Civitas Social Housing agrees £485m takeover by Hong Kong property developer despite bid ‘undervaluing’ the trust amid sector turmoil
- Civitas Social Housing shares surged over 40% today following the update
Civitas Social Housing has agreed to be snapped up by Wellness United Limited, a wholly-owned subsidiary of CK Asset Holdings, in a £485million deal.
London-listed investment trust Civitas aims to provide investors with income and the potential for capital growth from investing in a portfolio of social homes.
Wellness will pay 80p per share in cash for Civitas, representing a 44.4 per cent premium to the closing share price on Friday.
While the announcement saw Civitas shares skyrocket on Tuesday, the trust’s board accepts the deal undervalues its prospects but has urged shareholders to vote in favour of it amid broader turmoil in the social housing trust sector.
But city analysts are critical of the deal, suggesting Civitas shareholders ‘deserve better than this’.
Acquisition: Civitas Social Housing has agreed to be snapped up by Wellness United Limited
Hang Seng-listed CK Asset, previously known as Cheung Kong Property Holdings, is a Cayman-domiciled property developer with headquarters in Hong Kong.
It is a spin-off company previously under Hong Kong-listed Cheung Kong, which is a multinational corporation with a portfolio including hotel and serviced suite operations, property and project management, pub operation, investment in infrastructure, and utility asset operation.
CKA already has a presence in the UK specialist social housing sector with a substantial property portfolio.
Civitas shares have surged today and were up 44.04 per cent or 24.40p to 79.80p in late morning trading, having slipped around 5 per cent in the last year.
UK social housing trusts have been under pressure in recent months, with the most notable example of Home REIT.
London-listed Home REIT has been embroiled in a series of crises, including legal disputes with tenants, a probe into its accounts and an investigation into allegations of bribery.
Commenting on the takeover bid for Civitas, head of investment at QuotedData James Carthew said: ‘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.’
Richard Williams, a property analyst at QuotedData, added: ‘We believe the bid price to be too low and materially undervalues the company.
‘With a NAV of £662million 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.’
Civitas chair Michael Wrobel told investors Tuesday that although the bid undervalues the company’s long-term prospects as expressed by its net asset value, the board intends to unanimously recommend that shareholders accept the ‘fair and reasonable’ offer.
He added: ‘The board recognises 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.’
Explaining CKA’s rationale for the takeover, the trust said its buyer ‘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’.
It added: ‘In addition, given the recent turbulent financing markets caused by macroeconomic uncertainties, CKA believes that its strong financial standing will be beneficial to Civitas in sourcing future financing commitments at an operational level during these times.’
Civitas shareholders who are on the register at close of business on 19 May will be entitled to receive and retain the quarterly dividend of 1.425p a 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 practicable’, the board said.
