Civitas Social Housing agrees to be snapped up in £485m takeover

Civitas Social Housing has agreed to be acquired by Wellness United Limited, a wholly owned subsidiary of CK Asset Holdings, in a £485 million deal.

London-listed investment trust Civitas aims to provide investors with income and the potential for capital appreciation by investing in a portfolio of social housing.

Wellness will pay 80 pence per share in cash for Civitas, representing a 44.4 percent premium over the stock’s closing price on Friday.

While the announcement on Tuesday sent shares of Civitas skyrocketing, the trust’s board accepts the deal understates its prospects, but has urged shareholders to vote for it amid wider social housing turmoil.

But city analysts are critical of the deal, suggesting Civitas shareholders “deserve better than this.”

Hang Seng-listed CK Asset, formerly known as Cheung Kong Property Holdings, is a Cayman Islands-based real estate developer headquartered in Hong Kong.

It is a spin-off company formerly owned by Hong Kong-listed Cheung Kong, a multinational corporation with a portfolio of hotel and service suite operations, real estate and project management, café operations, infrastructure investments and utility operations.

CKA already has a presence in the specialist social housing sector in the UK with a significant property portfolio.

Civitas Shares are up today, rising 44.04 percent or 24.40p to 79.80p in late morning trading after falling about 5 percent over the past year.

UK social housing associations have been under pressure in recent months, the most notable example being Home REIT.

London-listed Home REIT has been embroiled in a series of crises, including legal disputes with tenants, an investigation into its accounts and an investigation into bribery allegations.

Commenting on the takeover bid for Civitas, QuotedData’s head of investment, James Carthew, said: “We have been warning for some time that the extreme discounts investors have applied to valuations of investment firms investing in alternative assets could lead to opportunistic bidding.

Many other funds could be targets. However, Civitas shareholders who have stayed with the company over the years deserve better than this and should reject the offer at this level, as I intend to do with my share holdings.”

Richard Williams, a real estate analyst at QuotedData, added: ‘We believe the bid price is too low and significantly undervalues ​​the company.

“With a NAV of £662 million on 31 March 2023, the bid price is well off this.

We agree that sentiment towards the company and the social housing sector will not improve any time soon, but we believe shareholders can do better than 80 pence per share. We would like to see a counteroffer much closer to NAV.”

Civitas chairman Michael Wrobel told investors Tuesday that while the offer underestimates the company’s long-term prospects, as expressed in its net asset value, the board unanimously intends to recommend that shareholders accept the “fair and reasonable” offer. accept.

He added, “The board recognizes that Civitas, and its industry as a whole, face a number of sentimental challenges that public markets are unlikely to overcome in the near to medium term.”

Explaining CKA’s rationale for the acquisition, the trust said the buyer “believes that Civitas’ position as one of the UK’s leading providers of social housing, and its social impact and profit profile, are complementary to its investment criteria, and ensuring an appropriate strategic fit’.

It added: “Furthermore, given the recent turbulent funding markets due to macroeconomic uncertainties, CKA believes that its strong financial position will benefit Civitas in finding future operational-level funding commitments during these times.”

Civitas shareholders who are on the register at the close of business on May 19 are entitled to receive and retain the quarterly dividend of 1.425 pa share for the first quarter of this year.

Once the listing and trading of its shares is cancelled, Civitas will be re-registered as a private company “as soon as possible,” the board said.