C
S
O
C
I V ITAS
C
L
G P
I
A
L HOU S I N
CIVITAS SOCIAL HOUSING PLC (“CSH”, “Civitas” or the “Company”)
invests across the UK in care-based community housing and healthcare
facilities for the benefit of working age adults with long-term care needs.
Since IPO in 2016, CSH has completed more than 120 individual
transactions to build the largest portfolio of its kind in the UK that has
been independently valued at £878 million.
The Company provides long-term community-based homes for 4,216
people, across 164 local authority areas that are supported by 117
specialist care providers and 15 housing associations.
The delivery of care in the community is a primary government policy
aimed at enabling people with long-term care needs to reside close to
family and friends and achieve more independent and fulfilled lives. It
delivers better personal outcomes and offers value for money for the
public purse that meets the costs of the service.
Residents, whose average age is 32 years, typically reside in their adapted
CSH community home for many years and sometimes for their whole
life.
As a result of making this provision available, CSH is able to offer
shareholders the potential of stable, long-term returns with progressive
dividends whilst delivering measurable social impact on a large scale.
Recently, shareholders approved an extension to the Company’s
investment policy that enables transactions to be entered into directly
with the NHS and with major charities, as well as other organisations
that are either not for profit and/or in receipt of public funding.
Contents
Social Impact Report
Page 6
Group Strategic Report
What we Do
How we Performed
Key Achievements
Social Impact
Chairman’s Statement
Care-based Housing
Sector
Growth
Portfolio
Case Studies
Investment Adviser’s Report
Extract from The Good Economy Impact Report, 2020
Corporate Social Responsibility Report
Strategic Overview
Principal Risks and Risk Management
Going Concern and Viability Statement
Chairman's Statement
Page 8
Corporate Governance
Board of Directors
Report of the Directors
Report of the Audit and Management Engagement Committee
Investment Adviser's Report Page 26
Corporate Governance Statement
Directors’ Remuneration Report
Statement of Directors’ Responsibilities
Alternative Investment Fund Managers Directive
Independent Auditors’ Report
Financial Statements
Consolidated Statement of Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Consolidated Financial Statements
Company Statement of Financial Position
Company Statement of Changes in Equity
Notes to the Company Financial Statements
Corporate Governance
Page 58
Additional Information
Shareholder Information
Glossary
Company Information
Appendix 1 (unaudited)
2
2
4
5
6
8
12
14
16
18
20
26
34
42
43
52
56
58
58
60
65
68
75
80
81
83
92
92
93
94
95
96
129
130
131
137
137
138
140
141
Civitas Social Housing PLC Annual Report 2020
1
What we Do
Social Housing Pioneers
CSH is a leading provider of care-based
community housing in the UK. It was
established in 2016 by the founders of its
Investment Adviser, Civitas Investment
Management Limited, from the long-standing
conviction that private capital could play a
vital and ethical role in the delivery of homes
within the social housing sector.
CSH believes that access to a decent home
is a basic human right from which so much
more can be achieved, particularly for people
who are living with a life-long disability.
With millions of people stuck on housing
waiting lists across the UK, or trapped in
long stay hospitals, Civitas became the first
public company to bring large scale equity
investment into the sector.
The Company has the dual objectives of
achieving both positive financial returns and
large scale measurable social impact.
£878.7 million
Investment
property
independently
valued (IFRS)
613
Properties
4,216
Tenants
1
Mission
2
Civitas Social Housing PLC Annual Report 2020
Fund Overview
Investment Sectors
• Real Estate
• Social Infrastructure
• Investment Funds
Equity Capital Raised
£652 million
Current IFRS £’000
(31 March 2020)
Dividend Yield
Target Return
Current Leverage
(31 March 2020)
NAV
£670,564
c.5.0%*
c.8%
26.9%
Fund Structure
• Closed Ended
GAV
£947,955
• Permanent Capital
* calculated using the share price as at 26 June 2020.
Civitas Social Housing PLC Annual Report 2020
3
Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information How we Performed
Financial Highlights as at 31 March
Profit before tax
IFRS NAV per share
IFRS NAV
£36.9
million
£37.7
million
107.87p
107.08p
£666.51
million
£670.56
million
£19.9
million
105.5p
2018
2019
2020
2018
2019
2020
EPRA EPS*
EPRA EPS (diluted)*
4.63p
4.63p
3.81p
3.63p
1.80p
1.44p
2018
2019
2020
2018
2019
2020
Company adjusted earnings*
IFRS property valuation
4.63p
3.63p
2.60p
£826.9
million
£878.7
million
£516.6
million
2018
2019
2020
2018
2019
2020
Dividends declared
(Ordinary shares)
Annualised rent roll
5.0p
5.3p
£45.7
million
£48.4
million
3.0p
£28.4
million
2018
2019
2020
2018
2019
2020
Total shareholder return**
IFRS NAV increase since IPO
20.36%
17.45%
10.70%
9.29%
10.07%
7.70%
2018
2019
2020
2018
2019
2020
£369.4
million
2018
2019
2020
Investment property
independently valued
at £ 878.7m (IFRS)
Total of 5.3p per
Ordinary share of
dividends declared
over the year
10.07% increase in IFRS
NAV per Ordinary share
since IPO: 107.87p
as at 31 March 2020
NAV
Annualised Rent Roll:
£48.4m based upon
£878.7m of real estate at
the end of the year
6.06p per Share
Earnings: based on
comprehensive income
and property revaluations
Weighted Average
Unexpired Lease Term:
23.66 years
* See Appendix 1 – Alternative Performance Measure to these financial statements for supporting workings.
** On an Ordinary share held since launch (percentage not annualised).
4
Civitas Social Housing PLC Annual Report 2020
Key Achievements
Operational Highlights
613 properties
acquired
£789 million
invested
providing
dependable
accommodation
for 4,216 tenants
across 164
Local Authorities
supported by 117
care providers
based on long-
term leases signed
with 15 Housing
Associations
The Good Economy, the social impact advisory firm, in their third annual independent Social Impact Report on Civitas, noted
encouraging evidence that Civitas can deliver on its social objective of increasing the provision of high-quality social homes to
improve the quality of life for low income and vulnerable people in social need, while achieving financial returns for investors
Funding
£52.5 million Scottish
Widows loan note
with an agreed term of
ten years with an all-in
fixed rate of 2.99%
Lloyds £60 million
three-year floating
rate revolving credit
facility
HSBC £100 million
three-year floating rate
revolving credit facility
Natwest £60 million
five-year fixed rate
facility
Levered IRR* since IPO (IFRS and Portfolio Basis)
Total bank borrowings of
£272.5 million equating to
26.9% of gross assets reflecting
the Portfolio Valuation of
investment properties
£212 million value of
unencumbered assets
and available as security
for additional borrowings
IRR 9.58%
IRR 6.82%
125
120
115
110
105
100
95
IFRS NAV +
cumulative dividends paid
Portfolio NAV +
cumulative dividends paid
18 Nov
2016
98.00
30 Sep
2017
104.70
31 Mar
2018
107.00
30 Jun
2018
107.05
30 Sep
2018
107.35
31 Dec
2018
108.86
31 Mar
2019
107.24
30 Jun
2019
107.21
30 Sep
2019
107.23
31 Dec
2019
107.23
31 Mar
2020
107.87
98.00
111.10
115.40
116.25
116.45
117.46
119.24
118.76
118.30
118.30
118.35
Share price performance (pence)
120
110
100
90
80
70
60
18
Nov
2016
31
Mar
2017
Jun
2017
Sep
2017
Dec
2017
31
Mar
2018
Jun
2018
Sep
2018
Dec
2018
31
Mar
2019
Jun
2019
Sep
2019
Dec
2019
31
Mar
2020
* Alternative performance measure. See Appendix 1 for the calculation.
Civitas Social Housing PLC Annual Report 2020
5
Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Social Impact
Embedded social impact strategy –
Civitas is an accredited impact investor under IFC Principles
Civitas has embedded social impact and social value objectives in its
business model, which have been developed with and tested by specialist
social impact advisers such as The Good Economy. All our transactions
have to meet both economic and social objectives, set out below:
AVAILABILITY
To increase the availability
of social housing across
England and Wales,
particularly for
vulnerable people
QUALITY
To improve the
quality of social
housing.
WELLBEING
To improve
wellbeing outcomes
for tenants
VALUE FOR MONEY
To offer value for
money for the
public purse
Regular Social Impact Reporting
Civitas undertakes bi-annual Social Impact Reports
alongside its Company financial statements, the
full and most recent report can be found on the
Company's website, and an extract found on pages
34 to 41 of this Annual Report.
The Good Economy (“TGE”) confirms that Civitas
is “an authentic impact investor according to
the IFC Principles for Impact Management”.
Civitas Social Housing PLC
Annual Impact Report 2020
June 2020
GE037_Civitas_Impact_Report_June2020_v12.1.indd 1
17/06/2020 13:26
Highlights
•
64% of new properties in last six months brought into social housing
sector for the first time
•
•
•
•
•
•
63% of professional support workers reported improved tenant
mental health and wellbeing
£114 million in Social Value generated on an annual basis
£64.7 million of direct savings to local and national government
per year
£1 billion+ of direct savings to the taxpayer projected over duration
of Civitas leases (25 years)
33% of Civitas properties across
portfolio converted to social
housing for the first time
32 years average age
of tenant
“positive [rate of growth] and evidencing
an impact-led rather than deployment-
led investment approach.”
The Good Economy, June 2020
6
Civitas Social Housing PLC Annual Report 2020
Improved Outcomes
Health and Well-being
IMAGE TBC
Isolation and Relationships
Independent Living
Employment and Qualifications
£54.9 million
Cost Savings to
the Public Purse
£59.2 million
Total Social Value
£114.1 million
THE GREEN BOOK
CENTRAL GOVERNMENT
GUIDANCE ON APPRAISAL
AND EVALUATION
Research undertaken in March 2019 by the specialist
consultancy, The Social Profit Calculator, based on extensive
research incorporating:
• site visits
• meetings with tenants and tenants’ families
• discussions with LA Commissioners, RPs and RSH
2018
• Government metrics – HM Treasury's Green Book data
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/685903/The_Green_Book.pdf
ISO 26000
SOCIAL RESPONSIBILITY
Civitas Social Housing PLC Annual Report 2020
7
Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Chairman’s Statement
100%
dividend
cover at the
year end on
an EPRA
run-rate
basis.*
Dear Shareholder
Introduction
At this time of global crisis, the Board wishes to
acknowledge the extraordinary work and commitment
shown by all key workers, particularly those in the health
and social care sectors. These courageous individuals care
for some of the most vulnerable people in our society,
enabling them to live in community settings, many of
them in homes owned by Civitas.
To date, our financial performance has not been affected
by the COVID-19 pandemic. During the most recent
quarter, the Company received more than 99% of the rents
expected to be paid.
Results
During the year, the Company invested £31 million,
excluding purchase costs, in 22 properties with 144
tenancies and exchanged contracts on a small number
of other properties for subsequent completion. We also
entered into forward purchase agreements for the delivery
on completion of a number of newly developed higher
acuity facilities in Wales, valued at £12.1 million. The first
of these has now been delivered.
Net rental income increased by 28.4% to £45.9 million and
profit before tax grew by 89.9% to £37.7 million. Operating
cash flow increased by 41.0% to £32.9 million.
The IFRS NAV per share increased during the year from
107.1p per Ordinary share at 31 March 2019 to 107.9p per
Ordinary share at 31 March 2020.
Michael Wrobel
Chairman
As at 31 March 2020, the Company held cash balances
of £49.3 million (net of operating and finance amounts
due) of which approximately £14 million was allocated in
respect of transactions completing in 2020 – £1.8 million in
respect of two properties in Telford and one in Sunderland
on which the Company has conditionally exchanged, and
£12.1 million in relation to two properties in Wales for
which the Company has entered into a conditional sale
and purchase agreement. We have allocated £10 million
(estimated) relating to a capital payment contingent on
certain financial obligations being met at the properties
in Wales. The remaining cash balances are being held as a
cash contingency in the Company. The Company seeks to
maintain a prudent approach to the use of leverage, which
stood at 27% at the year end, based on a gross portfolio
loan-to-value basis. We have a maximum limit of 40%. As
at 31 March 2020, the weighted average debt to maturity
was 3.4 years and this reflected the post balance sheet
extension of the £60 million Lloyds Bank revolving credit
facility to November 2021.
The Investment Adviser continues to see a significant
pipeline of investment opportunities from a variety of
sources, including larger care providers. With limited
uncommitted capital
is
continuing to evaluate options, including raising equity,
to fund further investments to enhance shareholder
returns.
the Company
resources,
The Company’s latest Social Impact Report prepared
independently by The Good Economy has been published,
which confirms that we have continued to meet our
important social impact objectives.
Dividends
The Company has paid three interim dividends and
declared a fourth interim dividend of 1.325p each, which
will bring the total for the year just ended to 5.3p in line
* Note: the calculation of run-rate dividend cover is based on all properties that have exchanged and completed, on normalised overheads
and the further delivery of certain properties to a value of £12.1m. Of this £12.1m, £2.3m completed during June 2020 with the
remainder to complete shortly.
8
Civitas Social Housing PLC Annual Report 2020
with the Board’s target. The EPRA dividend cover on an
actual basis over the course of the year to 31 March 2020
was 87.4%. The dividend cover was 100% at the year end
on an EPRA run-rate basis*.
COVID-19
The Company is the leading provider of care-based
housing in the UK for individuals who are working age
adults with learning disabilities, mental health and
other significant care needs. Our 4,216 tenants have an
average age of c.32 years and do not typically fall into the
categories of individuals identified by the NHS as being at
high risk for COVID-19.
The monitoring that
is being undertaken by our
Investment Adviser, along with our housing association
and care provider partners, indicates that at the present
time the level of incidences of COVID-19 amongst tenants
and staff remains low. This may be in part accounted for
by the age profiles of the tenants themselves and by the
configuration of the Company’s portfolio with a focus on
self-contained apartments and small housing clusters.
This enables a greater degree of control over movement
and, therefore, to potential exposure than open plan
environments.
However, various changes have been made to the working
practices of both housing associations and care providers
with the priority of continuing to preserve the health,
safety and well-being of tenants and staff. These include
the implementation of adapted procedures relating to
staff and tenant engagement, enhanced hygiene, social
distancing and restricting access to the Company’s
properties to essential visits. Our Investment Adviser
has been able to adapt its working practices, with most
staff working from home with the necessary enabling
technology. Their safety is also a paramount concern.
On 26 March 2020, as part of the Government’s COVID-19
lockdown procedures, the Minister for Local Government
and Homelessness wrote to all local authorities identifying
the “responsibility to safeguard as many homeless people
as we can from COVID-19” and to “bring everyone in”.
I am pleased to report that we were able, at short notice,
to make available 29 self-contained accommodation units
for Islington Council, that had just completed a planned
refurbishment programme.
Regulation
During the year, the Regulator of Social Housing (“RSH”)
has continued to raise its concerns about risks and issues
within the industry and has issued notices to several of
our housing association partners where it considers that
governance and financial standing require improvement.
Whilst the Company is not itself regulated by the RSH, we
take these comments seriously. Our Investment Adviser
continues to work with housing associations to enhance
their performance and standing with the RSH. It has been
instrumental in the establishment of a new not-for-profit
community interest company – The Social Housing Family
CIC (“CIC”) – whose objective is to bring greater
skills and resource sharing
across
associations.
We are
housing
During the most
recent quarter, the
Company received more
than 99% of the rents
expected to be paid.
Civitas Social Housing PLC Annual Report 2020
9
Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Chairman’s Statement continued
pleased to note that the CIC has now brought its first
housing association, Auckland Home Solutions, under its
structure.
The Company’s portfolio continues to evolve to encompass
a greater number of higher acuity facilities that are
themselves regulated by the Care Quality Commission
(“CQC”). In this regard, it is pleasing to note that the
CQC, in its latest annual report “State of Care 2018/19”,
commented in support of the provision of community care
stating that: “Too many people with a learning disability
or autism are in hospital because of a lack of local,
intensive community services”.
Our Investment Adviser
Our Investment Adviser has changed its name from Civitas
Housing Advisors to Civitas Investment Management
(“CIM”) to better reflect its expanding activities. This
has no material impact on our Company other than that
the addition of new clients strengthens its capabilities
and enables recruitment of additional skills. The Board
acknowledges and greatly appreciates the skill and efforts
of the team, particularly at this stressful time.
After more than three years of activity within the sector and
over 120 completed transactions, our Investment Adviser
is regarded as a leading entity within the healthcare and
social housing sectors in the UK. It continues to refine
and improve processes for both new transactions and
the ongoing management of our portfolio and drive best
practice within the industry. We are encouraged both by
the level of incoming enquiry and the nature and quality
of potential counterparties.
Share Price
The Board was concerned by the share price during the
early part of the financial year under review. In addition
to our Investment Adviser focusing on delivery of our
investment objectives, we have implemented a number of
initiatives to improve our message to investors, including
the appointment of Liberum and Panmure Gordon as
joint brokers and Buchanan as PR adviser. In addition,
during the year the Company bought 815,000 shares at an
average price of 85.8 pence, which are held in Treasury.
The share price has improved in recent months in both
absolute and relative terms compared to the general
market and to many other real estate companies and
funds. In large part, this is due to recognition of the
robust characteristics of our business model and the level
of demand for specialist supported housing exceeding
supply. In addition, we deliver better personal outcomes
and value for money compared with
institutional
provision.
I would like to thank our shareholders for their continuing
support.
General Meeting
On 28 May 2020 at a General Meeting of the Company,
shareholders approved the recommended proposals
to modify the Company’s investment objective and
investment policy. This now enables the Company to
engage with a wider range of counterparties including
those, such as the NHS, that have opened discussions
regarding the provision of step–down and other specialist
accommodation. Whilst such discussions will undoubtedly
take time to evolve, I look forward to reporting progress in
due course.
Annual General Meeting
The Company’s AGM is scheduled to be held on 8 September
2020 at the offices of Buchanan, 107 Cheapside, London
EC2V 6DN at 2.00 pm. The Board looks forward to meeting
shareholders. In due course, the notice of AGM will be
circulated in accordance with the requirements of the
Company’s Articles of Association.
Due to the current COVID-19 outbreak, many companies
have either postponed their AGMs or made alternative
arrangements for conducting these meetings. We hope
that by 8 September 2020 the Company will be able to hold
its AGM in the usual manner. However, given the uncertain
nature of this situation, should the Company need to alter
its AGM arrangements, it will communicate these changes
to shareholders through a regulatory announcement. This
information will also be made available on the Company’s
website. Shareholders are advised to check the website
to ensure they have the most up-to-date information
available regarding the AGM.
Summary and Outlook
Despite the uncertain environment caused by COVID-19,
we consider that the prospects for the Company remain
positive and we look forward to continuing to be of help to
those individuals with long-term care needs.
We have announced a new target dividend of 5.4p per
Ordinary share for the current year ending 31 March 2021.
This would be an increase of 1.9% and compares to the
Consumer Price Index measure of inflation of 1.5% in
March 2020.
Michael Wrobel
Chairman
29 June 2020
10
Civitas Social Housing PLC Annual Report 2020
We have announced a
new target dividend of
5.4p per Ordinary Share
for the current year
ending 31 March 2021.
Civitas Social Housing PLC Annual Report 2020
11
Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Care-based Housing
How do we Define Specialist Supported Housing
DEFINITION
9 Part of delivering life-long care and support in the community
9 Provides accommodation for residents with life-long care needs including learning disabilities, autism and mental health
BENEFITS
9 Enabling residents to live closer to family and friends
9 Improving quality of life
9 Rehabilitation Value for money for public purse
9 Measurable social impact
PROPERTIES
9 Typical 1- 20 individual units in each scheme
9 £300,000 to £4m+ scheme size
9 Designated SSH properties with rent paid by government
9 Leased long term to housing associations and other not-for-profit organisations
THE RESIDENTS
9 Focus 18-65 years (no upper limit)
9 Average age of resident in Civitas portfolio 32 years
12
Civitas Social Housing PLC Annual Report 2020
Funding the Specialist Supported Housing Sector
2017 Total UK Government Welfare
Spend £264bn1
c. £25bn Housing Benefit Spending
(10% of total welfare spending)
Significant Untapped
Market Opportunity
Pensions
Unemployment
benefits
SSH ~ 6% of Housing Benefit Spending
Civitas Share
£112bn
42%
£2bn
1%
Incapacity, disability &
injury benefits
£44bn
16%
Personal social
services & other
benefits
£35bn
13%
Family benefits, income
support & tax credits
Housing
benefits
£44bn
16%
£25bn
10%
c. £25bn
c. £1.4bn
for SSH
accommodation
only2
1 Office for National Statistics.
2 H.M. Government “Supported Accommodation Revenue”, November 2016.
c.£1.4bn
~3% £55M
Civitas Annualised Rent
Roll as at 31 March 2020
Care
Providers
Department for
Communities and
Local Government
Civitas Social Housing PLC Annual Report 2020
13
Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationService Level Agreements/VoidsTenantsHousing AssociationsLocal AuthoritiesCarePersonal Care AgreementEnhanced Tenancy AgreementContractsRentPropertyMaintenance100% Funding100% FundingWelfare Budget (£264bn –2017)LeasePaymentsLease AgreementLegal Obligation100% Funding Sector
Civitas Continues to Enhance Professionalism in the Sector
CIM/Civitas lead the sector by introducing innovations to protect lease counterparties and future proof investments
which continue to evolve over time and to respond to the needs and requirements of the sector, including those
indicated by the RSH.
2
3
4
Rents agreed
with commissioners,
independently tested
and set at
median level
New or fully
refurbished
properties delivered
to RPs
Onboarding fee paid
to each RP for all
properties to cover
take-on costs
5
Void fund financed
for RP to provide
additional financial
buffer
6
Engagement with
care operators and
LA commissioners
establishes long-term
demand and suitability
of properties
1
Social Impact
reviews on all
transactions prior
to purchase/
commitment
LEASE COUNTERPARTY
9
8
7
Indexation set below
recent government
approval levels. (CPI
vs CPI+1)
“Caps” and “Collar”
within leases to
protect against
inflation
Risk sharing clauses
within leases (change
in law or formal
government policy)
14
Civitas Social Housing PLC Annual Report 2020
“Civitas are a proactive investor
who are committed to ensuring the
sustainability and long-term value
of what is being delivered."
Neil Brown, Chief Executive, Inclusion Housing, June 2020
Civitas Social Housing PLC Annual Report 2020
15
Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Growth
Growing Base of Global Investors
Civitas invests on behalf of a wide range of global, national and local investors seeking exposure to sustainable long-term
income together with measurable social impact and high levels of ESG delivery.
Glasgow
Dublin
Perth
Edinburgh
Douglas
Bradford
Liverpool
Birmingham
London
Windsor
Bristol
Tunbridge
Wells
Vancouver
Seattle
San Francisco
Denver
Toronto
Montreal
Chicago
Columbus
Boston
Smithfield
Buffalo
New York
Philadelphia
Exeter
Guernsey/Jersey
Oslo
Stockholm
Amsterdam
Brussels
Heerlen
Frankfurt
Munich
Paris
Geneva
Luxembourg
Zurich
By Location
By Location
UK & IRELAND
EUROPE
USA
CANADA
Amsterdam
Birmingham
Boston
Bradford
Bristol
Brussels
Chicago
Columbus
Denver
Douglas
Dublin
Edinburgh
Exeter
Frankfurt
Geneva
Glasgow
Guernsey
Heerlen
Jersey
Liverpool
London
Luxembourg
Montreal
Munich
New York
Oslo
Paris
Perth
Philadelphia
San Francisco
Seattle
Smithfield
Stockholm
Sydney
Toronto
Tunbridge Wells
Vancouver
Windsor
Zurich
16
Civitas Social Housing PLC Annual Report 2020
Strategy for Growth
Demand for the accommodation provided
by Civitas is strong and expected to
remain so over the long term. Civitas is a
go-to partner for an increasing range of
major vendors and counterparties.
Civitas is the market leader with the
largest portfolio and deeply ingrained
relationships with care providers, local
authorities, housing associations and
charities across the UK
Now taking delivery of new build
higher acuity properties with
more opportunities being offered
Continuing to work closely with the
CIC to enable it to expand and play
a broader role in the sector
Following recent shareholder
consent, opportunity to work with
a broader range of counterparties
Continuing to deepen relationship
with important local authorities and
counterparties with whom Civitas
has long-term relationships
Enter other significant markets
in addition to England and Wales
– Scotland and Northern Ireland
Civitas Social Housing PLC Annual Report 2020
17
Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Portfolio
Geographically Diversified
North West
Properties 99
% of funds invested 10.2%
% of rental income 10.2%
West Midlands
Properties 99
% of funds invested 11.9%
% of rental income 11.7%
Wales
Properties 15
% of funds invested 8.2%
% of rental income 8.0%
South West
Properties 120
% of funds invested 16.4%
% of rental income 16.3%
North East
Properties 63
% of funds invested 6.9%
% of rental income 6.8%
Yorkshire and the Humber
Properties 49
% of funds invested 10.5%
% of rental income 10.4%
East Midlands
Properties 58
% of funds invested 9.3%
% of rental income 9.1%
East of England
Properties 20
% of funds invested 3.0%
% of rental income 3.0%
London
Properties 26
% of funds invested 13.0%
% of rental income 14.0%
South East
Properties 64
% of funds invested 10.6%
% of rental income 10.5%
Market Value by Region1
Assets by Region1
3.0%
6.9%
16.4%
8.2%
9.3%
10.2%
10.5%
10.6%
13.0%
11.9%
South West
London
West Midlands
South East
Yorkshire
North West
East Midlands
Wales
North East
East of England
20
15
26
49
120
58
63
64
99
South West
North West
West Midlands
South East
North East
99
East Midlands
Yorkshire
London
East of England
Wales
1 As at 31 March 2020, including completed properties only.
18
Civitas Social Housing PLC Annual Report 2020
Diversified by Registered Provider
Rental Income by Registered Provider1
Assets by Registered Provider1
1.2%
2.9%
1.2%
1.0%
0.1%
3
.
5
%
3
.
8
%
4.0
%
5.5%
6.1%
6.3%
8.7%
11.0%
24.4%
20.4%
10 8
1
1
1
5
6
2
3
27
117
27
41
41
103
43
69
72
Auckland
Falcon
BeST
Inclusion
Encircle
Trinity
Pivotal
Harbour Light
New Walk
My Space
IKE
Hilldale
Westmoreland
Chrysalis
Blue Square
Falcon
Auckland
BeST
Inclusion
Trinity
New Walk
Westmoreland
Harbour Light
Pivotal
Chrysalis
Encircle
Hilldale
IKE
My Space
Blue Square
Market Value by Registered Provider1
Tenancies by Registered Provider1
1.1%
1.1%
1.0%
0.1%
2
.
9
%
3
.
5
%
3
.
8
%
4.0
%
5.1%
5.4%
6.2%
8.7%
11.3%
24.9%
20.9%
68
71
1
4
5
1
9
4
39
4
858
205
214
238
239
242
718
455
526
Auckland
Falcon
BeST
Inclusion
Trinity
Encircle
Pivotal
Harbour Light
New Walk
IKE
My Space
Hilldale
Westmoreland
Chrysalis
Blue Square
Falcon
Auckland
BeST
Inclusion
Trinity
Westmoreland
Pivotal
Harbour Light
Encircle
New Walk
Chrysalis
My Space
IKE
Hilldale
Blue Square
1 As at 31 March 2020, including completed properties only.
Civitas Social Housing PLC Annual Report 2020
19
Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Case Studies
Resident story – Kathleen
At one point in her life, Kathleen thought she would be stuck
in institutional care forever. She was placed in a juvenile
home when she was 13 years old and then went on to spend
time in high-security prisons and secure units, as she suffers
from complex mental health issues and learning disabilities.
Having spent so long in such environments, it was felt that
Kathleen would never be able to live in the community.
However, in October 2010, at the age of 55, Kathleen was
assessed as being able to move to Clark House. The service
manager at Clark House explained how “creating a close
working partnership with all community teams and ward
staff, as well as receiving specialist training, has enabled
us to successfully provide an excellent level of support
for Kathleen”. The support workers worked closely with
Kathleen, her social worker and pyschologists, paying
particular attention to positive risk-taking in order to build
her confidence in situations in which she is unfamiliar.
After just two years, Kathleen was fully discharged by the
Home Office, meaning she had been classed as safe and
capable of living in a community.
Kathleen is now 62 years old and is extremely well settled
and happy at Clark House. She still requires 57 hours of care
per week but is now able go out independently if she wishes
and even goes on holiday on her own. Moreover, Kathleen has
rebuilt relations with her family with many of her siblings
now regular visitors to Clark House.
“Moving to Clark House has
proved life transforming for
Kathleen. Her mental health has
vastly improved and she is now living
an independent life that wasn’t even
considered possible for decades when in
institutional care.”
Eve Collis,
Service Manager, Clark House
Case Study 1:
Tenants Case Study
High quality accommodation in North
East England, adapted for use as Specialist
Supported Housing for individuals with
mental health conditions and learning
disabilities
Key Metrics
Total Investment*
Units
Acquisition Date
Housing Association
Care Provision
* excluding purchase costs
£1.8 million
15
May 2017
Falcon Housing
Association
Mental Health,
Learning Disability
20
Civitas Social Housing PLC Annual Report 2020
Case Study 2:
Holloway Road
High quality newly-refurbished
accommodation utilised for Homelessness
during COVID-19
Key Metrics
Total Investment*
Units
Acquisition Date
Housing Association
Care Provision
* excluding purchase costs
£10.1 million
29
March 2017
Encircle Housing
Association
Homelessness
In March 2017, Civitas acquired a property on Holloway Road in Islington. At the point of acquisition, the property was
used as accommodation for women fleeing domestic violence. This is a modern and well-located property with excellent
private outside space in central London.
Over time the opportunity arose to repurpose the property, and to amend its use to a client group which was well served
by the property – homelessness accommodation. To facilitate this, the number of units was reduced to 29, interior
communal space was extended, and the building’s security was improved to ensure the property was fit for its newly
amended purpose.
“Working together with Civitas
Housing, we were able to deliver
29 self-contained units of
accommodation for our most
entrenched rough sleepers,
ensuring that they are no longer
on the streets and exposed to
the virus. We appreciate the
assistance and support provided
by Civitas Housing during this
period, they have shown that
the spirit of community still
exists as to actively sort to
provide us options to solve our
housing needs.”
The Head of Private Housing
Partnerships, Islington Council
Civitas Social Housing PLC Annual Report 2020
21
Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Delivery of New Facility, Wales
Communal Outdoor Space
High-Quality Fit Out
Wide Accessible Halls Throughout
Care Provider at the Facility
22
Civitas Social Housing PLC Annual Report 2020
Community Kitchen Facilities
Professional Nursing Rooms
Bed Hoists / Tracking
Specialist Bathrooms
Civitas Social Housing PLC Annual Report 2020
23
Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Final Stage of Development:
New State-of-the-art Healthcare Facility, Wales
Community Kitchen Facilities
Specialist bathrooms
Hydrotherapy Pool with Hoists
Wide Accessible Halls Throughout
Specialist ‘Arjo’ Baths
24
Civitas Social Housing PLC Annual Report 2020
Bed Hoists / Tracking
Wide Accessible Halls Throughout
Community Washing Facilities
Bathroom Hoists / Tracking
Professional Nursing Rooms
Civitas Social Housing PLC Annual Report 2020
25
Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Investment Adviser’s Report
Andrew Dawber
Group Director
Andrew is a founder of CIM and has been active in the social housing sector since 2012. He was part
of the team that founded the private investment company, Funding Affordable Homes, and was the
adviser and founder of PFI Infrastructure PLC, the first publicly traded social infrastructure fund.
Tom Pridmore
Group Director
Tom is a founder of CIM and a specialist in real estate and residential development finance. He was
part of the team that founded the private investment company, Funding Affordable Homes. Tom is
a qualified lawyer with over 19 years’ experience in real estate investment and development, and is
responsible for sanctioning all property investment advice and portfolio monitoring.
Paul Bridge
Chief Executive Officer, Social Housing
Paul is a founder of CIM and has over 20 years’ experience working at a senior level in the social
housing sector. During his career, Paul has held a variety of non-executive roles in and out of the
sector, including Chairman of Thames Valley Charitable Housing Association, Chief Executive of
Homes for Haringey, a Registered Provider, where he was responsible for 800 staff and 21,000
homes, and Director at Hyde Group, a major G15 Housing Association.
Subbash Thammanna
Group Chief Financial Officer
Subbash has 20 years' experience in finance roles in the real estate sector, having worked across
a variety of private and public structures covering all aspects of financial reporting, control and
operations. He joins CIM having held senior finance positions at AEW Europe, Harbert Management
Corporation, and most recently as finance director at Henderson Park. Subbash is a Fellow of the
Institute of Chartered Accountants in England & Wales (ICAEW).
