entitled to an additional fee of GBP2,500 per
annum).
At the Board meeting on 26 July 2017, a resolution was passed
authorising an increase to the fees of the Chairman to GBP50,000
per annum, the Chairman of the Audit and Management Engagement
Committee and the other Directors to GBP36,000 per annum and
GBP32,000 per annum respectively effective from 1 August 2017.
Fees of GBP150,000 (period 31 March 2018: GBP190,000) were
incurred and paid to the Directors.
As at 31 March 2019, the Directors held the following number of
shares:
31 March 2019 31 March 2018
Director Ordinary shares Ordinary shares C shares
---------------- ---------------- ---------
Michael Wrobel Chairman 100,598 30,000 45,000
Peter Baxter Director 47,065 20,000 30,000
Audit and Management
Engagement Committee
Caroline Gulliver Chair 58,382 25,000 37,500
Alastair Moss Director 11,766 5,000 7,500
---------------- ---------------- ---------
The Company and CHA (collectively the "Members") entered into a
limited liability partnership agreement with Civitas Social Housing
UK LLP ("LLP") on 1 November 2016 to govern the mutual rights and
duties of the LLP and the Members of the LLP. Under the terms of
the Limited Liability Partnership Agreement, the Investment Adviser
was entitled to an amount of GBP980,000 as Priority Profit Share
from the date of the IPO to 31 March 2017, which is included in the
Investment Advisory fees of GBP5,773,000 mentioned in note 8. There
was no consideration paid or due from the Members of the LLP. The
limited liability partnership agreement and the original Investment
Advisory Agreement were terminated on 1 April 2017 and were
replaced by the current Investment Management Agreement.
Remuneration
The Investment Manager has reviewed its remuneration policies
and procedures to ensure incentives are aligned with the
requirements of AIFMD. It includes measures to avoid conflicts of
interest such as providing staff with a fixed monthly salary and
determining discretionary payments by the performance of the
Investment Manager as a whole and not linked to any one AIF in
particular. The AIFM and its staff receive no remuneration through
profit share, carried interest, co-investment or other schemes
related to the Company's performance.
31. Transactions with the Investment Adviser
On 1 November 2016 Civitas Housing Advisors Limited was
appointed as the Investment Adviser of the Company.
Fees of GBP6,457,000 (period to 31 March 2018: GBP5,773,000)
were incurred and paid to CHA.
As at 31 March 2019, no amounts (31 March 2018: GBPnil) were due
to/from CHA.
At 31 March 2019, CHA held 50,000 Ordinary shares in the
Company.
32. Consolidated entities
The Company has provided a guarantee under s479C of the
Companies Act 2006 in respect of the financial year ended 31 March
2019 for a number of its subsidiary companies (as indicated in the
table on the following pages). The guarantee is over all
outstanding liabilities to which the subsidiary companies are
subject at 31 March 2019 until they are satisfied in full.
The Group consists of a parent company, Civitas Social Housing
PLC, incorporated in England and Wales and a number of subsidiaries
held directly by Civitas Social Housing PLC, which operate and are
incorporated in the UK and Jersey.
The Group owns 100% equity shares of all subsidiaries listed
below and has the power to appoint and remove the majority of the
board of directors of those subsidiaries. The relevant activities
of the below subsidiaries are determined by the board of directors
based on the purpose of each company.
Therefore the Directors concluded that the Group has control
over all these entities and all these entities have been
consolidated within the consolidated financial statements.
A list of all related undertakings included within these
consolidated financial statements are noted below. Indirectly held
subsidiary companies are marked by an indentation in the table
below.
Registered Principal Country of Ownership
Name number activity incorporation %
------------------------------------ ---- ----------- ------------ --------------- ----------
Civitas Social Housing Finance Finance England &
Company 1 Limited ++ 10997707 company Wales 100.00%
Civitas Social Housing Jersey Holding
1 Limited 124129 company Jersey 100.00%
Property England &
Civitas SPV1 Limited ++ 10518729 investment Wales 100.00%
Property England &
Civitas SPV2 Limited ++ 10114251 investment Wales 100.00%
Property England &
Civitas SPV11 Limited ++ 10546749 investment Wales 100.00%
Property England &
Civitas SPV15 Limited ++ 09777380 investment Wales 100.00%
Property England &
Civitas SPV25 Limited ++ 10791473 investment Wales 100.00%
Property England &
Civitas SPV27 Limited ++ 10883112 investment Wales 100.00%
Property England &
Civitas SPV33 Limited ++ 10546407 investment Wales 100.00%
Property England &
Civitas SPV35 Limited ++ 10588530 investment Wales 100.00%
Property England &
Civitas SPV38 Limited ++ 10738318 investment Wales 100.00%
Property England &
Civitas SPV39 Limited ++ 10547333 investment Wales 100.00%
Property England &
Civitas SPV40 Limited ++ 10738510 investment Wales 100.00%
Property England &
Civitas SPV41 Limited ++ 10738542 investment Wales 100.00%
Property England &
Civitas SPV50 Limited ++ 10775419 investment Wales 100.00%
Civitas Social Housing Finance Finance England &
Company 2 Limited ++ 10997698 company Wales 100.00%
