Vukile Property Fund has confirmed that it intends to accept an improved cash offer for its 28.8% stake in Lar España Real Estate, held through its 99.5% Spanish subsidiary, Castellana Properties.
The consortium involving Hines European Real Estate Partners III and Grupo Lar Inversiones Inmobiliarias, Lar España’s asset manager, has increased its offer from €8.10 per Lar España share to €8.30 per share for all shareholders.
The disposal will allow Vukile, via Castellana, to achieve an internal rate of return of approximately 45% per annum since January 2022 in ZAR terms, representing an investment return of almost three-times in under three years from the initial Lar España investment.
“Our ability to identify mispriced assets, both listed and unlisted, and interpret market nuances through our on-the-ground asset management expertise, defined by profound knowledge of the property industry and retail specialisation, inform our capital allocation strategy. Our synthesis of corporate finance and deal-making skills, together with property asset management, underpins dexterity in underwriting retail assets,” commented CEO of Vukile Property Fund, Laurence Rapp.
When Vukile invested in Lar España, it was trading at approximately a 48% discount to net asset value (NAV) and as a significant Lar España shareholder, the share’s discount to NAV has reduced materially.
While Lar España shares still trade at almost 19% discount to NAV based on the increased offer price, when viewed from the perspective of the yield on Lar España’s assets, Vukile believes the negotiated offer price presents an opportunity to redeploy capital into other accretive opportunities with potentially better yields at significantly lower operational and deal execution risk.
While some in the market may have anticipated a counterbid, having considered all options, the complexity, cost and execution risk of doing so made this a less optimal solution.
The REIT remains committed to its growth strategy in Spain and the Iberian Peninsula where it has established a significant presence and pipeline of opportunities. From a standing start seven years ago, Vukile has grown Castellana to become the fifth biggest retail property owner in Spain. It is set to become the third largest by the end of 2024 and is well on its way to growing the largest retail property portfolio across the Iberian Peninsula.
Vukile’s acceptance of the Lar España offer comes after it launched the natural expansion of its Spanish growth into Portugal with the recently pre-funded acquisition of three shopping centres. The transaction takes Vukile’s exposure to the Iberian Peninsula to 64% of its assets.
“By accepting the Lar España offer, Vukile is realising a substantial return for shareholders while maintaining its focus on strategic growth initiatives. Vukile is well-positioned to create further value for shareholders through disciplined investment and active asset management,” concluded Rapp.