Eleanor Corey
Transaction Director
Previously from international law firm CMS Cameron McKenna Nabarro Olswang where she
has practised in their real estate team for over 12 years. Eleanor has extensive experience in all
aspects of real estate management, investment, development and finance, having undertaken
a secondment in the in-house corporate real estate team at Lloyds Banking Group, and most
recently having been the lead associate on a large town centre regeneration project for a national
housebuilder.
26
Civitas Social Housing PLC Annual Report 2020
“ Today, the Company’s
investment portfolio
offers dual exposure to
both the social housing
and healthcare sectors
in the UK.
It provides purpose-built and bespoke
properties that support the delivery of
mid-to-higher acuity care for working age
adults with long-term care needs.
And it delivers this in local community
settings supported by government funded
care providers and housing managers
whose activities are regulated by the Care
Quality Commission, the Regulator of Social
Housing and overseen by local authority
commissioners.”
Paul Bridge, Chief Executive Officer, Social Housing
Our Thanks and Appreciation
At the start of this report, we would like to take the
opportunity to echo the sentiments expressed by the
Chairman on behalf of the Board and to offer our sincere
thanks and appreciation to all the staff of our care
providers, housing associations and other partners who
have continued to work and provide for all the people
living in the Company’s properties.
• Dividend of 5.3 pence per Ordinary share paid/
declared
•
•
41% growth in net operating cash flow to £32.9 million
IFRS NAV increased to 107.87 pence per Ordinary
share
• Rents continue to be indexed at CPI and collected as
Introduction
As we enter our fourth full financial year since IPO, we
are pleased to report that considerable progress has been
made in positioning the Company’s investment portfolio
to meet clear long-term needs and shortages in both the
social housing and healthcare sectors in the UK.
Our strategy remains the same: to provide high-quality
bespoke properties
the delivery of
mid-to-higher acuity care, that is non-discretionary, that
offers better personal outcomes including lower costs and
that is funded by the state.
that enable
The successful implementation of this strategy has, since
IPO, allowed investors to receive stable and progressive
dividends that have grown at a rate above inflation. In
this regard, we are pleased that a new dividend target of
5.4 pence per Ordinary share has been announced for the
year to 31 March 2021.
A summary of specific outcomes and targets met in the
year to 31 March 2020 is set out below:
•
100%* EPRA run-rate dividend cover achieved
planned
• Total expense ratio of 1.36%
investment portfolio comprises 613
The Investment Portfolio
The
individual
properties that are the long-term homes for 4,216 people,
each of whom benefits from an average of 45/50 hours
(and sometimes much more) of care a week delivered by
117 specialist care providers. The properties are located
across 164 local authorities and receive property services
from 15 housing associations.
From a financial perspective, the Company’s portfolio
was independently valued at 31 March 2020 on the
basis of an IFRS Red Book valuation at £878.7 million,
an increase of £89.6 million (11.3%) over the funds
invested of £789.1 million, excluding initial purchase
costs. The Valuation is subject to the now standard
“Material Valuation Uncertainty due to Novel Coronavirus
(COVID-19)” clause that professional valuation firms,
including JLL, are adopting across the world in respect of
valuations at this time. On 28 May 2020, RICS published
an update and concluded that the inclusion of MUCs was
no longer appropriate for this asset class.
* Note: the calculation of run-rate dividend cover is based on all properties that have exchanged and completed, on normalised overheads and the further
delivery of certain properties to a value of £12.1m. Of this £12.1m, £2.3m completed during June 2020 with the remainder to complete shortly.
Civitas Social Housing PLC Annual Report 2020
27
Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Investment Adviser’s Report continued
Valuations within the portfolio vary on an individual
property-by-property basis with the lowest yields (c.5%)
currently applying to some of those properties that have
the benefit of back-to-back care provider leases.
The most recent transactions undertaken by the Company
in March 2020 for £17.8 million are majority supported by
back-to-back care provider leases.
As the Company undertakes further investments in the
future, it remains the objective to increase the proportion
of the portfolio that benefits from such back-to-back
leases and to drive up the typical level of acuity of care
delivered in the properties.
In this way, the Company offers investors the opportunity
of exposure to both social housing and specialist
healthcare, both of which are typically composed of local,
granular assets.
When we commenced our investment activities in late
2016, we already identified some of the opportunities that
we thought would be available in the future from working
closely with specialist care providers, the NHS and leading
charities as well as with housing associations directly.
We also noted the potential to engage directly with
specialist developers and to take a hands-on role in being
involved from the outset in the design and specification of
new buildings, particularly those suited for higher acuity
care, that would then be acquired on completion without
forward financing.
Today, with more than 120 individual transactions
completed, we have the benefit of being a leading presence
in both the social housing and healthcare sectors and the
Company has in 2018 and 2019 won the leading healthcare
industry Laing Buisson award for Healthcare Investor of
the Year.
In reflection of this, in May 2020, the Company sought and
received overwhelming approval from shareholders for
the proposal to modify the Company’s investment policy
to allow transactions to be undertaken directly with other
not-for-profit organisations, including the NHS as well as
other entities in receipt of government funding.
Rental Income and Trading Update
The Company enjoyed strong growth in net rental income
with an annualised rent roll of £48.4 million and an actual
net rental income of £45.9 million for the year to 31 March
2020.
This compares to actual net rental income of £35.7 million
in the year to 31 March 2019, with rental growth
being accounted for by properties previously acquired
28
Civitas Social Housing PLC Annual Report 2020
contributing a full year of income and a number of
additional acquisitions.
Not included in the results to 31 March 2020 is the
rental income associated with the new developments,
particularly the higher acuity facilities in Wales on which
the Company has exchanged contracts and where the first
of the properties have now completed.
At the same time, the Company has continued to enjoy
strong rental receipts in line with expectations and
unaffected at this time by COVID-19.
It was noted at the time of release of the Company’s NAV
and Trading Update on 11 May 2020 that the Company
had received more than 99% of the rents due to be paid to
it during the quarter to 31 March 2020. Since this time, the
Company has continued to receive rents as expected and
unaffected by COVID-19.
Net cash generated from operations has also shown
a significant increase of 41% from £23.3 million as at
31 March 2019 to £32.9 million, reflecting good cost
control during the year.
IFRS NAV increased from 107.08p per Ordinary share at
31 March 2019 to 107.87p as at 31 March 2020, a modest
increase of 0.7% reflecting the indexation of leases less
the costs of capital expenditure that the Company chose
to undertake for the long-term benefit of the portfolio.
As at 31 March 2020, the Company held cash balances
of £49.3 million (net of operating and finance amounts
due) of which approximately £14 million was allocated in
respect of transactions completing in 2020 – £1.8 million in
respect of two properties in Telford and one in Sunderland
which the Company has conditionally exchanged on, and
£12.1 million in relation to two properties in Wales for
which the Company has entered into a conditional sale
and purchase agreement. We have allocated £10 million
(estimated) relating to a capital payment contingent on
certain financial obligations being met at the properties
in Wales. The remaining cash balances are being held as a
cash contingency in the Company.
In addition, as at 31 March 2020, the Company owned
freehold properties with a value of £212 million that
were entirely unencumbered and available as security for
additional borrowings in due course.
Asset Management
The active management of the Company’s portfolio
remains an important component of our day-to-day
activities with over 600 individual buildings.
Under the Company’s leases, the obligation
to undertake regular maintenance rests
with the lessees, however, the Company
does make careful capital investments
where we believe that would lead to long-
term enhancement and where this is of
assistance to our housing association
partners. As we know, a property that is
well adapted and well maintained will be a
positive contributing asset to the Company
and to our housing association partners.
Most recently, with this in mind, we augmented our
asset management capabilities with the appointment
of Tom Falconer as a Director, Asset Management. Tom
began his career as a local authority commissioner and
has worked within the care sector for more than 10 years,
most recently as Group Property Manager for Lifeways
Group, a leading specialist care provider.
Tom has a particular focus within the team in his
engagement with local authority commissioners and care
providers to assist our housing association partners to
achieve their lettings and to address any void properties.
We will also be joined shortly by another senior individual
in the asset management team who has an established
surveying background and who will be focused on the
physical enhancement and betterment of properties
within the portfolio. Again this will be of assistance to our
housing association partners.
During the year, as part of our active management of the
portfolio, we undertook the reallocation of certain leases
between housing association partners with a view to
enhancing portfolio diversification and ensuring that the
most relevant housing association is in possession of the
Company’s leases. We expect to continue to remain active
in this regard in the future.
Market Update
The Company operates across the social housing and
healthcare sectors in the UK.
Today there is a structural shortage of properties that
are capable of hosting mid-to-higher acuity care within
local community settings. Such properties are not always
available and so are typically highly regarded by both care
providers and local authority health commissioners.
The drivers of demand for the Company’s portfolio are
very much settled within the healthcare sector in the
UK and result from long standing government policy to
seek closure of remote hospitals in favour of community
provision.
Hydrotherapy Pool,
Healthcare Facility, Wales
The trend for community provision has become established
in the UK over the past 25 years and reflects much broader
societal change in the manner that care is delivered for
people of working age with lifelong care needs.
What has developed more recently over the past 10 to
15 years has been the emergence of specialist housing
associations that deliver the augmented property services
and who, in turn, enter into leases to secure available
properties for their underlying tenants without any form
of public funding.
Whilst this is an important development, and one
that has been much commented upon by ourselves
and others, we have taken the view, as noted earlier,
that the time is now right to broaden the nature of the
Company’s lease counterparties to include entities such
as the NHS and other care providers that are in receipt
of government funding as well as leading charities and
other not-for-profit entities such as community interest
companies. Shareholder permission for this was secured
at the recent General Meeting on 28 May 2020.
This initiative is likely, over time, to better reflect the
increasingly mid-to-higher acuity focus of the Company’s
property portfolio and also move the dialogue forward
with greater focus on the underlying care. It will also
offer alternatives to entering into leases with housing
associations where that is felt appropriate or it is required.
In the same way that housing associations are regulated
by the Regulator of Social Housing (“RSH”), health and
social care in England is independently regulated by
the Care Quality Commission (“CQC”). This includes all
care providers, the NHS and other healthcare providers,
facilities of which the Company owns an increasing
number to deliver mid-to-higher acuity care.
Civitas Social Housing PLC Annual Report 2020
29
Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Investment Adviser’s Report continued
In its most recent report “State of Health 2018/19”, the
CQC stated that “Most of the care that we see across
England is good quality and, overall, the quality is
improving slightly”.
good and sustainable practice in all the transactions that
we undertake with a view to increasing the robustness
and reliability of our housing association partners and the
sector itself.
They also commented that “Too many people with a
learning disability or autism are in hospital because of a
lack of local, intensive community services”. It is exactly
this gap that the Company is seeking to fill.
Our new properties in Wales have both a dedicated
rehabilitation facility and an aquatic centre designed
for people with care needs. They are amongst the most
advanced facilities of their kind in the region.
Considering the comments from the CQC and the range
of research that we have commented on previously, there
seems little doubt that there exists long-term structural
demand for the properties that the Company provides and
that there is today significant shortages that are unlikely
to be filled any time soon.
It is also apparent that, in the UK, the government is
committed to delivering and paying for these services
that are typically developed by the private sector and
made available for public use without any form of public
subsidy.
At the same time, the RSH has become more vocal
in commenting on the need for improvement in the
performance of a number of housing associations within
the sector and on the lease-based model itself.
As we have noted previously, the Company has used its
leading position to bring about a number of enhancements
that are now becoming standard features in its new leases,
including:
•
•
initiating the use of a force majeure clause that offers
protection to housing associations should government
policy reduce their income on a permanent basis; and
adopting “caps” and “collars” typically set at “0” and
“4” per cent. that mitigate against rapid increases in
inflation.
More broadly, we have led initiatives such as establishing
The Social Housing Family Community Interest Company
that is designed to offer additional support, guidance and
management skills to its member housing associations.
Whilst there is no compulsion to join, we do expect to see
the CIC expand its membership over the next year.
We continue to engage with the RSH and to work with
them to explore how we can enhance the standing of the
sector and the model. For our part, we seek to promote
Our quarterly seminars for all housing association
partners have continued to be well supported throughout
the year as they seek to share best practice and tackle
issues relevant to the market. Since lockdown, these have
been substituted by regular one-to-one contact, including
with our leading care provider partners.
COVID-19
Turning to the issue of COVID-19, we have sought to keep
closely in touch with the Company’s counterparties to
ascertain the ongoing level of impact within the sector
and the Company’s portfolio.
As noted previously, we have not seen any impact from
a financial perspective and the sector and the Company's
portfolio has only seen very modest levels of coronavirus
cases that are much lower than within the elderly care
sector. In many of our properties, there have to date been
no reported instances of COVID-19 and, where they have
occurred, these have been isolated.
Working across our counterparties, we have undertaken
detailed engagement and made detailed notes of the
responses received. For information, whilst preserving
personal data, some of the comments received are set out
below:
Care Providers:
•
“ Care providers are presently reporting very few cases
of the virus”
•
•
“ Due to the client group we are caring for whose
average age is under 30 we are finding very few cases
of the virus”
“ Care provider staff are self isolating to ensure as
their colleagues come off shift a bank of staff is
available to provide much needed care”
Housing Associations:
•
“ We have many phone calls from Local Authority
Commissioners asking if we have more homes
available. This has increased since the pandemic”
•
“ Our staff sickness levels have actually dropped
during the pandemic as it is clear that increased
recognition for care is benefitting morale”
Irrespective of the positive responses received to date and
the sense that the market is fully functioning at present,
30
Civitas Social Housing PLC Annual Report 2020
we remain as vigilant as possible and are offering our
assistance to our counterparties where we can be of help.
In this regard, as part of the Company’s direct response
to COVID-19, we were pleased to be able to assist
Islington Council in the provision of 29 self-contained
accommodation units to help bring in people off the
streets who were homeless.
As part of this effort, we worked closely with the council,
with the care provider and the housing association
attached to the property to coordinate a response that
met the urgent timetable required.
In response to our efforts, the Head of Private Housing
Partnerships at Islington Council commented that:
“Working together with Civitas Housing, we were able
to deliver 29 self-contained units of accommodation for
our most entrenched rough sleepers, ensuring that they
are no longer on the streets and exposed to the virus.
We appreciate the assistance and support provided by
Civitas Housing during this period, they have shown that
the spirit of community still exists as to actively sort to
provide us options to solve our housing needs”.
Debt Facilities
The debt facilities available to the Company are set out in the table below together with the relevant covenants and
associated ratios.
The weighted average debt to maturity is 3.4 years and this reflects the 12-month extension of the £60 million Lloyds Bank
revolving credit facility that has been extended, as at the date of signing, in the normal course to November 2021. It is
anticipated that this will be refinanced prior to that time.
Loan Notes
RCF
NatWest
Scottish Widows
Lender
Security
Facility Size
Drawn
Term
Cost
Assets
£60m
£60m
5 years +1 +1
2.60% fixed (2.00%
margin, 0.60% swap)
Average cost of debt (%)
Loan to value (%)
Weighted average interest cover (times)1
Weighted average debt to maturity (years)2
Total debt drawn down (£m)
Unencumbered assets (£m)
Assets
£52.5m
£52.5m
10 years
Lloyds
Assets
£60m
£60m
HSBC
Assets
£100m
£100m
3 years +1
3 years +1 +1
2.99% fixed
1.50% margin
1.70% margin
31 March
2020
31 December
2019
2.46
26.9
4.5
3.4
272.5
212.0
2.57
23.3
4.6
3.7
228.4
193.9
1 Weighted average interest cover is based on secured assets only.
2 Weighted average debt to maturity excluding unexercised extensions under respective facility agreements.
In terms of new facilities, the Company, as noted above, has
£212 million of assets that are presently unencumbered
and are available as security for additional lending.
Prior to the lockdown, discussions were commenced with
certain existing and new potential lenders in respect
of the provision of additional facilities. Whilst these
discussions have been held over for a period of time due
to the pandemic, these will be picked up and reported on
in due course.
Social Impact
We are pleased to note that the latest version of the
independent social impact report was published with the
Annual Report and Accounts.
This report sets out the performance of the Company in
this important area of our work and challenges us against
the targets that have been set.
At the same time, we have committed to developing
our activities further, particularly with regard to the
implementation of ESG policies and activities.
Civitas Social Housing PLC Annual Report 2020
31
Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Investment Adviser’s Report continued
In May 2020, we were invited to become a founder member
of a “Reference Group” brought together by the social
impact consultancy, The Good Economy, and the social
impact investor, Big Society Capital, for a new project
“Towards a best practice, sector standard approach for the
management and reporting of impact in social housing”.
As the project develops, we expect to provide regular
updates as well as continuing to actively enhance the
social impact and ESG delivery within the investment
portfolio managed by CIM.
Pipeline and Outlook
The past year has been characterised by the Company
being invited to engage in an ever more strategic manner
within the specialist health care sector.
As we move forward, there exists already a significant
pipeline of new potential investment opportunities and
we expect this to continue to grow over coming months.
The ability to enter into agreements with a wider range of
counterparties, not just housing associations but the NHS
directly, with local NHS Trusts and leading charities and
care providers will broaden significantly the base of the
Company.
We look forward to the coming year with confidence. There
are challenges, not least from COVID-19, but we believe
that the Company has a business model that is sufficiently
robust and diversified to manage those issues well.
In closing this report, we would like to thank the Board for
the diligence and guidance we have received during the
year and also our colleagues who have continued to work
hard to deliver the very best outcomes that we can for our
residents, shareholders and other stakeholders.
Civitas Investment Management Limited
Investment Adviser
29 June 2020
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Civitas Social Housing PLC Annual Report 2020
Civitas Social Housing PLC Annual Report 2020
33
Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Extract from The Good Economy Impact Report, 2020
The full Impact Report can be found at www.civitassocialhousing.com
EXECUTIVE SUMMARY
This is the third Annual Impact Report for Civitas Social Housing PLC (“Civitas”)
which was launched in November 2016 as the first Real Estate Investment
Trust (REIT) specialised in investing in social housing, with a focus on specialist
supported living. During this 3.5-year period, the Fund has invested £789 million
in 613 properties, providing housing for up to 4,216 tenants.
This impact assessment, completed by The Good Economy (TGE), is specifically focused on activity between October 2019 and
March 2020. Over this six-month period, Civitas has acquired 14 new properties, of which nine were brought into the social
housing sector for the first time, with these properties having the potential to house 102 people.
In our November 2019 report, we stated that “TGE positively views the actions that Civitas has taken to support its partner
Registered Providers (RPs)” and this remains the case with the work and support highlighted in this new report.
Since February 2020, the global Covid-19 pandemic has dominated most aspects of society. This has impacted social care in
multiple ways and has been widely reported in the media as a particular challenge in elderly care homes. By comparison, Civitas
has conducted extensive discussions with the specialist care providers (CPs) who deliver services into Civitas properties, and
whilst there have been challenges, these have not been of the same magnitude as for elderly care, reflecting the much younger
age profile (c. 32 years) of the tenants.
Civitas has contributed directly to the Covid-19 response though offering 29 of its fully refurbished self-contained units for
temporary use by a London Council in responding to the pandemic. The Fund has also encouraged its care provider partners
to engage directly with the NHS to ascertain if services can be delivered to assist in combating the pandemic.
Social Impact Assessment
This report provides an assessment of Civitas’ performance against its stated impact objectives:
Increase the supply of specialist housing
Improve the quality of specialist housing
Improve tenant wellbeing
Provide value for money
Throughout this process, mitigate against negative impact risks
TGE’s impact analysis is aligned with the five dimensions of impact as set out by the Impact Management Project.
Increase the supply of specialist housing
Civitas is continuing to grow its portfolio although this has been at a slower pace than in previous years. The Fund has spent much
time working with its RPs and care provider partners to continue to add strength to the portfolio and the business operations of
its partners.
In the last six months the Fund has acquired 14 more properties (a 2% increase since September 2019). This rate of growth is lower
than previous years but TGE are encouraged that most of these new properties (64%) are being brought into the social housing
sector for the first time. This compares favourably with the rest of the portfolio where 33% of properties have been brought into
the social housing sector for the first time.
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Civitas Social Housing PLC Annual Report 2020
2
Civitas Social Housing PLC, Annual Impact Report, June 2020
Improve the quality of specialist housing
Civitas continues to set aside funding to improve and renovate its homes to ensure they remain fit-for-purpose. In some
instances, Civitas has stepped in to repurpose buildings where the layout was not effectively addressing the specific needs of
individual tenants and made appropriate changes to remedy any issues that arise. Civitas also undertakes quarterly monitoring
visits with its partner RPs and monthly checks of compliance-related issues e.g. Fire Risk Assessment and Gas Certificates. In
a portfolio of 613 buildings, there will always be a need to undertake asset management activities above and beyond the lease
obligations of the RPs. TGE are pleased to see that Civitas is proactive in this regard and has committed capital to works on its
properties.
Improve tenant wellbeing
Survey data suggests that Civitas homes and care provision are having a positive impact on tenant wellbeing. During May to July
2019, a survey was carried out with 205 tenants covering 67% of Civitas’ partner RPs and 16% of CPs. 63% of support workers
reported that their tenant’s mental health had improved since moving into the accommodation and nine out of the ten family
members we spoke to stated that the motivation and aspirations of the person cared for had increased. Note that TGE could not
carry out a similar survey this year due to Covid-19.
Provide value for money
According to the monetisation calculations completed by the Social Profit Calculator in 2019, the Civitas portfolio is generating
£64.7 million of direct fiscal savings to local and national government per year. This is part of the overall £114 million of social
value that is generated on an annual basis. This finding is supported by direct evidence from a local authority commissioner at
Worcestershire County Council who reported the savings made from a specific Civitas-owned supported housing property. It is also
consistent with research on the Specialist Supported Housing sector by the charity Mencap, and with statements that have been
made by government ministers on the net benefit to the wider public purse of providing supported housing.
Impact risk mitigation
Civitas is continuing to take action to address the concerns of the Regulator of Social Housing (RSH), working to support its
partner RPs whilst at the same time demonstrating the value and positive personal outcomes that are being delivered for up
to 4,216 tenants.
Its updated lease agreements (with a force majeure clause and a cap and collar on rent increases) are being used for all new
leases. More broadly, Civitas continues to devote considerable time and effort to assisting and working with its RP partners.
The Community Interest Company (CIC), ‘The Social Housing Family’, sponsored by Civitas Investment Management (CIM), now has
one RP as a member. The CIC aims to provide capacity-building support to SSH RPs in the sector and TGE are supportive of Civitas’
intent to help strengthen the capacity and financial viability of these small specialist RPs. We have been informed that CIM is in
discussions with other RPs about potentially joining the CIC but understand that the decision to become a member rests with
individuals RPs and their boards. As progress is made and more members join the CIC, TGE will provide further comment on the
impact of the CIC’s activities.
Overall, TGE is of the opinion that Civitas has taken active steps in respect of the risks identified by the RSH although it itself is not
an RP and much of the response to the RSH rests with the RPs themselves. The Fund has enhanced its newer leases in response
to comments made by the RSH and continues to engage with the Regulator and with RPs to seek to further mitigate risk.
Civitas Social Housing PLC Annual Report 2020
3
35
Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information
Extract from The Good Economy Impact Report, 2020 continued
Strengths
Civitas is investing at large-scale and have established themselves as a leading specialist investment fund in specialised
supported housing, an area where there is high demand and social need.
Specialist supported housing has a positive impact on the wellbeing of tenants and contributes to improved mental
and physical health.
Civitas has taken a proactive approach to supporting RPs and care providers during the Covid-19 crisis and to exploring
how its properties could be used by local authorities and the NHS.
Specialist supported housing is good value for money for the public purse, compared to residential or hospital care.
Potential Weaknesses and Mitigating Actions
The RSH has highlighted what it sees as certain risks to RPs. Civitas needs to remain focused on, where possible,
contributing to reducing these risks and ensuring that its funding model works well from the perspective of supporting
the long-term sustainability of partner RPs and high-quality supported housing provision.
Consider updating historic leases to incorporate the Force Majeure clause.
The CIC currently only has one member. Civitas must continue to work with other RPs and their boards to determine if others
feel it is appropriate for them to become members of the CIC, whilst respecting that it is a decision for each respective RP
board. TGE will continue to monitor progress in this regard.
Civitas is currently at an early stage in working through its portfolio to minimise the environmental impact of its homes.
Environmental performance (as part of ESG) is becoming a key area that asset owners are looking at.
TGE welcomes Civitas’ development of a strategy to improve the energy efficiency of its homes, and its disclosure of EPC
ratings for its portfolio for the first time.
The last 12 months has seen a drop in the rate of adding new homes to the portfolio.
There continues to be a large unmet social need for SSH that Civitas is well placed to meet, having developed robust
systems and strong partnerships within the sector.
Over the last twelve months there have been significantly fewer investments than in previous years.
Civitas Investment Management (CIM) have indicated that they have a strong pipeline and would expect to see
more investment over the next 12 months.
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Civitas Social Housing PLC Annual Report 2020
4
Civitas Social Housing PLC Annual Report 2020
37
Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information1Civitas Social Housing PLC, Annual Impact Report, June 2020DEEP DIVE CASE STUDY – BEDWARDINE COURT Location: WorcesterAbout Bedwardine CourtBedwardine Court is a block of 20 purpose-built supported living flats in Worcester. The building has been designed to promote independence with each tenant having their own self-contained flat consisting of a bedroom, bathroom, hallway, living room and kitchen. Within the building there are also two communal living spaces which are used to host social events and to encourage interaction between tenants, as well as some outdoor amenity space. With 24/7 care on-site, the scheme delivers much needed SSH for tenants with high acuity needs, whilst also providing them with the independence of living in their own flat. Civitas acquired the scheme upon its completion in 2018. Inclusion Housing are the RP and are responsible for property maintenance and repairs. Lifeways are the CP and are responsible for all care provision. During conversations with Inclusion and Lifeways, TGE heard that the working relationship is well-established and positive with the two organisations having delivered many schemes together. Total potential number of residents20Investment dateAugust 20184 / CASE STUDIESInclusion Housing Inclusion Housing is a Community Interest Company launched in 2007 with the aim of expanding the availability of quality supported housing for individuals with a care need. Today Inclusion provide housing for around 2,500 tenants throughout the country in supported living homes. Inclusion are one of Civitas’ principal partner RPs, providing housing management services to 69 of the Fund’s properties, comprising 455 tenancies. Civitas and Inclusion have an established and ongoing delivery partnership, with Inclusion acting as the RP on four of the 14 properties added to the portfolio during the last six months. Inclusion’s business model is heavily contingent on the lease-based model provided by funds such as Civitas with an anticipated average growth rate of approximately 350 units per year.In February 2019, Inclusion received a Regulatory Judgement from the RSH and was rated as non-compliant with its governance and viability standards, receiving a G3/V3 grading. When TGE discussed the concern of the RSH with the Inclusion team, they made clear that Inclusion are working with the RSH to address its concerns and to improve the long-term financial sustainability of their business model.Civitas are a proactive investor who are committed to ensuring the sustainability and long-term value of what is being delivered. – Neil Brown, Chief Executive, Inclusion Housing Extract from The Good Economy Impact Report, 2020 continued
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Civitas Social Housing PLC Annual Report 2020
2Social NeedIn Worcestershire, there are more than 2,000 people with a care need. Around 1,500 would be eligible for some form of supported accommodation, and around 800 are currently accommodated in either SSH or residential care. This represents a gap of approximately 700 homes between what the council is currently able to provide and the potential demand.The last four years in Worcestershire have seen the ‘Positive Living Project’ rolled out, with a drive to move people out of long-term residential care and into supported living where possible. That period saw approximately 240 moves take place and there are now roughly 450 people in an SSH setting within the local authority. This represents a positive move towards more community-based living options and is symptomatic of the wider policy drive of the Transforming Care Agenda. However, the gap between the supply of and demand for such settings demonstrates the extent of the social need that exists in Worcestershire for more SSH schemes such as Bedwardine Court. The gap between the supply of and demand for such settings demonstrates the extent of the social need that exists in Worcestershire for more SSH schemes such as Bedwardine Court. Civitas Social Housing PLC Annual Report 2020
39
Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional InformationCivitas Social Housing PLC, Annual Impact Report, June 20203Delivery Process and PartnershipDuring a conversation with Worcestershire County Council, the local authority for Bedwardine Court, TGE received assurance that the process through which the scheme was delivered was needs-led rather than property-led. In response to a needs analysis, Worcestershire County Council were approached by Lifeways with various sites that they had identified as having the potential for use as an SSH development. The Council turned down some of these sites but approved the Bedwardine Court site because it ticked the relevant boxes for social need, amenities, staff recruitment and proximity to the town centre. Once the development process began, the Council also then had input on the design of the flats. This was informed by the needs assessment that they had carried out for the Worcester area, with specific design features recommended based on the needs of potential tenants which the Council had already identified. TGE were informed by Lifeways that Worcestershire County Council specifically requested four flats on the ground floor for individuals with a higher level of care need, and this is the reason that this section of the property has its own communal living space specifically for those individuals.Worcestershire County Council also informed TGE that the delivery process involved them viewing and verifying the proposed rents from Inclusion. Civitas came into the process once this social need had been verified by the local authority, and all parties were on board with delivering the service provision at the agreed rent level. This evidences a needs-led approach which mitigates the impact risk of inappropriate rent-setting, or of delivering a scheme which does not effectively serve an identified social need.Figure 7 – Stakeholder map for Bedwardine Court Back-to-back leaseService level agreements/voidsPersonal care agreementEnhanced tenancy agreementTenantsCareContractRentProperty MaintenanceLease paymentsLease agreementLegalObligation100% Funding100% FundingThe kind of partnership working involved in delivering this scheme plays an instrumental role in responding to the need for more supported living.– Adam Jones, Housing Project Manager, Worcestershire County Council Extract from The Good Economy Impact Report, 2020 continued
Tenants
As of March 2020, 12 of the 20 flats are occupied, with tenants coming from a range of backgrounds (see box). It is not unusual
in SSH for lettings in a building to take longer due to the needs of the client group although the risk of this to the RP is mitigated
by void cover provided by the care provider. The property caters for a range of care needs, with services offered to people with
learning or physical disabilities, autism, acquired brain injury (ABI), dual diagnosis and mental health needs. The properties are
already specially designed to cater for individuals with care needs, but two of the properties have also had specific adaptations
made to meet the tenant’s requirements – both have had grab rails fitted in the bathrooms.
All tenants receive core care hours of a minimum of 16 hours per week with a range in terms of the level of additional care
required. Bedwardine Court’s lowest acuity tenant requires only around 5 hours of additional care while the highest acuity
tenant requires 1-to-1 care virtually around the clock. Across the Civitas portfolio, average care hours exceed 40 hours per week,
demonstrating the middle- to upper-acuity of the tenants being looked after.
The property can serve a fundamentally different purpose for different tenants. For some with relatively lower care needs,
Bedwardine Court can act as a stepping-stone – a transitional property towards more independent community-based living. In
such an instance, success would be the property being only a short-term home, with the tenant moving on if progress is made.
For others, Bedwardine Court may represent the most independent setting they can reasonably hope to occupy – a move down
the care ladder, away from residential or institutional settings. For such a tenant, success would be the property becoming their
long-term home, without the requirement to move back towards more restrictive settings.
TGE were informed by Lifeways of one particular tenant of Bedwardine Court who has a mental health diagnosis. Before this
individual moved into Bedwardine Court, he was very quiet, would not engage, would not go out and was at risk of being
sectioned. However, thanks to the support of the Lifeways team, he now actively engages with people and goes out, has had
a reduction in medication and has made positive progress with rebuilding his confidence and mental wellbeing.
Of the 12 residents to have moved in:
5 have come from other supported living services
4 have come from family homes
2 have come from residential care
1 has come from a mental health hospital
The availability of 24-hour support on-site is a source of mental wellbeing
and security for tenants, and the self-contained nature of the flats provides
independence with support tailored for each individual’s needs.
– Ros Creamer, Community Engagement & Business Development Manager, Lifeways
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Civitas Social Housing PLC Annual Report 2020
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Civitas Social Housing PLC Annual Report 2020
41
Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information5Value for Money TGE were informed by the commissioner for Bedwardine Court that the scheme has delivered significant cost-savings to the public care budget. Approximately six individuals now living at Bedwardine Court have moved into the property from more expensive settings, and according to the commissioner, this has delivered a saving to the public budget of approximately £230,000 per year from these tenants alone. The commissioner drew attention to one tenant in particular, who on their own was saving the local authority approximately £2,000 per week. It must be established that this £230,000 savings figure only factors in the tenants whom TGE were informed were now costing public budgets less compared to their previous setting. Some tenants have come from family homes and other supported living settings and so are likely to be costing similar or maybe even more than previous settings.9 The net cost-saving for the property as a whole is therefore likely to be less than this, but it still provides a good example of the value for money that SSH can provide for tenants moving away from residential or institutional care.There are, however, potential impact risks around the fact that only 12 of the 20 units at Bedwardine Court are currently occupied. However, this demonstrates the care that is taken in bringing people into properties and ensuring their suitability to the property. The void costs which are part of the overall on-boarding will be met by the care provider and will be a planned expense, thus mitigating the impact risk to the RP. TGE will look to review the progress made in terms of the level of occupancy at Bedwardine Court for its next Impact Report in November 2020.9. TGE were only provided by the commissioner with cost-differentials data for those tenants who have moved down the care ladder into Bedwardine Court and so a net cost-saving for the property as a whole could not be estimated.Civitas Social Housing PLC, Annual Impact Report, June 2020 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 care-based 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 on page 63.
