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Civitas Social Housing receives £485m bid for company

Civitas Social Housing

Civitas Social Housing (CSH) has agreed the terms of a sale of the company to Wellness Unity Limited for £485m.

Although the bid price, of 80p per share, is a 44.4% premium to the closing price of 55.4 pence on Friday (5 May 2023), we believe this is too low. The company’s unaudited NAV at 31 March 2023 was 109.16 pence, meaning the bid price is a 26.7% discount to NAV (readers interested in more information may wish to read our most recent note on CSH, published in February, where we commented that the hefty discount it was trading at was unjustified – click here to read).

Civitas’ board admits that the offer undervalues the long-term prospects of the company but “recognises that Civitas and the sector in which it operates faces a number of challenges in light of the current macro environment and outlook” and has recommended shareholders vote in favour of the bid.

It added that the considerable negative sentiment in the public markets towards Civitas and the social housing sector were unlikely to be overcome in the short to medium term and will continue to have a material impact on Civitas’ share price prospects.

The company has traded for some time at an entrenched discount to NAV, following a short-seller attack on the company in September 2021.

[QD comment: We believe the bid price to be too low and materially undervalues the company. With a NAV of £662m at 31 March 2023, the bid price is some way off this. We agree that sentiment towards the company and the social housing sector are not likely to improve any time soon, but we believe shareholders can do better than 80 pence per share. We would like to see a counter bid a lot closer to NAV.]

Wellness Unity, a subsidiary of CK Assets (CKA), is a long-term real asset investor with a focus on stable, profitable and cash flow generating businesses in the property and infrastructure sectors. In particular, it already has strong experience in the UK specialist social housing sector with existing ownership of a substantial property portfolio, which is run by Civitas’s manager CIM. CKA also owns an indirect shareholding in CIM.

It says that it believes that “Civitas’ position as one of the leading social housing providers in the UK, and its social impact and earnings profile, are complementary to its investment criteria, and make for a suitable strategic fit” and that its “strong financial standing will be beneficial to Civitas in sourcing future financing commitments”.

Following the completion of the offer, the company intends to maintain Civitas Investment Management Limited (CIM) as the investment adviser to Civitas so that the day-to-day management of the Civitas portfolio will continue uninterrupted.

Board recommendation

The Civitas directors intend unanimously to recommend that shareholders accept the offer and have undertaken to do so in respect of their own beneficial holdings totalling 384,600 shares (representing, in aggregate, 0.06% of the share capital). In addition, CIM and the executive directors of CIM have also given irrevocable undertakings to accept the offer which, when aggregated with the directors, amount to a total of 809,644 shares (0.13% of the company).

Commenting on the offer, Michael Wrobel, chairman of Civitas, said: “Since our IPO in 2016, the Civitas portfolio has delivered consistently on its financial and social impact objectives. Whilst the Civitas Board believes that the Offer undervalues the long-term prospects of Civitas as expressed by net asset value, we also recognise that Civitas, and its sector as a whole, faces a number of challenges in sentiment which the public markets are unlikely to overcome in the short to medium term.

“The Offer provides liquidity to shareholders with the opportunity to exit in full and in cash at a significant premium to the current share price, in a time of macroeconomic uncertainty. Moreover, CKA, as a current investor in the social housing sector, has a detailed understanding of the attractive fundamentals of the real estate and the expertise of the management team. The Civitas Board therefore considers the terms of the Offer to be fair and reasonable and we have recommended it to our shareholders.”

[QD’s James Carthew: We have been warning for some time that the extreme discounts that investors have applied to valuations of investment companies investing in alternative assets might lead to opportunistic bids. Many other funds could be targets. However, the Civitas shareholders that stuck by the company over the past few years deserve better than this and should reject the offer at this level, as I intend to do with my shareholding.]

CSH : Civitas Social Housing receives £485m bid for company

5 thoughts on “Civitas Social Housing receives £485m bid for company”

  1. Too low, an insult to shareholders, many of whom have held it long term. The short sellers could well have something to do with this low offer, but who shorted the stock perhaps people who have some connection to the company making the low offer. Today the NAV is £1.1147
    Reject this offer, as the board just might be doing themselves a favour as it would not be the first time in the history of CSH that the board has allowed one or two members to profit from dealing in assets.

    Am moved to concur with other dissident shareholders here.

    OPPORTUNISM: this is a wonderful (cost-effective) way for the off-shore bidder to buy-in to a specialist sector of the UK property market at an astonishing discount …at the expense of existing shareholders. For ANY shareholders in real financial distress, then this offer price may represent ‘something’ APPARENTLY tangible, so significantly better than prevailing prices as recently as a week ago! THAT is indisputable.
    In which case, like certain institutions, then ‘take the money & run’, says it all!

    The Directors may even believe that they are behaving pragmatically, in terms of reflecting market conditions, especially prevalent in THIS market sector, which is generally trading at a (significant) discount to assets.

    REALITY CHECK: are this REIT’s clients typically in such straitened circumstances that this discount is justified?
    Does its accounts reflect significant tenant rent deficits, so having actual bad debts, on its books?

    Is it more accurate to suggests that most of its customers/tenants are financially insulated, so protected from current inflationary processes. Therefore the inflationary cost = risk actually falls on lower tiers of (cash-starved) government. In the UK: ‘Local Authorities’. They are legally obliged to continue funding existing clients, so any inflationary costs ultimately fall on Central Govt …arguably where it belongs!

    Therefore is the (adverse financial) concern, reflected in the discount REALISTIC? (See above!)

    Frankly, I suggest that the (short-termist) Directors have ‘thrown in the towel’, FAR too quickly & easily, therefore have FAILED to work in the better interests of exploited general shareholders.

    The philosophy, ‘anything is better than nothing’ …is poor, defeatist talk.

    The Directors deserve to be castigated (or worse!) at the next AGM/SGM.

    ‘NO CONFIDENCE’ here!

  3. I and my family have invested in CSH for the very long term as a company facilitating investment in a very deserving sector and one which would give a partially inflation linked steady return. I am very disappointed in the performance of the very well remunerated board of directors.

  4. I invested in Civitas a few years ago for the income stream to help with my retirement income, taking into account its stable asset base and role in providing a quality environment for some of the more vulnerable members of our society. The board recommendation to accept is deeply disappointing, the right strategy is to dig in for the long term, provide a high standard accommodation and focus on sustainable dividends for share holders. You have to wonder what the average price directors holding were purchased at, if they were purchased at a price below the offer they should abstain from voting on the offer and not be involved in the decision on which way to go re the recommendation of the offer, anything else is immoral. I make no allegations but for clarity’s sake surely It would be a good idea for each member of the board to publish their average purchased share price and when they purchased each tranche of shares and at what price. I will not be voting to accept the offer it represents very poor value. It might even make sense to sell off the assets individually to other parties in the sector, with all the associated costs that would involve rather than accept this very poor offer.

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