Civitas Social Housing Share Discussion Threads

[lucydesouza] 24/1/2023 17:56

"Round tripping" is when a company sends money to its customers that then comes back as reported income. In the case of Fairhome, some of the profits from the transactions with CSH were lent to a related party of Fairhome, called Westmoreland. And Westmoreland took on the leases with CSH. The money that Fairhome lent to Westmoreland helped pay the rent to CSH.

That was a while ago, of course, but the opportunity for a similar set up still exists, at least in FY2022. For instance, CSH acquired properties from Herleva last year. Herleva is/was indirectly owned by SHO (the Isle of Man holdco that is part owned by CSH insiders). SHO also owns TLC Care which leases/subleases CSH properties.

In a separate transaction last year, CSH sold the operating business of CPI Care to a subsidiary of SHO, at quite a low earnings multiple.

So, you still have the same opportunity for profits from these transactions to end up coming back to CSH as rental income.

CSH spent as much on acquisitions in FY2022 as it earned in operating cash flow, and at least half of its acquisitions involved some sort of related party transaction. In effect, broadly speaking, CSH borrowed money to pay the dividend having spent half its operating cash flows on related party transactions.

I'm not saying that CSH are engaged in "round tripping" in the traditional sense. But it is a matter of public record that some of the profits earned by Fairhome ended up coming back to CSH as rent from Westmoreland. And the SHO structure that has profited from transactions with CSH is also paying rent to CSH through TLC Care.

[lucydesouza] 23/1/2023 17:05

wskill. Have you ever heard of something called "round tripping"?

[wskill] 23/1/2023 13:46

Spec no that was what it was valued at by the estate agent which I guess was based on the yield a normal method used widely with HMO properties,the fact that it was used on homes under the hammer makes me think HOME will relist and just ignore the previous bad behaviour of management. CSH did somewhat similar but dumped a director who was never brought to book.I do not think CSH would be stupid enough to try the same trick twice.

[wskill] 23/1/2023 13:33

Yes true spoole5 I was trying to work out how CSH would have been able to pay dividends from 2017 to today if the assets were as some posters implied.

[spectoacc] 23/1/2023 13:32

@wskill - was the £211k sale to HOME? ;)

People seem to be forgetting that CSH suffered its own short attack, subsequently denied many of the allegations, and many turned out to be true, particularly the directors setting up a co to act as a tenant for some of the purchases.

The whole thing stinks IMO, but the question is whether it's in the price or not. That applies to HOME just as well as CSH, and CSH is at least further along.

Also worth considering that many of HOME's purchases were already HMOs, and some of their lessees are withholding rent due to promised CapEx not materialising. That's not a good combination, when paying more than double MV.

There's money in HMOs, but they're work - and cost. That's always been reflected in yields, but somehow if you package them up in a REIT, the yields can seemingly be much lower. Personally, I don't buy that, not when the lessees are often connected to either management or SPV seller, and the Boards frankly don't seem to have the first clue.

Yes - mainly hearsay, but there's enough confirmed to justify the price being down here IMO.

[spoole5] 23/1/2023 13:20

Depends what your agenda is I suppose

[wskill] 23/1/2023 12:53

I do hear what you are saying but do not think this is as bad as you are making out,watched homes under the hammer today it was a bit cloudy for the beach that is my excuse, a home in the Nth of England was sold for £113k they spent £28k turning it into a 4 bed HMO which the estate agent said rents for £451 per month per room and if sold to an investor £211 k a decent margin there not so different to CSH and SOHO prices paid.

HOME was another matter entirely do not believe SOHO and CSH are guilty of the same,

[williamcooper104] 22/1/2023 12:18

Normal is rent to turnover of 1-20 percent And rent to EBITDAR of c10-40 percent

[williamcooper104] 22/1/2023 12:17

It's not kicking up mud Look at rent to turnover It's at about 40 percent There's minimal rent to ebitda/operating surplus coverage Frequently when rents fall, yields move out also - so it's very easy for a 20 percent fall in rents to be a c50 percent fall in capital value

[up4itt] 22/1/2023 05:32

Judging from some of the comments here, this looks like a case of “once bitten by a snake, fearing a piece of rope”. The market has been bitten by HOME, and My Space also looks venomous. But 98.7% of CSH’s portfolio, and well over 90% of SOHO’s, is not in the snake category. It’s in no one’s interest for this business model to fail, including the present and any future government, and my guess is that confidence will slowly return as it becomes clear that these social housing REITs have an irreplaceable niche in the market and a viable long-term future. Alanpro1 asked some sensible questions, to which the replies received are on the lines of “I don’t know but anything’s possible” and “I don’t have a crystal ball but it’s not unreasonable to assume…” etc. This is kicking up dust to disguise the woolly thinking and regurgitated factoids which are all these self-appointed “experts”; have to offer!

[lucydesouza] 21/1/2023 14:27

alanpro1 - I didn't realise I was under an obligation to respond to your questions! My apologies, sir.

Q. Do I think that rents across the sector need to come down? A. I don't know. But if the practices at CSH and Home are widespread, then I yes, I think so.

