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‘A housing market crash won’t derail us’

Housing flats
Housing flats

On paper, Civitas Social Housing is an ideal investment for anyone seeking an income who wants to do social good at the same time. The real estate investment trust buys and leases out specialist social housing blocks across the country, offering investors a yield of 7pc.

However, Civitas’ market performance has disappointed recently. Its share price is down 26pc over the past 12 months, which compares to an average loss of 10pc among other social housing trusts.

This is in large part due to the Regulator of Social Housing, a government body, identifying issues at a number of the housing associations to which Civitas leases properties. Then, in September of last year, short seller ShadowFall launched an attack on the Reit’s shares based on allegations regarding the stability of Civitas’ revenues. The board and fund managers describe these claims as factually incorrect.

Andrew Dawber, who co-manages Civitas Social Housing with Paul Bridge, tells The Telegraph why he is confident the Reit’s income can continue to grow in line with inflation.

How do you invest?

We invest in real estate that allows people with long-term disabilities or mental health issues to live in their own community. As they are typically not able to work, their accommodation and care is paid for by the state. We acquire properties and then rent them out to social landlords, usually housing associations or charities.

Why have your shares disappointed recently?

Our financial performance has been very resilient through the whole of Covid. We have increased the dividend, cashflow, turnover and profits. But we have seen a material deterioration in the share price, which is inconsistent with our financial performance.

I think this is partly down to legacy issues with the Regulator of Social Housing. It said it wanted to see improvements in the housing associations that take our leases. Some people have found that unnerving, but it has never had a financial impact.

How are you responding to the regulator’s concerns?

All housing associations have to produce a long-term business plan and the regulator stress tests them to see what could go wrong. One of its criticisms was the income coming into housing associations from local authorities and the obligation to pay rent wasn’t matched: the lease is long but the payments are only agreed every year.

We have accepted the regulator has an issue, so we are looking to introduce a clause that matches the two together more closely.

How is your income linked to inflation?

The average length of one of our leases is just over 22 years and they are all inflation-adjusted. This means there is an uplift every 12 months, the majority by the Consumer Prices Index and a smaller proportion by CPI plus 1pc. In turn, care providers and housing associations ask local authorities each year for an adjustment, not just in relation to rent but all of their operating costs.

People ask us if we are concerned that local authorities will agree to pay the increases for the housing associations, so they can then pay us. Nothing is guaranteed in life, but we are the smallest piece of the equation. We have the key thing, the building: the care can’t be delivered to the individual without the building.

What has been your best investment?

After we acquired a “high acuity” facility in the outskirts of Swansea, we doubled it in size. We installed a disabled aquatic centre and a rehabilitation service because people were having to travel up to 100 miles to access these services.

Today, it is among the best facilities in the UK and services a number of local authorities in the region, with referrals coming in from all over the country. It has been a very successful investment and, socially, it is a great asset.

And your worst?

When we acquired a large building in north London, the facility was probably a bit big. We redeveloped the building for homeless people with chronic needs or mental health issues. It is now full, but we have spent a lot of money on it.

Could your sector be hit by new plans to bring back Right to Buy?

It won’t affect our particular part of the sector because of the nature of the tenants, so I don’t think Right to Buy will be extended to this area.

We have tended to be immune from the general trends in the social housing market, so my suspicion is this will apply to general social housing but not to our specialist area.