Civitas Social Housing Jersey Holding
2 Limited 124876 company Jersey 100.00%
Property England &
Civitas SPV3 Limited ++ 10156529 investment Wales 100.00%
Property England &
Civitas SPV4 Limited ++ 10433744 investment Wales 100.00%
Property England &
Civitas SPV5 Limited ++ 10479104 investment Wales 100.00%
Property England &
Civitas SPV6 Limited ++ 10674493 investment Wales 100.00%
Property England &
Civitas SPV9 Limited ++ 10536388 investment Wales 100.00%
Property England &
Civitas SPV10 Limited ++ 10535243 investment Wales 100.00%
Property England &
Civitas SPV12 Limited ++ 10546753 investment Wales 100.00%
Property England &
Civitas SPV17 Limited ++ 10479036 investment Wales 100.00%
Property England &
Civitas SPV18 Limited ++ 10546651 investment Wales 100.00%
Property England &
Civitas SPV19 Limited ++ 10548932 investment Wales 100.00%
Property England &
Civitas SPV20 Limited ++ 10588735 investment Wales 100.00%
Property England &
Civitas SPV22 Limited ++ 10743958 investment Wales 100.00%
Property England &
Civitas SPV24 Limited ++ 10751512 investment Wales 100.00%
Property England &
Civitas SPV26 Limited ++ 10864336 investment Wales 100.00%
Property England &
Civitas SPV29 Limited ++ 10911565 investment Wales 100.00%
Property England &
Civitas SPV30 Limited ++ 10956025 investment Wales 100.00%
Property England &
Civitas SPV31 Limited ++ 10974889 investment Wales 100.00%
Property England &
Civitas SPV32 Limited ++ 11007173 investment Wales 100.00%
Property England &
Civitas SPV34 Limited ++ 10738381 investment Wales 100.00%
Property England &
Civitas SPV36 Limited ++ 10588792 investment Wales 100.00%
Property England &
Civitas SPV42 Limited ++ 10738556 investment Wales 100.00%
Property England &
Civitas SPV43 Limited ++ 10534877 investment Wales 100.00%
Property England &
Civitas SPV45 Limited ++ 10871854 investment Wales 100.00%
Property England &
Civitas SPV46 Limited ++ 10871910 investment Wales 100.00%
Property England &
Civitas SPV47 Limited ++ 10873270 investment Wales 100.00%
Property England &
Civitas SPV48 Limited ++ 10873295 investment Wales 100.00%
Property England &
Civitas SPV51 Limited ++ 10826693 investment Wales 100.00%
Property England &
Civitas SPV52 Limited ++ 10827006 investment Wales 100.00%
Property England &
Civitas SPV63 Limited ++ 10937805 investment Wales 100.00%
Property England &
Civitas SPV64 Limited ++ 10938411 investment Wales 100.00%
Property England &
Civitas SPV70 Limited ++ 10770201 investment Wales 100.00%
Civitas SPV71 Limited (previously Property England &
FPI CO 151 Ltd) ++ 10888639 investment Wales 100.00%
Civitas SPV72 Limited (previously Property England &
FPI CO 171 Ltd) ++ 10938022 investment Wales 100.00%
Civitas SPV74 Limited (previously Property England &
FPI CO 192 Ltd) ++ 11001855 investment Wales 100.00%
Civitas SPV75 Limited (previously Property England &
FPI CO 193 Ltd) ++ 11001834 investment Wales 100.00%
Civitas SPV80 Limited (previously Property England &
FPI CO 195 Ltd) ++ 11001998 investment Wales 100.00%
Civitas Social Housing Finance Finance England &
Company 3 Limited ++ 10997714 Company Wales 100.00%
Property England &
Civitas SPV8 Limited ++ 10536157 investment Wales 100.00%
Property England &
Civitas SPV28 Limited ++ 10895228 investment Wales 100.00%
Property England &
Civitas SPV53 Limited ++ 11021625 investment Wales 100.00%
Property England &
Civitas SPV55 Limited ++ 11056455 investment Wales 100.00%
Property England &
Civitas SPV57 Limited ++ 11091444 investment Wales 100.00%
Property England &
Civitas SPV60 Limited ++ 11111908 investment Wales 100.00%
Property England &
Civitas SPV61 Limited ++ 10937662 investment Wales 100.00%
Property England &
Civitas SPV66 Limited ++ 10937898 investment Wales 100.00%
Property England &
Civitas SPV77 Limited ++ 11166491 investment Wales 100.00%
Property England &
Civitas SPV78 Limited ++ 11170099 investment Wales 100.00%
Property England &
Civitas SPV79 Limited ++ 11236544 investment Wales 100.00%
Property England &
Civitas SPV81 Limited ++ 11192811 investment Wales 100.00%
Property England &
Civitas SPV82 Limited ++ 11380796 investment Wales 100.00%
Property England &
Civitas SPV83 Limited ++ 11371128 investment Wales 100.00%
Property England &
Civitas SPV85 Limited ++ 11300749 investment Wales 100.00%
Property England &
Civitas SPV95 Limited ++ 11208184 investment Wales 100.00%
Property England &
Civitas SPV97 Limited ++ 11463890 investment Wales 100.00%
Property England &
Civitas SPV103 Limited ++ 11500596 investment Wales 100.00%
Property England &
Civitas SPV105 Limited ++ 11532177 investment Wales 100.00%
Property England &
Civitas SPV106 Limited ++ 11532179 investment Wales 100.00%
Property England &
Civitas SPV107 Limited ++ 11532182 investment Wales 100.00%
Property England &
Civitas SPV116 Limited ++ 11504399 investment Wales 100.00%
Property England &
Civitas SPV117 Limited ++ 11504445 investment Wales 100.00%
Civitas Social Housing Jersey Holding
3 Ltd 124877 company Jersey 100.00%
Property England &
Civitas SPV7 Limited ++ 10536368 investment Wales 100.00%
Property England &
Civitas SPV13 Limited ++ 09517692 investment Wales 100.00%
Property England &
Civitas SPV14 Limited ++ 10479041 investment Wales 100.00%
Property England &
Civitas SPV16 Limited ++ 09917557 investment Wales 100.00%
Property England &
Civitas SPV21 Limited ++ 10631541 investment Wales 100.00%
