Civitas Social Housing has retaliated after ongoing attacks from activist short-seller ShadowFall, branding recent accusations inaccurate, incorrect and erroneous.
ShadowFall has targeted a campaign against the £600m REIT, arguing that it has failed to disclose full details of deals where it retained an interest.
This culminated in a 22-page open letter to Civitas chairman Michael Wrobel, published yesterday (22 September), in which ShadowFall raises a number of concerns over the company’s partnerships and overall viability. Civitas refutes the allegations.
ShadowFall has a short position equivalent to 0.82% of the company’s shares (at September 21). The short-seller has taken that position owing to doubts over transparency, claims that income is “100% government funded” and the “viability and quality” of income.
The letter says: “We believe the issues we have identified in this letter and its enclosure below store up significant risk, not only to Civitas shareholders, but also carry system risk to other stakeholders in the sector.”
Deals and partners
Civitas Social Housing plc was created in 2016 by Civitas IM as the first dedicated London-listed REIT to raise institutional capital to invest in care-based social housing. The company is led by chief executive Paul Bridge and directors Tom Pridmore and Andrew Dawber.
The REIT has a market capitalisation of around £600m and a portfolio valued at £915.6m, at March 2021. It has 648 properties, providing housing for 4,391 residents with long-term care needs. Civitas has partnerships with 119 specialist providers and works with more than 178 local authorities.
ShadowFall’s attack on Civitas largely focused on deals between Civitas IM and Isle of Man-registered company Specialist Healthcare Operations. Civitas has sold three operating businesses to SHO, a company in which Pridmore and Dawber are both alleged to have investments that were not disclosed to Civitas shareholders.
The short-seller says the sales, which accounted for more than half of capital deployed in 2020, gave preference to the buyer, SHO. ShadowFall has also raised questions over the relationship with RP Auckland Home Solutions, which leases Civitas properties, with SHO then leasing these buildings from Auckland.
ShadowFall further alleges that Civitas “appears to have de facto control” over Auckland and describes the company as a “middleman” used for REIT compliance for transactions between Civitas and SHO.
At-risk rent and viability
The short-seller also questioned reports of different lease lengths – where Civitas claims there is a 20-year lease, but conflicting reports put this at half the length. The letter says this would impact Civitas’s investment fees and NAV.
ShadowFall said it has “significant reservations” over the viability of Civitas’s business, which is deemed to be secure owing to the 100% government-funded framework of operators.
ShadowFall argued that the 100% government-funded claim is incorrect, pointing to loans from property developers Fairhome Group and Westmoreland and further rent payments from Fairhome to Civitas tenants. It also raised queries over the need for lease incentives by Civitas and peer Triple Housing REIT.
The letter also says there is significant risk in Civitas’s concentration of tenants – with 44% of rental income in 2021 from just two companies: Auckland Home Solutions and Falcon Housing, which share a number of the same directors.
ShadowFall alleges that at least 23% of Civitas’s rental income could be at risk and 48% of dividends. This would further damage the REIT’s NAV.
The short-seller has sent a list of 24 questions, alongside sections of the company reports, transcriptions of comments in an earnings call and Companies House statement for Falcon Housing.
In a statement to shareholders, Civitas said: “This letter was issued without any engagement on the author’s part with the board of Civitas. It is the board’s belief that the letter is based on factual inaccuracies, incorrect assumptions, erroneous comments and assertions which are not grounded in fact.”
Civitas said it will publish a full response to the accusations once it has reviewed the letter in detail. It noted that the short-seller profits when the share price falls. At the point of publication this had fallen by more than 10% in the past week, with a drop of 6% already today (23 September).
To send feedback, e-mail emma.rosser@eg.co.uk or tweet @EmmaARosser or @EGPropertyNews
