Civitas Social Housing Share Discussion Threads

[debeege] 20/12/2022 10:35

William, 87% of CSH residents are "satisfied with the quality of their home", and a further 8% neither here or there. So 95% are generally happy. Rent averaging circa £230 per week, under £1k per month is a level the government are happy to pay, the alternative is hospital considering the acute care required by the majority of CSH residents.

So how do you assume rent levels are going to drop?

[williamcooper104] 20/12/2022 09:48

CSH, SOHO and HOME all have the same business model HOME has 10-12 year fixed debt and the lowest LTV in the sector They are all going to see rental income falls, by hook or crook - but HOME won't be doing rescue rights issues to cover covenants

[up4itt] 20/12/2022 09:36

The stuff about Fairhome and Westmoreland was the subject of an investigation by the Social Housing Regulator who published their conclusions in 2018. The facts have been in the public domain for at least 4 years and I’m not sure that there is anything new in what Lucy is alleging.

Lucy only posts on Civitas (and now on Victoria) and has tended to do so when Shadowfall and other shorters are active. There is circumstantial evidence, therefore, that she has an agenda. I have no problem with that, but it’s worth knowing, although that does not in itself nullify the value of her research.

The Civitas share price has fallen sharply since October, but so have, to more or less the same extent, the share prices of other REITS unrelated to social housing. This suggests that the falls reflect the macro environment and higher interest rates and are not specifically related to the business model of Civitas and Triple Point. I suspect that the unique issues faced by HOME may have leached, unjustifiably, into perceptions of Civitas and Triple Point.

All investments involve risk, but investors in Civitas and Triple Point are compensated for this risk by the low NAV and the high dividend.

Full disclosure: I hold both CSH and SOHO. Together they comprise about 16% of my REITS holdings which in turn represent about 15% of my total UK share portfolio. I am well under water with both CSH and SOHO, and had not expected them to fall this far, but plan to hold for income and long-term recovery and may well add in the coming months on any further weakness.

[lucydesouza] 20/12/2022 09:17

The transaction with Herleva Properties is pretty mad. For anyone that likes a corporate rabbit hole, the shifting network of companies that surround Herleva (now "Rhoddos") is quite dizzying!

What's clear is that at least 50% of CSH's acquisitions in 2021FY involved related party transactions (Herleva and CPI Care). On one side of "the table" you had Pridmore and Dauber. On the other side of "the table", you had Pridmore, Dauber, Simon Nixon and the Beaufort boys. It's the same people that were behind Beaufort Jersey, and the financing of Fairhome.

I don't think any of these people have a material investment in CSH itself (perhaps they do and I haven't found it), but they are making plenty of money from all the entities that transact with it... Simon Nixon is a billionaire (lives in the BVI, obvs!), and is involved in several groups connected to CSH, but doesn't seem to be an investor in CSH itself. For some reason, an image of a vampire squid springs to mind.

[spectoacc] 16/12/2022 13:57

As my solicitor said the other day - "We need a property crash just so Land Reg can catch up" :)

She's now busier than ever - everyone with pre-Kamikwasi mortgage offers trying to get deals through before they expire. Banks not extending, & 6 month deadline from offer to complete.

So can't imagine Land Reg will catch up for a year or so.

[lucydesouza] 16/12/2022 13:23

SpectoAcc - Interesting, thanks.

[spectoacc] 16/12/2022 12:58

Land Reg have been so slow, and end of lockdowns got even slower.

AFAIK it's about 6 months, but some stuff has been taking a year.

[lucydesouza] 16/12/2022 12:48

The Land Registry produces a list of all properties owned by UK companies (and a separate one for overseas companies). Does anyone know how long it takes between a property being purchased and the transaction appearing on that database? Should, for instance, all transactions for the year to March 2022 now appear on that database? Asking for a friend.

[williamcooper104] 16/12/2022 12:47

Red book values are likely to be static so long as HOME/SOHO/CSH don't sell anything (ofc could do to each other) and it's unlikely anyone's going to be buying/putting together a portfolio When rents are CVAd down the valuers will have to materially down value - but until then my guess is they'll not do a lot

[williamcooper104] 16/12/2022 12:42

They come into focus more sharply for CSH than for HOME

[lucydesouza] 16/12/2022 12:29

Yes, it all comes down to whether the reported rental income is real and sustainable.

[spectoacc] 16/12/2022 12:26

@LucyDe - true, but those debt covenants only come into focus if the "true" NAV comes out, and no indication that will happen - too many reputations on the line.

So we're back to whether the rents get paid/are sustainable - my guess is that the c.70% at uncapped CPI probably aren't, but that's rises foregone, rather than rents foregone.

[spoole5] 16/12/2022 12:21

Ultimately the main issue is the rent being collected, will this continue into the future without issues, who knows. This is the same for every REIT though, time will tell where the most reliable rent flows are.

[catch007] 16/12/2022 12:16

LucyDeSouza: Excellent post detailing several dubious practices that I was not aware of previously, thank you. I suspect the BOD at CSH will be extremely wary of its buying practices in the short term given the market focus and attacks by shorting companies as it lays itself open with such activities.

I agree with SpectoAcc that the NAV is pure fantasy however the current NAV discount looks very high, true value who knows!

From an income investors viewpoint there are some positives

1. Yield is high and to date rent is being paid
2. Regulation being sought in regard to leases
3. The acute need for social housing in UK
4. Has the fire sale been overdone and an opportunity for share price to recover?

The whole sector seems a bit dodgy so will take a bit of time before topping up again.

