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UK investment volumes have slowed since the beginning of 2019, and takeover bids for UK listed companies have fallen through in the past six months. But one Australian firm is bucking the trend.
Listed Australian property company Cromwell Property confirmed press reports in its home country that it is considering a bid for London-listed RDI REIT. RDI said it would update shareholders if a formal offer was made.
RDI has a market capitalisation of about £550M, and a portfolio valued at £1.6B as of the end of February, with the focus being on assets with long income. Its portfolio is 84% located in the UK, with the rest in Germany. In the UK, hotels are the biggest part of its portfolio at 23%, with shopping centres accounting for 18% and retail parks 11%. It also owns London serviced offices and regional UK offices and logistics assets.
If Cromwell does make a bid, it will be hoping to buy RDI at a discount to its current net asset value. The company’s shares currently trade at 33% to NAV, while the offer price cited by the Australian Financial Review implies a 14% discount to NAV.
However, value is a fluid concept in the UK at the moment, especially in the retail sector. In a rating update in February, RDI said that given the deterioration in values for UK shopping centres and the resultant increase in the loan-to-value ratio of a loan secured against four of its centres, all net operating cashflows from this portfolio are being retained within the facility and are anticipated to be used to reduce the outstanding loan balance.
If a deal goes through, it would be the first privatisation of a UK listed property company since 2017. It is the first bid for a company since Brookfield and Peel Holdings pulled out of a deal to buy Intu for £2.7B in autumn 2018.
Cromwell has been keen on the UK and Europe for the past few years. In 2015 it paid €150M for the European fund management arm of Valad, the Australian firm that was taken over by Blackstone. It said in its response to the press speculation: “Any transaction would be consistent with Cromwell's strategy to work with its capital partners to grow funds under management and continue to expand its investment footprint in the UK and Europe. Over half of Cromwell's A$11.5B (£6.1B) of assets under management as at 31 December 2018 is concentrated in Europe."
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