Civitas almost doubles in size with latest equity raise

News21 Nov 2017Luke Cross

Civitas Social Housing has almost doubled the size of its business with a further £302m equity raise. It comes as the directors of the real estate investment trust’s (REIT) advisory arm said it is “not unreasonable” to envisage the company growing into a multi-billion pound fund.

The social housing REIT has also secured its first two tranches of debt, totalling £92m from Scottish Widows and Lloyds Bank.

Civitas announced the result of its C share offer in November 2017, raised in addition to the £350m of ordinary shares issued at its initial public offering to the London Stock Exchange in November 2016.

It announced the new fundraising plan in September 2017, saying it was targeting the additional equity to support over £500m of acquisitions. It continues to focus mainly on specialist supported housing.

At the end of October 2017, the group had 300 properties managed by around 10 registered providers. The REIT typically acquires the freehold of the properties which are then leased to providers on a long-term, index-linked arrangement.

The second equity raising attracted some new investors who were able to invest this time around due to the size of the REIT and a “significant” number of new-to-sector funders, according to Andrew Dawber, a director of investment advisory arm, Civitas Housing Advisors (CHA).

The latest round saw more of the larger pension funds, real estate investors, retail and ethical investors which has resulted in a “nice spread” of new funds.

Interested parties had included Clearance Capital, an investment management firm focused on European real estate investments.

Asked about the REIT’s expansion plans, Mr Dawber said it was "not an unreasonable proposition" to think it could grow into a multi-billion pound fund, drawing comparisons with infrastructure funds already in the market. But he added that “size for size’s sake is not the driver here”.

Civitas had announced a plan to raise £350m in the latest transaction. Mr Dawber said the internal target was between £300m and £350m, adding that any prospectus would signal the upper amount. He added it is one of the biggest C share issuances to date.

While some existing shareholders could simply double up on their investment, he added that others such as family wealth funds were limited by their weighting allowance.

He said equity investors are becoming better informed about social housing, particularly with at least three listed REITs operating in the sector, which in turn means real estate analysts are giving it more attention.

UK government policy changes of a return to CPI+1% on rents from 2020 and the lifting of the LHA cap on most specialist supported housing were “perceived to be a good thing by investors”, he said.

Mr Dawber added however that their model is already cushioned by elements such as local authority commitments, pricing and quality of accommodation, adding that any policy environment will change over a 25-year investment period.

Remarking on increased appetite for social impact investments, Paul Bridge, chief executive at CHA, said: “My sense was that there was even more interest in the social side than the first time."

Equity & debt

The latest raising saw the creation of C shares, which are issued to avoid the dilution of ordinary shares during the investment period.

C shares come without voting rights and a 3 per cent per annum fixed rate dividend. They convert to ordinary shares at 90 per cent of the net issue proceeds being invested or committed or 12 months after the date of admission.

Civitas’ share price was 111.25 pence per share at the time of writing. Other REITs operating in the market include LXi REIT, which operates across a variety of sectors, was trading at 103.75 pence per share. Resi REIT was at 98.93 pence per share.

Civitas is targeting a total dividend of 3 pence per ordinary share for the period ending 31 December 2017 and 5 pence per ordinary share from 1 January 2018 to 31 December 2018.

At the end of October 2017, it announced a third quarterly dividend for the three months to 30 September 2017 of 0.75 pence per ordinary share.

It has also begun to source debt.

Earlier in the month, Civitas arranged a 10-year, £52m fixed rate loan facility with Scottish Widows. The institutional investor has already backed another housing REIT – providing £55m of 12-year funding to LXi REIT – and told Social Housing that it intends to do more direct deals with housing providers.

The facility has a rate of 2.99 per cent and is secured by a portfolio of around £175m of assets, mostly specialist supported housing.

Since the new shares were issued, Civitas has also arranged a £40m, three-year floating rate revolving credit facility with Lloyds Bank, secured against a “ring-fenced portfolio” of the company’s properties.

Rothschild advised on both financings.