Diversity
The Company does not have any employees or office
space and, as such, the Company does not operate a
diversity policy with regards to any administrative and
management 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 has
adopted a diversity policy in respect of appointments
to be made to the Board and 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. See
Corporate Governance Statement on page 70.
The Board comprises three male and two female
non-executive Directors. During the year, the Board
appointed Alison Hadden as a Director. In line with the
Company's diversity policy, this appointment was made on
the basis of merit as the Board believes that Alison's skills,
background and experience will complement those of the
other Board members. Alison's appointment also ensured
that the Company complied with the Hampton-Alexander
Review's target of a minimum 33% representation of
women on FTSE 350 boards.
The boards of directors of the Company’s subsidiaries,
which are non-operational, 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, 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 care-based housing, bringing new supply
to the sector and providing homes to over 4,200 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.
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Civitas Social Housing PLC Annual Report 2020
Strategic Overview
Business Model
C
S
O
C
I V ITAS
C
L
G P
I
A
L HOU S I N
1.
An individual with
care requirements
requires a home.
2.
The Local Authority
designs a care package,
identifying a care
provider and property
for the individual.
3a.
The care provider
is paid the full amount
for the care package
and pays rent to the
Housing Association.
3b.
The Housing
Association is paid
the rent directly.
4.
The Housing
Association pays
Civitas the rent.
Purpose of the Company
The Company was established in 2016 with the purpose
of delivering long-term responsible, stable returns to
investors and achieving positive measurable social impact
and ESG benefits on a large scale. It should achieve this
as a result of introducing long-term equity capital into
the social housing sector with a particular focus on
care-based community housing. By doing so, this would
form a bridge between equity investors and the social
housing sector and bring together aspects of healthcare
with social housing.
The Company has since developed the largest portfolio of
care-based community housing in the UK that provides
long-term homes for more than 4,200 individuals across
half the local authorities in England and Wales.
As a result of this success, the Company has recently
extended its mandate to be able to enter into transactions
directly with the NHS and with leading charities with an
interest in the provision of specialist housing that has a
strong care or support element, is consistent with public
policy and whose costs are met by the public purse for
which it offers value for money.
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
Approved Providers and to deliver, on a fully invested and
geared basis, a targeted dividend yield of 5% per annum1,
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 the
United Kingdom. The Company intends to meet the
Company’s investment objective by acquiring, typically
indirectly via Special Purpose Vehicles, 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 Approved Providers,
where all management and maintenance obligations will
be serviced by the Approved 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 the 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.
1 The dividend yield is based on the original IPO price of 100 pence per Ordinary share. The target dividends are targets only and do not
represent a profit forecast. There can be no assurance that the targets can or will be met and should not be taken as an indication of
the Company’s expected or actual future results. Accordingly, potential investors should not place any reliance on these targets in
deciding whether or not to invest in the Company or assume that the Company will make any distributions at all, and should decide for
themselves whether or not the target dividend yields are reasonable or achievable.
Civitas Social Housing PLC Annual Report 2020
43
Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Strategic Overview continued
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
the United Kingdom;
the Company only invests in Social Homes where the
counterparty to the lease or occupancy agreement is
an Approved Provider;
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
Approved Provider is 25% of the Gross Asset Value,
once the capital of the Company is fully invested;
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Civitas Social Housing PLC Annual Report 2020
•
•
•
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
on a Portfolio NAV basis;
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
investment
companies; and
closed-end
funds or
•
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 Corporation Tax Act 2010 (and the
regulations made thereunder).
Section 172 Statement and Stakeholder Engagement
Overview
The Directors’ overarching duty is to act in good faith and
in a way that is most likely to promote the success of the
Company as set out in section 172 of the Companies Act
2006. In doing so, Directors must take into consideration
the interests of the various stakeholders of the Company,
the impact the Company has on the community and the
environment, take a long-term view on consequences
of the decisions they make, as well as aim to maintain a
reputation for high standards of business conduct and fair
treatment between the members of the Company.
Fulfilling this duty naturally supports the Company
in achieving its investment objective and helps to
ensure that all decisions are made in a responsible and
sustainable way. In accordance with the requirements of
the Companies (Miscellaneous Reporting) Regulations
2018, the Company explains how the Directors have
discharged their duties under Section 172 below.
To ensure that the Directors are aware of, and understand,
their duties, they are provided with the pertinent
information when they first join the Board as well as
receiving regular and ongoing updates and training on
the relevant matters. Induction and access to training
is provided for new Directors. They also have continued
access to the advice and services of the Company
Secretary, and when deemed necessary, the Directors can
seek independent professional advice. The Schedule of
Matters Reserved for the Board, as well as the Terms of
Reference of its committees, are reviewed regularly and
further describe Directors’ responsibilities and obligations
and include any statutory and regulatory duties. The
Audit and Management Engagement Committee has the
responsibility for the ongoing review of the Company’s
risk management systems and internal controls and,
to the extent that they are applicable, risks related to
the matters set out in Section 172 are included in the
Company’s risk register and are subject to periodic and
regular reviews and monitoring.
Stakeholders
A company’s stakeholders are normally considered to
comprise its shareholders, its employees, its customers,
its suppliers as well as the wider community in which the
company operates and impacts. The Company is different
in that as an investment trust it has no employees and,
in terms of suppliers, the Company receives professional
services from a number of different providers, principal
among them being the Investment Adviser.
During the period under review, the Board discussed
which parties should be considered as stakeholders of
the Company. Following a comprehensive review, it
was concluded that, as the Company is an externally
managed investment company with no employees, its
key stakeholders comprise those set out in the table on
pages 46 to 50. The importance of stakeholders is taken
into account at every Board meeting, with discussions
Civitas Social Housing PLC Annual Report 2020
45
Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Strategic Overview continued
involving careful consideration of the longer-term consequences of any decisions and their implications for stakeholders.
The following section explains why these stakeholders are considered of importance to the Company and the actions
taken to ensure that their interests are taken into account by the Board as part of their decision making.
Our stakeholders
Key areas of interest How we engage
Shareholders
Continued shareholder
support
and
are
engagement
critical to the existence
of the business and
the delivery of
the
long-term strategy of
the business.
• Current and
future financial
performance
• Strategy and
business model
• Corporate
governance
• ESG performance
and sustainability
• Dividend
The Board welcomes shareholders’ views and places great
importance on
communication with the shareholders of the Company. The Board is responsible for
the content of communication regarding corporate issues and for communicating its
views to shareholders. The Board aims to ensure that shareholders are provided with
sufficient information to understand the risk/reward balance to which they are exposed
by the holding of shares in the Company. Active engagement with shareholders is
carried out throughout the year and regular communication is undertaken to ensure
that they understand the performance of the business. The Board is committed to
maintaining open channels of communication and to engaging with shareholders in
a manner which they find most meaningful, in order to gain an understanding of the
views of shareholders. These include:
Annual General Meeting – The Company welcomes and encourages attendance,
voting and participation from shareholders at the AGM, at which shareholders have the
opportunity to meet the Directors and Investment Adviser and to address questions to
them directly. The Investment Adviser attends the AGM and provides a presentation on
the Group’s performance and its future outlook. The Company values any feedback and
questions it may receive from shareholders ahead of and during the AGM and takes
action, as appropriate.
Publications – The Annual Report and Half-Year Results are made available on the
Company’s website and the Annual Report is circulated to shareholders. These reports
provide shareholders with a clear understanding of the Group’s portfolio and financial
position. In addition to the Annual and Half-Year Reports, regularly updated information
is available on the Company website, including quarterly factsheets, key policies, the
investor relations policy and details of the investment property portfolio. Feedback
and/or questions the Company receives from the shareholders help the Company evolve
its reporting aiming to render the reports and updates transparent and understandable.
Shareholder meetings – Shareholders are able to meet with the Investment Adviser
and the Company’s Joint Brokers throughout the year and the Investment Adviser
provides information on the Company on the Company’s website. Feedback from
all shareholder meetings with the Investment Adviser and/or the Joint Brokers, and
shareholders’ views, are shared with the Board on a regular basis. The Chairman and
other members of the Board are available to meet with shareholders to understand
their views on governance and the Company’s performance where they wish to do so.
Shareholder concerns – The Board gives due consideration to any corporate
governance matters raised by shareholders. In the event shareholders wish to raise
issues or concerns with the Board or the Investment Adviser, they are welcome to write
to the Company at the registered office address set out on page 140. Other members
of the Board are also available to shareholders if they have concerns that have not been
addressed through the normal channels.
Investor relations updates – The Board regularly monitors the shareholder profile of
the Company. With the majority of shareholders being a combination of institutional
investors and private client brokers, the Board receives regular updates on investors’
views and attitudes from the Company’s Brokers and the Investment Adviser. During
the year, several investor update meetings were held between the shareholders and
one or more of the Chairman, the Investment Adviser and the Brokers. The results of
these meetings were reported to the Board as part of the formal reporting undertaken
by both the Investment Adviser and the Brokers. Included in the Report of the Directors
on page 62 are details of substantial shareholdings in the Company.
On a regular basis (sometimes weekly) and at Board meetings, the Directors receive
updates from the Company’s Brokers on the share trading activity, share price
performance and any shareholders’ feedback, as well as an update from the Company’s
Investor Relations adviser, Buchanan, and the Investment Adviser on any publications or
comments by the press. To gain a deeper understanding of the views of its shareholders
and potential investors, the Investment Adviser maintains regular contact with them
and also undertakes investor roadshows. Any relevant feedback is taken into account
when Directors discuss any possible fundraising or the future dividend policy.
46
Civitas Social Housing PLC Annual Report 2020
Our stakeholders
Key areas of interest How we engage
Investment Adviser
Holding the Company’s
shares offers investors
an investment vehicle
through which they can
obtain exposure to the
Company’s
portfolio
properties. The
of
Investment Adviser’s
performance is critical
for the Company to
successfully
deliver
investment
its
strategy and meet its
to provide
objective
shareholders
with
an attractive level of
income, together with
the potential for capital
growth.
• Current and
future financial
performance
• Shared commercial
objectives with the
Company
• Operational
excellence
• Long-term
development of
its business and
resources
• ESG performance
and sustainability
an
Other service
providers
In order to function
investment
as
trust with a premium
listing on the London
Stock Exchange, the
relies on
Company
a diverse
range of
reputable advisers for
support in meeting all
relevant obligations.
• Current and
future financial
performance
• Shared commercial
objectives with the
Company
• Operational
excellence
• Long-term
development
of the service
providers’
businesses
• Sustainability
Housing
Associations/
Registered Providers
• Current and future
performance
• Sustainability
• Compliance
and property
management
• Welfare of tenants
• Lease obligations
The management of the Company’s portfolio is delegated to the Investment Adviser,
which manages the assets in accordance with the Company’s objectives and policies.
At each Board meeting, representatives from the Investment Adviser are in attendance
to present reports to the Directors covering the Company’s current and future activities,
portfolio of assets and its investment performance over the preceding period.
Maintaining a close and constructive working relationship with the Investment Adviser
is crucial as the Board and the Investment Adviser both aim to continue to achieve
consistent long-term returns in line with the Company's investment objective. Important
components in the collaboration with the Investment Adviser, representative of the
Company’s culture are:
• operating in a fully supportive, co-operative and open environment and maintaining
ongoing communication with the Board between formal meetings;
• encouraging open discussion with the Investment Adviser, allowing time and space
for original and innovative thinking;
• recognising that the interests of the shareholders and the Investment Adviser are
for the most part well aligned, adopting a tone of constructive challenge, balanced
with robust negotiation of the Investment Adviser’s terms of engagement if those
interests should not be fully congruent;
• drawing on Board members’ individual experience and knowledge to support the
Investment Adviser in its monitoring of and engagement with other stakeholders; and
• willingness to make the Board members’ experience available to support the
Investment Adviser in the sound long-term development of its business and
resources, recognising that the long-term health of the Investment Adviser is in the
interests of shareholders in the Company.
The Company’s main functions are delegated to a number of service providers, including
the Administrator, the Company Secretary, the AIFM, the Registrar, the Corporate
Brokers and the Depositary, each engaged under separate contracts. The Board
maintains regular contact with its key external providers and receives regular reporting
from them, both through the Board and Committee meetings, as well as outside of
the regular meeting cycle. Their advice, as well as their needs and views, are routinely
taken into account. Through its Audit and Management Engagement Committee, the
Board formally assesses their performance, fees and continuing appointment at least
annually to ensure that the key service providers continue to function at an acceptable
level and are appropriately remunerated to deliver the expected level of service. The
Audit and Management Engagement Committee also reviews and evaluates the control
environment in place at each service provider.
The Company’s Housing Association partners are an important part of the investment
model as the responsibility for collection of housing benefit and subsequent payment of
rent, the maintenance of the properties under the full repairing and insuring leases and,
most importantly, the safeguarding of the underlying tenants through the above means,
lies with the Housing Associations.
The Investment Adviser works closely with the Company’s Housing Association partners
to improve standards and governance and to introduce practices and procedures that
make the Company’s investment processes ever more robust.
The Investment Adviser has a constant open dialogue with the Housing Association
partners, liaising monthly on compliance, health and safety, maintenance and
future-proofing schemes, as well as hosting quarterly seminars to discuss current
themes/trends affecting the sector, to troubleshoot and it serves as an opportunity to
build relationships and share best practice.
Civitas Social Housing PLC Annual Report 2020
47
Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Strategic Overview continued
Our stakeholders
Key areas of interest How we engage
Care providers
• Current and future
performance
• Welfare of tenants
• Lease obligations
• Void management
Tenants
• Greater
independence
• Maintaining high
level of care
• Improved personal
outcomes
At the outset, it is important to note that the Company does not have any legal or
operational responsibility for the delivery of care in the properties within the portfolio.
However, the Board and the Investment Adviser have taken the view that they wish to
have a detailed understanding of the delivery of care and the interaction with the major
care providers who deliver this care.
Accordingly, the Investment Adviser maintains an active dialogue with many of the care
providers to build constructive and informed relationships.
At the same time, as part of transaction due diligence at the time of acquisition of
properties, the Investment Adviser undertakes due diligence with respect to the
operational and financial performance of all care providers who are proposed to deliver
care into the particular properties. This includes the financial standing of the care
provider, its CQC ratings and the nature of the SLA agreement covering voids between
the care provider and the Housing Association.
The Investment Adviser is noted as having demonstrated considerable expertise and
understanding of the care taking place within its properties.
The Company’s properties are adapted for the use of individuals with long-term care
needs within a community setting with the specific aim of achieving better personal
outcomes and independence for the individuals.
The sector in which the Company operates is regarded as having achieved significant
success in delivering these positive outcomes compared to long-term older style
remote institutional care.
On a regular basis, members of the Investment Adviser visit properties accompanied
by Housing Association and care provider partners to see first hand the nature of the
housing and care provision that is being delivered. This is supported by the regular
Housing Association seminars at which the wellbeing of tenants is discussed in detail.
In addition, the Company undertakes resident case studies through careful and
considered interaction via the care provider to assess the positive impact our properties
and associated specialised care have had on the individual and their wellbeing.
Regulator of Social
Housing
• Financial and
operational viability
The Company is not itself regulated by the RSH, but it is important to maintain open
and regular dialogue to ensure that the Company and the RSH are working together to
improve the sector.
• Governance
• Compliance with
health and safety,
and regulatory
standards
• Safety and
wellbeing of
underlying tenants
The deputy CEO of the RSH was recently invited to attend the Company’s Board
meeting to share thoughts on the sector and the ways in which the Company could
further evolve in order to assist the work of the RSH. This meeting was regarded by
both parties as being very useful and constructive.
Over the past 18 months, the Investment Adviser has arranged and hosted a number
of one-on-one meetings between the Company’s shareholders and the RSH. This has
enabled shareholders to gain a better understanding of the approach to regulation taken
by the RSH.
In addition, the Investment Adviser has a regular and ongoing dialogue with the RSH
and with the Housing Association partners regulated by the RSH.
48
Civitas Social Housing PLC Annual Report 2020
Our stakeholders
Key areas of interest How we engage
• Compliance
with statutory
and regulatory
requirements
The Company regularly considers how it meets various regulatory and statutory
obligations and follows voluntary and best practice guidance, and how any governance
decisions it makes can have an impact on its shareholders and wider stakeholders, both
in the shorter and in the longer term.
Other regulatory
authorities
can
The Company
operate with
only
the approval of
its
regulators who have
a
interest
in how the Company
operates
the
market and treats its
shareholders.
legitimate
in
• Governance based
on best practice
guidance
• Better reporting to
shareholders and
other stakeholders
This year, the Company welcomed the results of the review of the Company’s Annual
Report and Accounts for the year ended 31 March 2019, undertaken by the Conduct
Committee of the Financial Reporting Council (“FRC”)*. The FRC had not raised any
questions or queries but did make a number of recommendations for improvements
to the existing disclosures where they believed this would benefit the users of the
financial statements. The Directors welcomed the feedback, and wherever appropriate,
the disclosures in this report have been enhanced, incorporating the FRC’s suggestions.
Specifically, the Company has taken on board the comments related to Alternative
Performance Measures and expanded the definitions where relevant, and removed
reference to EPRA Net Initial Yield. Note 14 “Dividends” has been updated to include
the amount of proposed dividend in addition to the amount per share to comply with
the requirements of IAS 1 para 137.
* The FRC’s review was based solely on the Company’s 2019 Annual Report and
Accounts and did not benefit from detailed knowledge of the Company’s business
or an understanding of the underlying transactions entered into. The FRC provides no
assurance that the Company’s 2019 Annual Report and Accounts were correct in all
material respects as the FRC’s role is not to verify information provided but to consider
compliance with reporting requirements.
It is important for the Company to build and maintain relationships with local authorities
as they have an important role in identifying areas of high demand, agreeing rents and
referrals to the Company’s schemes.
The Company will engage with the local authority commissioner either directly, or
through specialist consultants, Housing Association and care provider partners as part
of the Company’s due diligence to ensure that each property being acquired has been
commissioned by the relevant local authority and that rent levels have been discussed
and agreed.
Local authorities
• Provision of safe
and secure quality
properties
• Sustainability
for long-term
placements
Lenders
of
Availability
liquidity
funding and
the
to
are crucial
ability
Company’s
advantage
to
of
investment
opportunities as they
arise.
take
Communities
The Company’s assets
rely on a strong,
connection
positive
with
local
the
communities in which
its business operates.
• Current and
future financial
performance of the
business
The Company has arranged debt facilities from a wide range of lenders and engages
with these on a regular basis through regular meetings and presentations to ensure
they are informed on all relevant areas of the business. The continual dialogue helps to
support the credit relationships.
• Openness and
Transparency
• Proactive approach
to communication
• Operational
excellence
• Acceptance of care
in the community
A key component of the Company’s portfolio is that the properties within it are set
within community environments so that individuals are able as part of their care plan to
interact with the local community rather than being isolated.
• Availability of
local facilities for
tenants
This is achieved in consultation with local authorities in determining that the initial
settings are appropriately diversified within the respective community and are not
clustered in a way that would lead to isolation.
This assists the individuals and also ensures appropriate integration within the
community. On a day-to-day basis, care providers and Housing Associations operate
policies to ensure positive relationships with neighbours and surrounding dwellings.
The activities within the Company’s properties create employment within the local
community for both housing and care workers.
Civitas Social Housing PLC Annual Report 2020
49
Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Strategic Overview continued
Our stakeholders
Key areas of interest How we engage
Charity partners
• Delivering needed
support to
vulnerable adults
The Company supports a number of organisations whose objectives are to provide
improved outcomes for vulnerable adults affected by homelessness and other care
needs.
• Improved
well-being of
vulnerable adults
The Company commits targeted financial support to fund specific programmes which
help those affected by homelessness by teaching them skills and offering support to
prevent them from being in that position again.
• ESG performance
and sustainability
The Company ensures regular calls and meetings with our charity partners to update
on progress and projects being undertaken, as well as attending any event in support
of their work.
The above mechanisms for engaging with stakeholders are kept under review by the Directors and will be discussed on a
regular basis at Board meetings to ensure that they remain effective.
Culture
The Directors agree that establishing and maintaining a healthy corporate culture among the Board and in its interaction
with the Investment Adviser, shareholders and other stakeholders will support the delivery of its purpose, values and
strategy. The Board seeks to promote a culture of openness, debate and integrity through ongoing dialogue and engagement
with its service providers, principally the Investment Adviser.
The Board strives to ensure that its culture is in line with the Company’s purpose, values and strategy. As detailed in the
Corporate Governance Statement, the Company has a number of policies and procedures in place to assist with maintaining
a culture of good governance, including those relating to diversity and Directors’ conflicts of interest. The Board assesses
and monitors compliance with these policies as well as the general culture of the Board through Board meetings and,
in particular, during the annual evaluation process which is undertaken by each Director (for more information, see the
performance evaluation section on page 71).
Key Performance Indicators (“KPIs”)
Measure
Explanation
Increase in IFRS
NAV per share
Target
to achieve capital appreciation whilst
maintaining a low risk strategy from enhancing the
quality of cash flows from investments, by physical
improvement of properties and by creating a
significantly diversified, high-quality portfolio.
Result
IFRS NAV increase of 9.9p per share or 10.1% from IPO.
Dividends per share
Targeting 5.4p per share per annum for the coming
year growing broadly in line with inflation.
Dividends of 5.3p per share declared for the year to
31 March 2020.
Number of Local
Authorities, Housing
Associations and
care providers
Target risk mitigation through a diversified portfolio
(once fully invested) with no more than 25%
exposure to any one Local Authority or single Housing
Association and no more than 20% exposure to any
single geographical area, once the capital of the
Company is fully invested.
As at 31 March 2020:
• 164 Local Authorities
• 15 Housing Associations
• 117 Care Providers
The Company’s largest single exposure is to Auckland
Housing Association and currently stands at 24%. The
largest geographical concentration is in the South West,
being 14.1%.
Loan to Gross Assets Assets Target debt drawn of 35% of gross assets.
Leverage as at 31 March 2020 of 26.9% of gross assets.
50
Civitas Social Housing PLC Annual Report 2020
Alternative Performance Measures
Adjusted
Performance
Measure
Portfolio NAV
Definition
IFRS NAV adjusted to reflect investment
property valued on a portfolio basis rather than
on an individual asset basis.
Performance Measure
Portfolio NAV
Portfolio NAV per share
31 March
2020
31 March
2019
£735,704,000
118.35p
£741,170,000
119.07p
Company
Adjusted
Earnings
Company Specific Earnings Measure which
adds back the finance costs associated with
the C share financial liability.
Adjusted Earnings
Adjusted Earnings per share
£28,814,000
4.63p
£22,612,000
3.63p
For a reconciliation of the Portfolio NAV to the IFRS results please see note 6 to Appendix 1 on page 142. For detailed
workings reconciling the Company Adjusted Earnings to the IFRS results, please see Appendix 1 to these financial
statements on pages 141 to 143.
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 relevance of 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
Measure
Definition
Earnings
Earnings from operational activities.
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.
EPRA NNNAV EPRA NAV adjusted to include the fair values
of (i) financial instruments, (ii) debt and (iii)
deferred taxes.
EPRA Vacancy
Rate
Estimated Market Rental Value (“ERV”) of
vacancy space divided by ERV of the whole
portfolio.
EPRA Performance Measure
EPRA Earnings
EPRA Earnings per share (basic)
EPRA Earnings per share (diluted)
31 March
2020
£28,814,000
4.63p
4.63p
31 March
2019
£16,212,000
3.81p
3.63p
EPRA Net Asset Value
EPRA NAV per share (diluted)
£671,042,000
107.95p
£666,508,000
107.08p
EPRA NNNAV
EPRA NNNAV per share (diluted)
£667,560,000
107.39p
£665,858,000
106.97p
EPRA Vacancy Rate
0%
0%
EPRA Costs
Ratio
Administrative and operating costs (including
and excluding costs of direct vacancy) divided
by gross rental income.
EPRA Costs Ratio
EPRA Costs Ratio (excluding direct
vacancy costs)
21.48%
21.48%
26.95%
26.98%
For detailed workings reconciling the above measures to the IFRS results, please see Appendix 1 to these financial
statements on pages 141 to 143.
Civitas Social Housing PLC Annual Report 2020
51
Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information 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 34 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 2020, and that
processes are in place to continue this assessment. Further details of risk management processes that are in place can be
found in the Corporate Governance Statement on pages 71 and 72. The principal and emerging 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:
VERY HIGH
HIGH
MEDIUM
LOW
T
C
A
P
M
I
VERY LOW
9
10
VERY
UNLIKELY
UNLIKELY
POSSIBLE
LIKELY
PROBABILITY
VERY
LIKELY
Principal risks and uncertainties
1. Strategy and
competitiveness risks
Impact
How managed/mitigated
The Company and its operations
are subject to laws and regulations
enacted by national and
local
governments
government
policy.
and
Any change in the laws, regulations
and/or government policy affecting
the Company and its operations
may have a material adverse effect
on the ability of the Company to
successfully pursue its investment
investment
policy and meet
objective and on the value of the
Company and the shares.
its
The Company focuses on niche real
estate sectors where it believes the
regulatory framework to be robust.
Impact:
Very high
The Board obtains regular updates
from professional
to
monitor developments in regulation
and legislation.
advisers
Probability:
Unlikely
2. Strategy and
competitiveness risks
Impact
How managed/mitigated
As a result of competition from
other purchasers of social housing
properties, the Company’s ability
to deploy capital effectively within
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.
The rate of capital deployment
would drop, decreasing returns to
shareholders.
The Company has strong links with
vendors and a robust pipeline of
future acquisitions.
Impact:
High
The Board regularly reviews the
pipeline of potential acquisitions.
Probability:
Unlikely
52
Civitas Social Housing PLC Annual Report 2020
3. Investment
management risk
Impact
How managed/mitigated
Tenant defaulting under the terms of
a lease.
Loss of rental income in the short
term.
The portfolio is diversified to reduce
the impact of default. Extensive
diligence is undertaken on 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.
Impact:
Medium
Probability:
Likely
4. Investment
management risk
Impact
How managed/mitigated
The value of the investments made
by the Company may change from
time to time according to a variety
including movements
of factors,
in
inflation,
general market pricing of similar
investments, share prices and
discount.
interest
rates,
The valuation of the Company’s
assets would fall, decreasing the
Net Asset Value of the Company.
stable,
The Company invests in projects
with
predetermined,
long-term leases in place with CPI
or CPI plus 1% indexation and its
strategy is not focused on sale of
properties.
Impact:
High
Probability:
Unlikely
factors
The Board receives regular updates
impact
on
investment valuations, such as the
current COVID-19 pandemic.
that might
5. Investment
management risk
Due diligence may not reveal all
facts and circumstances that may
be relevant in connection with an
investment and may not prevent
an acquisition being materially
overvalued or rental streams being
at risk.
Impact
How managed/mitigated
The Company would overpay
for assets
impairing shareholder
value, reducing rental income and
therefore returns.
Impact:
High
Probability:
Unlikely
The Company undertakes detailed
due diligence on the properties,
their condition, the proposed rental
levels – benchmarking against
comparable schemes using both
external consultants where required
and its own proprietary database
– and on the Registered Providers
and care providers involved in each
property to ensure that the purchase
price is robust.
The Board considers
diligence
approving acquisitions.
undertaken
the due
when
6. Investment
management risk
Loss of key staff at the Investment
Adviser.
Impact
How managed/mitigated
reduction
Negative investor sentiment leading
to a
in share price.
Reduction in ability to source off
market and favourable deals.
The Board considers the risk of
the Investment Adviser losing key
staff and the succession plans the
Investment Adviser has in place.
Impact:
High
Probability:
Unlikely
Civitas Social Housing PLC Annual Report 2020
53
Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Principal Risks and Risk Management continued
7. Investment
management risks
Impact
How managed/mitigated
Failure to monitor that contingent
activities are completed by the
Registered Providers or other
parties.
in
Deterioration
the underlying
quality, and therefore value, of the
Company’s property.
Contingent actions are regularly
monitored and followed up.
Impact:
Medium
The Board is kept apprised of any
breach of lease obligations.
Probability:
Unlikely
8. Investment
management risks
Impact
How managed/mitigated
Lack of availability of debt financing
or other capital.
The rate of capital deployment
would drop, decreasing returns to
shareholders.
The Company has strong links with
a number of banks and other capital
sources.
Impact:
Medium
The Board closely considers any new
loan facility proposed and receives
regular updates on debt and capital
markets for consideration.
Probability:
Unlikely
9. Operational risks,
including cyber crime
Impact
How managed/mitigated
Counterparty
Registered Providers, lenders)
failure
(custodian,
Loss of operational capabilities,
potential loss of rental income.
Registered Providers are themselves
regulated by the RSH and are
required to meet those and other
regulatory and legal requirements.
In addition, the Company’s leases
include the obligation to report
levels of compliance with regard to
health and safety.
Impact:
Medium
Probability:
Unlikely
The Company operates policies that
ensure the portfolio is diversified in
terms of counterparty risk.
Other service providers operate
procedures that seek to mitigate
risk and the Company seeks to work
with parties that have a positive
reputation and can demonstrate that
they have implemented appropriate
risk control over their activities.
the
regarding
extent
Details
impact of COVID-19 on the
of
Company’s counterparties are set
out on pages 30 and 31.
10. Operational risks,
including cyber crime
Disruption to, or failure, of the
systems or general operations of
third party providers could prevent
accurate reporting and monitoring
of the Company’s financial position.
This includes the risk of cyber crime
and potential threat to security,
business continuity and reputation.
Impact
How managed/mitigated
Loss of operational capabilities,
potential regulator actions.
Alternative service providers would
need to be identified and activities
transferred.
The Board monitors the services
provided by the Investment Adviser
and other service providers and the
key elements which are designed
to provide effective internal control.
All service providers are required to
have robust IT security and disaster
recovery contingency plans in place.
Impact:
Medium
Probability:
Unlikely
54
Civitas Social Housing PLC Annual Report 2020
Civitas Social Housing PLC Annual Report 2020
55
Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Going Concern and Viability Statement
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
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 2025. 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
five-year period;
long-term
forecast covers a
ii) the length of service level agreements between
is
Housing Associations and care providers
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.
forecast
five-year
incorporates
The Company’s
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 on pages 52 to 54.
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
Going Concern
The Board regularly reviews the position of the Company
and its ability to continue as a going concern at its
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 term considered in the Company’s testing
below.
As at 31 March 2020, the Company held cash balances of
£49.3 million (net of operating and financing amounts
due) of which approximately £14 million was allocated in
respect of transactions completing in 2020 – £1.8 million in
respect of two properties in Telford and one in Sunderland
which the Company has conditionally exchanged on, and
£12.1 million in relation to two properties in Wales for
which the Company has entered into a conditional sale
and purchase agreement. We have allocated £10 million
(estimated) relating to a capital payment contingent on
certain financial obligations being met at the properties
in Wales. The remaining cash balances are being held as a
cash contingency that the Company retains as a matter of
financial prudence. 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.
56
Civitas Social Housing PLC Annual Report 2020
•
deterioration in economic outlook, such as any
negative impact due to Brexit, impact of COVID-19,
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
29 June 2020
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 on pages 65 to 67 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.
The Board of Directors has carried out a robust
assessment of the principal and emerging 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;
and
Civitas Social Housing PLC Annual Report 2020
57
Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Board of Directors
The Directors of the Company who were in office during the period and up to the date of signing the financial statements
were:
Michael Wrobel
(Chairman)
Michael has over 40 years’ experience in the
investment industry. He is the non-executive
chairman of The Diverse Income Trust plc.
He serves as a trustee director of the BAT UK
Pension Fund and is chair of its Investment and
Funding Committee. He is also the chairman of
trustees of the Thornton’s Pension Scheme and
Deutsche Bank UK Pension Schemes. Michael is
a trustee of the Cooper Gay (Holdings) Limited
Retirement Benefits Scheme and acts as an
independent investment adviser to a number
of Rio Tinto pension schemes. Formerly,
Michael was a non-executive director of
JPMorgan European Smaller Companies Trust
Caroline Gulliver
(Director)
Caroline is a chartered accountant with over
25 years’ experience at Ernst & Young LLP,
latterly as an executive director before leaving
in 2012. During that time, she specialised in
the asset management sector and developed
extensive experience of investment trusts. She
was a member of various technical committees
of the Association of Investment Companies.
