Civitas Social Housing Share Discussion Threads

[up4itt] 28/1/2023 06:08

Lucy, although the exact text of the lease clause has not been made public, the following summary by Marten & Co includes more detail than was provided by CSH in their RNS of 13th September 2022:

The clause would allow a housing association to temporarily stop paying rent in certain circumstances, such as if it had not received housing benefit from a local authority. This would apply after an initial period of time, and then only if paying the rent in full would cause the housing association to fail to meet the regulator’s standards. CSH would receive rent arrears as and when the housing benefit is subsequently received by the housing association. Under the terms of the clause, the housing association would provide CSH with full data and step-in rights. (Source: google Civitas lease clause)

Yes, it is clear from what they say in the interim results: the clause is being applied to a very limited number of leases (ones that are not subject to borrowing, I believe). As you rightly say, JLL have assured CSH that the new clause would not adversely affect valuations of CSH’s properties. On the face of it, as you suggest, this does not make complete sense if genuine “sharing of risk” is involved. One would have to look at the details and rationale offered by JLL. It may be the case that the clause has been cleverly drafted to protect CSH’s interests (see above). But in any event, the clause has not yet been widely applied.

I understand your point that CSH might end up caught between the demands of the RSH and the rights of its lenders. But as I see it, they are adopting the old bureaucratic tactic of “making haste slowly”. CSH can claim, with some justification, that they are engaging with the regulator’s concerns about compliance. They are also buying time, because the clause will not be rolled out yet and only “with the clear understanding that its inclusion will assist housing associations in achieving regulatory compliance”.

The discussions with the lenders (I’m not sure I would call them “negotiations”) could, I suppose, lead to modifications to the clause that would further ringfence CSH’s exposure to risk. Alternatively, lenders could accept the clause as it is, but look to negotiate higher borrowing costs in the future, if they can show that CSH is taking on greater risk. But you will have noticed from the Interim Results that CSH have just concluded a new loan agreement with a new lender and I don’t think that any of their 5 other loan agreements are coming up for renewal imminently. So the risk of higher borrowing costs is theoretical at this stage, and I suspect that when the time comes, future interest rates generally will be of far greater importance in determining borrowing costs than the lease clause, assuming it is widely applied to new or existing leases.

[jg231] 27/1/2023 13:01

Thank you up4itt. I just checked with the broker. They're due to declare on 1 Feb, go ex 9 Feb and pay early March. Agree with your numbers for the amount. Not sure why they can't just put a dividend calendar on the website but hey ho.

[spoole5] 27/1/2023 12:26

Latest divi rns 9th Nov for the Dec divi

[lucydesouza] 27/1/2023 11:18

Up4itt, CSH agreed with certain customers to introduce a new clause to their leases - this was in Q2/Q3 last year. The RSH liked the new clause because it increased the "sharing of risk" between CSH and its customers. I think this initiative stemmed from the RSH's concerns over the financial health of the RPs. JLL (responsible for all CSH's valuations) said that the amendment doesn't impact the value of the leases to CSH, despite it increasing the risk that CSH is exposed to (!). However, last I heard, it still needed approval by CSH's lenders, and the language used in the interim results appears to downgrade the likelihood of the new clauses roll out.

It would be nice to see CSH clarify whether this has indeed been approved by the lenders and share the actual language of the new clause. Otherwise, one might jump to the conclusion that the lenders have rejected the amendment and that CSH is caught between the demands of the RSH and the rights of its lenders.

[up4itt] 27/1/2023 10:16

The last dividend declaration was on 9th November 2022 (NAV & Trading Update). Ex div date was 17th November and payment of 1.425p per share was made on 9th December. Based on last year’s timing, the next quarterly dividend declaration (the final one for FY ending 31st March 2023) is likely to be made around 9th February 2023, with an ex div date about 17th February and payment on about 11th March 2023. Given that the CSH Board has previously set a dividend target of “at least 5.7p per share for the year ended 31st March 2023” the amount is likely again to be 1.425p, but there is no guarantee of this.