Property England &
Civitas SPV23 Limited ++ 10746881 investment Wales 100.00%
Property England &
Civitas SPV37 Limited ++ 10738450 investment Wales 100.00%
Property England &
Civitas SPV44 Limited ++ 10588783 investment Wales 100.00%
Property England &
Civitas SPV49 Limited ++ 11031349 investment Wales 100.00%
Property England &
Civitas SPV54 Limited ++ 11039750 investment Wales 100.00%
Property England &
Civitas SPV56 Limited ++ 11056465 investment Wales 100.00%
Property England &
Civitas SPV59 Limited ++ 11111912 investment Wales 100.00%
Property England &
Civitas SPV62 Limited ++ 10937528 investment Wales 100.00%
Property England &
Civitas SPV65 Limited ++ 10938467 investment Wales 100.00%
Property England &
Civitas SPV67 Limited ++ 10937929 investment Wales 100.00%
Property England &
Civitas SPV68 Limited ++ 10938269 investment Wales 100.00%
Property England &
Civitas SPV69 Limited ++ 11142372 investment Wales 100.00%
Civitas SPV73 Limited (previously Property England &
FPI CO 177 Ltd) ++ 10939075 investment Wales 100.00%
Property England &
Civitas SPV84 Limited ++ 11381455 investment Wales 100.00%
Property England &
Civitas SPV86 Limited ++ 11418432 investment Wales 100.00%
Civitas SPV87 Limited (previously Property England &
FPI CO 157 Ltd) ++ 10888903 investment Wales 100.00%
Civitas SPV88 Limited (previously Property England &
FPI CO 176 Ltd) ++ 10939044 investment Wales 100.00%
Civitas SPV90 Limited (previously Property England &
FPI CO 178 Ltd) ++ 10939131 investment Wales 100.00%
Civitas SPV91 Limited (previously Property England &
FPI CO 184 Ltd) ++ 10941377 investment Wales 100.00%
Property England &
Civitas SPV92 Limited ++ 11449913 investment Wales 100.00%
Property England &
Civitas SPV93 Limited ++ 11043111 investment Wales 100.00%
Property England &
Civitas SPV94 Limited ++ 11208105 investment Wales 100.00%
Property England &
Civitas SPV96 Limited ++ 11270786 investment Wales 100.00%
Holding England &
Civitas SPV98 Limited ++ 11478695 company Wales 100.00%
Property
Snapco Limited 008603V investment Isle of Man 100.00%
Property
Snapco 2 Limited 009143V investment Isle of Man 100.00%
Property
Snapco 3 Limited 009144V investment Isle of Man 100.00%
Property
Snapco 4 Limited 011660V investment Isle of Man 100.00%
Property
Snapco 5 Limited 012111V investment Isle of Man 100.00%
Holding England &
Civitas SPV99 Limited ++ 11478707 company Wales 100.00%
Property
Snapco 6 Limited 012112V investment Isle of Man 100.00%
Property England &
Civitas SPV100 Limited ++ 11069703 investment Wales 100.00%
Property England &
Civitas SPV101 Limited ++ 09978282 investment Wales 100.00%
Property England &
Civitas SPV102 Limited ++ 11521555 investment Wales 100.00%
Property England &
Civitas SPV104 Limited ++ 11532174 investment Wales 100.00%
England &
Civitas SPV108 Limited ++ 11532135 Dormant Wales 100.00%
Property England &
Civitas SPV109 Limited ++ 11532120 investment Wales 100.00%
Property England &
Civitas SPV112 Limited ++ 11579750 investment Wales 100.00%
Property England &
Civitas SPV113 Limited ++ 11580068 investment Wales 100.00%
Property England &
Civitas SPV114 Limited ++ 11579733 investment Wales 100.00%
Property England &
Civitas SPV115 Limited ++ 11522178 investment Wales 100.00%
Property England &
Civitas SPV118 Limited ++ 11411498 investment Wales 100.00%
England &
Civitas SPV119 Limited 11751515 Dormant Wales 100.00%
England &
Civitas SPV120 Limited 11801922 Dormant Wales 100.00%
Property England &
Civitas SPV121 Limited ++ 11099917 investment Wales 100.00%
Property England &
Civitas SPV122 Limited ++ 11482646 investment Wales 100.00%
Property England &
Civitas SPV123 Limited ++ 08253452 investment Wales 100.00%
Property England &
Civitas SPV126 Limited ++ 11459821 investment Wales 100.00%
Property England &
Civitas SPV127 Limited 10941401 investment Wales 100.00%
Property England &
Civitas SPV129 Limited 11664994 investment Wales 100.00%
Property England &
Civitas SPV130 Limited 11705074 investment Wales 100.00%
Property England &
Civitas SPV131 Limited 11675132 investment Wales 100.00%
Property England &
Civitas SPV132 Limited ++ 11473735 investment Wales 100.00%
Property England &
Civitas SPV135 Limited ++ 11579880 investment Wales 100.00%
Property England &
Civitas SPV143 Limited ++ 11546808 investment Wales 100.00%
Property England &
Civitas SPV144 Limited ++ 11546696 investment Wales 100.00%
Holding England &
Civitas SPV145 Limited 11842306 company Wales 100.00%
Property England &
Fieldbay Limited ++ 05219012 investment Wales 100.00%
England &
Civitas SPV146 Limited 11861500 Dormant Wales 100.00%
England &
Civitas SPV147 Limited 11861974 Dormant Wales 100.00%
Property England &
Civitas SPV148 Limited 11632633 investment Wales 100.00%
Property England &
Civitas SPV149 Limited ++ 11462691 investment Wales 100.00%
Property England &
Civitas SPV150 Limited ++ 11462555 investment Wales 100.00%
Property England &
Civitas SPV151 Limited 11913037 investment Wales 100.00%
Property England &
FPI CO 324 Ltd 11633019 investment Wales 100.00%
Civitas Social Housing Finance England &
Company 4 Limited 11906660 Dormant Wales 100.00%
++ These entities are exempt from the requirements of the
Companies Act 2006 relating to the audit of individual accounts by
virtue of Section 479A of that Act. These are all entities that
have a year end prior to 31 March 2020.