She is also a non-executive director and audit
committee chair for JP Morgan Global Emerging
Peter Baxter
(Director)
Peter has over 30 years’ experience in the
investment management industry. He is a
managing director of Project Snowball LLP, a
social impact investment organisation, and
a trustee of Trust for London, a charitable
foundation. He is also a non-executive director
of BlackRock Greater European Investment
Trust plc. Previously, he served as Chief
Executive of Old Mutual Asset Managers (UK)
plc and NatWest Smaller Companies PLC. He
has served as a director of the Association
of Investment Companies, the Investment
Management Association
and CoFunds.
He previously worked at Morgan Grenfell,
Fidelity International, Gartmore Investment
Management and F&C Management. Michael
has an M.A. in Economics from Cambridge
University.
Michael was appointed to the Board on
24 October 2016 and has served as Chairman
since his appointment.
Income Trust plc,
Markets
International
Biotechnology Trust plc and Aberdeen Standard
European Logistics Income PLC.
Caroline was appointed to the Board on
24 October 2016 and has served as Audit
and Management Engagement Committee
Chairman since her appointment.
Ltd, and has worked for Schroders and Hill
Samuel in a variety of investment roles. He
holds an MBA from London Business School
and is an associate of the Society of Investment
Professionals.
Peter was appointed to the Board on 24 October
2016 and is the Senior Independent Director.
58
Civitas Social Housing PLC Annual Report 2020
Alastair Moss
(Director)
Alastair is a property development lawyer with
over 20 years’ experience and is Co-Head of
Real Estate at Memery Crystal LLP. Formerly,
he has been a non-executive director and a
member of the Audit and Treasury Committees
of Notting Hill Genesis Trust. He is a former
Chairman of the Investment Committee of
the City of London Corporation and chaired
its Property Investment Board. He is currently
Chair of the City’s Planning and Transportation
Committee and, as such, is the political lead for
all built environment and transport matters in
the Square Mile. He is a Trustee of Marshall’s
Charity. He has also been a board member of
Soho Housing Association and was a member
of the Area Board of CityWest Homes. He was
a Councillor at Westminster City Council for
12 years, including his tenure as Chairman of
the Planning & City Development Committee.
Alastair was appointed to the Board on
24 October 2016.
Alison Hadden
(Director)
Alison has over 25 years’ experience in the
housing industry. She started her career at
Dudley Metropolitan Borough Council and
Birmingham City Council, and then went on to
hold chief executive positions at several major
including Paradigm
housing associations,
Housing, a 13,000-home housing association
based in Buckinghamshire. Alison has also
been an executive director at Circle Housing,
one of the largest housing associations in the
UK with over 67,000 homes. In these roles,
she has worked with many of the stakeholders
in the industry, including the Regulator of
Social Housing. Alison was previously the
Chair of Housing Plus Group, an 18,000-home
housing association group in Staffordshire and
Shropshire. She is currently a non-executive
director and member of the Audit and
Risk Committee of Yorkshire Housing, a
20,000-home housing association operating
in the Yorkshire area, and a non-executive
director and member of the Governance
Committee of Peaks and Plains Housing.
Alison was appointed to the Board on
21 November 2019.
Civitas Social Housing PLC Annual Report 2020
59
Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Report of the Directors
The Directors present their Report and the audited financial statements for the year ended 31 March 2020.
Principal Activities
The Company is a closed-ended investment company and
is a REIT which was incorporated in England and Wales
on 29 September 2016. The Company is the holding
company of a number of subsidiaries and its Ordinary
shares were admitted to trading on the Main Market
of the London Stock Exchange on 18 November 2016.
The Company invests in properties or property-holding
SPVs, either directly or via a wholly-owned subsidiary, in
accordance with the Company’s investment objective and
policy.
Business Review
A review of the business and future developments is
contained in the Chairman’s Statement and Investment
Adviser’s Report. The principal risks and uncertainties
are detailed on pages 52 to 54. See note 36 for a summary
of the post balance sheet events.
Results and Dividends
The results for the year are shown on page 92.
The following dividends were paid on the Ordinary shares
during the year:
First dividend
Second dividend
Third dividend
Fourth dividend
1.325p per share paid
on 7 June 2019
1.325p per share paid
on 6 September 2019
1.325p per share paid
on 29 November 2019
1.325p per share paid
on 28 February 2020
Since the year end, the Company has declared the
following dividend:
Quarterly dividend
1.325p per share paid
on 12 June 2020
No final dividend is being recommended on the Ordinary
shares.
Directors
The members of the Board are listed on pages 58 and
59. Alison Hadden was appointed as a Director on
21 November 2019. All other Directors served throughout
the period under review.
The Board consists solely of non-executive Directors,
each of whom is independent of the Investment Adviser
and the Company itself. The Company has no executive
directors or employees.
In accordance with Board policy, all Directors will retire
and, being eligible, will stand for re-election at the AGM,
with the exception of Alison Hadden who will be standing
for election at the forthcoming AGM, being the first AGM
since her appointment.
Performance evaluation of the Board, its Committee and
individual Directors is carried out in accordance with the
procedure set out on page 71.
No Director is under a contract of service with the
Company and no Director or any persons connected
with them had a material interest in the transactions
and arrangements of the Company. Details of Directors’
remuneration are set out in the Directors’ Remuneration
Report on pages 75 to 79.
The beneficial interests of the Directors in the securities
of the Company are set out in the Directors’ Remuneration
Report on page 79.
Through their Letters of Appointment, the Company
has provided indemnities to the Directors, to the extent
permitted by law and the Company’s Articles, in respect
of liabilities which may arise in connection with claims
relating to their performance or the performance of the
Company whilst they are Directors. There are no other
qualifying third party indemnities in force.
The general powers of the Directors are contained
within the relevant UK legislation and the Company’s
Articles of Association. The Directors are entitled to
exercise all powers of the Company, subject to any
limitations imposed by the Articles of Association or
applicable legislation. As set out on page 61, the Articles
of Association may only be amended by way of a special
resolution of shareholders.
Capital Structure
Issue of shares
At the AGM held on 5 September 2019, the Directors were
authorised to issue equity securities up to an aggregate
nominal amount of £622,461 (being approximately 10%
of the issued Ordinary share capital). The Company was
also authorised to disapply pre-emption rights in respect
of equity securities and to issue equity securities for cash
up to an aggregate nominal amount equal to £622,461
(being approximately 10% of the issued Ordinary share
capital).
60
Civitas Social Housing PLC Annual Report 2020
No Ordinary shares were issued under these authorities
during the year. Ordinary shares would be issued at a
price of not less than the net asset value per share at the
time of issue.
Proposals for the renewal of the Directors’ authority to
issue shares will be set out in the Notice of AGM.
Purchase of own shares
At the AGM held on 5 September 2019, the Directors
were granted the authority to buy back up to 93,306,960
Ordinary shares, being 14.99% of the Ordinary shares in
issue at the time of the passing of the resolution.
During the year, the Company purchased in the stock
market 815,000 shares (with a nominal value of £8,150)
to be held in treasury, at a cost of £699,000. This
represented 0.13% of the issued share capital at 31 March
2019. During the year, no shares were bought back for
cancellation.
The share purchases were made with a view to reducing
discount volatility and maintaining the middle market
price at which the shares traded close to the net asset
value.
The remaining authority to buy back up to 92,491,960
shares will expire at the conclusion of the forthcoming
AGM, when a resolution for its renewal will be proposed.
Further information will be contained in the Notice of
AGM, which will be circulated to shareholders in due
course.
Current share capital
As at 31 March 2020, and as at the date of this report,
there were 622,461,380 Ordinary shares in issue, of which
815,000 shares were held in treasury. The total voting
rights of the Company as at 31 March 2020 and 29 June
2020, the date of signing this report, were 621,646,380.
Shareholder Rights
Ordinary shares
Each Ordinary shareholder is entitled to one vote on
a show of hands and, on a poll, to one vote for every
Ordinary share held. The right to attend and vote at
general meetings of the Company may be restricted
where a shareholder has failed to provide information
pursuant to a notice served under section 793 of the
Companies Act 2006. The Ordinary shares carry the right
to receive dividends declared by the Company. Provided
the Company has satisfied all of its liabilities, during the
winding-up of the Company, the holders of Ordinary
shares are entitled to all of the surplus assets of the
Company.
Transfers of shares
There is no restriction on the transfer of the Company’s
shares other than transfers to more than four joint
transferees and transfers of shares which are not fully
paid up or where the transferor or any other person whom
the Company reasonably believes to be interested in the
transferor’s shares has been duly served with a notice
pursuant to section 793 of the Companies Act 2006.
There are no special rights with regard to control attached
to securities; no agreements between holders of securities
regarding their transfer known to the Company; and no
agreements which the Company is party to that might
affect its control following a successful takeover bid.
Articles of Association
The Company’s Articles of Association may only be
amended by a special resolution at a general meeting of
the shareholders.
Management Arrangements
Investment Adviser
The Board has appointed the Investment Adviser, Civitas
Investment Management Limited, to provide investment
advice and to manage the property portfolio and the
associated day-to-day activities, including management
of tenanted properties and marketing activities. CIM is a
specialist investor in social housing property, with a focus
on specialist social housing and has extensive experience
in social housing and real estate investment.
The duties of CIM include the sourcing of investment
opportunities that meet the investment criteria of
the Company, controlling the acquisition of approved
properties, management of all properties within the
portfolio, ongoing monitoring of the properties and
tenants, maintaining compliance with all relevant rules
and regulations, and providing marketing and investor
relations services to the Company.
Details of the fees payable to the Investment Adviser are
described in note 8 of the financial statements. As set out
in the 2019 Annual Report of the Company, with effect
from 26 April 2019, the basis for the calculation of the
Investment Adviser’s fees was changed from Portfolio
NAV to IFRS NAV.
The agreement with CIM is terminable on not less than
12 months’ notice by either party, such notice not to
expire earlier than 30 May 2024.
The performance of the Investment Adviser has been
reviewed on an ongoing basis throughout the period
by the Board at its quarterly meetings. A formal annual
Civitas Social Housing PLC Annual Report 2020
61
Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Report of the Directors continued
evaluation is also carried out by the Audit and Management
Engagement Committee. The Board considers a number
of factors including investment performance, the quality
and quantity of investment opportunities presented,
the skills and experience of key staff and the capability
and resources of the Investment Adviser to deliver
satisfactory performance for the Company. The Board is
satisfied with the performance of the Investment Adviser
and considers its continued appointment to be in the best
interests of the Company and its shareholders.
AIFM
G10 Capital Limited (“G10” or the “AIFM”) has been
appointed as the Company’s AIFM with effect from 24
August 2017. The AIFM performs certain risk management
functions for the Company and oversees the portfolio
management functions exercised by CIM. G10 is part of
the Luxembourg-based IQ-EQ Group, which provides
professional services to the finance industry. The AIFM
receives an annual management fee of 0.03% of the total
Company NAV for its services, subject to a minimum of
£96,000 per annum, and the agreement is terminable on
three months’ notice by either party.
Depositary
Indos Financial Limited was appointed as the Company’s
Depositary with effect from 1 June 2018. The Depositary
provides cash monitoring, safekeeping and asset
verification and oversight functions as prescribed by
the Alternative Investment Fund Managers Directive.
The Depositary receives an annual fee of £59,000, plus
0.006% of the first £350 million of any new equity capital
raised per annum and 0.003% of further equity raised
per annum, subject to a maximum fee of £150,000 per
annum. The agreement is terminable on six months’
notice by either party.
Administrator
The Company has appointed Link Alternative Fund
Administrators Limited (“Link”) as the Administrator
of the Company and its subsidiaries, with effect from 28
February 2018, to undertake the accountancy and other
administrative duties of the Company. Link is a specialist
administrator for investment funds, providing support
functions and expertise tailored for this industry.
The Administrator receives a fixed base fee for the
provision of its services to the Company as well as an
entitlement to additional variable fees for duties relating
to corporate activities. The agreement is terminable on at
least six months’ notice by either party.
The duties of the Administrator include the maintenance
of all Company and subsidiary books and records,
excluding those maintained by the Investment Adviser,
monitoring compliance with applicable relevant rules and
regulations and other administrative duties as required.
Company Secretary
Link Company Matters Limited was appointed as the
Company Secretary to the Company with effect from
28 March 2018. The Secretary receives a fixed fee for the
provision of its services to the Company. The agreement
was for an initial period of one year and thereafter
automatically renews for successive periods of 12 months,
unless terminated by either party on at least six months’
notice.
Review of service providers
The performance of the service providers is reviewed on
an ongoing basis throughout the period by the Audit and
Management Engagement Committee. The Committee
considers a number of factors including performance
of duties, the skills and experience of key staff, and the
capability and resources of the service provider to deliver
satisfactory performance for the Company. The Board is
satisfied with the performance of the service providers
appointed by the Company and considers their continued
appointment to be in the best interests of the Company
and its shareholders.
Substantial Shareholdings
At 31 March 2020, the Company had been informed of the
following disclosable interests in the share capital of the
Company:
Number of
Ordinary
shares
Percentage of
Total Voting
Rights
Investec Wealth & Investment
Limited
62,653,811
East Riding of Yorkshire Council
38,043,800
Massachusetts Financial
Services Company
Standard Life Aberdeen plc
31,210,592
30,492,544
10.08
6.12
5.02
4.91
No other changes have been notified between 31 March
2020 and the date of this report.
62
Civitas Social Housing PLC Annual Report 2020
Continuation Vote
The Company has an unlimited life. However, in
accordance with its Articles, the Board will propose an
ordinary resolution for the Company to continue in its
current form to shareholders at the AGM to be held in
2022, and at the AGM held every five years thereafter.
If the resolution is not passed, the Directors intend to
formulate proposals to be put to shareholders within
six months of such resolution being defeated for the
reorganisation or reconstruction of the Company.
Listing Rule 9.8.4
The listing rule 9.8.4 outlines a series of requirements for
listed companies to disclose certain items. The Directors
confirm that there are no disclosures required in relation
to Listing Rule 9.8.4.
Financial Instruments
The Company utilises financial instruments in its
operations. The financial instruments of the Company at
31 March 2020 comprised trade receivables and payables,
other debtors, cash and cash equivalents, non-current
borrowings, current borrowings and derivatives.
Other than its fixed interest rate debt facilities, it is the
Directors’ opinion that the carrying value of all financial
instruments on the statement of financial position is
equal to their fair value.
Details of the hedging on the NatWest loan can be found
in notes 20 and 21 to the financial statements. For a
more detailed analysis of the Company’s financial risk
management, please refer to note 34 of the financial
statements.
Greenhouse Gas Emissions
The Board has considered the requirements to disclose
the annual quantity of emissions in tonnes of carbon
dioxide equivalent for activities for which the Company
is responsible. The Board believes that the Company
has, from a formal reporting perspective, no reportable
emissions as this reporting falls under the lessees’
responsibility as part of the terms of their fully repairing
and insuring leases; emissions produced from either
the registered office of the Company or from the offices
of other service providers are deemed to fall under the
responsibility of other parties; and the Company has not
leased or owned any vehicles which fall inside the scope
of the GHG Protocol Corporate Standard.
Regardless of the obligations of other parties, the
Company takes the issue of environmental enhancement
and emissions seriously as part of its overall ESG strategy
and is evaluating the portfolio, working with housing
managers, to consider where it can bring about further
enhancements and improvements.
Charitable Donations
In addition to its direct investments, the Company
plays a broader part within the communities in which it
works. Whilst recognising the practical limitations that
all financial investors face, Civitas supports voluntary
organisations that are active within the broader housing
and homelessness environment. Civitas also intends, as
part of its broader financial and operational reporting, to
provide a commentary on the positive social change and
impact that results from the investments that have been
made.
The following charitable donations were made during the
year:
• The Company is continuing its partnership with the
national homelessness charity, Crisis, for a third
year, and has committed to a contribution of £40,000
to support its “Renting Ready” programme across the
UK in 2020.
• A donation of £15,000 was made to the Choir with
No Name to support the Choir with No Name across
various locations. The Choir with No Name works
with homeless and disadvantaged people and was
founded on the premise that singing and taking part
in group activities helps to build skills and confidence
for the future. From an initial choir in North London
in 2008, the Choir with No Name has expanded to
Birmingham, South London and Liverpool.
• As part of the continuing efforts to build and
contribute to partnerships with organisations that
share the Company’s objectives, a donation of £5,000
was made to the House of St Barnabas, the first
not-for-profit members’ club run to support people
affected by homelessness.
• A donation of £3,000 was made to sponsor Women
in Social Housing, a membership-based network for
women who worked across the UK social housing
market.
Civitas Social Housing PLC Annual Report 2020
63
Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information PricewaterhouseCoopers
its
willingness to continue to act as auditor of the Company
and a resolution for their re-appointment will be
proposed at the 2020 Annual General Meeting.
LLP has
expressed
Approval
The Report of the Directors has been approved by the
Board.
By order of the Board
Link Company Matters Limited
Company Secretary
29 June 2020
Report of the Directors continued
Auditor
In the case of each Director in office at the date the Report
of the Directors is approved:
•
•
so far as the Director is aware, there is no relevant
audit information of which the Group and Company’s
auditors are unaware; and
they have taken all the steps that they ought to have
taken as a Director in order to make themselves
aware of any relevant audit information and to
establish that the Group and Company’s auditors are
aware of that information.
64
Civitas Social Housing PLC Annual Report 2020
Report of the Audit and Management Engagement Committee
Caroline Gulliver
Chairman, Audit
and Management
Engagement Committee
Introduction
The Audit and Management Engagement Committee
(the “Audit Committee”) oversees the financial reporting
process for the Company, with consideration of the
internal controls and risk management of the Company,
and oversight of the Company’s compliance with
accounting standards and regulatory requirements.
Composition
The Audit Committee is chaired by Caroline Gulliver.
The other members of the Audit Committee are Michael
Wrobel, Alastair Moss, Peter Baxter and Alison Hadden.
The Audit Committee operates within written terms of
reference as determined by the Board. The Board considers
that at least one member has recent and relevant financial
experience and that the Committee as a whole has
competence relevant to the sector in which the Company
operates.
Meetings
The Audit Committee meets twice a year; on both
occasions, part of the meeting is held with the external
auditor without the Investment Adviser present.
Responsibilities of the Audit Committee:
The principal functions of the Audit Committee are to:
•
•
oversee the financial reporting process for the
Company and monitor the integrity of the financial
statements of the Company and the Group, including
their compliance with accounting standards and
regulatory requirements;
to advise the Board, where requested, on whether
the Annual Report and financial statements, taken
as a whole, are fair, balanced and understandable and
provide the information necessary for shareholders
to assess the Company’s position and performance,
business model and strategy;
•
review and monitor the internal financial control and
risk management systems of the Company;
• monitor and review annually whether an internal
audit function is required;
•
•
review the Investment Adviser’s whistleblowing
arrangements;
the appointment,
approve
re-appointment or
removal of the external auditor, and approve their
remuneration and terms of engagement;
• manage the relationship between the Company
and the external auditor, including reviewing their
independence and objectivity and the effectiveness of
the audit process;
•
•
develop and implement a policy on the engagement
of the external auditor to supply non-audit services;
and
review and monitor the performance of, and
contractual arrangements with, the Investment
Adviser, the AIFM and other service providers.
It is within the Audit Committee’s terms of reference for
its members to seek independent professional advice, at
the Company’s expense, as required in the furtherance of
its duties.
During the period, the Audit Committee carried out its
duties as specified in the terms of reference, as follows:
•
discussed and agreed the scope of the audit and the
audit plan with the external auditor;
•
agreed the remuneration of the external auditor;
Civitas Social Housing PLC Annual Report 2020
65
Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Report of the Audit and Management Engagement Committee continued
•
reviewed
the half-year and annual financial
statements and discussed the results of the audit with
the external auditor;
• welcomed the results of the review of the Company’s
Annual Report and Accounts for the year ended
31 March 2019, undertaken by the Conduct Committee
of the FRC. Further information about this is set out
on page 49;
•
•
•
reviewed the internal controls of the Company and the
Risk Matrix, which is reviewed by the Committee on a
six-monthly basis, and carried out an assessment of
the effectiveness of the Company’s risk management
and internal control systems; the Committee has
not identified nor been advised of any failings or
weaknesses which it has determined to be significant;
reviewed the performance of the Investment Adviser,
the AIFM and other key service providers and made a
recommendation to the Board about their continuing
engagement; and
during the year, the Directors monitored the
Company’s whistleblowing
arrangements. No
incidents were raised during the period.
Performance Evaluation
The process for the evaluation of the performance of the
Committee is disclosed on page 71.
Significant Financial Reporting Issue – Valuation of
Investment Property
After discussion with the Investment Adviser, the
Audit Committee has determined that the key risks of
misstatement of the Company financial statements relate
to the valuation of investment property.
This issue was discussed with the Investment Adviser
during the period. It was also discussed with the external
auditor at the time the Audit Committee reviewed and
agreed the external auditor’s Company audit plan, when
the external auditor reviewed the half-year financial
statements and also at both the planning stage and
conclusion of the annual audit of the financial statements.
As further explained in note 15 to the financial statements,
the approach adopted by the Company is to recognise
investment property at fair value, with the fair value
of the property being based on valuations performed
by independent valuers, Jones Lang LaSalle Limited.
The revaluation of investment property gave rise to net
revaluation gains of £9.4 million in the period.
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Civitas Social Housing PLC Annual Report 2020
to
Investment Adviser confirmed
The
the Audit
Committee that the method of valuation has been applied
consistently throughout the year and none of the Audit
Committee’s enquiries, nor the auditor’s work, identified
any errors or inconsistencies that were material in the
context of the financial statements as a whole.
The Investment Adviser also informed the Audit Committee
that, during the course of the period, the external valuer
was regularly challenged by the Investment Adviser on
the assumptions used in the valuation of the Company’s
portfolio, to ensure robust and appropriate methods were
being applied. The Audit Committee discussed the areas
of challenge with the Investment Adviser to determine
that sufficient challenge had been made.
Both the IFRS and Portfolio NAV valuations are subject
to the “Material Valuation Uncertainty due to Novel
Coronavirus (COVID-19)” clause in place at 31 March
2020 and removed with effect from 28 May 2020 that
professional valuation firms, including Jones Lang LaSalle
Limited (“JLL”), are adopting across the world in respect of
valuations at this time.
In this regard, the Board is pleased to note that JLL have
confirmed to the Company that the declaration "does not
mean that the valuation cannot be relied upon" and that
specialist supported housing "remains an attractive sector
and arguably more so in the current climate".
Misstatements
The Investment Adviser confirmed to the Audit Committee
that it was not aware of any material or immaterial
misstatements made intentionally to achieve a particular
presentation. A prior year adjustment has been made
in the Company accounts relating to the year ended 31
March 2018, specifically, dividends amounting to £91.4m,
representing a return of capital, which was incorrectly
treated as equity and has now been adjusted by way of a
reduction in investments in subsidiaries. Further details
can be found in note 3 of the Company accounts. The
external auditor reported to the Audit Committee that
they had found no material misstatements in the course
of their work. The Audit Committee confirms that it is
satisfied that the auditor has fulfilled its responsibilities
with diligence and professional scepticism.
Conclusion in respect of the Annual Report and
Financial Statements
Having reviewed the presentations and reports from
the Investment Adviser and having consulted where
necessary with the external auditor, the Audit Committee
is satisfied that the financial statements appropriately
address the critical judgements and key estimates, both
is to avoid the provision of non-audit services by the
auditor, other than the review of the half-yearly report, as
these have the potential to compromise the independence
of the auditor. The Audit Committee acknowledges that in
certain situations it may be appropriate for the external
auditor to provide such services to the Company for a
variety of reasons including cost effectiveness, depth of
knowledge and the ongoing relationship between the
Board and the external auditor. All non-audit fees are
approved by the Audit Committee in advance. Where
non-audit fee levels are considered significant, the
Audit Committee considers the appropriateness of the
independence safeguards put in place by the auditor.
The total fees paid to PricewaterhouseCoopers LLP
during the period, net of VAT, totalled £246,000 (2019:
£221,000), of which £51,000 (2019: £41,000) was received
for non-audit services. For the year ended 31 March 2020,
the non-audit service fees related to the review of the
half-yearly report (year ended 31 March 2019: non-audit
service fees related to the review of the half-yearly report
and the review of the C share conversion calculation).
Note 9 to the financial statements details all services
provided and total fees paid to PricewaterhouseCoopers
LLP for the financial year ended 31 March 2020. The Audit
Committee considers PricewaterhouseCoopers LLP to be
independent of the Company.
Re-appointment of the Auditor
Taking into account the performance and effectiveness of
the Auditor and the confirmation of their independence,
the Audit Committee has recommended to the Board that
a resolution to re-appoint PricewaterhouseCoopers LLP
as the Company’s auditor be put to the shareholders at
the forthcoming AGM.
CMA Order
The Company has complied with the provisions of the
CMA Order throughout the year ended 31 March 2020.
Caroline Gulliver
Chairman, Audit
Committee
29 June 2020
and Management Engagement
in respect of the amounts reported and the disclosures.
The Audit Committee is also satisfied that the significant
assumptions used for determining the value of assets
and liabilities have been appropriately scrutinised and
challenged and are sufficiently robust. Accordingly, the
Audit Committee has concluded that the Annual Report
and financial statements, taken as a whole, are fair,
balanced and understandable, and has recommended
their approval to the Board on that basis.
Auditor Appointment and Tenure
PricewaterhouseCoopers LLP was appointed as auditor of
the Company on 31 March 2017, and their audit of these
financial statements is the fourth audit they have carried
out since appointment. Sandra Dowling is the senior
statutory auditor. A competitive tender must be carried
out by the Company at least every ten years. The Company
is therefore required to carry out a tender no later than in
respect of the financial year ending 31 March 2026.
Assessment of the Effectiveness of the External Audit
Process
As part of its annual review of the effectiveness of the
external audit process, the Audit Committee obtained
assurance on the quality of the external audit from its own
evaluation, the audit feedback documentation and from
correspondence and discussions with the audit partner,
Investment Adviser and the Administrator. The Auditor
demonstrated a good understanding of the Group, and had
identified and focused on the areas of greatest financial
reporting risk. Its reporting to the Audit Committee
was clear, open and thorough. The Audit Committee is
satisfied that the Auditor has demonstrated professional
scepticism and appropriately challenged management's
judgements. The FRC's Audit Quality Inspections Report
on the audits carried out by PricewaterhouseCoopers LLP
was also considered by the Audit Committee. On the basis
of these factors and assessments, the Audit Committee
has concluded that the external audit process has been
effective.
The Audit Committee assessed the external auditor’s
independence, qualifications, relevant experience, and
effectiveness of audit procedures. In advance of each
audit, the Audit Committee obtains confirmation from
the external auditor that they remain independent and
that the level of non-audit fees are not an independence
threat.
Non-audit Services
The Audit Committee has put into place a policy for the
provision of non-audit services to the Company by the
auditor. The general intention of the Audit Committee
Civitas Social Housing PLC Annual Report 2020
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Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Corporate Governance Statement
Background
The FCA Listing Rules and Disclosure Guidance and
Transparency Rules require listed companies to disclose
how they have applied the principles and complied with
the provisions of the corporate governance code to which
the issuer is subject. The provisions of the UK Corporate
Governance Code (“UK Code”), as issued by the FRC in July
2018, are applicable to the year under review and can be
viewed at www.frc.org.uk.
considered
the principles and
The Board has
recommendations of
the AIC Code of Corporate
Governance (“AIC Code”) as issued by the AIC in February
2019. The AIC Code addresses all the principles set out in
the UK Code, as well as setting out additional principles
and recommendations on issues that are of specific
relevance to the Company as an investment company.
The FRC has confirmed that AIC member companies
who report against the AIC Code will be meeting their
obligations in relation to the UK Code and the associated
disclosure requirements of the FCA. The AIC Code can be
viewed at www.theaic.co.uk.
The Board considers that reporting against the principles
and recommendations of the AIC Code provides
shareholders with full details about the Company’s
corporate governance compliance.
Statement of Compliance
Except as set out below and on the following pages, the
Company has complied with the provisions of the AIC
Code throughout the year ended 31 March 2020.
The UK Code includes provisions relating to:
•
•
the role of the chief executive; and
executive directors’ remuneration.
The Board considers that these provisions are not relevant
to the position of the Company, being an externally
managed investment company. In particular, all of the
Company’s day-to-day management and administrative
functions are outsourced to third parties. As a result,
the Company has no executive Directors, employees or
internal operations. The Company has therefore not
reported further in respect of these provisions.
investment activity and performance, and the supervision
of the Investment Adviser which is responsible for the
day-to-day management of the portfolio assets.
The Board consists of five non-executive Directors. It
seeks to ensure that it has an appropriate balance of
skills and experience, and considers that, collectively, it
has substantial recent and relevant experience of public
company management, the UK real estate sector and
investment companies. All the Directors are independent
of the Investment Adviser and the AIFM.
In view of the continuing growth in the size of the
Company and its portfolio, the Board appointed Alison
Hadden as a Director of the Company with effect from
21 November 2019. The Company engaged Odgers
Berndtson, an external search consultancy independent
of the Company and the Directors, to assist it with this
appointment. The Directors considered the desired
background and expertise of the new Director in order to
complement the skills already on the Board and a shortlist
of potential candidates was then provided by Odgers
Berndtson. The Directors met with a number of these
candidates, following which Ms Hadden was appointed to
the Board.
The Board has adopted a schedule of matters reserved for
decision by the Board, including inter alia, determining the
Company’s investment objective and policy, and gearing
and dividend policies. This schedule of matters reserved
for the Board is available on the Company’s website.
The Directors ensure that risks are effectively managed
through robust policies and procedures, supported by
the right values and culture. The Board’s primary focus
is the sustainable long-term success of the Group to
deliver value for shareholders, taking into account other
stakeholders.
The Board is responsible for investment decisions,
other than to the extent delegated to the AIFM
and/or the Investment Adviser, and the appointment,
supervision and monitoring of the Company’s service
providers, including amongst others, the AIFM and the
Investment Adviser. The Board is responsible for the
interim and annual financial statements of the Company
and, in conjunction with the AIFM, also approves the
periodic calculation of the Net Asset Value.
The Board
Under the leadership of the Chairman, the Board
is responsible for the effective stewardship of the
Company’s affairs, including corporate strategy, corporate
governance, risk assessment and overall investment policy.
The Directors have overall responsibility for the review of
The Chairman, Michael Wrobel, was independent of
the Investment Adviser at the time of his appointment
and is deemed by his fellow Directors to continue to be
independent in character and judgement and free of
any conflicting relationships. He leads the Board and is
responsible for its overall effectiveness in directing the
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Civitas Social Housing PLC Annual Report 2020
Company. In liaison with the Company Secretary, he
ensures that the Directors receive accurate, timely and
clear information. Mr Wrobel considers himself to have
sufficient time to commit to the Group’s affairs. He has no
significant commitments other than those disclosed in his
biography on page 58. The role and responsibilities of the
Chairman are clearly defined and set out in writing, a copy
of which is available on the Company’s website.
Peter Baxter is the Senior Independent Director of the
Company. He provides a sounding board for the Chairman
and serves as an intermediary for the other Directors
and shareholders. He also provides a channel for any
shareholder concerns regarding the Chairman and takes
the lead in the annual evaluation of the Chairman by the
other Directors. The role and responsibilities of the Senior
Independent Director are clearly defined and set out in
writing, a copy of which is available on the Company’s
website.
The Board has no set policy for the length of tenure of
Directors although it keeps in mind the recommendations
of the AIC Code during succession planning. It is the
Board’s policy for all Directors to stand for re-election
for election/re-election
annually. Recommendations
of Directors are made on an individual basis following
rigorous review. Directors are appointed under letters of
appointment, copies of which are available for inspection
at the registered office of the Company and at the AGM.
Board Operation and Culture
The Board meets formally at least quarterly, but also
meets on an ad hoc basis, typically every month, for
the purpose of considering potential transactions and
associated due diligence. The Board will meet to consider
and, if appropriate, approve the acquisition of properties
recommended by the Investment Adviser. The Investment
Adviser prepares an Investment Proposal Paper (“IPP”)
in respect of the proposed acquisitions which includes
details of the transaction and due diligence reports. Upon
review of the IPP, the Board contemplates the structure
of the transaction, any risks attached to the proposed
transaction and how these would be mitigated/managed,
and the impact of the transaction on the value of the
Group’s property portfolio, following advice from the
valuers. The Board of Directors has final approval for all
acquisitions.
For the purpose of monitoring the portfolio, the Board
receives periodic reports from the AIFM and the
Investment Adviser, detailing the performance of the
Company. The Board delegates certain responsibilities
and functions to the Audit and Management Engagement
Committee, which has written terms of reference.
To assist the Board in the day-to-day operations of
the Company, arrangements have been put in place to
delegate authority for performing certain operations to
the AIFM, the Investment Adviser and other third-party
service providers, such as the Administrator and the
Company Secretary.
judgement,
The Chairman demonstrates objective
promotes a culture of openness and debate, and facilitates
effective contributions by all Directors. The Directors
are required to act with integrity, lead by example and
promote this culture within the Company.
