Barrenjoey, Citi & BofA called in for Hotel Property Investments takeover

Hotel and pub owner HPI has received a takeover bid.

Falling bond yields are fuelling a revival of mergers and acquisitions among the Australian real estate investment trusts (REITs), as Charter Hall Retail REIT and super fund manager Host Plus launch a takeover bid for the landlord of Coles-backed pubs Hotel Property Investments, valuing the target at about $718m.

After a quiet period for REITs when it comes to corporate activity, HPI has called in Bank of America as the defence adviser while a boutique adviser, Dennison, is also involved.

Meanwhile, the bidders are working with Barrenjoey and Citi.

REITs were largely out of favour for investors last year, limiting buyout activity, but the 10-year Australian bond yield this year has moved to lows of about 3.8 per cent from over 4 per cent, meaning some are turning back to property because they can now get stronger returns.

Fuelling the bond yield decline has been an expected interest rate cut in the United States.

As a consequence, the ASX 200 AREIT sector has gained about 2.45 per cent since March 28.

The pair are offering $3.65 a share, an 11.6 per cent increase to the undisturbed share price on March 27 and a 4.9 per cent premium to the last closing price on September 6.

The offer is subject to a 50.1 per cent minimum acceptance by shareholders.

HPI has swiftly rejected the offer, which is below its net tangible assets value at June of $4.01, and some analysts agree it appears to undervalue the target.

But they say that the offer could be the starting point, with the suitors making a return to the negotiating table.

It comes after the pair snapped up a 14.8 per cent stake in the pub owner on March 28 when shares were $3.27.

Charter Hall Retail said in a statement that the land of the fully leased pubs was high value and could potentially be repurposed over time, but others add that it is also part of Charter Hall’s earnings model, where it generates fees from transactions across its funds.

Charter Hall Retail and Host Plus would each contribute 50 per cent of the cash to the deal and own their holdings indirectly through a fund.

Charter Hall is already the largest pub landlord in the country after taking over the ALE Property Group for $1.7bn during 2021 and the latest move diversifies its holdings.

Charter Hall-backed interests own pubs occupied by the Woolworths-backed Endeavour Group, while HPI is focused on pubs which operate next to Coles outlets.

The HPI stake in March was purchased from Tony Pitt’s 360 Capital for a price of $97m or $3.35 per HPI security.

Running the HPI pubs are the Coles-backed Queensland Venue Company and Australian Venue Company.

A majority stake in the pub operating companies was sold by private equity firm KKR to rival group PAG for about $1.4bn in a deal agreed last year.

HPI owns a portfolio of 58 Australian convenience hotel properties, mainly on the eastern seaboard, that have long leases and valuable land banks.

Charter Hall said in March that HPI’s assets were complementary to its existing portfolio of convenience net lease retail assets, and the acquisition was consistent with the retail trust’s strategy to redeploy proceeds from recent shopping centre sales to increase its focus on these properties.

Charter Hall is acquisitive in real estate, also buying listed commercial property group Irongate in 2022.