Caledonia bids $770m for ALE pubs fund
Melbourne’s Young & Jackson hotel, owned by ALE Property Group. Source: News Corp Australia
Funds house Caledonia Investments has kicked off the next phase of the consolidation in the $65 billion Australian real estate investment trust sector lobbing a hostile takeover bid for the ALE Property Group.
With a $900 million pub portfolio, the Woolworths-aligned ALE owns some of Australia’s best known pubs, including Melbourne’s Young & Jackson and Manly’s New Brighton Hotel.
The $773.4 million move by Caledonia comes as another pub company, Redcape Hotel Group, owned by York Capital and Varde Partners, assesses a $500m float or trade sale.
The deep pool of capital chasing the sector, as well as the willingness of banks to lend at levels not seen since the global financial crisis, is driving the corporate manoeuvres.
Caledonia’s cash offer of $3.95 a share for ALE values the company, which owns 86 pubs operated by the Woolworths-controlled Australian Leisure and Hospitality Group, at $773.4m.
Despite the unsolicited bid representing a 74 per cent premium to net tangible assets and the current share price of $3.61, ALE rejected the offer, which it said significantly undervalued the company.
ALE has engaged Macquarie Capital as financial adviser and Allens as its legal adviser, while Caledonia have retained Moelis.
Caledonia, which invests for wealthy individuals and family offices, is the largest holder of ALE securities, owning 25 per cent of the trust. Woolworths is ALE’s second-largest holder, owning 8.7 per cent, while fund manager Allan Gray owns 8.2 per cent.
Simon Mawhinney, managing director of Allan Gray, said he would seriously consider the proposal. “We’ll act in a way we think is in the best interest of our clients, and most likely it will be consultation with the company, so we’ll look to the company and its board for direction,” he said.
“The company has fantastic assets, long leases with great tenants, and all of the pubs have running rents well below market.”
ALE will have the opportunity to increase rents in 2018, by up to 10 per cent across its portfolio, and another chance — this time uncapped — in 2028.
Despite ALH being its only tenant, ALE has had a sometimes fraught relationship with the company.
ALH has since developed closer ties with pub baron Arthur Laundy and the Charter Hall, which now runs two pub funds.
ALE reported an underlying profit of $29.1 million for the financial year ending June, a fall of 2.1 per cent from the previous corresponding period.
Source: The Australian - 15th October 2015
