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On 23 June 2023, Hong Kong-based CK Asset Holdings (CKA) that its £485m offer for Civitas Social Housing (Civitas) became unconditional, representing a 44.4% premium on Civitas’ closing share price on the last business day prior to the start of the offer period. The Hong Kong real estate giant released an earlier this month which expressed its wish to ‘bring the Offer process to a conclusion in order to provide Civitas Shareholders with an exit opportunity within a shorter timetable, while also allowing the continued development of the Civitas property portfolio.’ As such, the unconditional date of the offer was brought forward from 21 July 2023 to 23 June 2023.

Rising interest rates have added pressure to the property market, with Civitas noting that their (to 31 March 2023) were affected by ‘a difficult economic backdrop in the UK.’ Civitas Non-Executive Chair Michael Wrober commented that ‘A difficult challenge during the year was the sharp increase in interest rates.’ Although the company entered into a new debt facility for £70.9m in February 2023, partially used to repay its loan facility with Lloyds Banking Group, ‘the over-all re-financing was achieved at a material increase in ongoing interest costs.’ Civitas also reported that its ‘share price has been disappointing over the year under review, reflecting in part the broad derating of real estate investments, higher interest rates and investor concern about our sector.’

When commenting on the offer on 9 May 2023, Wrober made it clear that ‘the Civitas Board believes that [it] undervalues the long-term prospects of Civitas as expressed by net asset value.’ Nevertheless, the Board recognised 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. The Offer provides liquidity to shareholders with the opportunity to exit in full and in cash at a significant premium to the current share price, in a time of macroeconomic uncertainty.’

Such macroeconomic uncertainty has also been a factor in CKA’s as the Hong Kong property market attempts to rebound after stringent lockdowns during the COVID-19 pandemic. CKA expressed that ‘the property market in Hong Kong lost momentum in 2022 due to the lingering pandemic, rising interest rates and the prevailing cautious sentiment of investors and homebuyers.’ As regards its outlook for the future, the Hong Kong property developer noted:

‘The growth trajectory for the majority of the global economies is anticipated to slow due to a matrix of downside risks including geopolitical tensions, central bank monetary policies, inflationary pressure and elevated interest rates, which continue to weigh on investment sentiment. At the same time, the prospect of economic recovery is expected to remain challenging in a shifting economic landscape.’

Despite this, however, CKA anticipates that it ‘is able to respond swiftly to changes in the market while proactively pursuing new opportunities and large investments worldwide to generate recurring income and create shareholder value.’ Its acquisition of Civitas is one such response, capitalising on ‘Civitas’ position as one of the leading social housing providers in the UK, and its social impact and earnings profile.’ CKA intends to focus on portfolio development (building on Civitas’ property portfolio through acquisitions) and potential refinancing (by refinancing relevant Civitas’ existing debt facilities with either new external debt facilities or CKA’s own cash resources). Following the completion of the takeover, it is also intended that Civitas Investment Management (CIM) remains Civitas’ Investment Adviser such that the day-to-day management of its portfolio can continue uninterrupted. Civitas will therefore be re-registered as a private limited company following the cancellation of the listing and trading of its shares on the London Stock Exchange.

Trends relating to public M&A transactions in 2023 thus far will be explored further in our upcoming H1 2023 Public M&A trend report.