Q. Do I think the executives running CSH have lied about the margins of developers? A. It's possible they are mistaken, or have been deceived. However, given they engaged in undisclosed related party transactions to their express benefit, I think it is entirely possible they are lying bout this. Further, wrt Fairhome Property Investments at least, it was Pridmore and his associates providing the financing, through Jersey, so I think it unlikely they were unaware of the margins being generated.

For future reference, I tend not to be on internet chat rooms on a Friday evening.
Well, at least not this one! :)

[williamcooper104] 20/1/2023 16:12

Sorry, I don't follow SOHO that closely, CSH has much shorter debt I don't have a crystal ball But when something is bought and flipped it's not so unreasonable to assume that it could revert to being valued at its pre-flipped value - especially if it turns out that the long leases aren't worth anything (or are actually a negative as they would be if the covenants behind them are weak) And while I don't have a crystal ball I've seen plenty of CRE blow ups - this reminds me of care homes in 2006-7

[ghhghh] 20/1/2023 16:06

WC

The likely breach would come from LTV covenants

When commerical property tanks it can easy tank 50 percent - very quickly

So if you are high 30s it’s not hard to trigger a covenant - especially if its set it at 50 something

CSH and SOHO (IIRC) have c3 years left on their debt maturities - which means they need to refinance within next c2 years (least going concern issues) - interest cover could then become an issue on refinance, requiring more equity

But this is speculation, you have no idea re the current resilience of their assets? To date valuations have been resilient. Your previous post implied a RI was inevitable

Similar, perhaps their assets are better run, but they won’t escape lease restructuring, and they don’t look like they have the balance sheet for it, so distressed rights issue or worse

they won’t escape lease restructuring

The issue is inability to pay the inflation indexed rents? Simple to resolve?

And re SOHO, from memory the vast bulk of their debt was long dated, 10 and 15 years from 2021?

The remaining debt, £50m is only part drawn down.

[williamcooper104] 20/1/2023 14:39

Look at HOME - the margins their developers are getting are of that order It's possible CSHs developers have been over paying for their properties and/or selling them more cheaply than HOMEs flippers have Trust me - development models are very easy to fiddle - eg social housing/affordability - I've done "open book" developments before with tenants Quite a few of the properties have passed through multiple SPVs So it's indeed possible that the final vendor did indeed make a 15 margin

[alanpro1] 20/1/2023 14:32

Lucy any time someone asks you a genuine question you just ignore it. Are you saying all social housing rents should be reduced? And William, are you asuming CSH directors are lying by saying developers double thier money when in he public domain they state developer profits are circa 15%? Look forward you your responses.

[spectoacc] 20/1/2023 14:11

Am sure this has been covered above, but interesting Citywire article:


"Numis investment companies analyst Gavin Trodd believed this was the first time a social housing Reit tenant had received an enforcement notice. He doubted My Space would ‘be in a position to meet its rental obligations in the near future’ and said the regulator’s intervention ‘highlights that the nature of leases and the risk-return profile of these portfolios is likely to be materially different to investor expectations at the launch of these funds’.

Civitas and Triple Point have, in the past, reassigned leases away from providers that are financially challenged, but Trodd said My Space was more complex as the stock it provides does not meet the definition of specialised supported housing.

‘We do not expect that simply reassigning the leases to a different provider would address the issue,’ he said."

[lucydesouza] 20/1/2023 14:08

@pmuysgrove123 - No offence intended. I am absolutely aware that there are a lot of good people and operators in the sector. My experience is heavily biased by the likes of CSH.

[williamcooper104] 20/1/2023 13:44

They haven't The model is to buy usually at auction HMO type properties and then set up your own charity to put in as the tenant The profit comes from the arbitrage between a HMO tenanted yield and an institutional yield on a long lease; can be sold at 2x cost of purchase, so 3-4x equity profits in a matter of months The properties are meant to be refurbished by the flipper - HOME don't know if that's happened - and at least some of their tenants are disputing that - not sure about CSH and SOHO - HOMEs management does seem excessively incompetent

[williamcooper104] 20/1/2023 13:40

So value them as something more like a HMO and the covenants are at risk/if not blown through

[williamcooper104] 20/1/2023 13:39

Material lease amendments will require the consent of lenders The likely breach would come from LTV covenants When commerical property tanks it can easy tank 50 percent - very quickly So if you are high 30s it's not hard to trigger a covenant - especially if its set it at 50 something CSH and SOHO (IIRC) have c3 years left on their debt maturities - which means they need to refinance within next c2 years (least going concern issues) - interest cover could then become an issue on refinance, requiring more equity

[williamcooper104] 20/1/2023 13:33

Think it's the same with CSH only was more direct links between the external manager and the flipper "developers" That said seems that CSH might have less tenant problems than HOME

[williamcooper104] 20/1/2023 13:27

Because the properties were bought and flipped at 2x what worth; and that sticks out to the regulator especially if the properties then weren't refurbished/refurbished below a reasonable standard Far better to move out valuation yields (but that's admitting to having mugged your shareholders - hence one of the conflicts with existing management staying in charge ) and show to the regulator that there's not excessive profits in the sector Likely to be a mixture of higher yields and rent cuts

[pmusgrove123] 20/1/2023 13:25

I don't know whether CSH have built anything. I am only making the point that the SSL market is much larger than that occupied by these relatively small organisations and the rents, and consequently leases, are set by the cost of development as there continues to be a shortfall of supported living flats.