A hedge fund with a high-profile short position in Civitas Social Housing has hit out at the company again and asked to speak directly to the Regulator of Social Housing and other shareholders about its concerns.
ShadowFall has shorted Civitas’s stock, meaning it will profit if the REIT’s share price falls. Last month it issued a 22-page open letter raising concerns about Civitas’s business model, and today has described the Civitas team’s response as “heavy in extraneous detail, but also hollow”.
ShadowFall has proposed a roundtable discussion of its concerns over Civitas’s business model and response to the hedge fund’s concerns. In an open letter to Civitas chairman Michael Wrobel, the hedge fund said the roundtable would include “Civitas’ major shareholders, sector specialists, the regulator, and other key stakeholders in the [specialist supported housing] sector”.
It added: “Members of Civitas’ board are of course welcome too.”
ShadowFall questioned Civitas’s relationship with and disclosure over dealings with care provider Specialist Healthcare Operations, in which Civitas directors Tom Pridmore and Andrew Dawber were said to hold interests.
Civitas said in its response that Pridmore and Dawber had helped to establish SHO in order to strike joint acquisitions in which Civitas would buy real estate and SHO would buy the operating business. It added that Pridmore and Dawber “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”.
In today’s letter, ShadowFall said: “[Civitas’s] response suggests that the scale of, as Civitas puts it, ‘affiliated party transactions’ is greater than we had identified in our letter. Whilst heavy in extraneous detail, unfortunately… we found Civitas’ response to be hollow, using deflection and misdirection to divert attention away from the core issues for stakeholders.”
It continued: “We believe there are high levels of risk within Civitas’ business model and view the actions taken by management regarding lease transfers and incentives as an attempt to avoid the risk of lease re-negotiation. Perversely, we believe that instead of balance sheet write-downs these actions have bolstered the net asset value. If true, this puts the interests of Civitas Investment Management, which draws its fee based on the NAV, above other stakeholders.”
A spokesman for Civitas declined to comment.
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