The registered addresses for the subsidiaries are consistent
based on their country of incorporation and are as follows:
-- England & Wales entities: Beaufort House, 51 New North
Road, Exeter, United Kingdom, EX4 4EP
-- Jersey entities: 12 Castle Street, St Helier, Jersey, JE2
3RT
-- Isle of Man entities: Knox House, 16-18 Finch Road, Douglas
IM1 2PT
33. Financial risk management
33.1. Financial instruments
The Group's principal financial assets and liabilities are those
that arise directly from its operations: trade and other
receivables, trade and other payables and cash and cash
equivalents. The Group's other principal financial liabilities are
bank borrowings, the main purpose of which is to finance the
acquisition and development of the Group's investment property
portfolio. The C share financial liability is also considered to be
a financial instrument, the main purposes of which is to finance
new acquisitions.
Financial assets are classified as loans and receivables and all
financial liabilities are measured at amortised cost. All financial
instruments were designated in their current categories upon
initial recognition.
Set out below is a comparison by class of the carrying amounts
and fair value of the Group's financial instruments that are
carried in the financial statements:
Book value Book value Fair value
31 March Fair value 31 March 31 March
2019 31 March 2019 2018 2018
GBP'000 GBP'000 GBP'000 GBP'000
----------- --------------- ----------- -----------
Financial assets
Trade and other receivables(1) 5,353 5,353 2,573 2,573
Cash and cash equivalents 54,347 54,347 249,608 249,608
----------- --------------- ----------- -----------
Financial liabilities
Trade and other payables(2) 15,205 15,205 9,951 9,951
Bank borrowings 205,156 205,806 90,822 92,350
C share liability - - 298,752 294,148
----------- --------------- ----------- -----------
(1) Excludes prepayments and debtors arising on rent
smoothing.
(2) Excludes deferred income and tax liabilities.
The Group has three bank loans. One is a 10-year fixed rate loan
of GBP52.5 million, provided by Scottish Widows Limited and there
is also a 3-year revolving credit facility variable rate loan of
GBP60 million provided by Lloyds Bank plc and a 3-year revolving
credit facility variable rate loan of GBP100 million provided by
HSBC Bank PLC. The fair value of the fixed rate loan is determined
by comparing the discounted future cash flows.
The C share liability fair value comparative is based on the
quoted bid-market price at 31 March 2018 multiplied by the number
of C shares in issue.
Financial risk management
The Group is exposed to market risk, interest rate risk, credit
risk and liquidity risk in the current and future periods. The
Board of Directors oversees the management of these risks. The
Board of Directors reviews and agrees policies for managing each of
these risks that are summarised below.
33.2. Market risk
The Group's activities will expose it primarily to the market
risks associated with changes in property values and changes in
interest rates.
Risk relating to investment in property
Investment in property is subject to varying degrees of risk.
Some factors that affect the value of the investment in property
include:
-- changes in the general economic climate;
-- competition for available properties;
-- obsolescence; and
-- Government regulations, including planning, environmental and
tax laws.
Variations in the above factors can affect the valuation of
assets held by the Group and as a result can influence the
financial performance of the Group.
Risk relating to liquidity funds classified as cash and cash
equivalents
The Group holds positions in two AAA rated liquidity funds that
invest in a diversified range of government and non-government
money market securities, which are subject to varying degrees of
risk. Some factors that affect the value of the liquidity funds
include:
-- the performance of the underlying government and
non-government money market securities; and
-- interest rates.
Variations in the above factors can affect the valuation of
assets held by the Group and as a result can influence the
financial performance of the Group.
33.3. Interest rate risk
Interest rate risk is the risk that the fair value or future
cash flows of a financial instrument will fluctuate because of
changes in market interest rates.
The Group's interest rate risk principally arises from long-term
borrowings. To manage this, the Group has entered into a fixed rate
bank loan and two variable rate bank loans. At 31 March 2019, 25%
(2018: 57%) of the Group's borrowings are at a fixed rate of
interest.
The exposure of the Group to variable rates of interest is
considered upon drawing of any new loan facilities, to ensure that
the Group's exposure to interest rate fluctuations is within
acceptable levels.
The Investment Adviser monitors the Group's exposure to any
changes in interest rate on an ongoing basis, with the Board
updated on a quarterly basis of the current exposure of the Group's
loan facilities.
As at 31 March 2019, if interest rates had been 200 basis points
higher/(lower) with all other variables held constant the impact on
profits after taxation for the period would be as follows:
31 March 2019 31 March 2018
GBP'000 GBP'000
-------------- --------------
(Decrease)/increase in profits due to
interest rates
200 basis points higher (2,032) (3,429)
200 basis points lower 1,271 7
-------------- --------------
The average effective interest rates of financial instruments at
31 March 2019 were as follows:
31 March 2019 31 March 2018
% %
-------------- --------------
Bank borrowings - fixed rate 2.99360 2.99360
Bank borrowings - variable rate 2.50180 2.02125
Cash and cash equivalents 0.16795 0.38205
-------------- --------------
33.4. Credit risk
Credit risk is the risk that a counterparty will not meet its
obligations under a financial instrument or customer contract,
leading to a financial loss. The Group is exposed to credit risks
from both its leasing activities and financing activities,
including deposits with banks and financial institutions.
Debtors and accrued income represent rent due or accrued, these
amounts due are diversified between a number of different Housing
Associations of differing financial strength, see note 28 for
details of the different counterparties. None of the Housing
Associations have listed debt and as such do not have a credit
rating, however, the diversified nature of this asset supports the
credit quality.
The Group has policies in place to ensure that rental contracts
are entered into only with lessees with an appropriate credit and
operational history, and limits exposure to any one tenant. The
credit risk is considered to be further reduced as the source of
the rents received by the Group is ultimately provided by the
government, by way of housing benefit and care provision, via a
diverse range of Local Authorities.
For details of provisions for impairment please refer to note
17.
Credit risk related to financial instruments and cash
deposits
One of the principal credit risks of the Group will arise with
the banks and financial institutions. The Board of Directors
believes that the credit risk on short-term deposits and current
account cash balances is limited because the counterparties are
banks considered to be of good credit quality. In the case of cash
deposits held with lawyers, the credit risk is limited because the
cash is held by the lawyers within client accounts at banks with
high credit quality.
