Civitas Social Housing (CSH ) is to exit the UK stock market after CKA Group, a Hong Kong asset management group and direct investor in the real estate investment trust’s fund manager, pounced with a £485m cash bid.

Shares in the provider of supported social housing soared 24p, or 43%, to 79.4p just short of the recommended and agreed 80p per share offer announced today.

Although pitched at a 44% premium to Friday’s closing price, it falls 26.7% below the portfolio’s underlying value. A trading update released with the sale agreement showed net asset value (NAV) dipped 1.6% in the first quarter to 109.2p per share.

Even the trust’s chair Michael Wrobel, a former senior fund manager at Gartmore and Fidelity, admitted the offer undervalued CSH but recognised there was little certainty of the market re-rating the Reit’s shares. 

Weighed down by regulatory pressures on the housing associations that lease its properties, Civitas and its main rival Triple Point Social Housing (SOHO ), have seen their shares tumble to discounts of over 50% to NAV.

The bid comes two weeks after Auckland housing association was sanctioned by the Regulator of Social Housing in a move that revived fears over the rental streams underpinning their dividends.

SOHO shares jumped 17% to 54p on speculation it could be the next target. Bids have become a feature of the UK commercial property market this year after the sector derated in response to surging interest rates last year. US private assets group Blackstone is currently completing a £700m takeover of Industrials Reit (MLI).

In a statement, CSH chair Michael Wrobel said the offer gave investors the chance of a full exit during a time of economic uncertainty.

He said CKA, which invested in the trust’s manager in 2021, had a detailed understanding of the sector’s fundamental attractions and the expertise of its management team which it will retain after the acquisition.

‘Since our IPO [initial public offer] 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,’ Wrobel said in a statement.

‘Shareholders can do better’

James Carthew, head of investment companies at QuotedData and a columnist for this website, said the bid ‘materially undervalues the company’ and he, as a shareholder, would reject it.

‘With a NAV of £662m at 31 March, the bid price is some way off this,’ he said.

‘We agree that sentiment towards the company and the social housing sector are not likely to improve anytime soon, but we believe shareholders can do better than 80p per share. We would like to see a counter-bid a lot close to NAV.’

Pietro Nicholls, who holds a 3% exposure to Civitas in his £211m VT RM Alternative Income fund, agreed. ‘[Civitas] has performed well during very testing times, ranging from Brexit to Covid-19 and the current economic environment, so 80p feels like it undervalues the company a little too much,’ he said.

‘We do recognise that the interest rate environment has changed though.’

Carthew added he had ‘been warning for some time’ that the extreme discounts some investment companies have found themselves trading at would attract ‘opportunistic bids’.

‘Many other funds could be targets,’ he said. ‘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.’

Wealth and fund managers dominate the list of the trust’s main backers. Investec, the wealth manager being acquired by rival Rathbones, is the biggest shareholder at just over 10%, according to Refinitiv data, followed by SEB Investment Management, the Border to Coast local authority pension scheme, and Legal & General (LGEN) and Abrdn (ABDN).  

In addition to cash, Civitas shareholders will also receive the first quarter dividend of 1.425p from the 10% yielder.

The trust has debts of £367m, equal to 38% of its assets, through five borrowing facilities that entitle the lenders to repayment on a change of control. CKA said it would ask the lenders to waive these rights, but if they would not it would refinance with external debt of the group’s own cash resources.