The Hotel Property Investments Ltd (ASX: HPI) share price is under the spotlight after announcing it had rejected a takeover offer.
HPI is the only pure-play pub real estate investment trust (REIT). It has 58 properties leased to experienced operators.
Takeover rejected
The business said that Charter Hall Retail REIT (ASX: CQR) and Hostplus have made an “unsolicited and conditional offer” to acquire all HPI shares at a cash price of $3.65. That’s currently lower than where it is today, with the current price being $3.73, and it’s only 3.7% higher than its price a month ago.
HPI said the offer is “unsolicited, opportunistic and materially undervalues HPI”. The board of HPI recommended that shareholders reject the offer and take no action relating to correspondence from Charter Hall Retail REIT and Hostplus.
Why was the offer knocked back?
HPI said:
The offer is not compelling and materially undervalues HPI relative to asset valuation benchmarks and comparable recent A-REIT merger and acquisition transaction precedents, and provides a negligible premium to recent trading prices.
It also said transaction precedents in the A-REIT sector highlight that control typically passes at a material premium to the underlying value (NTA), yet the offer is at a 10% discount to the NTA.
The business said pubs are an attractive asset class and HPI board and management are “committed to maximising securityholder returns.”
HPI said it has low management costs and a “robust balance sheet, providing steady distribution growth and growing returns”.
It said it has long-term leases and favourable reversion rights at the end of the lease period. It has a 9.1 weighted average lease expiry (WALE) with an average option period of an additional 19.3 years.
The business also pointed to “future growth from internal and external growth initiatives, as well as ongoing capital management optimisation.”
Final thoughts on the HPI share price
It seems it will take a materially larger offer to interest HPI to potentially get the offer across the line. It’ll be interesting to see what happens next though I wouldn’t buy HPI shares today because it has already risen, and I can’t imagine that Charter Hall and Hostplus will want to pay too much.
There are other ASX dividend shares I’d rather invest in.
