Charter Hall swallows 15pc of pubs owner HPI
ASX-listed property fund manager Charter Hall has taken a near 15 per cent stake in $640 million listed pubs landlord HPI, fuelling speculation that a bout of M&A might be on the cards.
Together with one of its managed listed funds, the Charter Hall Retail REIT, Charter Hall has formed a joint venture to buy 14.8 per cent of HPI, becoming its largest shareholder.
That stake was acquired from the Tony Pitt-led fund manager 360 Capital. It was bought for the equivalent of $3.35 a share for a total of $97 million. HPI stock jumped 3.4 per cent, or 11¢, on Thursday after Charter Hall’s move.
Charter Hall is already the country’s biggest pubs owner after buying former ASX-listed landlord ALE Group for $1.7 billion in a deal backed by industry superannuation fund Hostplus three years ago.
That deal made it the landlord of some of the country’s best-known watering holes, including Sydney’s Crows Nest Hotel and Young & Jackson in Melbourne.
Its swoop on HPI gives it exposure to a $1.2 billion portfolio of 57 hotel properties leased to Australian Venue Co and Queensland Venue Co, which is a joint venture between Coles and AVC.
Growth over defence
On its face, the acquisition makes sense on the numbers, allowing Charter Hall to park capital recycled from recent shopping centre divestments at around a 15 per cent discount to HPI’s net tangible assets. HPI is throwing off a healthy 5.7 per cent distribution yield.
However, the surprise move has prompted speculation about Charter Hall’s ultimate game plan, given its record of take-private transactions with property players, including Irongate and Folkestone.
“We believe the proposed transaction reflects increasing potential for M&A activity in the sector, given Charter Hall’s track record with listed REIT acquisitions,” Citi analyst Suraj Nebhani wrote in a client note.
“We also see this as a positive sign, with Charter Hall focusing more on growth-linked opportunities than playing defence in a tough environment.
“From Charter Hall Retail REIT’s perspective, we believe this acquisition would represent an extension of its strategy to acquire convenience-based assets with existing investments in assets leased to other pub operators.”
Led by David Harrison, Charter Hall has also been content to take up sizeable stakes in other REITs before simply selling down and moving on, such as its brief involvement at petrol station landlord Waypoint REIT four years ago.
But it is also willing to roll up its sleeves for an M&A tussle, such as its ultimately unsuccessful $495 million joint bid to take over the listed Australian Unity Office Fund with Abacus.
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