Civitas Social Housing has defended a close and convoluted relationship with one of the care providers operating in its portfolio after criticisms of its business model from an investor with a short position in its stock.
In a 37-page report, the REIT has set out details of various deals and partnerships that short-seller ShadowFall voiced concerns over in recent weeks.
The running incident has already had ramifications beyond the REIT itself – a postponement of the listing of a new REIT from Canada’s BMO is understood to have been a result of the market volatility around Civitas.
ShadowFall last month published a 22-page open letter to Civitas chairman Michael Wrobel, claiming the REIT had failed to disclose full details of deals and raising concerns over its partnerships and overall viability.
In particular, the investor questioned Civitas’s relationship with care provider Specialist Healthcare Operations, in which Civitas directors Tom Pridmore and Andrew Dawber were said to hold interests.
ShadowFall’s short position means it will make a profit on its holding in Civitas if Civitas’s share price falls. It has dropped by more than a quarter since August.
Civitas has described ShadowFall’s accusations as based on “factual inaccuracies, incorrect assumptions, erroneous comments and assertions which are not grounded in fact” and has now published a full response on its website.
“The board has confidence in the strength of CSH and in its investment adviser, Civitas Investment Management,” the company said in a stock exchange announcement of its response. “The company’s assets and revenues continue to perform in line with expectations and the board reaffirms its raised dividend target for FY22.”
The company added that it has used the recent fall in its share price as an opportunity to buy back its shares “as an enhancement to shareholder value”. However, it said that this had meant spending money “that would otherwise have been used… to purchase further properties”.
In Civitas’s response – which does not mention ShadowFall by name – the company said it has developed a “successful relationship” with SHO, and that properties owned by Civitas and operated by SHO have generated independently valued capital profit of £8m. For the 2021 financial year, properties for which SHO acts as a care provider accounted for 14% of Civitas’s annualised rent roll.
Civitas and SHO have undertaken four joint tenders valued to buy existing properties and associated care businesses, the company said – in three of the four deals Civitas bought the entire business, including properties, with a back-to-back sale of the care business to SHO on the same day. In the fourth the vendor had already separated the properties from the operational business. Civitas has also made two direct purchases from SHO of new-build properties.
SHO was established in 2018 with the aim of striking joint transactions with Civitas, in which Civitas would buy properties and SHO would pay for the operating business. “The search for suitable investors and professionals was led by Tom Pridmore and Andrew Dawber utilising their sector contacts and investor relationships,” Civitas said. SHO hired Paul Hainsworth, a senior executive from care provider Lifeways, as chief executive and Paul Marriner, a former Lifeways chief executive, as chairman.
Pridmore and Dawber each hold an effective 10% interest in SHO, Civitas said, but “have no involvement in the running of the business” and “have no economic interest in any of the properties that have been acquired by CSH”.
ShadowFall has also voiced concerns over Civitas’s concentration of tenants, particularly its reliance on Auckland Home Solutions and Falcon Housing, which share several of the same directors. Falcon is now being investigated by the Regulator of Social Housing. The regulator ruled in August that Auckland Homes did not comply with governance and financial viability standards, and said it had failed to deliver effective risk management.
Civitas in its response said that it “does not own or control” Auckland, and outlined the structure of The Social Housing Family CIC, of which Auckland Homes Solutions is a member organisation.
The “independent community interest company” was initiated by Civitas Investment Management, the REIT’s fund manager, to “assist in the enhancement of operational and governance standards within the SSH and residential care sector”, Civitas said, and today has an independent board.
By mid-afternoon on Monday, Civitas’s shares were up by 1.25% at 89.4p.
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Photo: Oleg Gamulinskiy Pixabay