[lucydesouza] 16/12/2022 11:34

The discount to NAV is helpful, but if the true value of this portfolio is much lower than stated, then the debt covenants come sharply into focus.

[spectoacc] 16/12/2022 11:10

@LucyDe - good post, thanks. Absolutely agree, exactly the same modus operandi as HOME.

The counter-argument - grossly over-paying for properties is in the share price. Yes, the investment case relies on income continuing, but even if it didn't (& difficult to see it as anything other than a growth sector atm), you're getting the properties at a much more realistic valuation.

114p NAV? No way. 60p firesale NAV? Who knows. But there's at least some backstop here, aided by them being too low to issue more sales and disproportionately pull the same tricks.

Wouldn't touch HOME with a bargepole - more to come out there - but CSH seems a better prospect. Wouldn't rule out more "issues" with lessees in future, but also expecting the rent to keep rolling in.

[lucydesouza] 16/12/2022 10:29

The yield is, on the surface, highly attractive. But I think there's a good reason for this.

The history of CSH is one where massive profits were earned (not by CSH) through properties being flipped into the REIT at huge mark ups, with some of those profits coming back to CSH in rental payments through the RPs. Fairhome/Westmoreland is the easiest scheme to spot and if you take the time, you can follow it through on Companies House and the Land Registry. Filings on the Jersey Trade Registry are relevant as well.

Fairhome (a "property developer") would set up a shell company, which then bought a property. The shell company would then be sold to CSH at a big uplift in value generating a huge profit for Fairhome. This was repeated dozens of times generating tens of millions of profits for Fairhome. Some of those profits were loaned to Westmoreland, which became the tenant on the property taking on the lease with CSH. So, in effect, some of the profits from the flip were used to pay the rent on the property. But a big chunk of the profits were paid out in dividends by Fairhome or used to service steep interest payments on a "deep discount bond" that Fairhome had issued. And here's the kicker - Fairhome was financed by an entity called Beaufort, in Jersey. And who ran that vehicle? That's right: Tom Pridmore and his associates.

That was just one of several schemes used to build the CSH portfolio.

It's in that context (and many other related party transactions) that you have to assess CSH. It's easy to rely on this being an audited, transparent, publicly traded REIT, with the valuation fully and independently assessed by the mighty JLL, no less. But the valuations are all entirely dependent on the rental income, rather than a true a mark-to-market on the properties. In effect, this is mark-to-model with the key input in the model being the rental income.

And if you think it's "all in the past", check this out: In the year to March 2022, at least half of of CSH's new property acquisitions involved a related party transaction of one sort or another... and those related parties are the same shrewd chaps involved with Beaufort.

This is why the yield is high.

[hindsight] 14/12/2022 12:10

EPC rule does not apply to social housing

[spectoacc] 14/12/2022 10:06

Thanks - as you say, hopefully the co knows, and at least it isn't 2025.

Wonder if the discrepancy is due to the get-out for existing tenancies - eg for BtL, EPC C for new tenancies from2025, but only for existing tenancies in 2028. Whilst tenants no doubt come & go at CSH properties, the lessees will all be on much longer leases, and EPC is by property, not by room.

[giltedge1] 14/12/2022 09:52

Hello a website called energynewslive but article April 21, so may be out of date, see below. Anyway point being have more time to upgrade than private sector a good 5 - 10 years.

In this article, we explore just one part of this challenge – the push for all social housing to achieve C-rated Energy Performance Certificates by 2035.

So what stands in our way on the road to achieving this milestone, and how do we intend to tackle the challenges ahead? Here are just a few of the hurdles that must be surpassed.

The Existing Percentage of C-Rated Homes
Currently, less than half of social housing in England and Wales is rated below C in terms of energy efficiency. This is already a great achievement, but it will take a concerted push to make the improvements required to reach 100% over the next few years.

[spectoacc] 14/12/2022 09:41

Thanks @giltedge1, was me who thought 2025 as that's when the rule is (meant to) come in for BtL.

A quick Google says 2030 for social housing & housing associations, is there another get-out to 2035? There was back in 2020 but I think that changed?

Largely agree with your analysis - the unknown with CSH for me is the tenant quality (ie lessee, not individuals), but much prefer CSH to HOME for the amount of hours CSH residents get, ie the ratio of employees to beds.

Wouldn't pay £1 for it, but agree 60p looks to more than balance the risks.

[giltedge1] 14/12/2022 09:33

I have owned CSH in the past, made a good profit during Covid, so unsure why such a drop. On reviewing Accounts & website case studies was quite okay, about the business, well maintained, some properties in London, indeed the one highlighted in Golders Green looked very comfortable (wish I could afford to live there), the case study quite enlightening, a 6% yield on portfolio, if anything probably undervalues the London & southeast estate portion, assume 4% yield more likely. EPC on properties A-C 53%, so well on the way to 2035 target. Not sure why some posters refer to 2025?, surely Investment Managers know the rules?. A quick google on social housing indeed confirms 2035 target, so looks like social housing gets its usual cop out. On my limited search houses look well maintained. On the onerous lease CPI clauses, I am sure local authority would come to some arrangement, if housing association failed, at worse, a loss of a few months rent. Worst case scenario, houses would be relet to home office, just read todays news, new arrivals need homes! ie plenty of repositioning options, Home Office or other social care.
Housing Associations just pass through funds, funds ultimately come from Govt. So I added a few for my SIPP at £0.60, almost 10% yield, will look to add more in New Year. Good luck any other buyers.