33.5. Liquidity risk
The Group manages its liquidity and funding risks by considering
cash flow forecasts and ensuring sufficient cash balances are held
within the Group to meet future needs. Prudent liquidity risk
management implies maintaining sufficient cash and marketable
securities, the availability of financing through appropriate and
adequate credit lines, and the ability of customers to settle
obligations within normal terms of credit. The Group ensures,
through forecasting of capital requirements, that adequate cash is
available.
The following table details the Group's maturity profile in
respect of its financial instrument liabilities based on
contractual undiscounted payments:
On demand <1 year 1-5 years > 5 years Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------- --------- ---------- ---------- ---------
31 March 2019
Trade and other
payables 15,205 - - - 15,205
Bank borrowings - 5,473 168,877 56,573 230,923
15,205 5,473 168,877 56,573 246,128
---------- --------- ---------- ---------- ---------
31 March 2018
Trade and other
payables 9,951 - - - 9,951
Bank borrowings - 2,371 49,483 58,145 109,999
C share liability - - - - -
---------- --------- ---------- ---------- ---------
9,951 2,371 49,483 58,145 119,950
---------- --------- ---------- ---------- ---------
The profile above assumes that the revolving credit facility
loan will be rolled over and held to term. Included within the
contracted payments is GBP22,476,000 (31 March 2018: GBP17,971,000)
of loan interest payable up to the point of maturity.
The C share liability and any interest accruing to the C
shareholders at 31 March 2018 was settled by the issue of Ordinary
shares.
34. Capital commitments
At 31 March 2019, the Company had funds committed totalling
GBP12,000,000 (2018: GBP4,902,000) concerning two properties
(currently under development) for which the Company has entered
into a conditional sale and purchase agreement conditional on the
completion of development.
35. Post balance sheet events
Acquisitions
On 23 April 2019 two properties in Lancashire were acquired for
a GBP1.7 million and GBP0.34 million respectively.
Dividends
On 8 May 2019 the Board declared a quarterly dividend in respect
of the Ordinary shares for the three months to 31 March 2019 of
1.325 pence per Ordinary share. The dividend was paid on 7 June
2019 to holders of Ordinary shares on the register as at 17 May
2019. The dividend was paid as a REIT property income distribution
("PID").
Other announcements
On 29 April 2019, the Company announced a change to the
calculation of Investment Advisory fees paid so that they are based
on IFRS NAV instead of Portfolio NAV, to take effect from 26 April
2019.
The Board also agreed with the Investment Adviser to extend the
initial notice period term within the Investment Management
Agreement from 30 November 2021 to 30 May 2024.
Company Statement of Financial Position
As at 31 March 2019
31 March 2019 31 March 2018
Note GBP'000 GBP'000
-------------- --------------
Assets
Non-current assets
Investment in subsidiaries 7 767,917 479,134
-------------- --------------
Current assets
Trade and other receivables 8 371 2,380
Cash and cash equivalents 9 45,905 241,924
-------------- --------------
46,276 244,304
-------------- --------------
Total assets 814,193 723,438
-------------- --------------
Liabilities
Current liabilities
Trade and other payables 10 (131,277) (4,082)
C shares financial liability - (298,752)
-------------- --------------
(131,277) (302,834)
-------------- --------------
Total liabilities (131,277) (302,834)
-------------- --------------
Total net assets 682,916 420,604
-------------- --------------
Equity
Share capital 11 6,225 3,500
Share premium reserve 292,405 -
Capital reduction reserve 331,625 331,625
Retained earnings 12 52,661 85,479
Total equity 682,916 420,604
-------------- --------------
The Company has taken advantage of the provisions of Companies
Act 2006 s408 and does not disclose the Company's individual profit
and loss account. Losses for the year were GBP14,937,000 (period 31
March 2018: profit GBP88,135,000).
The Company financial statements were approved by the Board of
Directors of Civitas Social Housing PLC and authorised for issue on
21 June 2019 and signed on its behalf by:
Michael Wrobel
Chairman and Independent Non-Executive Director
21 June 2019
Company No: 10402528
The notes below are an integral part of these financial
statements.
Company Statement of Changes in Equity
For the year ended 31 March 2019
Retained
Share Capital earnings/
Share premium reduction (accumulated Total
capital reserve reserve losses) equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------- ---------- ---------- ------------- ---------
Balance at
18 November 2016 - - - (31) (31)
Profit and total comprehensive
income for the period - - - 88,135 88,135
Issue of Ordinary
shares
Issue of share capital 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 ended
31 March 2018 (3.00p) - - (7,875) (2,625) (10,500)
-------- ---------- ---------- ------------- ---------
Balance at 31 March
2018 3,500 - 331,625 85,479 420,604
-------- ---------- ---------- ------------- ---------
Loss and total comprehensive
expense for the period - - - (14,937) (14,937)
Issue of Ordinary
shares
Issue of share capital 2,725 292,461 - - 295,186
Share issue costs - (56) - - (56)
Dividends paid
Total interim dividends
for the period ended
31 March 2019 (5.00p) - - - (17,881) (17,881)
-------- ---------- ---------- ------------- ---------
Balance at 31 March
2019 6,225 292,405 331,625 52,661 682,916
-------- ---------- ---------- ------------- ---------
Distributable reserves total GBP384,286,000 (31 March 2018:
GBP417,104,000)
The notes below are an integral part of these financial
statements.
Notes to the Company Financial Statements
For the year ended 31 March 2019
1. Corporate information
Civitas Social Housing PLC ("the Company") was incorporated in
England and Wales under the Companies Act 2006 as a public company
limited by shares on 29 September 2016 with company number 10402528
under the name Civitas REIT PLC which was subsequently changed to
the existing name on 3 October 2016.
The address of the registered office is Beaufort House, 51 New
North Road, Exeter, EX4 4EP. The Company is registered as an
investment company under section 833 of the Companies Act 2006 and
is domiciled in the United Kingdom.