[jg231] 27/1/2023 09:01

Does anyone have any insight into whether a dividend has been declared and, if so, what the ex and payment dates are? Strangely, Civitas hasn't bothered issuing an RNS for a dividend declaration since 2018. The September results said they would pay a further 2 quarterly dividends to the year end but no word since.

[up4itt] 27/1/2023 03:55

So I guess that means you ARE not a “related party” to Shadowfall but leaves open the possibility that you once WERE. Anyway, that’s all in the past. My only relationship with CSH is that I am a shareholder. It’s good to know that we agree that the situation now is different from that of a year ago, when CSH was under attack from short sellers and some II’s were offloading the shares, which does not appear to be happening currently. I cannot help you on your question about the new proposed wording for their leases, but would be interested to know if others can. It would be churlish not to pay tribute to the detailed work you have done on CSH since you appeared on the scene in 2021 and to the knowledge you bring to the discussion. You are entitled to ask questions and others are entitled to challenge you. PIs are ultimately responsible for their own decisions as to whether to buy, sell or hold CSH (and SOHO) at these levels.

[lucydesouza] 26/1/2023 11:55

Ah yes, when compared to average daily volumes in the stock from over A YEAR AGO when it was under assault from a famed short seller, it was a quiet day yesterday. A helpful observation, indeed...

For the record, I am not a "related party" to Shadowfall. I'm not sure what difference that would make, in any case. Are you, "up4itt", a related party to CSH?

One thing I'm not clear about, and perhaps someone on here has an update... have CSH's lenders accepted the new proposed wording for their leases, or is that still under negotiation?

[up4itt] 26/1/2023 10:24

The divergence in performance today between CSH (up 3.76% at the timing of writing) and SOHO (down 1.41%) suggests that the hypothesis that this is mostly about transient panic over HOME and MYSPACE could be correct, given that SOHO has significantly greater exposure to MYSPACE than CSH does.

[up4itt] 26/1/2023 02:51

Sorry if I was not clear enough for you, Lucy. I used the word “comparatively” in reference to the much greater daily volumes recorded in Q3/Q4 2021, during the heyday – and making hay day – of shorters like Shadowfall (with whom you, allegedly and never denied, had a “related party” connection at that time – but not to worry, that’s all in the past). I’m grateful to Musgrove for the stats which do indeed suggest that panicking PIs are dumping the shares of CSH and SOHO, as I surmised in my earlier comment, and for reasons already stated.

[pmusgrove123] 25/1/2023 18:01

Volume
2,238,152
Spread
19bps
Beta
0.169
Avg Volume
1,982,258
Range (12m)
53.67p - 98.30p
Volatility (1y)
29.17%

[lucydesouza] 25/1/2023 17:28

Big volume in both stocks today. I think Up4itt basically just makes stuff up as he goes along.

[chucko1] 25/1/2023 17:26

2.791mn (including closing auction) on a daily average of 1.895mn. More like 47.3%.

Yesterday a lot more.

[pmusgrove123] 25/1/2023 17:03

Since when has 12.9% been about 20%?.

[lucydesouza] 25/1/2023 16:39

Up4itt: "CSH and SOHO’s share prices continue to fall today, but on comparatively low volume."

Narrator: CSH traded 2.2 million shares today, about 20% more than the average daily volume.

[spectoacc] 25/1/2023 15:17

And yet there's a constant drip of lessees being investigated/challenged, another this morning.

[lucydesouza] 25/1/2023 15:15

"It's all in the past", is the motto of every corporate apologist.

The Herleva Properties and CPI Care transactions were two of the company's most recent. This is not "all in the past". It is CSH's current and ongoing MO.

[up4itt] 25/1/2023 15:12

Lucy… well, I’m glad we agree that all this is in the public domain, in one way or another. And I think we would also agree that these are not new points: they date back at least to 2021 (Shadowfall) and further back to 2018 (when concerns were raised by the Regulator of Social Housing). Those points were addressed by Civitas’ “Responses to Shareholder Questions" (October 2021) a 37-page document which I am sure you have read.

CSH and SOHO’s share prices continue to fall today, but on comparatively low volume. This is most likely panic selling by PIs, who have - unfortunately for them - been spooked by HOME’s problems and by what I consider to be unfounded fears of contagion and gloom about the sector and the business model. 93.6% of CSH shares are held by Institutions and there as yet no signs of any significant sales by IIs (unlike Q3/Q4 of 2021 when the shares were shorted by Shadowfall and others).

