Listed real estate investment powerhouse Charter Hall and teamed again with Hostplus to attempt a takeover of the country’s last remaining listed pub landlord, Hotel Property Investments (HPI).
Charter Hall Retail REIT (Real Estate Investment Trust) touts its interest in retail assets backed by long leases, counting shopping centres, convenience stores, childcare and petrol stations.
It views pubs in the same category, and became the largest pubs landlord in Australia in 2021 after teaming with hospitality industry superannuation fund Hostplus to buy the former ASX-listed ALE Group for $1.7 billion.
CHRR became HPI’s (ASX:HPI) largest shareholder in March, when it acquired nearly 15 per cent at $3.35, prompting speculation about its plans; Citi analyst Suraj Nebhani wrote at the time of the company’s “track record with listed REIT acquisitions”.
Last week CHRR and Hostplus joined again to throw an offer at HPI of $3.65 a share, valuing the company at A$716.5 million.
The fund offered that its fully funded takeover offer, represented an “attractive premium to HPI’s historical trading levels” and noted both an absence of competing offers, and that an alternate offer was unlikely, given it is the largest shareholder.
HPI has had an average share price over the past year of around $2.80, with a low in October of $2.53.
“The acquisition is in line with Charter Hall Retail REIT’s strategy to invest in high-quality, net lease retail assets, while partnering with leading convenience retailers to deliver resilient and growing income streams,” offered Ben Ellis, Charter Hall retail chief executive.
HPI listed in 2013 and holds 58 pubs, predominantly in Queensland and South Australia and leased to Australian Venue Co and its partnership with Coles, QVC.
The board of HPI opted to reject CHRR’s bid, telling investors the bid was too small a premium and amounted to a nearly 10 per cent discount to its net tangible asset backing.
“The board has unanimously concluded that the offer is opportunistic, not compelling and materially undervalues HPI,” said a statement.
The board formally recommended securityholders reject the offer, also noting the offer appeared to be a significant discount “to the premium provided in comparable transactions”.
It has called Bank of America and Denison Partners as defence advisers, while Charter Hall is being advised by Barrenjoey and Citi.
The announcement had an immediate effect on HPI shares, soon jumping to a two-year high peaking at $3.76 on Tuesday, well above the offer. Circa 7.1 million shares were bought and sold in roughly equal quantities over the past week, being 29 times the usual daily average daily volume of 246K. This implies a lot of investors think the offer will improve, while many others think the bid-bumped price is as good as they may get.
Meanwhile, Charter Hall has furthered its already prosperous relationship with AVC, buying the freehold of the group’s multi-storey Harlow Bar – former Great Britain Hotel – in inner Melbourne, from interests associated with Mark Robertson, a former director of Hostplus.
The Richmond property came to market earlier this year, following one of AVC’s trademark comprehensive makeovers.
Charter Hall paid $9 million for the asset, leased to AVC until 2039 and currently returning $517K per annum net with annual increases, which translates to a 5.75 per cent yield. The property was sold through Fitzroys’ Paul Burns and Chris James.
CHRR’s offer on HPI is set to close 7pm (AEST) Monday, 4 November.
“HPI believes that its existing portfolio and current strategy, including its organic growth initiatives, offer significantly greater value to HPI securityholders,” furthered the board.