The Company did not begin trading until 18 November 2016 when
the shares were admitted to trading on the London Stock Exchange
("LSE").
The Company's Ordinary shares are admitted to the Official List
of the Financial Conduct Authority ("FCA"), and traded on the
LSE.
The principal activity of the Company is to act as the ultimate
parent company of Civitas Social Housing PLC and its subsidiaries
(the "Group"), whose principal activity 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.
2. Basis of preparation
The financial statements have been prepared on a historical cost
basis and in accordance with Financial Reporting Standard 100
Application of Financial Reporting Requirements ("FRS 100"),
Financial Reporting Standard 101 Reduced Disclosure Framework ("FRS
101") and the Companies Act 2006 as applicable to companies using
FRS 101.
In preparing these financial statements, the Company applies the
recognition, measurement and disclosure requirements of
International Financial Reporting Standards as adopted by the EU
("Adopted IFRSs"), but makes amendments where necessary in order to
comply with the Companies Act 2006 and has set out below where
advantage of the FRS 101 disclosure exemptions has been taken.
In preparing these financial statements the Company has taken
advantage of all disclosure exemptions conferred by FRS 101.
Therefore these financial statements do not include:
-- certain comparative information as otherwise required by EU
endorsed IFRS;
-- certain disclosures regarding the Company's capital;
-- a statement of cash flows;
-- the effect of future accounting standards not yet
adopted;
-- the disclosure of the remuneration of key management
personnel; and
-- disclosure of related party transactions with other wholly
owned members of Civitas Social Housing PLC.
In addition, and in accordance with FRS 101 further disclosure
exemptions have been adopted because equivalent disclosures are
included in the Company's consolidated financial statements. These
financial statements do not include certain disclosures in respect
of:
-- share based payments;
-- financial instruments; and
-- fair value measurement other than certain disclosures
required as a result of recording financial instruments at fair
value.
The comparative information disclosed in the financial
statements relates to the period from 18 November 2016 to 31 March
2018. The period covered by the comparative information varies in
length and the level of activities and therefore is not entirely
comparable to the current period.
The Company has taken advantage of the exemption in section 408
of the Companies Act 2006 not to present its own income statement
or statement of comprehensive income.
Going concern
The financial statements have been prepared on a going concern
basis.
Significant judgements and sources of estimation uncertainty
The key source of estimation uncertainty relates to the
Company's investments in subsidiaries and joint ventures. In
estimating the requirement for impairment of these investments,
management make assumptions and judgements on the value of these
investments using inherently subjective underlying asset
valuations, supported by independent valuers.
3. Accounting policies
The financial statements of the Company follow the accounting
policies laid out in the Group's consolidated financial statements
along with the following accounting policies which have been
consistently applied:
Investments in subsidiaries
The investments in subsidiary companies are included in the
Company's Statement of Financial Position at cost less provision
for impairment.
Loans to subsidiaries
Loans made to subsidiary companies are initially recognised at
fair value and subsequently are measured at amortised cost.
4. Dividends
Details of dividends paid and proposed are included in note 14
of the Group's consolidated financial statements.
5. Employee information
Details of Directors' remuneration are included in note 6 of the
consolidated financial statements. The Company had no employees
during the period (31 March 2018 period: nil) other than the
Directors.
6. Audit fees
Audit fees in relation to the Company's financial statements
total GBP180,000 (31 March 2018 period: GBP273,000)
7. Investments in subsidiaries
For the From
year ended 18 November
Shares in Loans to 31 March 2016 to 31 March
subsidiaries subsidiaries 2019 2018
GBP'000 GBP'000 GBP'000 GBP'000
--------------- --------------- ------------- ------------------
At the beginning of
the period 446,954 32,180 479,134 -
Increase in investments 31,576 257,207 288,783 479,134
Loans transferred 198,245 (198,245) - -
Additions due to internal
group restructure 186,294 - 186,294 296,115
Disposals due to internal
group restructure (181,440) (4,854) (186,294) (296,115)
--------------- --------------- ------------- ------------------
At the end of the period 681,629 86,288 767,917 479,134
--------------- --------------- ------------- ------------------
Internal group restructures have taken place in the year in
order to facilitate borrowings. As part of the restructures, a
number of subsidiary companies where there assets are used as
security for bank loans, are now directly held by other Group
companies.
8. Trade and other receivables
31 March 2019 31 March 2018
GBP'000 GBP'000
-------------- --------------
Prepayments and other receivables 371 393
Amounts due from subsidiary companies - 1,987
-------------- --------------
Total 371 2,380
-------------- --------------
Prepayments and other receivables amount above includes prepaid
legal and professional fees of GBP343,000 (2018: GBP366,000) that
have been incurred in connection with the acquisitions yet to be
completed.
9. Cash and cash equivalents
31 March 2019 31 March 2018
GBP'000 GBP'000
-------------- --------------
Cash held by solicitors 17,031 12,262
Liquidity funds 13,394 210,969
Cash held at bank 10,931 12,410
-------------- --------------
Cash and cash equivalents 41,356 235,641
Restricted cash 4,549 6,283
-------------- --------------
Total cash held at bank 45,905 241,924
-------------- --------------
10. Trade and other payables
31 March 2019 31 March 2018
GBP'000 GBP'000
-------------- --------------
Acquisition costs accrued 303 309
Retentions 4,489 2,806
Accruals 536 540
Dividends payable 717 427
Amounts due to subsidiary companies 125,232 -
-------------- --------------
Total 131,277 4,082
-------------- --------------
11. Share capital
Share capital represents the nominal value of consideration
received by the Company for the issue of Ordinary shares.