The Board seeks to ensure the alignment of the Company’s
purpose, values and strategy with the culture of openness,
debate and integrity through ongoing dialogue, and
engagement with the Investment Adviser and the
Company’s other service providers. The Board and the
Investment Adviser operate in a supportive, co-operative
and open environment.
The culture of the Board is considered as part of the annual
performance evaluation process which is undertaken
by each Director. The culture of the Company’s service
providers is also considered by the Audit and Management
Engagement Committee during the annual review of their
performance and while considering their continuing
appointment.
The Company maintains Directors’ and Officers’ liability
insurance on behalf of the Directors at the expense
of the Company. The Board has agreed arrangements
whereby Directors may take independent professional
advice in the furtherance of their duties. The Company
has also indemnified the Directors in accordance with the
provisions of the Articles of Association.
Independence of Directors
The independence of all Directors is reviewed as part of
the annual assessment of the Board.
The Board has determined that each Director remains
independent in character and judgement and is free of
any relationships or circumstances that threaten their
independence of the Company or its Investment Adviser. In
particular, none of the Directors have ever been executives
of the Company or the Investment Adviser, have had a
material direct or indirect relationship with the Company
or its stakeholders, have received disproportionate fees,
have close family relationships with stakeholders or
represent significant shareholders.
Civitas Social Housing PLC Annual Report 2020
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Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Corporate Governance Statement continued
Board Meetings
A formal agenda is approved by the Chairman and circulated
by the Company Secretary in advance of each meeting to
the non-executive Directors and other attendees. A typical
agenda includes: an analysis of portfolio performance
and exposure; an update on the investment pipeline; the
Company’s financial performance; updates on investor
relations; statutory and regulatory compliance; and any
corporate governance matters. Relevant papers on the
items included on the agenda are circulated in good time
to the members of the Board, in advance of the meeting.
The Investment Adviser attends the Board meetings
together with representatives from the AIFM and
Company Secretary. Representatives of the Company’s
other advisers are also invited to attend Board meetings
from time to time.
The number of Board and Audit and Management
Engagement Committee meetings held during the year
ended 31 March 2020 along with the attendance of the
Directors is set out below:
Audit and
Management
Engagement
Committee
Board
Number
entitled to
attend
Number
attended
Number
entitled to
attend
Number
attended
Michael Wrobel
Alastair Moss
Alison Hadden*
Caroline Gulliver
Peter Baxter
15
15
3
15
15
15
15
3
15
13**
2
2
1
2
2
2
2
1
2
1**
* Appointed as a Director on 21 November 2019.
** Mr Baxter was unable to attend two Board meetings and one
Audit and Management Engagement Committee meeting due
to personal circumstances. Of these, one Board meeting and
the Audit and Management Engagement Committee meeting
were held on the same day.
Audit Committee
The Company operates through the Board and its main
Board committee, namely the Audit and Management
Engagement Committee (“Audit Committee”). The Board
evaluates the membership of its Board committees on
an annual basis. All Directors are a member of the Audit
Committee. Caroline Gulliver, the Chairman of the Audit
Committee, is a Chartered Accountant and is considered
to have recent and relevant financial experience. The
Audit Committee as a whole has competence relevant to
the real estate investment company sector. The Chairman
is a member of the Audit Committee. but does not chair
it. His membership of the Audit Committee is considered
appropriate given the small size of the Board and the
Chairman’s knowledge of the financial services industry.
A copy of the terms of reference of the Audit Committee
is available from the Secretary and on the Company’s
website.
The Audit Committee meets at least twice a year and
reviews the scope and results of the external audit, its cost
effectiveness and the independence and objectivity of the
external auditors, including the provision of non-audit
services.
The Audit Committee also reviews the terms of the AIFM
agreement and the Investment Adviser Agreement, and
examines the effectiveness of the Company’s internal
control systems and the performance of the AIFM,
Investment Adviser, Administrator, Depositary, Company
Secretary and Registrar, and other service providers.
The Report of the Audit and Management Engagement
Committee is set out on pages 65 to 67.
Remuneration and Nomination Committees
Given the size of the Board and the nature of the
Company, it is not deemed necessary to form a separate
remuneration or nomination committee. The Board as a
whole will assess the remuneration and composition of
the Board and whether it has the correct balance of skills,
experience, knowledge and independence to operate
effectively.
Diversity
The Board recognises the benefits of diversity and has
adopted a diversity policy. All Board appointments will
be made on merit and have regard to diversity in relation
to factors such as gender, ethnicity, skills, background
and experience. The Board does not consider it to be in
the interests of the Company and its shareholders to set
prescriptive diversity criteria or targets, but will continue
to monitor diversity and take such steps as it considers
appropriate to maintain its position as a meritocratic and
diverse business. See also the Strategic Report on page 42.
Induction of New Directors
A procedure for the induction of new Directors has been
established, including the provision of an induction pack
containing relevant information about the Company,
its processes and procedures and meetings with the
Chairman and relevant persons at the Investment Adviser.
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Civitas Social Housing PLC Annual Report 2020
Performance Evaluation
The Board undertakes an annual internal performance
evaluation by way of questionnaires designed to assess
the strengths and independence of the Board and the
Chairman, individual Directors and the performance of
the Board’s Committee. The areas considered are:
•
•
•
the frequency and effectiveness of Board and
Committee meetings;
the size, composition and relevant experience of the
Board;
the independence and performance of the Directors
and the Board; and
•
the training requirements of each Director.
The evaluation process is conducted by the Chairman.
Peter Baxter, as the Senior Independent Director, leads
the appraisal of the Chairman. The Board is cognisant of
the advantages of an external performance evaluation and
will keep this option under regular review.
The Company seeks to ensure that the Board has a balance
of skills and experience that are complementary and
enable the Board to operate efficiently.
All of the Directors have assessed their other ongoing
commitments and are satisfied that they can commit the
time necessary to execute their duties to the Company.
No significant issues were identified during the evaluation
process. The Board considers that all of the current
Directors make an effective contribution and have the
requisite skills and experience to continue to provide
able leadership and direction for the Company. It was
agreed that all Directors should be recommended for
election/re-election at the forthcoming AGM.
Conflicts of Interest
All Directors have a statutory responsibility to avoid
situations where a conflict of interest exists, or may exist,
between the Company and an entity that the Director is
either directly or indirectly involved with. The Board has
procedures in place to identify potential conflicts and
resolve any that should arise. In the case of a conflict of
interest, the nature and extent of the conflict are assessed
against the existing internal control structure, and the
results of this assessment and actions taken to resolve the
conflict are documented in the minutes of the relevant
Board meeting. No conflicts of interest arose during the
period.
Health and Safety
Health and safety is of prime importance to the
Company and is considered equally with all other
business management activities to ensure protection of
stakeholders, be they tenants, advisers, suppliers, visitors
or others. The Board regularly discusses health and safety
issues with the Investment Adviser.
The Company is committed to fostering the highest
standards in health and safety as it believes that all
unsafe acts and unsafe conditions are preventable. All
our stakeholders have a responsibility to support the aim
of ensuring a secure and safe environment, and all our
stakeholders are tasked with responsibility for achieving
this commitment.
Risk Management and Internal Control
The Directors are responsible for the systems of internal
control relating to the Company and its subsidiaries,
and the reliability of the financial reporting process and
for reviewing their effectiveness, ensuring that the risk
management and control processes are embedded in
day-to-day operations.
An ongoing formal process, in accordance with the FRC
Guidance on Risk Management, Internal Control and
Related Financial and Business Reporting, has been
established for identifying, evaluating and managing
the principal and other risks most likely to impact the
Group. This process, which is regularly reviewed, together
with key procedures established with a view to providing
effective financial control, has been in place throughout
the year ended 31 March 2020 and up to the date of this
Report.
The Audit Committee has in place a formal procedure
for performing an ongoing robust assessment of the
Group’s risk management and internal control systems. A
risk matrix has been established against which the risks
identified and the controls in place to mitigate those risks
can be monitored. The risks are assessed on the basis
of the likelihood of them happening, the impact on the
business if they were to occur and the effectiveness of
the controls in place to mitigate them. In arriving at its
judgement of what risks the Company faces, the Board has
considered the Company’s operations in the light of the
following factors:
•
the nature and extent of risks which it regards as
acceptable for the Company to bear within its overall
business objective;
Civitas Social Housing PLC Annual Report 2020
71
Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Corporate Governance Statement continued
•
•
•
the threat of such risks becoming reality;
the Company’s ability to reduce the incidence and
impact of risk on its performance; and
the cost to the Company and benefits related to the
Company and third parties operating the relevant
controls.
The risk matrix is reviewed twice a year by the Audit
Committee and at other times as necessary. The principal
risks facing the Company are set out on pages 52 to 54 of
this Annual Report, together with the processes applied to
mitigate those risks.
The Audit Committee is mindful of these key risks as
well as considering evolving risks such as cyber security
and political risk which have the potential to affect the
Group. The Audit Committee ensures that the Board
takes appropriate advice and debates the issues facing the
Group.
At each Board meeting, the Board receives reports from
the Investment Adviser, the Administrator, the AIFM and
the Broker in respect of compliance activities, Company
financial performance and financial position.
The controls, which are regularly reviewed, aim to ensure
that the assets of the Company are safeguarded, proper
accounting records are maintained, and the financial
information used within the business and for publication
is reliable. The risk management process and Company
systems of internal controls are designed to manage
rather than eliminate the risk of failure to achieve the
Company’s objectives and can only provide reasonable,
but not absolute, assurance against material misstatement
or loss.
The Directors have carried out a review of the effectiveness
of the Company’s risk management and internal control
systems as they have operated over the period and up to
the date of approval of the Annual Report. During the
course of the review, the Board has not identified nor
been advised of any failings or weaknesses which it has
determined to be significant.
The Directors have considered the appropriateness of
establishing an internal audit function and, having regard
to the structure and nature of the Company’s activities,
has concluded that the function is unnecessary. The Audit
Committee will review on an annual basis the need for
this function and make appropriate recommendations to
the Board.
Financial Reporting
The Board operates the following key controls in relation
to financial reporting:
•
•
•
the Board and Audit Committee members review
quarterly management reports and supporting
documents that are provided by the Investment
Adviser;
the Board has procedures in place for the approval of
expenses and payments to third parties; and
the Audit Committee members and Board review all
financial information and announcements prior to
publication.
Corporate Responsibility
The Company regards corporate responsibility as integral
to how it conducts its business. It is committed to being
a good corporate citizen and behaving responsibly with a
demonstrated transparency of approach.
To achieve this goal, the Company applies the following
principles to its operations:
Business conduct
The Company’s investment decisions are made on the
basis of generating shareholder value and ensuring
the long-term success of the business. The selection of
suppliers will be made independently by the Company’s
Directors upon advice from the Investment Adviser and
in the best interests of the Company. The Board will
ensure that appropriate controls are in place to guarantee
independence from the supply chain.
All customers and suppliers will be treated fairly and
responsibly.
The Company will not provide financial support to
political parties or politicians.
The Company is resolutely opposed to bribery and
corruption. The Company will not use any illegal or
improper means to further its business interests, nor will
it accept any forms of inducements intended to influence
its investment decisions.
Governance
The Company will protect the interests of its shareholders
and other stakeholders through compliance with relevant
legal and regulatory environments, and through effective
management of business risk and opportunity.
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Civitas Social Housing PLC Annual Report 2020
The Company may be required to make statements or
provide reports to regulatory bodies, government agencies
or other government departments, as well as to the media.
The Company ensures that such statements or reports
are correct, timely, and not misleading, and that they are
delivered through the appropriate channels.
The Company provides through its website, its Annual
Report, other statements and any appropriate information
to enable shareholders and stakeholders to assess
the performance of its business. It complies with the
applicable laws and regulations concerning the disclosure
of information relating to the Company.
Communities
The Company aims to ensure that its properties which are
associated with the provision of health services provide
significant value-adding facilities in the communities
where it invests. The Company aims to ensure that its
properties are applied optimally for the use and benefit
of communities.
Relations with Shareholders
Details regarding the Company’s engagement with its
shareholders are set out within the Strategic Report on
page 46.
Approval
The Corporate Governance Statement has been approved
by the Board.
By order of the Board
Link Company Matters Limited
Company Secretary
29 June 2020
The Board will ensure that its members are truly
independent, are competent and have the resources and
support required to perform their duties optimally, and
that the Board’s decisions are made in the best interests
of the Company. The performance of the Board will be
regularly reviewed, and Directors will retire as and when
deemed appropriate by the Board in accordance with best
practice.
Socially responsible investment
The Board aims to be a socially responsible investor
and believes that it is important to invest in specialist
social housing properties in a responsible manner in
respect of environmental, ethical and social issues. The
Investment Adviser’s evaluation procedure and analysis
of the properties within the portfolio includes research
and appraisal of such matters, and takes into account
environmental and social policies and other business
issues.
Further details on the social impact of the Company’s
investments are included in the extract from the Good
Economy Impact Report in the Strategic Report.
The Company recognises that environmental protection,
resource efficiency and sustainable development are
necessary to ensure environmental damage is limited and
furthermore that where relevant, positive actions should
be taken to improve the existing environment for future
generations.
Transparency
The Company aims to be transparent, and to ensure
that
its shareholders and
other stakeholders in a manner that enhances their
understanding of its business.
it communicates with
The Company maintains accounting documentation
that clearly identifies the true nature of all business
transactions, assets and liabilities, in line with the relevant
regulatory, accounting, and legal requirements. No record
or entry is knowingly false, distorted, incomplete, or
suppressed.
All reporting is materially accurate and complete and in
compliance in all material respects with stated accounting
policies and procedures. The Company does not knowingly
misstate or misrepresent management information for
any reason, and the Company expects the same to apply
to its suppliers.
Civitas Social Housing PLC Annual Report 2020
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Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information 74
Civitas Social Housing PLC Annual Report 2020
Directors’ Remuneration Report
Directors’ Remuneration Policy
Introduction
The remuneration policy of the Company is set by
the Board. A resolution to approve the Remuneration
Policy was passed at the AGM of the Company held on
5 September 2019. The policy provisions set out below will
apply until they are next put to shareholders for renewal
of that approval, which must be at intervals of not more
than three years, or if proposals are made to vary the
policy. The Remuneration Policy is binding and sets the
parameters within which Directors' remuneration may be
set.
Policy
The remuneration policy of the Company is to pay its
non-executive Directors fees that are appropriate for the
role and the amount of time spent in discharging their
duties, that are broadly in line with those of comparable
real estate investment companies and that are sufficient
to attract and retain suitably qualified and experienced
individuals.
The fees paid will be reviewed on an annual basis and
may also be reviewed when new non-executive Directors
are recruited to the Board. The Directors of the Company
are entitled to such rates of annual fees as the Board at
its discretion shall from time to time determine. The
Chairman of the Board and the Audit and Management
Engagement Committee Chairman are entitled to receive
fees at a higher level than those of the other Directors,
reflecting their additional duties and responsibilities.
Annual fees are pro-rated where a change takes place
during the financial year.
In addition to the annual fee, under the Company's
Articles of Association, if any Director is requested to
perform any special duties or services outside his ordinary
duties as a Director, he may be paid such reasonable
additional remuneration as the Board may from time to
time determine.
Directors’ Remuneration Components
Component
Director
Rate at 1 April 2020 Purpose of Remuneration
Annual fee
Chairman
£50,000
Commitment as Chairman of a public company1
Annual fee
Non-executive Directors
£32,000
Commitment as non-executive Directors of a public company2
Additional fee
Chairman of the Audit
and Management
Engagement Committee
£4,000
For additional responsibilities and time commitment3
Additional fee
All Directors
Discretionary
Expenses
All Directors
n/a
For extra or special services performed in their role
as a Director4
Reimbursement of expenses incurred in the
performance of duties as a Director5
Notes
1 The Company’s policy is for the Chairman of the Board to be paid a higher fee than the other Directors to reflect the more onerous role.
2 The Company’s Articles of Association limit the aggregate fees payable to the Board of Directors to £250,000 per annum.
3 The Company’s policy is for the Chairman of the Audit and Management Engagement Committee to be paid a higher fee than the other
Directors to reflect the more onerous role.
4 This is a provision of the Company’s Articles. Additional fees would only be paid in exceptional circumstances in relation to the
performance of extra or special services.
5 Directors are entitled to claim expenses in respect of duties undertaken in connection with their role as a Director.
The Company has no employees other than the Directors. Accordingly, there are no differences in policy on the remuneration of
Directors and the remuneration of employees.
No Director is entitled to receive any remuneration which is performance-related. As a result, there are no performance conditions in
relation to any elements of the Directors’ remuneration in existence to set out in this Remuneration Policy.
Civitas Social Housing PLC Annual Report 2020
75
Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Directors’ Remuneration Report continued
Directors’ and Officers’ liability insurance cover is
maintained by the Company on behalf of the Directors.
Directors are entitled to be paid all expenses properly
incurred in attending Board or shareholder meetings or
otherwise in or with a view to the performance of their
duties.
As all Directors are non-executive and there are no
employees, the Company does not operate any share
option or other long-term incentive schemes and the
Directors’ fees are not subject to any performance criteria.
No pension or other retirement benefit schemes are
operated by the Company for any of its Directors.
Service Contracts
No Director has a service contract with the Company. The
Directors are appointed under letters of appointment.
Their appointment and any subsequent termination or
retirement is subject to the Articles of Association. The
Directors’ letters of appointment provide that, upon the
termination of a Director’s appointment, that Director
must resign in writing and all records remain the property
of the Company. The Director’s appointment can be
terminated in accordance with the Articles of Association
and without compensation. There is no notice period
specified in the Articles of Association for the removal
of Directors and all Directors are subject to annual
re-election by shareholders.
Approach to Recruitment Remuneration
The remuneration package for any new Chairman or
non-executive Director will be the same as the prevailing
rates determined on the bases set out above. The Board
will not pay any introductory fee or incentive to any person
to encourage them to become a Director, but may pay the
fees of search and recruitment specialists in connection
with the appointment of any new non-executive Director.
Views of Shareholders
Any views expressed by shareholders on the fees being
paid to Directors would be taken into consideration by the
Board when reviewing levels of remuneration.
76
Civitas Social Housing PLC Annual Report 2020
Remuneration Report
The Board presents its Directors’ Remuneration Report
in respect of the year ended 31 March 2020. The Board
has prepared this report in accordance with the Large
and Medium-Sized Companies and Groups (Accounts and
Reports) (Amendment) Regulations 2013. An ordinary
resolution for the approval of the Directors’ Remuneration
Report will be put to shareholders at the forthcoming
AGM of the Company.
The law requires the Company’s auditor to audit certain
of the disclosures required. Where disclosures have been
audited, they are indicated as such. The auditor’s opinion
is included in the auditor’s report on pages 83 to 91.
Annual Statement from the Chairman
I am pleased to present the Directors’ Remuneration
Report for the year ended 31 March 2020.
As the Board has no executive Directors, it does not
consider it necessary to establish a separate Remuneration
Committee. The Board as a whole is therefore responsible
for decisions regarding remuneration. The Board consists
entirely of non-executive Directors and the Company has
no employees.
The Directors are remunerated for their services at such
rate as the Directors shall from time to time determine.
The Board has set three levels of fees: one for the
Chairman, one for other Directors, and an additional
fee that is paid to the Director who chairs the Audit and
Management Engagement Committee. Fees are reviewed
annually in accordance with the Remuneration Policy. The
fee for any new Director appointed will be determined on
the same basis.
Directors’ fees for the year ended 31 March 2020 were
at a level of £50,000 per annum for the Chairman and
£32,000 per annum for other non-executive Directors.
The Chairman of the Audit and Management Engagement
Committee received an additional fee of £4,000 per
annum. No changes relating to Directors’ remuneration
were made during the year and no changes are currently
being proposed.
There were no other payments for extra or special services
in the year ended 31 March 2020.
At the AGM held on 5 September 2019, shareholders
approved the amendment to the Company’s Articles of
Association which increased the maximum aggregate
annual remuneration payable to Directors from £200,000
to £250,000.
The Directors’ Remuneration Policy was approved at
the AGM held on 5 September 2019. There will be no
significant change in the way the Remuneration Policy
will be implemented in the course of the next financial
year.
Directors’ Fees for the Period (audited)
The Directors who served during the year received the following emoluments:
Director
Michael Wrobel (Chairman)
Alastair Moss
Alison Hadden1
Caroline Gulliver
Peter Baxter
Total
1 Appointed on 21 November 2019.
Year ended 31 March 2020
Year ended 31 March 2019
Fees
£50,000
£32,000
£11,569
£36,000
£32,000
Taxable
benefits
–
–
£1,073
–
–
Total
£50,000
£32,000
£12,642
£36,000
£32,000
Fees
£50,000
£32,000
–
£36,000
£32,000
£161,569
£1,073
£162,642
£150,000
Taxable
benefits
–
–
–
–
–
–
Total
£50,000
£32,000
–
£36,000
£32,000
£150,000
The amounts paid to the Directors were for services as non-executive Directors. Taxable benefits included in the above
table are in respect of the amounts reimbursed to Directors as travel and other expenses properly incurred by them in the
performance of their duties. There are no variable elements in the remuneration payable to the Directors.
Civitas Social Housing PLC Annual Report 2020
77
Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Directors’ Remuneration Report continued
Under the Company’s Articles of Association, the total aggregate remuneration and benefits in kind of the Directors of
the Company is subject to a maximum of £250,000 in any financial year. Any change to this would require shareholder
approval.
The Company maintains Directors’ and Officers’ liability insurance cover, at its expense, on the Directors’ behalf.
Loss of Office (audited)
The Directors do not have service contracts with the Company but are engaged under letters of appointment under which
there is no entitlement to compensation for loss of office. Directors are subject to annual re-election by shareholders.
Company Performance
The following graph compares the performance for the period from IPO on 18 November 2016 to 31 March 2020, the total
shareholder return of the Company’s Ordinary shares relative to the FTSE All-Share Index and FTSE 350 REIT Index.
Although the Company has no formal benchmark, these indices have been selected as the FTSE All-Share represents all
companies of a similar capital size, and the constituents of the FTSE 350 REIT Index are UK-based real estate companies
and are therefore considered to represent the most appropriate comparative.
Total Shareholder Return (rebased)
140
130
120
110
100
90
80
18
Nov
2016
Civitas Social
Housing PLC
FTSE 350 Real
Estate Investment
Trust Index
Total Return
FTSE All-Share
Total Return
Mar
2017
Jun
2017
Sep
2017
Dec
2017
Mar
2018
Jun
2018
Sep
2018
Dec
2018
Mar
2019
Jun
2019
Sep
2019
Dec
2019
31
Mar
2020
Relative Importance of Spend on Pay
The table below sets out, in respect of the year ended 31 March 2020:
a) the remuneration paid to the Directors; and
b) the distributions made to shareholders by way of dividend.
Directors’ remuneration
Dividends paid to Ordinary shareholders
Dividends paid to C shareholders
Year ended
31 March 2020
£’000
Year ended
31 March 2019
£’000
162
32,970
–
150
17,881
9,966
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Civitas Social Housing PLC Annual Report 2020
Directors’ Interests (audited)
There is no requirement under the Company’s Articles of Association or the terms of their appointment for Directors to
hold shares in the Company.
As at 31 March 2020, the Directors (including their connected persons) had beneficial interests in the following number
of shares in the Company:
Michael Wrobel
Alastair Moss
Alison Hadden1
Caroline Gulliver
Peter Baxter
31 March 2020
Ordinary
shares
31 March 2019
Ordinary
shares
100,598
11,766
–
58,832
47,065
100,598
11,766
–
58,832
47,065
1 Appointed as a Director on 21 November 2019.
There have been no changes to Directors’ share interests between 31 March 2020 and the date of this Report.
None of the Directors or any persons connected with them had a material interest in the Company’s transactions,
arrangements or agreements during the year.
Voting at AGM
The Directors’ Remuneration Policy and Directors’ Remuneration Report for the year ended 31 March 2019 were approved
at the AGM held on 5 September 2019. The votes cast by proxy on these resolutions were:
Resolution
To approve the
Directors’ Remuneration Report
To approve the
Directors’ Remuneration Policy
Votes for1
% of votes cast
Votes against
% of votes cast
Votes withheld
Total votes cast
99.99
99.99
0.01
0.01
–
–
320,495,728
320,495,728
1 Votes ‘for’ include discretionary proxy votes granted to the Chairman by shareholders.
Approval
The Directors’ Remuneration Report was approved by the Board and signed on its behalf by:
Michael Wrobel
Chairman
29 June 2020
Civitas Social Housing PLC Annual Report 2020
79
Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Statement of Directors’ Responsibilities
The Directors are responsible for preparing the Annual
Report and the financial statements in accordance with
applicable law and regulation.
Report comply with the Companies Act 2006 and, as
regards the Group financial statements, Article 4 of the
IAS Regulation.
Company law requires the Directors to prepare financial
statements for each financial year. 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:
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
information
and understandable and provides the
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 in the Corporate Governance section of the Annual
Report, confirm that, to the best of their knowledge that:
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 loss 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 and Company, 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
29 June 2020
•
•
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 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 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
80
Civitas Social Housing PLC Annual Report 2020
Alternative Investment Fund Managers Directive
As the Company and the Alternative Investment Fund
Manager (the “AIFM”) are each domiciled in the United
Kingdom, the FCA Handbook rules require that, among other
things, the AIFM makes available the following information
to shareholders of the Company under the AIFM Directive (as
implemented in the UK) and to notify them of any material
change to information previously provided.
upon the Company. All or a substantial portion of the assets
of the Company may be located outside a local jurisdiction
in which a shareholder resides and, as a result, it may not
be possible to satisfy a judgement against the Company in
such local jurisdiction or to enforce a judgement obtained
in the local jurisdiction’s courts against the Company.
Investment Policy, Leverage and Liquidity (AIFMD
23(1)(a)(b)(h))
The investment strategy and objectives of the Company, the
types of assets it may invest in and the investment techniques
it may employ, associated risks and any investment
restrictions are laid out in the investment objectives and
policy and other sections of the Annual Report.
AIFM and its Delegates (AIFMD 23(1)(d), (e) and (f ))
The AIFM (G10 Capital Limited) is a limited company
with its registered office at 136 Buckingham Palace Road,
London SW1W 9SA. G10 Capital Limited is authorised
and regulated by the Financial Conduct Authority (FRN
648953). It has been appointed by the Company to manage
the Company under an AIFM Agreement with effect from
24 August 2017.
For information about the circumstances in which the
Company may use leverage, the types of sources permitted
and the associated risks and any restrictions on the use of
leverage and any collateral and asset re-use arrangements,
shareholders are directed to the disclosures contained
in the investment objectives and policy section of these
financial statements as well as specific AIFMD related
disclosures further below.
The AIFM is responsible for portfolio management and risk
management and monitoring of the assets of the Company
and has discretionary authority over the acquisition and
disposition of the Company’s assets, with power to give
guarantees and undertake other transactions on behalf
of the Company subject to the provisions of the AIFM
Agreement. The AIFM is also responsible for ensuring
compliance with the AIFMD.
Under the FCA’s Listing Rules to which the Company is
subject it needs the prior approval of its shareholders to
make a material change to its investment policy.
Since the Company is closed-ended without redemption
rights, liquidity risk management is limited to the
liquidity required to meet the Company’s obligations in
relation to its financing arrangements. The AIFM utilises
various risk assessment methods to measure the risk of
portfolio illiquidity to meet the Company’s obligations.
This measurement enables the provision of management
information to the AIFM and the Board of the Company to
enable these risks to be monitored and managed.
Legal Relationship with Investors (AIFMD 23(1)(c))
The Company is a public limited company listed on the
London Stock Exchange. The Company is incorporated
under the laws of England and Wales. The constitutional
document of the Company is its articles of association
which may only be amended by way of a special resolution
of its shareholders. Upon the purchase of shares, an
investor becomes a shareholder of the Company. A
shareholder’s liability to the Company will be limited to
the amount uncalled on their shares.
As the Company is incorporated under the laws of England
and Wales, it may not be possible for a shareholder located
outside that jurisdiction to effect service of process within
the local jurisdiction in which that shareholder resides
The AIFM’s duties under the AIFM Agreement are owed
to the Company as a whole rather than directly to the
shareholders, whether individually or in groups. The
Board of the Company is responsible under the AIFM
Agreement for representing the Company in its dealings
with the AIFM.
In order to comply with its regulatory obligations, the
AIFM holds professional indemnity insurance.
Depositary and its Delegates (AIFMD 23(1)(d) and (f))
Indos Financial Limited (the “Depositary”) has been
appointed as the Depositary of the Company under a
Depositary Agreement agreed in accordance with AIFMD
requirements. The Depositary is a company incorporated
in England (registered number 08255973) whose registered
office is at 54 Fenchurch Street, London, EC3M 3JY. It is
authorised to act as a Depositary by the FCA (FRN 602528).
The Depositary is responsible for safekeeping of the
Company’s investments, including holding in custody those
investments which are required to be held in custody and
verifying ownership and keeping records of the Company’s
other investments, and for cash monitoring.
The Depositary’s duties under the Depositary Agreement
are owed to the Company as a whole and not directly to
shareholders, whether individually or in groups.
The investments of the Company are not of a kind required
to be held in custody by the Depositary.
Civitas Social Housing PLC Annual Report 2020
81
Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Alternative Investment Fund Managers Directive continued
Independent Auditors (AIFMD 23(1)(d))
The independent auditors of the Company for the year
ended 31 March 2020 were PricewaterhouseCoopers
LLP. The auditors’ duties are owed to the Company as a
whole. They have a statutory responsibility to report to
the members of the Company as a whole in relation to the
truth and fairness of the Company’s state of affairs and
profit or loss.
Valuation (AIFMD 23(1)(g))
The assets of the Company are valued in accordance
with the provisions set out in the Valuation Policy. The
Investment Committee which has been set up by the AIFM
in respect of the Company and it’s assets adds a further
level of oversight to the valuation process as set out on in
the Corporate Governance section of the Annual Report.
Fees and Expenses (AIFMD 23(1)(i))
The Company incurs costs in the form of depositary fees,
custodian fees, bank fees and charges, marketing fees,
auditors’ fees, lawyers’ fees and other fees.
Investors and Preferential
Fair Treatment of
Treatment (AIFMD 23(1)(j))
No preferential rights have been granted to any existing
shareholder.
The Company and the AIFM are committed to ensuring
that all shareholders are treated fairly and in accordance
with UK company law. They have not and will not enter
into any arrangement with one shareholder which could
result in any overall material disadvantage to the other
shareholders.
Issue and Redemption of Shareholder Interests in the
Company ((AIFMD 23(1)(l))
The Company is closed-ended and does not provide for
redemption or repurchase of the interests of ordinary
shareholders at their request.
Reporting and Performance (AIFMD 23(1)(k), 23(1)
(m) and 23(1)(n))
The historic performance of the Company, to the extent
available, has been disclosed to shareholders in the
Company’s Annual and Half Yearly Reports, which will
be sent to shareholders and are available from http://
civitassocialhousing.com/.
The latest NAV of the Company is published in the
latest Annual or Half Yearly Report or quarterly NAV
announcement.
Prime Broker (AIFMD 23(1)(o))
The Company does not have a prime broker.
Method of Making Ongoing/Periodic Disclosures
(AIFMD 23(1)(p),23(4),23(5))
Information about the Company’s risk profile and risk
management, total leverage and any material change to
the arrangements for managing the Company’s liquidity,
the proportion of assets (if any) subject to special
arrangements arising from
liquidity, the maximum
permitted leverage or the grant of rights of re-use of
collateral or guarantees in relation to leverage will be
provided in the Company’s Annual Reports or on the
Company’s website http://civitassocialhousing.com/.
Risk Profile and Risk Management (AIFMD 23(4)(c))
The appointment of the AIFM as the AIFM of the Company
under the AIFMD means that it is responsible for risk
management and the ongoing process of identifying,
evaluating, monitoring and managing the risks facing
the Company in accordance with the requirements of
the AIFMD. The Board keeps the AIFM’s performance of
these responsibilities under review as part of its overall
responsibility for the Company’s risk management and
internal controls.
The principal risks of the Company are set out in the risk
management section in the Annual Report. The AIFM’s
risk management system incorporates regular review
of these risks and the establishment of appropriate risk
limits and internal control processes to mitigate the risks.
The sensitivity of the Company to relevant risks is further
detailed in the risk management section in the Annual
Report.
Restrictions on the Use of Leverage and Maximum
Leverage (AIFMD 23(5))
As specified in the Investment objectives and policy in
the Annual Report, The Company has the ability to put
up to a maximum leverage of 40% of the Company’s Gross
Asset Value and the AIFM oversees the use of leverage to
ensure that the use of borrowing is consistent with this
requirement. Leverage is calculated using gross assets,
with various adjustments, divided by net assets.
Under AIFMD, the Company is required to calculate
leverage under the two methodologies specified by the
Directive, the ‘Gross Method’ and the ‘Commitment
Method,’ the difference being that the Commitment
Method allows certain exposures to be offset or netted.
