Charter Hall makes $1.29bn takeover play for Irongate as mergers lift

The David Harrison-led property funds powerhouse is looking at doing yet another deal. This time it has the Irongate Group in its sights.

Charter Hall, the diversified property group, is back on the expansion trail with a takeover bid for Irongate Group. Hollie Adams/The Australian

Property funds manager Charter Hall has signalled the run of mergers in the property sector will roll on another year with a $1.29bn bid for office and industrial landlord Irongate Group.

The move signals its confidence in the recovery of office markets and the continuing strength of industrial property, which has been transformed by the coronavirus crisis.

Both sectors are seeing strong interest from global players who are teaming up with local managers to make plays even while the omicron variant knocks short-term confidence.

In the latest move, Charter Hall has teamed up with Dutch pension fund PGGM to make a bid for the listed real estate investment trust that has been on the block since rival 360 Capital teamed with Asian warehouse group ESR to make a bid last year. The deal was first flagged by DataRoom.

The Tony Pitt-led 360 Capital has now pledged its 19.9 per cent stake in the target to Charter Hall. It will walk away with a collection of buildings for its own property funds and also Irongate’s funds business, which spans mixed used developments in Sydney and Melbourne.

The deal shows Charter Hall‘s ability to marshall offshore capital to expand during both market volatility and to see off rivals which also are seeking to expand including Centuria and Growthpoint.

The deal-making also shows that capital is willing to pay a premium for both office and industrial assets backed by encouraging fundamentals.

Irongate said it had received a non-binding, indicative proposal from a Charter Hall managed partnership backed by Dutch pension fund PGGM. The pair would by way of an agreed trust scheme takeover Irongate for $1.90 cash per share with shareholders to receive a 4.67c per share March distribution.

Irongate’s advisers are Macquarie Capital and JPMorgan.

Charter Hall billed its proposal as giving shareholders a unique opportunity to realise significant value with a high degree of certainty and said the bid was at a 26.7 per cent premium to Irongate’s closing price of $1.50 per share before 360 Capital unveiled its interest last October.

Charter Hall has significant experience in leading big corporate deals and last December made the $1.7bn acquisition of ALE Property Group on behalf of a consortium comprised of Charter Hall Long WALE REIT and Hostplus.

Charter Hall and PGGM’s partnership has obtained a letter of support from Barclays and Morgan Stanley to provide secured debt financing against Irongate’s portfolio.

The pair have a long track record transactions and in 2019 set up an industrial and logistics partnership which has secured investments in ten properties worth $500m.

Charter Hall has engaged Barrenjoey and Morgan Stanley as its financial advisers in relation to the deal and is seeking exclusivity to conduct due diligence.

Irongate shares jumped by 26c to $1.83 in afternoon trade and it told investors to take no action while it assessed the bid.

Credit Suisse analyst Peter Zuk said that given that drivers of Charter Hall’s funds growth strategy include mergers, as well sale and leaseback opportunities, conceptually, the bid was not surprising and highlighted there is global capital looking to invest in Australian real estate alongside the manager.

Mr Zuk said after several investors were left bemused by Charter Hall’s recent partnership with equity fund manager Paradice, “a return to real-estate based funds growth will be viewed as a positive”.

“Of course, this is not a done deal as yet, but encouragingly, the Irongate Board is considering the proposal and Charter Hall has a memorandum in place with Irongate’s largest shareholder,” Mr Zuk said.

If the bid is successful, we understand Charter Hall will own 12 per cent and PGGM 88 per cent of Irongate.

Irongate‘s portfolio is 37 assets with a value of $1.59bn across the office and industrial sectors. It also has $1.8bn end value of third party assets under management.