From
18 November
For the 2016
year ended to 31 March
31 March 2019 2018
GBP'000 GBP'000
--------------- -------------
Share capital
At beginning of period 3,500 -
Shares issued 2,725 3,500
--------------- -------------
At end of period 6,225 3,500
--------------- -------------
Number of shares issued and fully paid
From
18 November
For the 2016
year ended to 31 March
31 March 2019 2018
Number Number
--------------- -------------
Ordinary shares of GBP0.01 each
At beginning of period 350,000,000 100
Shares issued 272,461,380 349,999,900
--------------- -------------
At end of period 622,461,380 350,000,000
--------------- -------------
The Company's Ordinary shares were admitted to the premium
listing segment of the Official List of the FCA and to trading on
the London Stock Exchange on 18 November 2016, raising GBP350
million. As a result of the IPO, on 18 November 2016, 349,999,900
shares at GBP0.01 per share were issued, fully paid.
On 21 December 2018, the Company issued 272,461,380 Ordinary
shares in respect of the conversion of 302,000,000 C shares. The
fair value of assets representing the C share pool at the date of
conversion was GBP295,186,000.
12. Retained earnings
This reserve represents the profits and losses of the
Company
From
18 November
For the 2016
year ended to 31 March
31 March 2019 2018
GBP'000 GBP'000
--------------- -------------
At beginning of period 85,479 (31)
(Loss)/profit for the period (14,937) 88,135
Dividends paid in the period (17,881) (2,625)
--------------- -------------
At end of period 52,661 85,479
--------------- -------------
13. Controlling parties
As at 31 March 2019 there is no ultimate controlling party.
14. Related party transactions
For all related party transactions and transactions with the
Investment Adviser please make reference to notes 30-32 of the
Group's consolidated financial statements.
Glossary
Average Net Yield means the average yield on an investment or a
portfolio that results from adding all interest, dividends or other
income generated from the investment, divided by the average of the
investments for the period.
GAGR means Compound Annual Growth Rate
Care Provider means a provider of care services to the occupants
of Specialist Supported Housing, registered with the Care Quality
Commission.
CHA means Civitas Housing Advisors Limited, the Investment
Adviser to the Company.
Company means Civitas Social Housing PLC, a company incorporated
in England and Wales with company number 10402528.
Company Adjusted Earnings means EPRA earnings adjusted to add
back the finance cost associated with the C share financial
liability.
CMA Order means the Statutory Audit Services Order 2014, issued
by the Competition and Markets Authority.
EPRA means European Public Real Estate Association.
EPRA EPS is the EPRA earnings divided by the weighted average
number of shares in issue in the period.
EPRA net asset value (EPRA NAV) is the IFRS net assets excluding
the mark-to-market on derivatives and related debt adjustments, the
mark-to-market on the convertible bonds as well as deferred
taxation on property and derivative valuations. A reconciliation
between IFRS net assets and EPRA NAV is included in Appendix 1.
EPRA NNNAV is the EPRA NAV adjusted to reflect the fair value of
debt and derivatives and to include deferred taxation on
revaluations.
Gross Asset Value means total assets plus the portfolio premium
derived from the portfolio valuation.
Group means the Company and its subsidiaries.
Housing Association or HA means an independent society, body of
trustees or company established for the purpose of providing
low-cost social housing for people in housing need generally on a
non-profit making basis. Any trading surplus is typically used to
maintain existing homes and to help finance new ones. Housing
Associations are regulated by the Homes and Communities Agency.
IFRS Net Asset Value or IFRS NAV means the net asset value of
the Group on the relevant date, prepared in accordance with IFRS
accounting principles.
IFRS Net Initial Yield means the ratio of net rental income and
gross purchase price of a property.
IFRS Valuation means an independent valuation of the Portfolio
by Jones Lang LaSalle or such other property adviser as the
Directors may select from time to time, prepared in accordance with
RICS "Red Book" guidelines and 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.
Investment Adviser means Civitas Housing Advisors Limited, a
company incorporated in England and Wales with company number
10278444, in its capacity as investment adviser to the Company.
IPO means Initial Public Offering.
IRR means internal rate of return.
Levered IRR means the internal rate of return including the
impact of debt.
Local Authority or LA means the administrative bodies for the
local government in England comprising of 326 authorities
(including 32 London boroughs).
Portfolio Net Asset Value or Portfolio NAV means the net asset
value of the Company, as at the relevant date, calculated on the
basis of an independent Portfolio Valuation. See note 16 for a
reconciliation to IFRS NAV.
Portfolio Valuation means an independent valuation of the
Portfolio by Jones Lang LaSalle or such other property adviser as
the Directors may select from time to time, based upon the
Portfolio being held, directly or indirectly, within a corporate
vehicle or equivalent entity which is a wholly owned subsidiary of
the Company and otherwise prepared in accordance with RICS "Red
Book" guidelines.
REIT means a qualifying real estate investment trust in
accordance with the UK REIT Regime introduced by the UK Finance Act
2006 and subsequently re-written into Part 12 of the Corporation
Tax Act 2010.
Registered Providers or RP means Housing Associations, Local
Authorities and arm's length management organisations, a
not-for-profit company that provides housing services on behalf of
a Local Authority.
RICS means Royal Institution of Chartered Surveyors.
RNS means the London Stock Exchange Regulatory News Service.
RSH means the Regulator of Social Housing.
Social homes or social housing means homes which are social
rented, affordable rented, other homes managed by Registered
Providers or Low Cost Home Ownership homes.
Specialist Supported Housing or SSH means social housing which
incorporates some form of care or other ancillary service on the
premises.
SPV means special purpose vehicle, a corporate vehicle in which
the Group's properties are held.
WAULT means weighted average unexpired lease term.
Appendix 1 (unaudited)
Notes to the calculation of EPRA and other alternative
performance measures
1. EPRA Earnings
From
18 November
For the 2016
year ended to 31 March
31 March 2019 2018
--------------- -------------
Earnings from operational activities
Profit after taxation (GBP'000) 19,864 36,926
Changes in value of investment properties
(GBP'000) (3,652) (30,633)
EPRA Earnings (GBP'000) 16,212 6,293
Finance costs associated with the C share
financial liability (GBP'000) 6,400 2,792
--------------- -------------
Diluted EPRA earnings (GBP'000) 22,612 9,085
--------------- -------------
Weighted average number of shares in issue 425,393,423 350,000,000
Dilutive elements 197,067,957 281,065,815
--------------- -------------
Adjusted weighted average number of shares
in issue 622,461,380 633,065,815
--------------- -------------
EPRA Earnings per share (EPS) - basic 3.81p 1.80p
EPRA Earnings per share (EPS) - diluted 3.63p 1.44p
--------------- -------------
2. EPRA NAV
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.