Disclosures are made on the website of the Company.
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Civitas Social Housing PLC Annual Report 2020
Independent Auditors’ Report
to the members of Civitas Social Housing PLC
Report on the audit of the financial statements
Opinion
In our opinion:
• Civitas Social Housing PLC’s Group financial statements and Company financial statements (the “financial
statements”) give a true and fair view of the state of the Group’s and of the Company’s affairs as at 31 March 2020 and
of the Group’s profit and cash flows for the year then ended;
•
•
•
the Group financial statements have been properly prepared in accordance with International Financial Reporting
Standards (IFRSs) as adopted by the European Union;
the Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 “Reduced Disclosure Framework”, and
applicable law); and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as
regards the Group financial statements, Article 4 of the IAS Regulation.
We have audited the financial statements, included within the Annual Report and Financial Statements (the “Annual
Report”), which comprise: the Consolidated and Company Statements of Financial Position as at 31 March 2020; the
Consolidated Statement of Comprehensive Income, the Consolidated Statement of Cash Flows, and the Consolidated
and Company Statements of Changes in Equity for the year then ended; and the notes to the financial statements, which
include a description of the significant accounting policies.
Our opinion is consistent with our reporting to the Audit and Management Engagement Committee.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law.
Our responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial
statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.
Independence
We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the
financial statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities,
and we have fulfilled our other ethical responsibilities in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were
not provided to the Group or the Company.
Other than those disclosed in note 9 to the financial statements, we have provided no non-audit services to the Group or
the Company in the period from 1 April 2019 to 31 March 2020.
Civitas Social Housing PLC Annual Report 2020
83
Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Independent Auditors’ Report
to the members of Civitas Social Housing PLC continued
Our audit approach
Overview
• Overall Group materiality: £9.5 million (2019: £8.8 million), based on 1% of total assets.
• Overall Company materiality: £7.4 million (2019: £8.1 million), based on 1% of total assets.
Materiality
• Group Specific materiality: £1.4 million (2019: £2.2 million), based on 5% of European
Public Real Estate (‘EPRA’) Earnings, for financial statement line items impacting
EPRA Earnings.
Audit scope
• We tailored the scope of our audit to ensure that we performed enough work to be
able to give an opinion on the financial statements as a whole, taking into account the
structure of the Group and the Company, the accounting processes and controls, and
the industry in which they operate. The Group consists of a single reportable segment.
Key audit
matters
• Valuation of investment property (Group).
• COVID-19 (Group and Company).
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial
statements. In particular, we looked at where the directors made subjective judgements, for example in respect of significant
accounting estimates that involved making assumptions and considering future events that are inherently uncertain.
Capability of the audit in detecting irregularities, including fraud
Based on our understanding of the Group and industry, we identified that the principal risks of non-compliance with
laws and regulations related to compliance with the Real Estate Investment Trust (REIT) status section 518 to 609 of the
Corporation Tax Act 2010 and the UK and European regulatory principles, such as governed by the Financial Conduct
Authority, and we considered the extent to which non-compliance might have a material effect on the financial statements
of the Group and Company. We also considered those laws and regulations that have a direct impact on the preparation
of the financial statements such as the Companies Act 2006 and the Listing Rules. We evaluated management’s incentives
and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and
determined that the principal risks were related to posting inappropriate journal entries to increase revenue or reduce
expenditure, and management bias in accounting estimates and judgemental areas of the financial statements such as the
valuation of investment properties. Audit procedures performed by the engagement team included:
•
•
•
•
•
•
•
•
discussions with management, including consideration of known or suspected instances of non-compliance with laws
and regulations and fraud, and review of the reports made by management;
understanding of management’s internal controls designed to prevent and detect irregularities;
assessment of matters, if any, reported to the Audit and Management Engagement Committee;
reviewing relevant meeting minutes, including those of the Board of Directors and the Audit and Management
Engagement Committee;
review of tax compliance with the involvement of our tax specialists in the audit;
designing audit procedures to incorporate unpredictability over the nature, timing and extent of our testing of
expenses;
procedures relating to the valuation of investment properties described in the related key audit matter below; and
identifying and testing journal entries, in particular any journal entries posted with unusual account combinations
and words.
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Civitas Social Housing PLC Annual Report 2020
There are inherent limitations in the audit procedures described above and the further removed non-compliance with
laws and regulations is from the events and transactions reflected in the financial statements, the less likely we would
become aware of it. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not
detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional
misrepresentations, or through collusion.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit
of the financial statements of the current period and include the most significant assessed risks of material misstatement
(whether or not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall
audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters,
and any comments we make on the results of our procedures thereon, were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these
matters. This is not a complete list of all risks identified by our audit.
Key audit matter
How our audit addressed the key audit matter
Valuation of investment property (Group)
Refer to page 66 (Report of the Audit and Management
Engagement Committee), pages 98 and 99
(note
3.1, Significant estimate – valuation of investment
property) and pages 108 to 111 (note 15, Investment
property). Investment properties are held at fair value of
£868.0 million as at 31 March 2020 in the Consolidated
Statement of Financial Position. The valuation of the
Group’s investment property is the key component of the
net asset value and underpins the Group’s result for the
year. The result of the revaluation this year was a gain of
£13.3 million, which is accounted for within ‘Change in
fair value of investment properties’ in note 15 (Investment
property) and is a significant component of the result
for the year. The Group’s investment property portfolio
consists of specialist social housing properties located in
England and Wales which are let to Registered Providers
of social housing on long-term leases.
Investment property valuations were carried out by
a third party valuer, Jones Lang LaSalle Limited (‘JLL’
or the ‘Valuer’). The Valuer, engaged by the Directors,
performed their work in accordance with the Royal
Institute of Chartered Surveyors (‘RICS’) RICS Valuation
– Professional Standards and the requirements of
International Accounting Standard 40
‘Investment
Property’.
The Valuer has included a material valuation uncertainty
clause in their valuation report as at 31 March 2020. This
clause highlights that less certainty, and consequently
a higher degree of caution, should be attached to the
valuation as a result of the COVID-19 pandemic. This
represents a significant estimation uncertainty in relation
to the valuation of investment properties.
Given the inherent subjectivity involved in the valuation
of the property portfolio, and therefore the need for
deep market knowledge when determining the most
appropriate assumptions and the technicalities of
valuation methodology, we engaged our internal valuation
experts (qualified chartered surveyors) to assist us in our
audit of this area.
Material valuation uncertainty due to COVID-19
We considered the adequacy of the disclosures made
in note 2 (Basis of preparation), note 3 (Significant
accounting judgements, estimates and assumptions) and
note 15 (Investment property) to the financial statements.
These notes explain that the Valuer reported on the basis
of a material valuation uncertainty and consequently
that less certainty and a higher degree of caution should
be attached to the valuations as at 31 March 2020. We
discussed this clause with management and obtained
sufficient appropriate audit evidence to demonstrate
that management's assessment of the suitability of the
inclusion of the valuation in the Consolidated Statement
of Financial Position and disclosures made in the financial
statements are appropriate.
Experience of Valuer and relevance of its work
We read the Valuer’s report and confirmed that the
approach used was consistent with the RICS guidelines
and the requirements of IFRSs as adopted by the
European Union. We assessed the Valuer’s qualifications
and expertise and read their terms of engagement with
the Group, determining that there were no matters that
affected their independence and objectivity or imposed
scope limitations upon them. We also considered fees and
other contractual arrangements that might exist between
the Group and the Valuer. We found no evidence to suggest
that the objectivity of the Valuer was compromised.
Civitas Social Housing PLC Annual Report 2020
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Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Independent Auditors’ Report
to the members of Civitas Social Housing PLC continued
Key audit matter
How our audit addressed the key audit matter
In determining the value of a property, the Valuer has taken
into account property-specific information including
the lease term and rental income payable. They apply
assumptions for the yield, discount rate and CPI growth
which are influenced by prevailing market conditions and
comparable transactions, to arrive at the final valuation as
at the valuation date.
Data provided to the Valuer and legal title
We validated the data provided to the Valuer by
management and found that it was consistent with the
information we audited. This data included inputs such as
current rent, rent indexation (CPI or CPI+1%), and lease
term, which we have agreed on a sample basis to executed
lease agreements as part of our audit work.
The valuation of the Group’s investment property
portfolio was identified as a key audit matter given
the valuation is inherently subjective due to, among
other factors, the individual nature of each property, its
location and the expected future rental streams for that
particular property. The wider challenges currently facing
real estate investor markets as a result of COVID-19
further contributed to the subjectivity for the year ended
31 March 2020. The significance of the estimates and
judgements involved, coupled with the fact that only
a small percentage difference in individual property
valuations, when aggregated, could result in a material
misstatement, warranted specific audit focus in this area.
We verified legal ownership of properties through
independent title deed confirmations on a sample basis.
Assumptions and estimates used by the Valuer
In our testing, which involved the use of our internal
real estate valuation experts, we considered the
assumptions utilised by the Valuer within the valuation
and benchmarked to market evidence. We challenged the
Valuer regarding the impact of the regulatory environment
on investor sentiment and asset values.
We attended meetings with management and the
Valuer, at which the valuation methodology and the
key assumptions were discussed. We challenged their
approach to the valuations, particularly in light of
COVID-19, and the rationale behind the more significant
valuation assumptions adopted. Where assumptions
were outside the expected range or showed unexpected
movements based on our knowledge, we undertook
further investigations, held further discussions with the
Valuer and obtained evidence to support explanations
received. The valuation commentaries provided by the
Valuer and supporting evidence, enabled us to consider
the property specific factors that may have had an impact
on value, including recent comparable transactions where
appropriate.
We concluded that the assumptions used by the Valuer
were consistent with our expectations and comparable
benchmarking and market transaction information for the
asset type, and the disclosures in relation to the material
valuation uncertainty within the financial statements
are sufficient and appropriate to highlight the increased
estimation uncertainty as a result of COVID-19.
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Civitas Social Housing PLC Annual Report 2020
Key audit matter
How our audit addressed the key audit matter
COVID-19 (Group and Company)
Refer to pages 52 to 57 (Strategic Report – ‘Principal
risks and risk management’ and the ‘Going Concern
and Viability Statement’), page 66 (Report of the Audit
and Management Engagement Committee) and pages
96 to 99 (Notes to the financial statements – note 2,
Basis of preparation, and note 3, Significant accounting
judgements, estimates and assumptions).
The outbreak of the novel coronavirus (known as
COVID-19) in many countries is rapidly evolving and the
socio-economic impact is unprecedented. It has been
declared as a global pandemic and is having a major
impact on economies and financial markets. The efficacy
of government measures will materially influence the
length of economic disruption, but it is probable there will
be a recession in the United Kingdom.
In order to assess the impact of COVID-19 on the
business, management has updated their risk assessment
and prepared an analysis of the potential impact on the
revenues, profits, cash flows, operations and liquidity
position of the Group for the next 12 months and over the
next five years.
The analysis and related assumptions have been used
by management in its assessment of the Group’s going
concern and viability.
The most significant impact to the financial statements
has been in relation to the disclosures on the valuation
of Investment property. This is described in the key audit
matter above.
Management’s analysis includes base and downside
case scenarios. At the balance sheet date, the Group's
cash balance is £58.4 million, of which £16.9 million is
held as restricted cash and post the year end, the Group
has extended the term of the loan presented in current
liabilities as at 31 March 2020.
the covenant headroom on
In making their assessment, management took into
account
the Group’s
loan facilities. After considering all of these factors,
management has concluded that preparing the financial
statements on a going concern basis remains appropriate.
No material uncertainty in relation to going concern
exists.
We evaluated the Group’s updated risk assessment
and analysis and considered whether it addresses the
relevant threats posed by COVID-19. We also evaluated
management’s assessment and corroborated evidence of
the operational impacts, considering their consistency
with other available information and our understanding
of the business.
Our procedures in respect of the valuation of investment
properties are set out in the key audit matter above.
We assessed the disclosures presented in the Annual
Report in relation to COVID-19 by reading the other
information, including the Principal risks and the Viability
statement set out in the Strategic Report, and assessing
its consistency with the financial statements and the
evidence we obtained in our audit. We considered the
appropriateness of the disclosures around the increased
uncertainty on its accounting estimates and consider
these to be adequate.
In respect of going concern, we assessed the Directors’
going concern analysis in light of COVID-19 and obtained
evidence to support the key assumptions used in preparing
the going concern model, including assessing covenant
headroom within the base and downside case scenarios.
We challenged the key assumptions used in preparing the
analysis.
We obtained evidence to support the loan extension post
the year end that was classified as a current liability at the
balance sheet date.
In conjunction with the above, we have reviewed
management’s analysis of liquidity and recalculated
loan covenant compliance to satisfy ourselves that no
breaches are anticipated over the going concern period of
assessment.
Our conclusions relating to going concern and other
information are set out in the ‘Going Concern’ and
‘Reporting on other information’ sections of our report,
respectively, below.
Civitas Social Housing PLC Annual Report 2020
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to the members of Civitas Social Housing PLC continued
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial
statements as a whole, taking into account the structure of the Group and the Company, the accounting processes and
controls, and the industry in which they operate.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality.
These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and
extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect
of misstatements, both individually and in aggregate, on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Overall materiality
£9.5 million (2019: £8.8 million).
£7.4 million (2019: £8.1 million).
How we determined it
1% of total assets.
1% of total assets.
Group financial statements
Company financial statements
Rationale for benchmark
applied
is
the
the Group’s
The key measure of
performance
of
valuation
investment properties and the balance
sheet as a whole. Given this, we set an
overall Group materiality level based on
total assets.
The Company’s main activity is the
holding of investments in subsidiaries.
On this basis, we set an overall Company
materiality level based on total assets.
In addition to overall Group materiality, a specific materiality was also applied to income statement line items that impact
EPRA Earnings, which is based on profit before tax, adjusted to exclude fair value gains/(losses) on investment property
and derivatives. We set a specific overall materiality level of £1.4 million (2019: £2.2 million), equating to 5% of EPRA
Earnings. In arriving at this judgement, we considered the fact that EPRA Earnings is a secondary financial indicator of the
Group (refer to the Strategic Report, page 51, where the term is defined in full).
We agreed with the Audit and Management Engagement Committee that we would report to them misstatements identified
during our audit above £474,000 (Group audit) (2019: £443,000) and £370,000 (Company audit) (2019: £407,000) as well as
misstatements below those amounts that, in our view, warranted reporting for qualitative reasons.
In addition, we agreed with the Audit and Management Engagement Committee we would report to them misstatements
identified during our Group audit above £72,000 (2019: £113,000) for misstatements related to financial statement line
items impacting EPRA Earnings within the financial statements, as well as misstatements below that amount that, in our
view, warranted reporting for qualitative reasons.
Going concern
In accordance with ISAs (UK) we report as follows:
Reporting obligation
Outcome
We are required to report if we have anything material
to add or draw attention to in respect of the Directors’
statement in the financial statements about whether the
Directors considered it appropriate to adopt the going
concern basis of accounting in preparing the financial
statements and the Directors’ identification of any
material uncertainties to the Group’s and the Company’s
ability to continue as a going concern over a period of
at least twelve months from the date of approval of the
financial statements.
We have nothing material to add or to draw attention to.
However, because not all future events or conditions can
be predicted, this statement is not a guarantee as to the
Group’s and Company’s ability to continue as a going
concern.
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Civitas Social Housing PLC Annual Report 2020
Reporting obligation
We are required to report if the Directors’ statement
relating to Going Concern in accordance with Listing Rule
9.8.6R(3) is materially inconsistent with our knowledge
obtained in the audit.
Outcome
We have nothing to report.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our
auditors’ report thereon. The Directors are responsible for the other information. Our opinion on the financial statements
does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise
explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing
so, consider whether the other information is materially inconsistent with the financial statements or our knowledge
obtained in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency
or material misstatement, we are required to perform procedures to conclude whether there is a material misstatement
of the financial statements or a material misstatement of the other information. If, based on the work we have performed,
we conclude that there is a material misstatement of this other information, we are required to report that fact. We have
nothing to report based on these responsibilities.
With respect to the Strategic Report, Report of the Directors and Corporate Governance Statement, we also considered
whether the disclosures required by the UK Companies Act 2006 have been included.
Based on the responsibilities described above and our work undertaken in the course of the audit, the Companies Act 2006
(CA06), ISAs (UK) and the Listing Rules of the Financial Conduct Authority (FCA) require us also to report certain opinions
and matters as described below (required by ISAs (UK) unless otherwise stated).
Strategic Report and Report of the Directors
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report
and Report of the Directors for the year ended 31 March 2020 is consistent with the financial statements and has been
prepared in accordance with applicable legal requirements. (CA06)
In light of the knowledge and understanding of the Group and Company and their environment obtained in the course
of the audit, we did not identify any material misstatements in the Strategic Report and Report of the Directors. (CA06)
Corporate Governance Statement
In our opinion, based on the work undertaken in the course of the audit, the information given in the Corporate Governance
Statement on pages 71 and 72 about internal controls and risk management systems in relation to financial reporting
processes and about share capital structures in compliance with rules 7.2.5 and 7.2.6 of the Disclosure Guidance and
Transparency Rules sourcebook of the FCA (“DTR”) is consistent with the financial statements and has been prepared in
accordance with applicable legal requirements. (CA06)
In light of the knowledge and understanding of the Group and Company and their environment obtained in the course of
the audit, we did not identify any material misstatements in this information. (CA06)
In our opinion, based on the work undertaken in the course of the audit, the information given in the Corporate
Governance Statement on pages 68 to 73 with respect to the Company’s corporate governance code and practices and
about its administrative, management and supervisory bodies and their committees complies with rules 7.2.2, 7.2.3 and
7.2.7 of the DTR. (CA06)
We have nothing to report arising from our responsibility to report if a corporate governance statement has not been
prepared by the Company. (CA06)
Civitas Social Housing PLC Annual Report 2020
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Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Independent Auditors’ Report
to the members of Civitas Social Housing PLC continued
The Directors’ assessment of the prospects of the Group and of the principal risks that would threaten the solvency or
liquidity of the Group
We have nothing material to add or draw attention to regarding:
• The Directors’ confirmation on page 52 of the Annual Report that they have carried out a robust assessment of the
principal risks facing the Group, including those that would threaten its business model, future performance, solvency
or liquidity.
• The disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated.
• The Directors’ explanation on pages 56 and 57 of the Annual Report as to how they have assessed the prospects of the
Group, over what period they have done so and why they consider that period to be appropriate, and their statement
as to whether they have a reasonable expectation that the Group will be able to continue in operation and meet its
liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to
any necessary qualifications or assumptions.
We have nothing to report having performed a review of the Directors’ statement that they have carried out a robust
assessment of the principal risks facing the Group and statement in relation to the longer-term viability of the Group. Our
review was substantially less in scope than an audit and only consisted of making inquiries and considering the Directors’
process supporting their statements; checking that the statements are in alignment with the relevant provisions of the
UK Corporate Governance Code (the “Code”); and considering whether the statements are consistent with the knowledge
and understanding of the Group and Company and their environment obtained in the course of the audit. (Listing Rules)
Other Code Provisions
We have nothing to report in respect of our responsibility to report when:
• The statement given by the Directors, on page 80, that they consider the Annual Report taken as a whole to be fair,
balanced and understandable, and provides the information necessary for the members to assess the Group’s and
Company’s position and performance, business model and strategy is materially inconsistent with our knowledge of
the Group and Company obtained in the course of performing our audit.
• The section of the Annual Report on pages 65 to 67 describing the work of the Audit and Management Engagement
Committee does not appropriately address matters communicated by us to the Audit and Management Engagement
Committee.
• The Directors’ statement relating to the Company’s compliance with the Code does not properly disclose a departure
from a relevant provision of the Code specified, under the Listing Rules, for review by the auditors.
Directors’ Remuneration
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance
with the Companies Act 2006. (CA06)
Responsibilities for the financial statements and the audit
Responsibilities of the Directors for the financial statements
As explained more fully in the Statement of Directors’ Responsibilities set out on page 80, the Directors are responsible
for the preparation of the financial statements in accordance with the applicable framework and for being satisfied that
they give a true and fair view. The Directors are also responsible for such internal control as they determine is necessary
to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group’s and the Company’s ability to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis
of accounting unless the Directors either intend to liquidate the Group or the Company or to cease operations, or have no
realistic alternative but to do so.
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Civitas Social Housing PLC Annual Report 2020
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will
always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of
users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance
with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept
or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands
it may come save where expressly agreed by our prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
•
•
•
adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been
received from branches not visited by us; or
certain disclosures of Directors’ remuneration specified by law are not made; or
the Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in
agreement with the accounting records and returns.
We have no exceptions to report arising from this responsibility.
Appointment
Following the recommendation of the Audit and Management Engagement Committee, we were appointed by the
Directors on 31 March 2017 to audit the financial statements for the year ended 17 November 2016 and subsequent
financial periods. The period of total uninterrupted engagement is 4 years, covering the years ended 17 November 2016,
31 March 2018 to 31 March 2020.
Sandra Dowling (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
29 June 2020
Civitas Social Housing PLC Annual Report 2020
91
Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Consolidated Statement of Comprehensive Income
For the year ended 31 March 2020
Revenue
Rental income
Less direct property expenses
Net rental income
Directors’ remuneration
Investment advisory fees
General and administrative expenses
Total expenses
Change in fair value of investment properties
Operating profit
Finance income
Finance expense – relating to bank borrowings
Finance expense – C shares amortisation
Change in fair value of interest rate derivatives
Profit before tax
Taxation
Profit being total comprehensive income for the year
Earnings per share – basic
Earnings per share – diluted
For the
year ended
31 March 2020
£’000
For the
year ended
31 March 2019
£’000
Note
5
5
6
8
9
15
10
11
11
21
12
13
13
46,165
(259)
45,906
(176)
(6,183)
(3,501)
(9,860)
35,738
–
35,738
(163)
(6,457)
(3,022)
(9,642)
9,389
3,652
45,435
110
(7,342)
–
(478)
37,725
–
37,725
6.06p
6.06p
29,748
491
(3,975)
(6,400)
–
19,864
–
19,864
4.67p
4.22p
All amounts reported in the Consolidated Statement of Comprehensive Income above arise from continuing operations.
The notes on pages 96 to 128 are an integral part of these consolidated financial statements.
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Civitas Social Housing PLC Annual Report 2020
Consolidated Statement of Financial Position
As at 31 March 2020
Assets
Non-current assets
Investment property
Other receivables
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
Liabilities
Current liabilities
Trade and other payables
Bank and loan borrowings
Non-current liabilities
Bank and loan borrowings
Interest rate derivatives
Total liabilities
Total net assets
Equity
Share capital
Share premium reserve
Capital reduction reserve
Retained earnings
Total equity
Net assets per share – basic and diluted
Note
31 March 2020
£’000
31 March 2019
£’000
15
17
17
18
19
20
20
21
23
24
25
26
27
867,988
10,755
878,743
10,838
58,374
69,212
947,955
(7,743)
(59,730)
(67,473)
(209,440)
(478)
(277,391)
670,564
6,225
292,405
330,926
41,008
670,564
820,094
6,824
826,918
5,723
54,347
60,070
886,988
(15,324)
–
(15,324)
(205,156)
–
(220,480)
666,508
6,225
292,405
331,625
36,253
666,508
107.87p
107.08p
These consolidated financial statements on pages 96 to 128 were approved by the Board of Directors of Civitas Social
Housing PLC and authorised for issue and signed on its behalf by:
Michael Wrobel
Chairman and Independent Non-Executive Director
29 June 2020
Company No: 10402528
The notes on pages 96 to 128 are an integral part of these consolidated financial statements.
Civitas Social Housing PLC Annual Report 2020
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Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Consolidated Statement of Changes in Equity
For the year ended 31 March 2020
Balance at 1 April 2018
Profit and total comprehensive income for
the year
Issue of Ordinary shares
Issue of share capital
Share issue costs
Dividends paid
Total interim dividends for the year ended
31 March 2019 (5.00p)
Balance at 31 March 2019
Profit and total comprehensive income for
the year
Issue of Ordinary shares
Shares bought back into treasury
Dividends paid
Total interim dividends for the year ended
31 March 2020 (5.30p)
Note
23
24
14
25
14
Share
premium
reserve
£’000
Capital
reduction
reserve
£’000
Retained
earnings
£’000
Total
equity
£’000
331,625
34,270
369,395
Share
capital
£’000
3,500
–
–
–
2,725
292,461
–
–
(56)
–
6,225
292,405
331,625
19,864
19,864
–
–
295,186
(56)
(17,881)
36,253
(17,881)
666,508
–
–
–
–
–
–
–
37,725
37,725
(699)
–
(699)
(32,970)
41,008
(32,970)
670,564
–
–
–
–
–
Balance at 31 March 2020
6,225
292,405
330,926
The notes on pages 96 to 128 are an integral part of these consolidated financial statements.
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Civitas Social Housing PLC Annual Report 2020
Consolidated Statement of Cash Flows
For the year ended 31 March 2020
For the
year ended
31 March 2020
£’000
For the
year ended
31 March 2019
£’000
Note
Cash flows from operating activities
Profit for the year before taxation
– Change in fair value of investment properties
– Change in fair value of interest rate derivatives
– Rent and incentive straight line adjustments
Finance income
Finance expense
Increase in trade and other receivables
Increase/(decrease) in trade and other payables
Cash generated from operations
Interest received
Net cash flow generated from operating activities
Investing activities
Purchase of investment properties
Acquisition costs
Purchase of subsidiary company
Sale proceeds on sale of subsidiary company
Lease incentives paid
Restricted cash held as retention money
Net cash flow used in investing activities
Financing activities
Share issue costs paid
Cost of shares bought into treasury
Dividends paid to equity shareholders
Dividends paid to C shareholders
Bank borrowings advanced
Bank borrowing issue costs paid
Loan interest paid
Net cash flow generated from financing activities
Net decrease in cash and cash equivalents
Unrestricted cash and cash equivalents at the start of the year
Unrestricted cash and cash equivalents at the end of the year
24
25
22
20
20
18
18
37,725
(9,389)
478
(87)
(110)
7,342
(3,290)
126
32,795
110
32,905
(17,986)
(9,737)
(19,829)
2,221
(6,844)
(9,726)
(61,901)
–
(699)
(32,889)
–
64,053
(1,364)
(5,804)
23,297
(5,699)
47,128
41,429
19,864
(3,652)
–
(314)
(491)
10,375
(2,789)
(149)
22,844
491
23,335
(267,908)
(9,421)
(25,470)
4,336
(3,178)
(936)
(302,577)
(56)
–
(17,591)
(9,966)
115,990
(2,374)
(2,958)
83,045
(196,197)
243,325
47,128
The notes on pages 96 to 128 are an integral part of these consolidated financial statements.
Civitas Social Housing PLC Annual Report 2020
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Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Notes to the Consolidated Financial Statements
For the year ended 31 March 2020
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, Devon 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 Group’s consolidated financial statements have been prepared on a historical cost basis, as modified for the Group’s
investment properties and derivatives financial instruments 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 on page 51 with supporting calculations in Appendix 1 on pages 141 to 143.
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 (£’000), 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 balance as at 31 March 2020 is £58.4 million,
of which £16.9 million is held as restricted cash. Details of this can be found in Note 18.
To date, the Company's financial performance has not been negatively impacted by COVID-19. The Company and its
Investment Adviser, Civitas Investment Management Limited ("CIM") are working closely with the Company's major
counterparties to monitor the position on the ground and, should it be needed, to offer assistance and guidance where
possible. The Board of Directors believes that the Company operates a robust and defensive business model and that social
housing and specialist healthcare are proving to be some of the more resilient sectors within the market, given that they
are based on non-discretionary public sector expenditure and that demand exceeds supply.
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 Board of 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.
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Notes to the Consolidated Financial Statements continued
2.3. New standards, amendments and interpretations
The following new standards are now effective and have been adopted for the year ended 31 March 2020.
•
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 standard does 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 does not have a material impact on the Group’s
financial statements.
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:
• Amendments to IAS 1 ‘Presentation of Financial Statements’ and IAS 8 ‘Accounting Policies, Changes in Accounting
Estimates and Errors’: (effective for annual periods beginning on or after 1 January 2020) – make amendments to
clarify the definition of ‘material’. The amendments make IFRSs more consistent but are not expected to have a
significant impact on the preparation of the 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.
Civitas Social Housing PLC Annual Report 2020
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Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Notes to the Consolidated Financial Statements continued
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 Limited (“JLL” or the “Valuer”) in accordance
with the current Royal Institution of Chartered Surveyors’ Valuation – Global Standards, incorporating the IVS, and the
RICS Valuation – Global Standards 2017 UK national supplement (the RICS “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.
The Valuer has included a material valuation uncertainty clause within their valuation report.
Material Valuation Uncertainty due to Novel Coronavirus (COVID-19)
The outbreak of the Novel Coronavirus (COVID-19), declared by the World Health Organisation as a “Global Pandemic”
on 11 March 2020, has impacted global financial markets. Travel restrictions have been implemented by many countries.
Market activity is being impacted in many sectors. As at the valuation date, we consider that we can attach less weight to
previous market evidence for comparison purposes, to inform opinions of value. Indeed, the current response to COVID-19
means that we are faced with an unprecedented set of circumstances on which to base a judgement.
The valuation is therefore reported on the basis of “material valuation uncertainty” as per VPS 3 and VPGA 10 of the RICS
Red Book Global. Consequently, less certainty – and a higher degree of caution – should be attached to our valuation
than would normally be the case. Given the unknown future impact that COVID-19 might have on the real estate market,
we recommend that you keep the valuation of these properties under frequent review. For the avoidance of doubt, the
inclusion of the ‘material valuation uncertainty’ declaration above does not mean that the valuation cannot be relied
upon. Rather, the phrase is used in order to be clear and transparent with all parties, in a professional manner that – in the
current extraordinary circumstances – less certainty can be attached to the valuation than would otherwise be the case.
On 28 May 2020, RICS published an update and concluded that the inclusion of MUCs was no longer appropriate
for (inter alia):
specialist supported housing of all types, designated either C2 or C3 use class, let to Registered Providers
on FRI leases, and usually with a third-party care provider involved in providing care and support to
residents, valued on the basis of Market Value
This advice was supported by JLL because of a continuation of activity in the specialist supported housing market and they
will be following this guidance in future valuation reports. Details of this clause are disclosed in note 15.
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 Directors’ 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
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Civitas Social Housing PLC Annual Report 2020
Notes to the Consolidated Financial Statements continued
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 transaction to acquire the freehold properties operated by New Directions
Flexible Social Care Solutions Ltd and Vision MH Ltd. Upon the acquisition of the companies, investment properties were
transferred into other Group companies and the companies, along with their associated operations, were sold to TLC Care
Homes Limited. Further details are shown in note 16 to the financial statements.
During the comparative 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 16 to the financial statements.
The acquired companies met the definition of a business under IFRS 3, and the transaction was therefore recorded as a
business combination.
Because the Group acquired the company with the intent to sell the business, management applied the short-cut method
under IFRS 5 – Subsidiaries acquired with a view to resale. Under this method, the subsidiary is recorded at fair value less
costs to sell, and there is no requirement to fair value the subsidiary’s individual assets and liabilities.
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 year 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.
Civitas Social Housing PLC Annual Report 2020
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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.
Lease incentive costs are recognised as an asset and amortised over the life of the lease.
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.
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Notes to the Consolidated Financial Statements continued
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
2020 or 1 April 2019, 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.
Within cash and cash equivalents is restricted cash which represents amounts held for specific commitments and 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.
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.
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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.
Derivative financial instruments
Derivative financial instruments, which comprise interest rate swaps for hedging purposes, are initially recognised at fair
value at acquisition and are subsequently measured at fair value, being the estimated amount that the Group would receive
or pay to sell or transfer the agreement at the period end date, taking into account current interest rate expectations and
the current credit rating of the lender and its counterparties. The gain or loss at each fair value remeasurement date is
recognised in the Group’s Consolidated Statement of Comprehensive Income.
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data is available
to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs
significant to the fair value measurement as a whole.
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 substantively 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:
Proceeds from the issue of Ordinary shares and retained earnings thereon
Bank and loan borrowings
31 March 2020
£’000
31 March 2019
£’000
670,564
269,170
939,734
666,508
205,156
871,664
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Civitas Social Housing PLC Annual Report 2020
Notes to the Consolidated Financial Statements continued
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.
Service charges and other similar receipts are included in net rental and property income gross of the related costs as the
Directors consider the Group acts as principal in this respect.
4.11. Finance income
Finance income is recognised as interest accrued 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.
4.16. Share held in treasury
The costs, including directly attributable transactions costs, of purchasing the Company’s own shares to be held in treasury
is deducted from equity and the costs are shown in the Consolidated Statement of Changes in Equity. Consideration
received, net of transaction costs, for the resale of these shares is also included in equity. Whilst the Company holds shares
in treasury, the calculations for net asset value and earnings per share are adjusted to exclude these shares.
