CK Asset Offers to Buy UK’s Civitas Social Housing for $612M in Cash

Li Ka-shing’s CK Asset Holdings has made an all-cash offer to acquire British care home provider Civitas Social Housing for £485 million ($612 million) as the Hong Kong developer expands its UK holdings.

The group controlled by Hong Kong’s richest man proposes paying £0.80 per share for the London-listed REIT, which holds 697 UK assets focused on social housing and healthcare. The offer represents more than a 44 percent premium to Friday’s closing price.

“The group believes that the target’s 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,” CK Asset said in a Tuesday stock filing.

CK’s offer for the REIT comes after the Hong Kong firm in 2019 began working with Civitas Investment Management, the investment advisor of Civitas Social Housing, to build its own portfolio of UK care homes targeting disabled tenants. In November 2021, Civitas Investment Management said CK Asset had become a major shareholder in the group.

Board Backs ‘Undervalued’ Offer

Following CK’s offer, shares in Civitas Social Housing on Wednesday were trading at nearly 50 percent over their closing price last Friday.

In its own statement released Tuesday, Civitas said its directors have irrevocably undertaken to accept CK Asset’s offer and would recommend that shareholders do likewise. To complete the takeover would require acceptance by at least 75 percent of Civitas shareholders and the approval of UK regulatory authorities.

Michael Wrobel, non-executive chairman of Civitas, commended CK Asset for the Hong Kong group’s “detailed understanding of the attractive fundamentals of the real estate and the expertise of the management team” and noted that the board considered the offer terms fair and reasonable.

“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.

A valuation report prepared by property consultancy JLL assessed the Civitas portfolio’s market value at £978.1 million, including 654 freehold assets valued at £948.2 million as of the end of March. The trust’s net asset value was just under £662 million at that date, with CK Asset’s offer translating to a 26.7 percent discount to NAV.

Regulatory Issues

Civitas properties are designed to help those with lifelong care needs live independently within a community setting, a market sector closely aligned with Social Healthcare Properties LP, a Jersey-registered company set up by CK Asset in 2019, according to a report in UK property site Inside Housing.

A JLL report from April 2021 showed that Social Healthcare Properties LP had assembled a portfolio of care homes for the physically and mentally disabled that was valued at £351 million (now $442 million), with Civitas Investment Management having advised CK Asset as it built that portfolio.

While housing for the disabled, such as the properties held by Civitas, can provide higher yields for investors, regulatory issues have also raised concerns about risk.

Just last month, Civitas Social Housing’s second-largest tenant was served with an enforcement notice UK authorities for failing to comply with regulations. That notice followed a similar incident with the same tenant in 2021, and other top tenants in the REIT’s projects have faced similar penalties in the past two years.

In the 12 months before CK’s buyout offer, shares in Civitas Social Housing had fallen from around £0.86 each to just £0.56 last week.

Opportunistic Bid

London-based equity research house Marten & Co said CK’s proposal “materially undervalues” Civitas. It urged shareholders to reject the offer at £0.80 per share.

“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,” said James Carthew, head of research at Marten & Co’s QuotedData service. “Many other funds could be targets.”

Should the buyout be successful, CK Asset plans to delist Civitas from the London Stock Exchange and re-register the REIT as a private limited company.