31 March 2019 31 March 2018
-------------- --------------
Net assets (GBP'000) 666,508 369,395
Effect of the exercise of C shares (GBP'000) - 298,752
-------------- --------------
Diluted net assets (GBP'000) 666,508 668,147
Other adjustments (GBP'000) - -
-------------- --------------
EPRA Net Assets (GBP'000) 666,508 668,147
-------------- --------------
Number of Ordinary shares in issue 622,461,380 350,000,000
Number of Ordinary shares that would be
issued on the conversion of C shares - 283,065,815
-------------- --------------
Adjusted number of shares to calculated
diluted NAV 622,461,380 633,065,815
-------------- --------------
EPRA Net Assets per share 107.08p 105.54p
-------------- --------------
3. EPRA NNNAV
EPRA NAV adjusted to include the fair values of (i) financial
instruments, (ii) debt and (iii) deferred taxes.
31 March 2019 31 March 2018
-------------- --------------
EPRA Net Assets (per above) (GBP'000) 666,508 668,147
Adjustment to value bank borrowings at
fair value (GBP'000) (650) (712)
-------------- --------------
EPRA NNNAV (GBP'000) 665,858 667,435
-------------- --------------
Number of Ordinary shares in issue 622,461,380 350,000,000
Number of Ordinary shares that would be
issued on the conversion of C shares - 283,065,815
-------------- --------------
Adjusted number of shares to calculated
diluted NAV 622,461,380 633,065,815
-------------- --------------
EPRA NNNAV per share 106.97p 105.43p
-------------- --------------
4. EPRA Vacancy Rate
Estimated Market Rental Value ("ERV") of vacancy space divided
by ERV of the whole portfolio.
31 March 2019 31 March 2018
-------------- --------------
Estimated Market Rental Value (ERV) of
vacant spaces - -
Estimated Market Rental Value (ERV) of
whole portfolio 45,685 28,543
-------------- --------------
EPRA Vacancy Rate 0% 0%
-------------- --------------
5. EPRA Costs Ratio
Administrative and operating costs divided by gross rental
income.
For the From
year ended 18 November 2016
31 March 2019 To 31 March 2018
--------------- ------------------
Total administrative and operating costs 9,642 8,893
Gross rental income 35,738 18,606
--------------- ------------------
EPRA cost ratio 26.98% 47.80%
--------------- ------------------
6. Portfolio NAV
IFRS NAV adjusted to reflect investment property valued on a
portfolio basis rather than individual asset basis.
31 March 2019 31 March 2018
-------------- ---------------
Net assets (GBP'000) 666,508 369,395
Adjustment for change to property valuation
(GBP'000) 74,662 29,110
-------------- ---------------
Portfolio net assets (GBP'000) 741,170 398,505
-------------- ---------------
Number of Ordinary shares in issue 622,461,380 350,000,000
-------------- ---------------
EPRA Net Assets per share 119.07p 113.86p
-------------- ---------------
7. Company Adjusted Earnings
Company specific earnings measure which adds back finance costs
associated with the C share financial liability.
For the From
year ended 18 November 2016
31 March 2019 to 31 March 2018
--------------- ------------------
Profit after taxation (GBP'000) 19,864 36,926
Changes in value of investment properties
(GBP'000) (3,652) (30,633)
--------------- ------------------
EPRA Earnings (GBP'000) 16,212 6,293
Finance costs associated with the C
share financial liability (GBP'000) 6,400 2,792
--------------- ------------------
Company Adjusted Earnings (GBP'000) 22,612 9,085
--------------- ------------------
Weighted average number of shares in
issue 622,461,380 350,000,000
--------------- ------------------
EPRA Adjusted Earnings per share (EPS)
- basic 3.63p 2.60p
--------------- ------------------
8. IRR
The Internal Rate of Return ("IRR") for the period from launch
to 31 March 2019 based on IFRS NAV and portfolio NAV is calculated
using dividend cash flows data as follows:
IFRS NAV Portfolio NAV
basis basis
pps pps
--------- --------------
18/11/2016 Investment (net of issue costs) 98.00 98.00
31/05/2017 Interim dividend 0.75 0.75
31/08/2017 Interim dividend 0.75 0.75
30/11/2017 Interim dividend 0.75 0.75
09/03/2018 Interim dividend 0.75 0.75
08/06/2018 Interim dividend 1.25 1.25
07/09/2018 Interim dividend 1.25 1.25
30/11/2018 Interim dividend 1.25 1.25
11/01/2019 Interim dividend 1.11 1.11
28/02/2019 Interim dividend 0.14 0.14
31/03/2019 NAV 107.10 119.10
--------- --------------
IRR 7.23% 11.93%
--------- --------------
ANNUAL GENERAL MEETING
The Annual General Meeting of the Company will be held at 2.00
p.m. on Thursday, 5 September 2019 at 3 More London Riverside,
London SE1 2AQ.
NATIONAL STORAGE MECHANISM
A copy of the Annual Report and Financial Statements and Notice
of Annual General Meeting will be submitted shortly to the National
Storage Mechanism ("NSM") and will be available for inspection at
the NSM, which is situated at www.morningstar.co.uk/uk/NSM.
LEI: 213800PGBG84J8GM6F95
ENDS
Neither the contents of the Company's website nor the contents
of any website accessible from hyperlinks on the website (or any
website) is incorporated into, or forms part of, this
announcement.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR LLFVERVILFIA
(END) Dow Jones Newswires
June 24, 2019 02:00 ET (06:00 GMT)
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