Civitas Social Housing PLC Annual Report 2020
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5. Rental income
Rental income from investment property
Rent straight line adjustments
Lease incentive adjustments
Rechargeable costs received
Rental income
Less direct property expenses
Net rental income
For the
year ended
31 March 2020
£’000
For the
year ended
31 March 2019
£’000
45,819
361
(274)
259
46,165
(259)
45,906
35,424
459
(145)
–
35,738
–
35,738
Rechargeable costs received represent insurance costs paid by the Group and recharged to the Registered Providers.
As per the lease agreement with the Group and Registered Providers, the Registered Providers are responsible for the
settlement of all present and future rates, taxes and other impositions payable in respect of the property. As a result, no
further direct property expenses were incurred.
6. Directors’ remuneration
Directors’ fees
Employer’s National Insurance Contributions
Total
For the
year ended
31 March 2020
£’000
For the
year ended
31 March 2019
£’000
162
14
176
150
13
163
The Directors are remunerated for their services at such rate as the Directors shall from time to time determine.
7. Particulars of employees
The Group had no employees during the year (2019: nil) other than the Directors.
8. Investment advisory fees
Advisory fee
Disbursements
Total
For the
year ended
31 March 2020
£’000
For the
year ended
31 March 2019
£’000
6,131
52
6,183
6,457
–
6,457
On 7 May 2020, Civitas Housing Advisors Limited changed its name to Civitas Investment Management Limited. CIM is
the appointed 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 Net Asset Value 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 Net Asset Value up to and including £250 million, an amount equal to 1% of such part of the Net
Asset Value;
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Civitas Social Housing PLC Annual Report 2020
Notes to the Consolidated Financial Statements continued
b) on that part of the Net Asset Value over £250 million and up to and including £500 million, an amount equal to 0.9%
of such part of the Net Asset Value;
c) on that part of the Net Asset Value over £500 million and up to and including £1,000 million, an amount equal to
0.8% of such part of the Net Asset Value;
d) on that part of the Net Asset Value over £1,000 million, an amount equal to 0.7% of such part of the 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 May 2024.
During the year, the expiry date period was extended from 30 November 2021 to 30 May 2024.
Prior to 26 April 2019, the Advisory Fee calculation was based upon the higher Portfolio NAV which is defined in Appendix 1
on page 142.
9. General and administrative expenses
Legal and professional fees
Administration fees
Consultancy fees
Audit fees
Abortive costs
Bad debts
Valuation fees
Depositary fees
Grants and donations
Insurance
Marketing
Regulatory fees
Sundry expenses
Directors’ expenses
Total
For the
year ended
31 March 2020
£’000
1,081
1,070
148
246
303
–
96
71
88
49
269
14
65
1
For the
year ended
31 March 2019
£’000
1,049
717
176
211
18
421
96
60
28
65
101
19
61
–
3,501
3,022
Abortive costs represent legal and professional fees incurred in relation to the 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:
Audit of the financial statements
Review of the half year financial statements
Corporate services relating to the C share conversion
Total
For the
year ended
31 March 2020
£’000
For the
year ended
31 March 2019
£’000
195
51
–
246
180
31
10
221
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Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Notes to the Consolidated Financial Statements continued
10. Finance income
Interest and dividends received on liquidity funds
Bank interest received
Total
11. Finance expense
Bank charges
Interest paid and payable on bank borrowings and derivatives
Bank borrowing commitment fees
Amortisation of loan arrangement fees
Finance expenses associated with bank borrowings
Amortisation of C share liability
Total
For the
year ended
31 March 2020
£’000
For the
year ended
31 March 2019
£’000
81
29
110
486
5
491
For the
year ended
31 March 2020
£’000
For the
year ended
31 March 2019
£’000
2
5,795
220
1,325
7,342
–
7,342
2
3,048
207
718
3,975
6,400
10,375
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 year ended 31 March 2020,
the Group did not have any non-qualifying profits and accordingly there is no tax charge in the year. 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 year losses as it is not anticipated that sufficient residual profits
will be generated in the future.
Corporation tax charge/(credit) for the year
Total
For the
year ended
31 March 2020
£’000
For the
year ended
31 March 2019
£’000
–
–
–
–
106
Civitas Social Housing PLC Annual Report 2020
Notes to the Consolidated Financial Statements continued
The tax charge for the year is less than the standard rate of corporation tax in the UK of 19%. The differences are explained
below.
Group
Profit before taxation
UK corporation tax rate
Theoretical tax at UK corporation tax rate
Effects of:
Change in value of exempt investment properties
Exempt REIT income
Amounts not deductible for tax purposes
Unutilised residual current year tax losses
Total
For the
year ended
31 March 2020
£’000
For the
year ended
31 March 2019
£’000
37,725
19.00%
7,168
(1,784)
(6,136)
175
577
–
19,864
19.00%
3,774
(694)
(4,702)
1,296
326
–
The standard rate of corporation tax is currently 19%. The Government has announced that the corporation tax standard
rate is to be kept at to 19% for the foreseeable future.
REIT exempt income includes property rental income that is exempt from UK Corporation Tax in accordance with Part 12
of Corporation Tax Act 2010.
13. IFRS Earnings per share
Earnings per share (“EPS”) amounts are calculated by dividing profit for the year attributable to ordinary equity holders of
the Company by the weighted average number of Ordinary shares in issue during the year.
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:
Calculation of Basic Earnings per share
Net profit attributable to Ordinary shareholders (£’000)
Weighted average number of Ordinary shares
Earnings per share – basic
Calculation of Diluted Earnings per share
Net profit attributable to Ordinary shareholders (£’000)
Add back finance costs associated with the C share liability (£’000)
Total (£’000)
Weighted average number of Ordinary shares
Effects of dilution from C shares
Earnings per share – diluted
For the
year ended
31 March 2020
For the
year ended
31 March 2019
37,725
19,864
622,103,798
425,393,423
6.06p
4.67p
37,725
–
37,725
622,103,798
–
622,103,798
6.06p
19,864
6,400
26,264
425,393,423
197,067,957
622,461,380
4.22p
Civitas Social Housing PLC Annual Report 2020
107
Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Notes to the Consolidated Financial Statements continued
14. Dividends
Dividend of 1.325p for the 3 months to 31 March 2019
(1.25p 3 months to 31 March 2018)
Dividend of 1.325p for the 3 months to 30 June 2019
(1.25p 3 months to 30 June 2018)
Dividend of 1.325p for the 3 months to 30 September 2019
(1.25p 3 months to 30 September 2018)
Dividend of 1.325p for the 3 months to 31 December 2019
(1.25p 3 months to 31 December 2018)
Total
For the
year ended
31 March 2020
£’000
For the
year ended
31 March 2019
£’000
8,248
8,248
8,238
8,236
32,970
4,375
4,375
4,375
4,756
17,881
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.
On 6 August 2019, the Company announced a dividend of 1.325 pence per share in respect of the period 1 April 2019 to
30 June 2019. The dividend payment was made on 6 September 2019 to shareholders on the register as at 16 August 2019.
On 7 November 2019, the Company announced a dividend of 1.325 pence per share in respect of the period
1 July 2019 to 30 September 2019. The dividend payment was made on 29 November 2019 to shareholders on the register
as at 15 November 2019.
On 29 January 2019, the Company announced a dividend of 1.325 pence per share in respect of the period
1 October 2019 to 31 December 2019. The dividend payment was made on 28 February 2020 to shareholders on the register
as at 7 February 2020.
On 11 May 2020, the Company announced a dividend of 1.325 pence per share in respect of the period 1 January 2020 to
31 March 2020 totalling £8,236,000. The dividend payment was made on 12 June 2020 to shareholders on the register as
at 22 May 2020. The financial statements do not reflect this dividend.
15. Investment property
Balance at beginning of year
Property acquisitions
Acquisition costs
Change in fair value during the year
Value advised by the property valuers
Adjustments for lease incentive assets and rent straight line assets recognised
Total
For the
year ended
31 March 2020
£’000
For the
year ended
31 March 2019
£’000
826,918
33,194
5,311
13,320
878,743
(10,755)
867,988
516,554
289,304
10,916
10,144
826,918
(6,824)
820,094
108
Civitas Social Housing PLC Annual Report 2020
Notes to the Consolidated Financial Statements continued
Change in fair value of investment properties:
Change in valuation during the year
Adjustment for lease incentives and rent straight line
adjustments recognised in assets as:
Start of the year
End of the year
For the
year ended
31 March 2020
£’000
For the
year ended
31 March 2019
£’000
13,320
10,144
6,824
(10,755)
9,389
332
(6,824)
3,652
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.
As mentioned in note 3.1, the valuer included the following material valuation uncertainty clause within its valuation
report.
Material Valuation Uncertainty due to Novel Coronavirus (COVID-19)
The outbreak of the Novel Coronavirus (COVID-19), declared by the World Health Organisation as a “Global Pandemic”
on 11 March 2020, has impacted global financial markets. Travel restrictions have been implemented by many countries.
Market activity is being impacted in many sectors. As at the valuation date, we consider that we can attach less weight to
previous market evidence for comparison purposes, to inform opinions of value. Indeed, the current response to COVID-19
means that we are faced with an unprecedented set of circumstances on which to base a judgement.
The valuation is therefore reported on the basis of “material valuation uncertainty” as per VPS 3 and VPGA 10 of the RICS
Red Book Global. Consequently, less certainty – and a higher degree of caution – should be attached to our valuation than
would normally be the case. Given the unknown future impact that COVID-19 might have on the real estate market, we
recommend that you keep the valuation of these properties under frequent review.
For the avoidance of doubt, the inclusion of the ‘material valuation uncertainty’ declaration above does not mean that
the valuation cannot be relied upon. Rather, the phrase is used in order to be clear and transparent with all parties, in a
professional manner that – in the current extraordinary circumstances – less certainty can be attached to the valuation
than would otherwise be the case.
Valuation
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 £878,743,000 as at 31 March 2020 (2019: £826,918,000).
JLL has provided valuation services to the Company with regards to the properties during the year. In relation to the year
ended 31 March 2020, 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.
With the exception of the acquisition detailed in note 16, all corporate acquisitions during the year have been treated as
asset purchases rather than business combinations because they are considered to be acquisitions of properties rather
than businesses.
Civitas Social Housing PLC Annual Report 2020
109
Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Notes to the Consolidated Financial Statements continued
The following table provides the fair value measurement hierarchy for investment property:
Investment properties measured at fair value:
31 March 2020
31 March 2019
Quoted prices
in active
markets
(Level 1)
£’000
Significant
observable
inputs
(Level 2)
£’000
Significant
unobservable
inputs
(Level 3)
£’000
–
–
–
–
867,988
820,094
Total
£’000
867,988
820,094
There have been no transfers between Level 1 and Level 2 during any of the years, nor have there been any transfers
between Level 2 and Level 3 during any of the years.
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.
110
Civitas Social Housing PLC Annual Report 2020
Notes to the Consolidated Financial Statements continued
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 25 years to 35 years
with a weighted average unexpired lease term of 23.7 years (2019: 24.4). 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% (2019: 5.3%).
The range of discount rates used in the Group’s property Portfolio Valuation is from 4.9% to 10.7% (2019: 4.9% to 6.0%).
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:
Increase/(decrease) in the IFRS fair value of investment properties at:
31 March 2020
31 March 2019
16. Subsidiary resale
Balance at the beginning of the year
Acquisition
Transfer to investment property
Sale proceeds
-0.5% in
discount rate
£’000
+0.5% in
discount rate
£’000
+0.25% in
CPI
£’000
-0.25% in
CPI
£’000
34,733
33,203
(32,245)
(30,788)
26,917
25,651
(25,846)
(24,711)
For the
year ended
31 March 2020
£’000
For the
year ended
31 March 2019
£’000
–
19,829
(17,608)
(2,221)
–
–
25,470
(21,134)
(4,336)
–
On 11 March 2020, the Group entered into a transaction to acquire the freehold properties operated by New Directions
Flexible Social Care Solutions Ltd and Vision MH Ltd. Upon the acquisition of the companies for £19,829,000, investment
properties were transferred into other Group companies and the companies, along with their associated operations, were
sold to TLC Care Homes Limited for £2,221,000.
On 7 December 2018, the Group acquired a subsidiary, TLC Care Homes Limited, for £25,470,000 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 £21,134,000 and the fair value of the assets and liabilities less selling costs of the care home
business was £4,336,000. The care home business was sold immediately following acquisition for £4,336,000.
Civitas Social Housing PLC Annual Report 2020
111
Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Notes to the Consolidated Financial Statements continued
17. Trade and other receivables
Amounts falling due in less than one year
Rent receivable
Less provision for impairment
Net rent receivable
Accrued income
Prepayments and other receivables
Total
31 March 2020
£’000
31 March 2019
£’000
4,307
–
4,307
4,267
2,264
10,838
2,954
(421)
2,533
2,778
412
5,723
Prepayments and other receivable amounts include prepaid legal and professional fees of £469,000 (2019: £343,000)
that have been incurred in connection with acquisitions yet to be completed and £1,695,000 (2019: £nil) in respect of
uncompleted works on the property portfolio.
The increase in accrued income relates mainly to rent accrued for the period but not yet demanded. This is due to a
number of tenants who are invoiced in arrears.
Amounts falling due after more than one year
Debtor arising from straight line adjustments
Lease incentives
31 March 2020
£’000
31 March 2019
£’000
1,152
9,603
10,755
791
6,033
6,824
The aged analysis of trade receivables that are past due but not impaired was as follows:
Current
< 30 days
30-60 days
> 60 days
Less provision for impairment
Total
31 March 2020
£’000
31 March 2019
£’000
1,594
657
319
1,737
4,307
–
4,307
991
353
499
1,111
2,954
(421)
2,533
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.
112
Civitas Social Housing PLC Annual Report 2020
Notes to the Consolidated Financial Statements continued
18. Cash and cash equivalents
Cash held by solicitors
Liquidity funds
Cash held at bank
Unrestricted cash and cash equivalents
Restricted cash
Total
31 March 2020
£’000
31 March 2019
£’000
3,325
10,475
27,629
41,429
16,945
58,374
17,031
13,394
16,703
47,128
7,219
54,347
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 amounts held for specific commitments and 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
Deferred income
Acquisition costs accrued
Lease incentives payable
Finance costs
Dividends payable
Accruals
Income tax and corporation tax payable*
Total
31 March 2020
£’000
31 March 2019
£’000
245
5,068
–
1,014
798
618
–
7,743
14
10,074
3,000
798
717
616
105
15,324
Acquisition costs accrued includes the balance of retention monies of £4,819,000 (2019: £7,219,000) and acquisition costs
capitalised.
* Represents tax liabilities incurred by subsidiary companies prior to acquisition by the Group.
Civitas Social Housing PLC Annual Report 2020
113
Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Notes to the Consolidated Financial Statements continued
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 year end are offset against
amounts drawn on the facilities as shown in the table below:
Balance at start of year
Bank borrowings drawn
Bank borrowings drawn at end of year
Balance at start of year
Less: loan issue costs incurred
Add: loan issue costs amortised
Unamortised costs at end of year
At end of year
Maturity of bank borrowings:
Repayable within 1 year
Repayable between 1 to 2 years
Repayable between 2 to 5 years
Repayable after 5 years
Total
* Loan balance net of unamortised costs.
For the
year ended
31 March 2020
£’000
For the
year ended
31 March 2019
£’000
208,447
64,053
272,500
(3,291)
(1,364)
1,325
(3,330)
92,457
115,990
208,447
(1,635)
(2,374)
718
(3,291)
269,170
205,156
Loan Balance*
31 March 2020
£’000
Loan Principal
31 March 2020
£’000
Loan Principal
31 March 2019
£’000
59,730
99,004
58,840
51,596
269,170
60,000
100,000
60,000
52,500
272,500
–
55,947
100,000
52,500
208,447
As disclosed in note 36, after the year end the Lloyds Bank plc £60 million Revolving Credit Facility, which the table shows
as repayable within 1 year, was extended in the normal course of business to November 2021.
The Group is party to the following loan facility agreements:
A 10-year Sterling Term Facility Agreement dated 2 November 2017 for up to £52,500,000 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 £170,599,000 (2019: £169,999,000).
A 3-year Sterling Revolving Facility Agreement dated 15 November 2017 for up to £40,000,000 with Lloyds Bank plc.
Interest is charged at LIBOR +1.50% margin. During the comparative year, a £20,000,000 increase of this facility was
agreed. This facility was due for renewal in November 2020 but, as at the signing date, the loan has been extended in the
normal course to November 2021.
The borrowings include amounts secured on investment property to the value of £147,475,000 (2019: £144,166,000).
A 3-year Revolving Credit Facility Agreement dated 28 November 2018 for up to £100,000,000 with HSBC Bank PLC.
Interest is charged at LIBOR +1.70% margin.
The borrowings include amounts secured on investment property to the value of £216,026,000 (2019: £208,953,000).
A 5-year loan facility with National Westminster Bank Plc, dated 15 August 2019, for up to £60,000,000. Interest is charged
at LIBOR +2.00% margin and has been fixed by way of a 5-year swap. The swap fixes interest on £20 million at 0.7105%
114
Civitas Social Housing PLC Annual Report 2020
Notes to the Consolidated Financial Statements continued
and £40,000,000 at 0.5475%. The loan can be extended for an additional 2 years and there is the option of a further £40
million accordion.
The borrowings include amounts secured on investment property to the value of £129,933,000 (2019: £nil).
A number of covenants are in place under the four agreements. Under the Scottish Widows Limited 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%. Under the National Westminster Bank Plc 5-year facility,
historical and projected interest cover must be at least 250% and the loan to value ratio must not exceed 50%. At 31 March
2020, the Group is in compliance with all covenants.
21. Interest rate derivatives
The Group has entered into an interest rate swap with NatWest Markets in order to mitigate the risk of changes in interest
rates on its loan with National Westminster Bank Plc under which £60,000,000 is currently drawn.
The swap has a notional value of £60,000,000 and fixes interest at 2.60% (including the 2% margin rate on the bank loan).
At start of the year
Change in fair value during the year
At end of the year
For the year ended
31 March 2020
£’000
For the year ended
31 March 2019
£’000
–
(478)
(478)
–
–
–
The table below shows the fair value measurement hierarchy for interest rate derivatives:
31 March 2020
31 March 2019
Quote prices
in active
markets
(Level 1)
£’000
–
–
Significant
observable
inputs
(Level 2)
£’000
(478)
–
Significant
unobservable
inputs
(Level 3)
£’000
–
–
There have been no transfers between Level 1 and Level 2 during the year nor have there been any transfers between Level
2 and Level 3 during the year.
22. C shares
At beginning of year
Dividends paid to C shareholders
Amortisation of C share liability
Conversion to Ordinary shares
At end of year
For the
year ended
31 March 2020
£’000
For the
year ended
31 March 2019
£’000
–
–
–
–
–
298,752
(9,966)
6,400
(295,186)
–
On 10 November 2017, the Company announced the issue of 302,000,000 C shares, issued at £1 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.
Civitas Social Housing PLC Annual Report 2020
115
Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Notes to the Consolidated Financial Statements continued
Holders of C shares were 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.
23. Share capital
Share capital represents the nominal value of consideration received by the Company for the issue of Ordinary shares.
Share capital
At beginning of year
Shares issued
At end of year
Number of shares issued and fully paid
Ordinary shares of £0.01 each
At beginning of year
Shares issued
At end of year
For the
year ended
31 March 2020
£’000
For the
year ended
31 March 2019
£’000
6,225
–
6,225
3,500
2,725
6,225
622,461,380
–
622,461,380
350,000,000
272,461,380
622,461,380
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 £295,186,000.
The Company holds 815,000 Ordinary shares in treasury. The number of Ordinary shares used to calculate the net asset
value is 621,646,380.
116
Civitas Social Housing PLC Annual Report 2020
Notes to the Consolidated Financial Statements continued
24. 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.
At beginning of year
Premium arising on shares issued
Share issue costs
At end of year
For the
year ended
31 March 2020
£’000
292,405
–
–
292,405
For the
year ended
31 March 2019
£’000
–
292,461
(56)
292,405
25. Capital reduction reserve
The capital reduction reserve is a distributable reserve to which the value of the cancelled share premium has been
transferred. Pursuant to Article 3 of The Companies (Reduction of Share Capital) Order 2008, the balance held in the
capital reduction reserve is to be treated for the purposes of Part 23 of the Companies Act 2006 as a realised profit and
therefore available for distribution in accordance with section 830 of the Companies Act. The Company has used this
reserve for the costs of buying back shares to be held in treasury.
Balance at the beginning of the year
Shares bought back into treasury
At end of year
For the
year ended
31 March 2020
£’000
For the
year ended
31 March 2019
£’000
331,625
(699)
330,926
331,625
–
331,625
During the year, the Company purchased 815,000 Shares for a total cost of £699,000 to be held in treasury. The shares will
continue to be held in treasury until either re-issued or cancelled.
26. Retained earnings
This reserve represents the profits and losses of the Group.
Balance at the beginning of the year
Profit for the year
Dividends paid in the year (as per note 14)
At end of year
For the
year ended
31 March 2020
£’000
For the
year ended
31 March 2019
£’000
36,253
37,725
(32,970)
41,008
34,270
19,864
(17,881)
36,253
Civitas Social Housing PLC Annual Report 2020
117
Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Notes to the Consolidated Financial Statements continued
27. 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 year.
Net asset values have been calculated as follows:
Net assets (£’000)
Number of Ordinary shares in issue at end of year
Number of Ordinary shares held in treasury
31 March 2020
31 March 2019
670,564
666,508
622,461,380
622,461,380
(815,000)
–
Number of Ordinary shares excluding treasury shares held by the Company
621,646,380
622,461,380
NAV – basic and diluted
107.87p
107.08p
28. Reconciliation of liabilities to cash flows from financing
Balance at the beginning of the year
Cash flows from financing activities
Loan draw down
Loan arrangement costs paid
Non cash movements
Amortisation of loan arrangement costs
Balance at the beginning of the year
Cash flows from financing activities
Loan draw down
Loan arrangement costs paid
Dividends paid to C shareholders in the year
Non cash movements
Amortisation of loan arrangement costs
Amortisation of C shares liability
C share conversion
C share
liability
£’000
–
–
–
–
–
C share
liability
£’000
298,752
–
–
(9,966)
–
6,400
(295,186)
–
Bank
borrowings
£’000
205,156
64,053
(1,364)
1,325
269,170
Bank
borrowings
£’000
90,822
115,990
(2,374)
–
718
–
–
205,156
For the
year ended
31 March 2020
£’000
205,156
64,053
(1,364)
1,325
269,170
For the
year ended
31 March 2019
£’000
389,574
115,990
(2,374)
(9,966)
718
6,400
(295,186)
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 £295,186,000.
118
Civitas Social Housing PLC Annual Report 2020
Notes to the Consolidated Financial Statements continued
29. 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:
Amounts receivable
< 1 year
1-2 years
2-5 years
> 5 years
At end of year
31 March 2020
£’000
31 March 2019
£’000
48,416
48,451
145,545
886,677
45,685
45,720
137,356
882,407
1,129,089
1,111,168
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 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 2020
%
31 March 2019
%
Auckland Home Solutions*
Falcon Housing Association CIC
Bespoke Supportive Tenancies
Inclusion Housing CIC
Westmoreland Supported Housing Limited
Encircle Housing Limited
Trinity Housing Association Limited
Pivotal Housing Association
Harbour Light Assisted Living CIC
Chrysalis Supported Association Limited
New Walk Property Management CIC
My Space Housing Solutions
IKE Supported Housing Limited
Hilldale Housing Association Limited
Blue Square Limited
Total
22.73
20.43
11.05
8.74
7.97
6.11
5.50
3.96
3.76
3.49
2.87
1.19
1.15
0.98
0.07
11.26
20.89
11.37
8.34
19.66
6.33
5.74
4.09
2.42
3.41
2.95
1.24
1.20
1.03
0.07
100.00
100.00
* Includes properties reassigned from Westmoreland Supported Housing Limited.
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.
30. Controlling parties
As at 31 March 2020, there is no ultimate controlling party.
Civitas Social Housing PLC Annual Report 2020
119
Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Notes to the Consolidated Financial Statements continued
31. 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 year ended 31 March 2020 payable out of the assets of the Company is not expected to exceed £200,000.
Fees of £162,000 (2019: £150,000) were incurred and paid to the Directors.
As at 31 March 2020, the Directors held the following number of shares:
Director
Michael Wrobel
Chairman
Alastair Moss
Alison Hadden
Director
Director
Caroline Gulliver
Audit and Management Engagement Committee Chair
Peter Baxter
Director
31 March 2020
Ordinary
shares
31 March 2019
Ordinary
shares
100,598
11,766
–
58,832
47,065
100,598
11,766
–
58,832
47,065
Remuneration
The Investment Adviser 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 Adviser as a whole and not linked
to any one AIF in particular. The Investment Adviser and its staff receive no remuneration through profit share, carried
interest, co-investment or other schemes related to the Company’s performance.
32. Transactions with the Investment Adviser
On 1 November 2016, Civitas Investment Management Limited was appointed as the Investment Adviser of the Company.
Fees of £6,131,000 (2019: £6,457,000) were incurred and paid to CIM. In addition, disbursements of £52,000 were also paid
in the year.
As at 31 March 2020, no amounts (2019: £nil) were due to/from CIM.
At 31 March 2020, CIM held 50,000 Ordinary shares in the Company.
33. Consolidated entities
The Company has provided a guarantee under s479C of the Companies Act 2006 in respect of the financial year ended 31
March 2020 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 2020 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, Jersey and the
Isle of Man.
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.
120
Civitas Social Housing PLC Annual Report 2020
Notes to the Consolidated Financial Statements continued
Name
Registered
number
Principal
activity
Country of
incorporation
Ownership
%
Civitas Social Housing Finance Company 1 Limited
‡ 10997707
Finance Company
England & Wales
Civitas Social Housing Jersey 1 Limited
124129
Holding Company
Jersey
Civitas SPV1 Limited
Civitas SPV2 Limited
Civitas SPV11 Limited
Civitas SPV15 Limited
Civitas SPV25 Limited
Civitas SPV27 Limited
Civitas SPV33 Limited
Civitas SPV35 Limited
Civitas SPV38 Limited
Civitas SPV39 Limited
Civitas SPV40 Limited
Civitas SPV41 Limited
Civitas SPV50 Limited
‡ 10518729
Property investment England & Wales
‡ 10114251
Property investment England & Wales
‡ 10546749
Property investment England & Wales
‡ 9777380
Property investment England & Wales
‡ 10791473
Property investment England & Wales
‡ 10883112
Property investment England & Wales
‡ 10546407
Property investment England & Wales
‡ 10588530
Property investment England & Wales
‡ 10738318
Property investment England & Wales
‡ 10547333
Property investment England & Wales
‡ 10738510
Property investment England & Wales
‡ 10738542
Property investment England & Wales
‡ 10775419
Property investment England & Wales
Civitas Social Housing Finance Company 2 Limited
‡ 10997698
Finance Company
England & Wales
Civitas Social Housing Jersey 2 Limited
124876
Holding Company
Jersey
Civitas SPV3 Limited
Civitas SPV4 Limited
Civitas SPV5 Limited
Civitas SPV6 Limited
Civitas SPV9 Limited
Civitas SPV10 Limited
Civitas SPV12 Limited
Civitas SPV17 Limited
Civitas SPV18 Limited
Civitas SPV19 Limited
Civitas SPV20 Limited
Civitas SPV22 Limited
Civitas SPV24 Limited
Civitas SPV26 Limited
Civitas SPV29 Limited
Civitas SPV30 Limited
Civitas SPV31 Limited
Civitas SPV32 Limited
Civitas SPV34 Limited
Civitas SPV36 Limited
Civitas SPV42 Limited
Civitas SPV43 Limited
Civitas SPV45 Limited
Civitas SPV46 Limited
Civitas SPV47 Limited
Civitas SPV48 Limited
‡ 10156529
Property investment England & Wales
‡ 10433744
Property investment England & Wales
‡ 10479104
Property investment England & Wales
‡ 10674493
Property investment England & Wales
‡ 10536388
Property investment England & Wales
‡ 10535243
Property investment England & Wales
‡ 10546753
Property investment England & Wales
‡ 10479036
Property investment England & Wales
‡ 10546651
Property investment England & Wales
‡ 10548932
Property investment England & Wales
‡ 10588735
Property investment England & Wales
‡ 10743958
Property investment England & Wales
‡ 10751512
Property investment England & Wales
‡ 10864336
Property investment England & Wales
‡ 10911565
Property investment England & Wales
‡ 10956025
Property investment England & Wales
‡ 10974889
Property investment England & Wales
‡ 11007173
Property investment England & Wales
‡ 10738381
Property investment England & Wales
‡ 10588792
Property investment England & Wales
‡ 10738556
Property investment England & Wales
‡ 10534877
Property investment England & Wales
‡ 10871854
Property investment England & Wales
‡ 10871910
Property investment England & Wales
‡ 10873270
Property investment England & Wales
‡ 10873295
Property investment England & Wales
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
Civitas Social Housing PLC Annual Report 2020
121
Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Notes to the Consolidated Financial Statements continued
Name
Registered
number
Principal
activity
Country of
incorporation
Ownership
%
Civitas SPV51 Limited
Civitas SPV52 Limited
Civitas SPV63 Limited
Civitas SPV64 Limited
Civitas SPV70 Limited
Civitas SPV71 Limited
Civitas SPV72 Limited
Civitas SPV74 Limited
Civitas SPV75 Limited
Civitas SPV80 Limited
‡ 10826693
Property investment England & Wales
‡ 10827006
Property investment England & Wales
‡ 10937805
Property investment England & Wales
‡ 10938411
Property investment England & Wales
‡ 10770201
Property investment England & Wales
‡ 10888639
Property investment England & Wales
‡ 10938022
Property investment England & Wales
‡ 11001855
Property investment England & Wales
‡ 11001834
Property investment England & Wales
‡ 11001998
Property investment England & Wales
Civitas Social Housing Finance Company 3 Limited
‡ 10997714
Finance Company
England & Wales
Civitas SPV8 Limited
Civitas SPV28 Limited
Civitas SPV53 Limited
Civitas SPV55 Limited
Civitas SPV57 Limited
Civitas SPV60 Limited
Civitas SPV61 Limited
Civitas SPV66 Limited
Civitas SPV77 Limited
Civitas SPV78 Limited
Civitas SPV79 Limited
Civitas SPV81 Limited
Civitas SPV82 Limited
Civitas SPV83 Limited
Civitas SPV85 Limited
Civitas SPV95 Limited
Civitas SPV97 Limited
Civitas SPV103 Limited
Civitas SPV105 Limited
Civitas SPV106 Limited
Civitas SPV107 Limited
Civitas SPV116 Limited
Civitas SPV117 Limited
‡ 10536157
Property investment England & Wales
‡ 10895228
Property investment England & Wales
‡ 11021625
Property investment England & Wales
‡ 11056455
Property investment England & Wales
‡ 11091444
Property investment England & Wales
‡ 11111908
Property investment England & Wales
‡ 10937662
Property investment England & Wales
‡ 10937898
Property investment England & Wales
‡ 11166491
Property investment England & Wales
‡ 11170099
Property investment England & Wales
‡ 11236544
Property investment England & Wales
‡ 11192811
Property investment England & Wales
‡ 11380796
Property investment England & Wales
‡ 11371128
Property investment England & Wales
‡ 11300749
Property investment England & Wales
‡ 11208184
Property investment England & Wales
‡ 11463890
Property investment England & Wales
‡ 11500596
Property investment England & Wales
‡ 11532177
Property investment England & Wales
‡ 11532179
Property investment England & Wales
‡ 11532182
Property investment England & Wales
‡ 11504399
Property investment England & Wales
‡ 11504445
Property investment England & Wales
Civitas Social Housing Jersey 3 Ltd
124877
Holding Company
Jersey
Civitas SPV7 Limited
Civitas SPV13 Limited
Civitas SPV14 Limited
Civitas SPV16 Limited
Civitas SPV21 Limited
Civitas SPV37 Limited
Civitas SPV44 Limited
Civitas SPV49 Limited
‡ 10536368
Property investment England & Wales
‡ 9517692
Property investment England & Wales
‡ 10479041
Property investment England & Wales
‡ 9917557
Property investment England & Wales
‡ 10631541
Property investment England & Wales
‡ 10738450
Property investment England & Wales
‡ 10588783
Property investment England & Wales
‡ 11031349
Property investment England & Wales
122
Civitas Social Housing PLC Annual Report 2020
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
Notes to the Consolidated Financial Statements continued
Name
Registered
number
Principal
activity
Country of
incorporation
Ownership
%
Civitas Social Housing Finance Company 4 Limited
‡ 11906660
Finance Company
England & Wales
Civitas SPV23 Limited
Civitas SPV54 Limited
Civitas SPV59 Limited
Civitas SPV69 Limited
Civitas SPV73 Limited
Civitas SPV84 Limited
Civitas SPV86 Limited
Civitas SPV87 Limited
Civitas SPV88 Limited
Civitas SPV90 Limited
Civitas SPV91 Limited
Civitas SPV92 Limited
Civitas SPV93 Limited
Civitas SPV94 Limited
Civitas SPV96 Limited
Civitas SPV100 Limited
Civitas SPV101 Limited
Civitas SPV102 Limited
Civitas SPV109 Limited
Civitas SPV112 Limited
Civitas SPV114 Limited
Civitas SPV115 Limited
Civitas SPV118 Limited
Civitas SPV121 Limited
Civitas SPV122 Limited
Civitas SPV126 Limited
Civitas SPV127 Limited
Civitas SPV129 Limited
Civitas SPV130 Limited
Civitas SPV131 Limited
Civitas SPV132 Limited
Civitas SPV145 Limited
Fieldbay Limited
Civitas SPV148 Limited
Civitas SPV149 Limited
Civitas SPV150 Limited
FPI CO 324 Ltd
Civitas SPV56 Limited
Civitas SPV62 Limited
Civitas SPV65 Limited
Civitas SPV67 Limited
Civitas SPV68 Limited
‡ 10746881
Property investment England & Wales
‡ 11039750
Property investment England & Wales
‡ 11111912
Property investment England & Wales
‡ 11142372
Property investment England & Wales
‡ 10939075
Property investment England & Wales
‡ 11381455
Property investment England & Wales
‡ 11418432
Property investment England & Wales
‡ 10888903
Property investment England & Wales
‡ 10939044
Property investment England & Wales
‡ 10939131
Property investment England & Wales
‡ 10941377
Property investment England & Wales
‡ 11449913
Property investment England & Wales
‡ 11043111
Property investment England & Wales
‡ 11208105
Property investment England & Wales
‡ 11270786
Property investment England & Wales
‡ 11069703
Property investment England & Wales
‡ 9978282
Property investment England & Wales
‡ 11521555
Property investment England & Wales
‡ 11532120
Property investment England & Wales
‡ 11579750
Property investment England & Wales
‡ 11579733
Property investment England & Wales
‡ 11522178
Property investment England & Wales
‡ 11411498
Property investment England & Wales
‡ 11099917
Property investment England & Wales
‡ 11482646
Property investment England & Wales
‡ 11459821
Property investment England & Wales
‡ 10941401
Property investment England & Wales
‡ 11664994
Property investment England & Wales
‡ 11705074
Property investment England & Wales
‡ 11675132
Property investment England & Wales
‡ 11473735
Property investment England & Wales
‡ 11842306
Holding Company
England & Wales
‡ 5219012
Property investment England & Wales
‡ 11632633
Property investment England & Wales
‡ 11462691
Property investment England & Wales
‡ 11462555
Property investment England & Wales
‡ 11633019
Property investment England & Wales
‡ 11056465
Property investment England & Wales
‡ 10937528
Property investment England & Wales
‡ 10938467
Property investment England & Wales
‡ 10937929
Property investment England & Wales
‡ 10938269
Property investment England & Wales
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
Civitas Social Housing PLC Annual Report 2020
123
Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Notes to the Consolidated Financial Statements continued
Name
Civitas SPV98 Limited
Snapco Limited
Snapco 2 Limited
Snapco 3 Limited
Snapco 4 Limited
Snapco 5 Limited
Civitas SPV99 Limited
Snapco 6 Limited
Civitas SPV104 Limited
Civitas SPV108 Limited
Civitas SPV113 Limited
Civitas SPV119 Limited
Civitas SPV120 Limited
Civitas SPV123 Limited
Civitas SPV135 Limited
Civitas SPV143 Limited
Civitas SPV144 Limited
Civitas SPV146 Limited
Civitas SPV147 Limited
Civitas SPV151 Limited
Registered
number
Principal
activity
Country of
incorporation
Ownership
%
‡ 11478695
Holding Company
England & Wales
008603V
Property investment
Isle of Man
009143V
Property investment
Isle of Man
009144V
Property investment
Isle of Man
011660V
Property investment
Isle of Man
012111V
Property investment
Isle of Man
‡ 11478707
Holding Company
England & Wales
012112V
Property investment
Isle of Man
‡ 11532174
Property investment England & Wales
‡ 11532135
Dormant
England & Wales
‡ 11580068
Property investment England & Wales
* ‡ 11751515
Dormant
* ‡ 11801922
Dormant
England & Wales
England & Wales
‡ 8253452
Property investment England & Wales
‡ 11579880
Property investment England & Wales
‡ 11546808
Property investment England & Wales
‡ 11546696
Property investment England & Wales
‡ 11861500
Dormant
‡ 11861974
Dormant
* ‡ 11913037
Dormant
England & Wales
England & Wales
England & Wales
Bedford SPV1 Limited (previously Pitsea SPV1 Limited)
12315518
Property investment England & Wales
Civitas SPV133 Limited (previously Carislease 6 Limited)
‡ 11698972
Property investment England & Wales
Civitas SPV134 Limited (previously Carislease 3 Limited)
‡ 11689461
Property investment England & Wales
Civitas SPV136 Limited (previously NCG PB SPV Limited) ‡ 11579760
Property investment England & Wales
Civitas SPV152 Limited
Civitas SPV155 Limited
Civitas SPV156 Limited
Civitas SPV157 Limited
Civitas SPV158 Limited
Civitas SPV159 Limited
Civitas SPV160 Limited
Civitas SPV161 Limited
Civitas SPV162 Limited
FPI Co 294 Ltd
Bridge Property Herts Limited
Bridge Propco Limited
‡ 11955719
Property investment England & Wales
‡ 12044281
Property investment England & Wales
‡ 12081093
Property investment England & Wales
‡ 12188610
Property investment England & Wales
‡ 12202674
Property investment England & Wales
12258313
Property investment England & Wales
12272906
Property investment England & Wales
*
*
12289935
Dormant
12289907
Dormant
England & Wales
England & Wales
‡ 11519226
Property investment England & Wales
12435985
Property investment England & Wales
12445439
Property investment England & Wales
‡ These entities are exempt from the requirements of the Companies Act 2006 relating to the audit of individual financial statements by
virtue of Section 479A of that Act. These are all entities that have a year end of 31 March 2020.
