Charter Hall-led sweetened bid for HPI’s $1.3bn pub portfolio knocked back

Funds house Charter Hall’s improved takeover offer for pub landlord Hotel Property Investments has been rejected by its target, meaning the REIT’s future is now up to investors.

Unlike Endeavour Group, HPI’s portfolio comprises pubs which focus on wining and dining.

Funds house Charter Hall’s sweetened takeover offer for pub landlord Hotel Property Investments has been rebuffed by its target, leaving one of the first real estate investment trust takeovers of this cycle in the hands of investors.

The group last month capitalised on the improving environment for mergers and acquisitions in the sector when Charter Hall Retail REIT and superannuation fund manager Hostplus together launched a takeover bid for the $1.3bn portfolio of pubs mainly run by the QVC venture between Coles Group and the Australian Venue Company.

The Charter Hall-Hostplus enterprise on Friday bumped up the offer from $3.65 to $3.85 cash per HPI security and declared it was the final offer in the absence of a competing proposal emerging.

HPI’s portfolio spans pubs across Queensland, NSW, SA, WA and Victoria that have more of a focus on food and drink than the rival Endeavour Group operation spun out of Woolworths.

Charter Hall said the latest offer was a 17.7 per cent premium to HPI’s price before takeover speculation began, and claimed that the target’s price could fall if the offer lapsed.

It also said it could exit its 14.7 per cent stake in HPI if the deal did not get approval – potentially hitting the share price – and promoted the certainty offered by an all-cash bid in the present risky environment.

The bidders argued that the likelihood of a rival proposal emerging was low and that the bolstered offer was a compelling price and valuation relative to HPI’s trading history, as the small stock was normally illiquid and stuck at a discount.

But HPI’s board is sticking to its position that there is no reason to sell the portfolio unless there is a compelling offer on the table. It said that the latest offer did not provide investors any premium to its net tangible asset backing, which was last at $4.01 per share, in what it said was a contrast to most REIT takeovers.

HPI recently appointed investment manager John White, bolstered its board, and pointed to the opportunity to expand, despite it being relatively quiet on this front previously.

“HPI continues to execute on initiatives to drive growth in earnings, distributions and the underlying properties,” the target board said.

HPI this month struck a debt refinancing, resulting in increased fiscal distribution guidance to at least 19.7c per security, which was a 3.7 per cent rise on fiscal 2024.

The target trust declared a distribution for the four months ending October of 6.5c, saying this showed its performance was strong.

But the tactic of paying an out-of-cycle distribution was questioned by analysts who said it would not make a difference to the takeover bid – and HPI shares lost 4c to close at $3.72 as investors doubted a rival bidder would emerge.

The move to declare the bid final puts pressure on investors to accept the offer or risk Charter Hall walking away, despite the offer’s apparent discount.

HPI traded on average at a 23 per cent discount to net tangible assets over the 18 months ahead of Charter Hall picking up its stake, and the bidders say net asset value would be cut by up to 41c per security once adjusted for the capitalised value of HPI’s corporate overheads.

As the bidder is not engaging with the target’s board, the deal – that if successful would cement Charter Hall’s position as the country’s top pub owner – will now be left in the hands of investors.