Property merger party just getting started as values soar

The merger deals unveiled by Home Consortium and 360 Capital are a sign of even larger deals to come as the recovering real estate investment trust sector starts to run rampant.

The David Di Pilla-led Home Consortium empire has all but snaffled the prize of the Aventus large format retail portfolio.

Something had to give. Direct property prices have jumped across the board and in many cases have soared to well above pre-Covid crisis levels.

But the prices of listed-real estate investment trusts had yet to catch up and companies that wanted to expand were finding it tough to buy in the direct market.

The answer – provided by the investment banking teams that dominate the sector – lies in mergers and acquisitions – two of which have been unveiled today over more than $5bn worth of property assets.

In the hottest play, the David Di Pilla-led Home Consortium empire has all but snaffled the prize of the Aventus large format retail portfolio, assembled by billionaire Brett Blundy and right-hand man in the sector, Darren Holland.

This one is an expansion play with the cash and scrip bid adding to HomeCo’s funds network and helping to deliver on its promise that it will get to $10bn of funds under management.

The other bid today, 360 Capital making its long awaited move on Irongate, while also unveiling Asian logistics powerhouse ESR as its partner, is likely to be a more contested situation, with the target company signalling it will fight the indicative bid.

But what both show is that with an ocean of cheap debt, a liquid sharemarket, and property funds managers with mandates to expand, there is plenty more to come on the merger front.

The small names are likely to fall first as the sector consolidates but attention will increasingly turn to the big names, some of which have been under the microscope for years and struggled during the pandemic.

But for today, the two mergers are a tale of what is possible by targeting assets in desirable sectors. In the case of Aventus, large format retail has held up well through the crisis, and in the case of Irongate, its suburban offices and prized industrial assets.

In the former deal, the HomeCo Daily Needs REIT and Blundy-backed Aventus have unveiled a deal to create a fund with $4.1bn worth of large format and convenience stores, creating a national powerhouse that will house category killer retailers around the country.

The combined HomeCo Daily Needs REIT will own large format and convenience centres with just under half of Australia’s entire population living within 10km of its centres.

The entity will have a 2.5 million square metre land bank and has benefited from retailers bulking up over the last decade, with 84 per cent of the portfolio occupied by national tenants with half of them offering pandemic-proof click and collect services.

Mr Blundy is backing the deal and for Aventus securityholders the implied offer price of the scrip and cash deal of $3.82 is 15.3 per cent ahead of its Friday close of $3.31. It is a dramatic 41.9 per cent premium to Aventus’ net tangible assets per security of $2.69.

Despite the lofty price the deal is expected to show fiscal 2022 accretion of 4 per cent for the HomeCo vehicle making the acquisition.

If anything the aggressive HomeCo is planning to use the merged vehicle to expand even more aggressively as it will present an even larger presence in the market as it can beat smaller groups to assets and it has the balance sheet to develop in new areas.

HomeCo is pitching the merger as bringing together two highly complementary portfolios and significantly increasing HomeCo’s growth and scale with external assets well ahead of its planned $5bn target.

HomeCo chief executive Mr Di Pilla said the “industrial logic” of the transaction was “very compelling” for both sets of shareholders.

“The combination of HDN and AVN creates a leading ASX-listed Daily Needs REIT with a highly strategic $4.1bn portfolio of last mile logistics infrastructure in Australia’s leading metropolitan growth corridors,” he said.

Aventus executives Mr Holland and Lawrence Wong will become chief executive and chief financial officer of the merger entity, helping drive growth.

Mr Blundy’s BB Retail Capital has a 22.6 per cent stake in Aventus and will back the deal and has already granted options over a holding of 6 per cent of the register to HomeCo.

The future of 360 Capital’s move on Irongate is less clear as the dual listed target wants to fight the bid, even though the suitor has a 19.9 per cent stake on its register.

Led by the entrepreneurial Tony Pitt, 360 Capital has long-stalked Irongate and has structured a deal that would see it takeover Irongate without raising capital.

It sees value in a break-up. Irongate has a near $1.4bn portfolio of office and industrial properties and also manages funds that are undertaking a luxury hotel and apartment project in Sydney and a residential development in Melbourne.

The unsolicited, highly conditional and indicative non-binding proposal came from 360 Capital Group and its managed fund 360 Capital REIT.

They are proposing an agreed trust scheme at a price of $1.6047 cash per Irongate security, which is a headline price of $1.65 less the anticipated distribution of 4.53c a security.

The deal is conditional on ESR entering into an agreement with 360 Capital to purchase an undisclosed number of selected assets from Irongate’s portfolio on terms yet to be agreed.

The merger games have only just begun.