* These entities have applied to the Registrar of Companies to be struck off.
124
Civitas Social Housing PLC Annual Report 2020
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
Notes to the Consolidated Financial Statements continued
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, Devon 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
34. Financial risk management
34.1. 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, and interest rate derivatives as detailed in notes 20 and 21.
Financial assets are classified as loans and receivables and all financial liabilities are measured at amortised cost, except
interest rate derivatives, which are measured at fair value. 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:
Financial assets
Trade and other receivables1
Cash and cash equivalents
Financial liabilities
Trade and other payables2
Bank borrowings
Interest rate derivatives
Book value
31 March 2020
£’000
Fair value
31 March 2020
£’000
Book value
31 March 2019
£’000
Fair value
31 March 2019
£’000
8,595
58,374
7,498
269,170
478
8,595
58,374
7,498
269,174
478
5,353
54,347
15,205
205,156
–
5,353
54,347
15,205
205,806
–
1 Excludes prepayments and debtors arising on rent smoothing.
2 Excludes deferred income and tax liabilities.
The Group has four bank loans: a 10-year fixed rate loan of £52.5 million provided by Scottish Widows Limited; a 3-year
revolving credit facility variable rate loan of £60 million provided by Lloyds Bank plc; a 3-year revolving credit facility
variable rate loan of £100 million provided by HSBC Bank PLC; and a 5-year revolving credit facility variable rate loan of
£60 million provided by National Westminster Bank Plc. The fair value of the fixed rate loan is determined by comparing
the discounted future cash flows.
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.
Civitas Social Housing PLC Annual Report 2020
125
Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Notes to the Consolidated Financial Statements continued
34.2. 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, in particular the impact of COVID 19;
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.
34.3. 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 three variable rate bank loans. The Group has entered into an interest rate swap on the 5-year
loan facility with National Westminster Bank Plc in order to mitigate the risk of rising interest rates.
At 31 March 2020, 41% (2019: 25%) of the Group’s borrowings are subject to 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.
126
Civitas Social Housing PLC Annual Report 2020
Notes to the Consolidated Financial Statements continued
As at 31 March 2020, if interest rates had been 200 basis points higher/(lower) with all other variables held constant, the
impact on profits after taxation for the year would be as follows:
(Decrease)/increase in profits due to interest rates
200 basis points higher
200 basis points lower
31 March 2020
£’000
31 March 2019
£’000
(8,830)
3,662
(2,032)
1,271
The average effective interest rates of financial instruments at 31 March 2020 were as follows:
Bank borrowings – fixed rate
Bank borrowings – variable rate
Cash and cash equivalents
31 March 2020
%
31 March 2019
%
2.31950
2.80046
0.11048
2.99360
2.50180
0.16795
34.4. 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 29 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.
34.5. 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.
Civitas Social Housing PLC Annual Report 2020
127
Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Notes to the Consolidated Financial Statements continued
The following table details the Group’s maturity profile in respect of its financial instrument liabilities based on contractual
undiscounted payments:
31 March 2020
Trade and other payables
Bank borrowings
31 March 2019
Trade and other payables
Bank borrowings
On demand
£’000
<1 year
£’000
1-5 years
£’000
>5 years
£’000
Total
£’000
7,498
–
7,498
15,205
–
15,205
–
66,896
66,896
–
5,473
5,473
–
174,785
174,785
–
168,877
168,877
–
55,002
55,002
–
56,573
56,573
7,498
296,683
304,181
15,205
230,923
246,128
The profile above shows the maturity profile at 31 March 2020 and included within the contracted payments is £24,183,000
(2019: £22,476,000) of loan interest payable up to the point of maturity. As disclosed in note 36, after the year end, the
revolving credit facility of £60,000,000 was extended for one year and now matures in November 2021.
35. Capital commitments
At 31 March 2020, the Company had funds committed totalling £22,100,000 (2019: £12,000,000). £12,100,000 relates to
two properties (currently under development) for which the Company has entered into a conditional sale and purchase
agreement contingent on the completion of development. £10,000,000 (estimated) relates to a capital payment for the
same properties contingent on the operators achieving certain financial obligations.
Amounts totalling £850,000 have been allocated for capital works expenditure on properties, subject to future proofing
activities to ensure the longevity of occupation by residents.
In addition to the above, as at 31 March 2020 the Company had conditionally exchanged on two properties in Telford and
one in Sunderland totalling £1,800,000. One of these properties completed in April 2020 with the remaining two expected
to complete over the coming months.
36. Post balance sheet events
Acquisitions
On 20 April 2020, a property in Telford was acquired for £0.6m. On 11 June 2020, the Company completed on the forward
purchase agreement of a development in Wales for £2.3m.
Dividends
On 11 May 2020, the Board declared a quarterly dividend in respect of the Ordinary shares for the three months to 31 March
2020 of 1.325 pence per Ordinary share totalling £8,236,000. The dividend was paid on 12 June 2020 to holders of Ordinary
shares on the register as at 22 May 2020. The dividend was paid as a REIT property income distribution (“PID”).
Other announcements
The Lloyds Bank plc £60m Revolving Credit Facility has been extended in the normal course of business to November 2021.
128
Civitas Social Housing PLC Annual Report 2020
Company Statement of Financial Position
As at 31 March 2020
Assets
Non-current assets
Investment in subsidiaries
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
Liabilities
Current liabilities
Trade and other payables
Total liabilities
Total net assets
Equity
Share capital
Share premium reserve
Capital reduction reserve
Retained earnings/(accumulated losses)
Total equity
31 March 2020
Note
£’000
31 March 2019
(restated)
£’000
8
9
10
11
12
13
706,920
676,496
4,727
29,011
33,738
740,658
(191,942)
(191,942)
(191,942)
548,716
6,225
292,405
330,926
(80,840)
548,716
371
45,905
46,276
722,772
(131,277)
(131,277)
(131,277)
591,495
6,225
292,405
331,625
(38,760)
591,495
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 £9,110,000 (2019: loss of £14,937,000).
The Company financial statements on pages 129 to 136 were approved by the Board of Directors of Civitas Social Housing
PLC and authorised for issue and signed on its behalf by:
Michael Wrobel
Chairman and Independent Non-Executive Director
29 June 2020
Company No: 10402528
The notes on pages 131 to 136 are an integral part of these financial statements.
Civitas Social Housing PLC Annual Report 2020
129
Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information
Company Statement of Changes in Equity
For the year ended 31 March 2020
Balance at 1 April 2018
Prior year adjustment (note 3)
Balance at 1 April 2018 (as restated)
Loss and total comprehensive expense
for the year
Issue of Ordinary shares
Issue of share capital
Share issue costs
Dividends paid
Total interim dividends for the year ended
31 March 2019 (5.00p)
Share
capital
£’000
3,500
3,500
–
Share
premium
reserve
£’000
–
–
–
2,725
292,461
–
–
(56)
–
Loss and total comprehensive expense
for the year
Issue of Ordinary shares
Shares bought back into treasury
Dividends paid
Total interim dividends for the year ended
31 March 2020 (5.30p)
–
–
–
–
–
–
Balance at 31 March 2019
6,225
292,405
331,625
Capital
reduction
reserve
£’000
331,625
331,625
Retained
earnings/
(accumulated
losses)*
£’000
85,479
(91,421)
(5,942)
Total
equity
£’000
420,604
(91,421)
329,183
–
–
–
–
–
(14,937)
(14,937)
–
–
295,186
(56)
(17,881)
(38,760)
(17,881)
591,495
–
(9,110)
(9,110)
(699)
–
(699)
(32,970)
(80,840)
(32,970)
548,716
Balance at 31 March 2020
6,225
292,405
330,926
* The Company’s distributable reserves comprise retained earnings and capital reduction reserve. These in aggregate had sufficient
realised distributable reserves to support the dividends paid.
The notes on pages 131 to 136 are an integral part of these financial statements.
130
Civitas Social Housing PLC Annual Report 2020
Notes to the Company Financial Statements
For the year ended 31 March 2020
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, Devon 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 have been admitted to the Official List of the Financial Conduct Authority (“FCA”), and
are 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.
In addition, the Company is taking advantage of the exemption of presenting a third balance sheet as a result of the prior
year adjustment.
Civitas Social Housing PLC Annual Report 2020
131
Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Notes to the Company Financial Statements continued
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.
New standards, amendments and interpretations
The following new standards are now effective and have been adopted for the year ended 31 March 2020.
•
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 does not have a material impact on the Company’s financial
statements as the Company 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 does not have a material impact on the Company’s
financial statements.
Going concern
The financial statements have been prepared on a going concern basis.
As discussed in the Group financial statements on page 96, the underlying assets of the Company benefit from a secure
income stream and to date performance has not been negatively impacted by COVID-19.
The Company accounts show an accumulated loss, however this is due to a time-lag on profits from subsidiary companies
being moved up the structure in the form of dividends.
The Company has a net current liability position of £158,204,000 (2019: £85,372,000). This balance arises due to the
intercompany balances totalling £187,911,000 (2019: £125,232,000) with the Company's subsidiary companies. The
amounts principally relate to bank loans drawn in the Company's subsidiary companies in order to finance the purchase of
new acquisitions in accordance with the Group's business model. The directors of the subsidiary companies have provided
a letter of comfort that they will not seek repayment of these balances within the next 12 months.
After review of these items, the Directors believe there are currently no material uncertainties in relation to the Company's
ability to continue for a period of at least 12 months from the date of the Company's financial statements. And therefore
it is appropriate that 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.
As disclosed in note 3.1 to the Group financial statements on pages 98 and 99, the underlying assets of the Company have
been valued by an external valuer. The Valuation is subject to the now standard "Material Valuation Uncertainty due to
Novel Coronavirus (COVID-19)" clause that professional valuation firms, including JLL, are adopting across the world in
respect of valuations at this time. On 28 May 2020, RICS published an update and concluded that the inclusion of MUCs
was no longer appropriate for this asset class.
There is currently no indication of impairment in the assets of the Company.
3. Prior year adjustment
A prior year adjustment has been made in the Company accounts relating to the year ended 31 March 2018, specifically,
dividends amounting to £91.4m, a return of capital, which was incorrectly treated as equity and has now been adjusted by
way of a reduction in investments in subsidiaries. The effect of this correction is to reduce the retained earnings reserve by
£91.4m with a corresponding reduction of investments in subsidiaries of the same amount. This adjustment has no effect
132
Civitas Social Housing PLC Annual Report 2020
Notes to the Company Financial Statements continued
(including no cash effect) in the Group financial statements and does not affect in any way the treatment of dividends paid
to shareholders of the Group, all of which have been paid correctly and with the appropriate tax treatment nor does it have
any implications at all for the payment of future dividends.
Following the correction of this historic accounting mistreatment, there are no further adjustments that are required in
the future.
Comparative figures have been restated.
4. 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.
The investment in a subsidiary company may include both the purchase of shares and an intercompany loan which is
subsequently capitalised in return for shares in the subsidiary company. The intercompany loan capitalised is disclosed in
note 8 as a transfer between the shares and loan columns.
Loans to subsidiaries
Loans made to subsidiary companies which arise as part of the transactions for the acquisition of investments and are
subsequently capitalised by the issue of shares are recognised as investment in subsidiaries at cost. At the point the loan
is capitalised, this transaction is recognised as a transfer within the table in note 8.
Amounts due to subsidiary companies
Balances arising with subsidiary companies of a temporary nature are initially recognised at fair value and subsequently
measured at amortised cost.
5. Dividends
Details of dividends paid and proposed are included in note 14 of the Group’s consolidated financial statements.
6. Employee information
Details of Directors’ remuneration are included in note 6 of the consolidated financial statements. The Company had no
further employees during the year (2019: nil) other than the Directors.
7. Audit fees
Audit fees in relation to the Company’s financial statements total £195,000 (31 March 2019: £180,000). For further details,
please refer to note 9 of the Group financial statements on page 105.
Civitas Social Housing PLC Annual Report 2020
133
Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Notes to the Company Financial Statements continued
8. Investments in subsidiaries
Balance at the beginning of the year (as restated)
Increase in investments
Loans transferred
Additions due to internal group structure
Disposals due to internal group structure
At the end of the year
Balance at the beginning of the year (as previously stated)
Prior year adjustment (note 3)
Balance at the beginning of the year (as restated)
Increase in investments
Loans transferred
Additions due to internal group structure
Disposals due to internal group structure
At the end of the year (as restated)
Shares in
subsidiaries
£’000
Loans to
subsidiaries
£’000
For the
year ended
31 March 2020
£’000
590,208
4,015
84,024
93,289
(93,289)
678,247
86,288
28,232
(84,024)
–
(1,823)
28,673
676,496
32,247
–
93,289
(95,112)
706,920
Shares in
subsidiaries
£’000
Loans to
subsidiaries
£’000
For the
year ended
31 March 2019
£’000
446,954
(91,421)
355,533
31,576
198,245
186,294
(181,440)
590,208
32,180
–
32,180
257,207
(198,245)
–
(4,854)
86,288
479,134
(91,421)
387,713
288,783
–
186,294
(186,294)
676,496
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 the assets are used as security for bank loans are now directly held by other Group
companies.
9. Trade and other receivables
Prepayments and other receivables
Accrued income
Total
31 March 2020
£’000
31 March 2019
£’000
3,357
1,370
4,727
371
–
371
Prepayments and other receivable amounts include prepaid legal and professional fees of £469,000 (2019: £343,000)
that have been incurred in connection with acquisitions yet to be completed and £1,695,000 (2019: £nil) in respect of
uncompleted works on the property portfolio.
10. Cash and cash equivalents
Cash held by solicitors
Liquidity funds
Cash held at bank
Cash and cash equivalents
Restricted cash
Total cash held at bank
134
Civitas Social Housing PLC Annual Report 2020
31 March 2020
£’000
31 March 2019
£’000
3,419
10,475
338
14,232
14,779
29,011
17,031
13,394
10,931
41,356
4,549
45,905
Notes to the Company Financial Statements continued
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 amounts held for specific commitments and 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.
11. Trade and other payables
Acquisition costs accrued
Retentions
Accruals
Dividends payable
Amounts due to subsidiary companies
Total
31 March 2020
£’000
31 March 2019
£’000
–
2,653
580
798
187,911
191,942
303
4,489
536
717
125,232
131,277
12. Share capital
Share capital represents the nominal value of consideration received by the Company for the issue of Ordinary shares.
Share capital
At beginning of year
Shares issued
At end of year
Number of shares issued and fully paid
Ordinary shares of £0.01 each
At beginning of year
Shares issued
At end of year
For the
year ended
31 March 2020
£’000
For the
year ended
31 March 2019
£’000
6,225
–
6,225
3,500
2,725
6,225
For the
year ended
31 March 2020
622,461,380
–
622,461,380
For the
year ended
31 March 2019
350,000,000
272,461,380
622,461,380
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 £295,186,000.
The Company holds 815,000 Ordinary shares in treasury. The number of Ordinary shares used to calculate the net asset
value is 621,646,380.
Civitas Social Housing PLC Annual Report 2020
135
Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Notes to the Company Financial Statements continued
Notes
13. Retained earnings/(accumulated losses)
This reserve represents the profits and losses of the Company.
Balance at the beginning of the year (as previously stated)
Prior year adjustment (note 3)
Balance at the beginning of the year (as restated)
Loss for the year
Dividends paid in the year
At end of year
14. Controlling parties
As at 31 March 2020, there is no ultimate controlling party.
For the
year ended
31 March 2020
£’000
For the
year ended
31 March 2019
£’000
–
–
(38,760)
(9,110)
(32,970)
(80,840)
85,479
(91,421)
(5,942)
(14,937)
(17,881)
(38,760)
15. Related party transactions
For all related party transactions and transactions with the Investment Adviser please make reference to notes 31 and 32
of the Group’s consolidated financial statements.
136
Civitas Social Housing PLC Annual Report 2020
Shareholder Information
Share Information
The Company’s Ordinary shares of 1p each are quoted on
the Official List of the FCA and traded on the premium
segment of the Main Market of the LSE.
Key Dates
June
September
SEDOL number BD8HBD3
ISIN
Ticker/TIDM
LEI
GB00BD8HBD32
CSH
213800PGBG84J8GM6F95
Frequency of NAV Publication
The Company’s NAV is released to the LSE on a quarterly
basis and published on the Company’s website.
Annual results announced
Payment of first dividend
Company’s half-year end
Annual general meeting
Payment of second dividend
December
Half-yearly results announced
Payment of third dividend
February
Payment of fourth dividend
March
Company’s year end
Sources of Further Information
Copies of the Company’s Annual and Half-Yearly Reports,
Stock Exchange announcements and further information
on the Company can be obtained from its website: www.
civitassocialhousing.com.
Association of Investment Companies
The Company is a member of the AIC, which publishes
statistical information in respect of member companies.
The AIC can be contacted on 020 7282 5555, enquiries@
theaic.co.uk or visit the website: www.theaic.co.uk.
Share Register Enquiries
The register for the Company’s Ordinary shares is
maintained by Link Asset Services. In the event of queries
regarding your holding, please contact the Registrar
on 0371 664 0300 (calls are charged at the standard
geographic rate and will vary by provider; calls outside
the UK will be charged at the applicable international
rate). Lines are open between 9.00am to 5.30pm, Monday
to Friday, excluding public holidays in England and Wales.
You can also email enquiries@linkgroup.co.uk.
Changes of name and/or address must be notified in
writing to the Registrar: Link Asset Services, Shareholder
Services, The Registry, 34 Beckenham Road, Beckenham,
Kent BR3 4TU.
Civitas Social Housing PLC Annual Report 2020
137
Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information
Glossary
ALMO means an arm’s length management organisation,
a not-for-profit company that provides housing services
on behalf of a Local Authority.
Approved Provider means Housing Associations, Local
Authorities, ALMOs, Community Interest Companies,
Registered Charities and other regulated organisations
directly or indirectly in receipt of payment from local or
central government including the NHS.
Care Provider means a provider of care services to the
occupants of Specialist Supported Housing, registered
with the Care Quality Commission.
CIM means Civitas Investment Management Limited
or CIM (formerly known as Civitas Housing Advisors
Limited until its change of name on 7 May 2020).
Community Interest Company or CIC means a company
approved by the Office of the Regulator of Community
Interest Companies as a community interest company
and registered as such with Companies House.
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.
the purpose of providing
Housing Association or HA means an independent
society, body of trustees or company established
for
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.
low-cost
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.
Investment Adviser means Civitas
Investment
Management Limited ("CIM"), 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).
MUC means material uncertainty clause.
CMA Order means the Statutory Audit Services Order
2014, issued by the Competition and Markets Authority.
Net Initial Yield means the ratio of net rental income
and gross purchase price of a property.
EPRA means the 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.
NHS means the publicly funded healthcare system of
the United Kingdom comprising The National Health
Service in England, NHS Scotland, NHS Wales and Health
and Social Care in Northern Ireland, including, for the
avoidance of doubt, NHS Trusts.
NHS Trust means a legal entity, set up by order of the
Secretary of State under section 25 of, and Schedule 4 to,
the National Health Service Act 2006, to provide goods
and services for the purposes of the health service.
Portfolio means the Group’s portfolio of assets.
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 6 to Appendix 1 for a reconciliation
to IFRS NAV.
138
Civitas Social Housing PLC Annual Report 2020
Glossary continued
Portfolio Valuation means an independent valuation of
the Portfolio by Jones Lang LaSalle Limited 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.
RSH means the Regulator of Social Housing, the executive
non-departmental public body, sponsored by the Ministry
of Housing, Communities and Local Government, which
is the regulator for Social Homes providers in England
and Wales.
Social Homes or Social Housing means social rented
homes and other accommodation that are offered at
rents subsidised below market level or are constituents
of other appropriate rent regimes such as exempt rents
or are subject to bespoke agreement with entities such
as NHS Trusts and are provided by Approved Providers.
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.
Valuation means an independent valuation of the
Portfolio by Jones Lang LaSalle Limited 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.
Civitas Social Housing PLC Annual Report 2020
139
Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Company Information
Non-executive Directors
Michael Wrobel, Chairman
Alastair Moss
Alison Hadden (date of appointment: 21 November 2019)
Caroline Gulliver, Chair of the Audit and Management Engagement Committee
Peter Baxter
Depositary
INDOS Financial Limited
5th Floor
54 Fenchurch Street
London EC3M 3JY
Registrar
Link Market Services Limited
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
Independent Auditors and Reporting Accountants
PricewaterhouseCoopers LLP
7 More London Riverside
London SE1 2RT
Legal and Tax Adviser
Cadwalader, Wickersham & Taft LLP
Dashwood House
69 Old Broad Street
London EC2M 1QS
Public Relations Adviser
Buchanan
107 Cheapside
London EC2V 6DN
Tax Adviser
BDO LLP
55 Baker Street
London W1U 7EU
Registered Office
Beaufort House
51 New North Road
Exeter
Devon EX4 4EP
Registered no: 10402528
www.civitassocialhousing.com
Alternative Investment Fund Manager
G10 Capital Limited
136 Buckingham Palace Road
London SW1W 9SA
Investment Adviser
Civitas Investment Management Limited
13 Berkeley Street
London W1J 8DU
Joint Corporate Brokers
Liberum Capital Limited
Ropemaker Place
25 Ropemaker Street
London EC2Y 9LY
Panmure Gordon (UK) Limited
One New Change
London EC4M 9AF
Company Secretary
Link Company Matters Limited
Administrator
Link Alternative Fund Administrators Limited
Beaufort House
51 New North Road
Exeter
Devon EX4 4EP
140
Civitas Social Housing PLC Annual Report 2020
Appendix 1 (unaudited)
Notes to the calculation of EPRA and other alternative performance measures
1. EPRA Earnings
Earnings from operational activities
Profit after taxation (£’000)
Change in fair value of derivative financial instruments (£’000)
Changes in value of investment properties (£’000)
EPRA Earnings (£’000)
Finance costs associated with the C share financial liability (£’000)
Diluted EPRA earnings (£’000)
For the
year ended
31 March 2020
For the
year ended
31 March 2019
37,725
478
(9,389)
28,814
–
28,814
19,864
–
(3,652)
16,212
6,400
22,612
425,393,423
197,067,957
Weighted average number of shares in issue (adjusted for shares held in treasury)
622,103,798
Dilutive elements
–
Adjusted weighted average number of shares in issue (adjusted for shares held
in treasury)
EPRA Earnings per share (EPS) – basic
EPRA Earnings per share (EPS) – diluted
622,103,798
622,461,380
4.63p
4.63p
3.81p
3.63p
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.
Net assets (£’000)
Fair value of derivative financial instruments (£’000)
EPRA Net assets (£’000)
31 March 2020
31 March 2019
670,564
478
671,042
666,508
–
666,508
Number of Ordinary shares in issue (adjusted for shares held in treasury)
621,646,380
622,461,380
EPRA Net Assets per share
107.95p
107.08p
3. EPRA NNNAV
EPRA NAV adjusted to include the fair values of (i) financial instruments, (ii) debt and (iii) deferred taxes.
EPRA Net Assets (per above) (£’000)
Fair value of derivative financial instruments (£’000)
Adjustment to value bank borrowings at fair value (£’000)
EPRA NNNAV (£’000)
31 March 2020
31 March 2019
671,042
(478)
(3,004)
667,560
666,508
–
(650)
665,858
Number of Ordinary shares in issue (adjusted for shares held in treasury)
621,646,380
622,461,380
EPRA NNNAV per share
107.39p
106.97p
Civitas Social Housing PLC Annual Report 2020
141
Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Appendix 1 (unaudited) continued
Notes to the calculation of EPRA and other alternative performance measures
4. EPRA Vacancy Rate
Estimated Market Rental Value (“ERV”) of vacancy space divided by ERV of the whole portfolio.
Estimated Market Rental Value (ERV) of vacant spaces (£'000)
Estimated Market Rental Value (ERV) of whole portfolio (£'000)
EPRA Vacancy Rate
5. EPRA Costs Ratio
Administrative and operating costs divided by gross rental income.
Total administrative and operating costs (£'000)
Gross rental income (£'000)
EPRA cost ratio
31 March 2020
31 March 2019
–
48,416
0%
–
45,685
0%
For the
year ended
31 March 2020
For the
year ended
31 March 2019
9,860
45,906
21.48%
9,642
35,738
26.98%
6. Portfolio NAV
IFRS NAV adjusted to reflect investment property valued on a portfolio basis rather than individual asset basis.
Net assets (£’000)
Adjustment for change to property valuation (£’000)
Portfolio net assets (£’000)
31 March 2020
31 March 2019
670,564
65,140
735,704
666,508
74,662
741,170
Number of Ordinary shares in issue (adjusted for shares held in treasury)
621,646,380
622,461,380
Portfolio Net Assets per share
118.35p
119.07p
7. Company Adjusted Earnings
Company specific earnings measure which adds back finance costs associated with the C share financial liability.
Profit after taxation (£’000)
Changes in fair value in derivative financial instruments (£’000)
Changes in value of investment properties (£’000)
EPRA Earnings (£’000)
Finance costs associated with the C share financial liability (£’000)
Company Adjusted Earnings (£’000)
For the
year ended
31 March 2020
For the
year ended
31 March 2019
37,725
478
(9,389)
28,814
–
28,814
19,864
–
(3,652)
16,212
6,400
22,612
Weighted average number of shares in issue (adjusted for shares held in treasury)
621,646,380
622,461,380
Company Adjusted Earnings per share (EPS) – basic
4.63p
3.63p
142
Civitas Social Housing PLC Annual Report 2020
Appendix 1 (unaudited) continued
Notes to the calculation of EPRA and other alternative performance measures
8. IRR
The Internal Rate of Return (“IRR”) for the period from launch to 31 March 2020 based on IFRS NAV and portfolio NAV is
calculated using dividend cash flows data as follows:
18 November 2016
Investment (net of issue costs)
98.00
98.00
IFRS NAV basis
pence per share
Portfolio NAV basis
pence per share
31 May 2017
31 August 2017
30 November 2017
9 March 2018
8 June 2018
7 September 2018
30 November 2018
11 January 2019
28 February 2019
7 June 2019
6 September 2019
29 November 2019
28 February 2020
31 March 2020
IRR
Interim dividend
Interim dividend
Interim dividend
Interim dividend
Interim dividend
Interim dividend
Interim dividend
Interim dividend
Interim dividend
Interim dividend
Interim dividend
Interim dividend
Interim dividend
NAV
0.75
0.75
0.75
0.75
1.25
1.25
1.25
1.11
0.14
1.33
1.33
1.33
1.33
0.75
0.75
0.75
0.75
1.25
1.25
1.25
1.11
0.14
1.33
1.33
1.33
1.33
107.87
6.82%
118.35
9.58%
Civitas Social Housing PLC Annual Report 2020
143
Group Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Notes
144
Civitas Social Housing PLC Annual Report 2020
Civitas Investment Management Limited13 Berkeley Street, London W1J 8DUTelephone: 0203 058 4840e: enquiries@civitasha.comw: www.civitasim.comSupporting