[lucydesouza] 25/1/2023 11:27

up4itt... I described it as a "matter of public record", not a "dark secret".

But, there is a difference between details of a related party transaction being *disclosed* in a company's accounts, and them being discoverable in the trade registries of the Isle of Man or Jersey, or the Land Registry. Both are technically in the "public domain", but it doesn't mean the company has disclosed the details. And it was only because of short sellers that the company now includes details of these related party transactions in its accounts.

TLC Care Homes is a good example. Yes, the fact that there's a related party nature to the relationship between CSH and TLC has been disclosed in the CSH accounts. But the fact that all of TLC Care Homes' leased properties are owned by Civitas SPV131 (a Civitas subsidiary) is not immediately obvious. I think the only way to know that is to dig through information in the Land Registry. Yes, it is publicly available information (I wouldn't know it otherwise) but I don't think it's disclosed by CSH.

TLC Care Homes Limited leases all its properties from Auckland Home Solutions, which leases the same from Civitas SPV131. Comparing Civitas SPV131's income with TLC Care's rental expense, it appears that the money just passes through Auckland. (n.b. Auckland is one of the RPs that has received criticism by the regulator, and by Shadowfall). It looks like Auckland is just passing the money through... acting a bit like a front.

TLC Care Homes' accounts state that the total current and future liabilities of these leases comes to £7.6m. But Civitas SPV131 reports these same leases as having a total value of £22m. Weird. It's almost like Auckland is cushioning the relationship between CSH and TLC. Both TLC Care Homes and Auckland file unaudited accounts.

[spectoacc] 25/1/2023 07:51

The sector itself, and a business model that frankly may not work - 90%.

[up4itt] 25/1/2023 07:45

Factors affecting the current share price:

1) Contagion from HOME 40%
2) Weakness in the REIT sector generally (cf THRL, RESI, BBOX etc) 40%
3) Residual credibility issues specific to CSH 15%
4) Doubts about valuation of the assets 5%

I attach only 5% weighting to 4) because the shares are already trading at a large discount to stated NAV.

IMHO.

[spectoacc] 25/1/2023 06:58

"..Victim of a short attack..", AKA allegations that turned out to be largely true, and are now disclosed - as you say @up4itt - in the CSH accounts.

Why do you think it's trading at 54p? In spite of what's in the public domain, or because of it?

[up4itt] 25/1/2023 04:58

Lucy presents the information about Herleva / SHO like a dark little secret that has been exposed. In fact, the matter was openly reported by CSH in its 2022 accounts (page 104) as follows:

“During the year the Group acquired a property holding company from Herleva Properties Limited which held assets totalling £8,611,000. Herleva Properties Limited is a subsidiary of Specialist Healthcare Operations Limited (“SHO”). Andrew Dawber and Tom Pridmore (both directors of the Investment Adviser) are each 14.99% shareholders in SHO. They are not directors of SHO and have no operational role in that business. SHO does not meet the definition of a related party under IAS 24”.

(Note: IAS 24.11 states that two entities are deemed not to be related simply because they have a director or key manager in common.)

Regardless of what one might think of this and the other transactions mentioned in Lucy’s latest comment, they are all in the public domain and are in line with the relevant rules and standards. I would think that, having been the victim of a short attack in 2021, CSH will now be doubly careful to ensure that their future conduct is above reproach.

William illustrates his tendency to confuse ropes and snakes by meandering off from CSH into a discussion about HOME. I believe that the market is currently subject the same confusion, hence the weakness of the share price of CSH. Of course, the market may remain irrational for longer than is reasonable, but rational investors would be wise not to be taken in by this unjustified and no doubt transient negativity.

[williamcooper104] 24/1/2023 20:35

Indeed Especially if you've got material amounts of leverage HOMEs LTV of 11 could go to 30-40 But if you start at 30 something then it's potentially wipe out time HOME management looks that most incompetent in a competitive field - but it has a chance of making it - but only if BoD and Alverium go