Shares in real estate investment trust RDI REIT (RDI) are up 12.4% to 145p as it confirmed press speculation of an unsolicited takeover offer from Cromwell Property Group.

There are few details about the potential offer but the Australian Financial Review speculates Cromwell’s offer may value RDI at 185p per share, implying a 43.4% premium to Tuesday’s closing price of 129p.

Aussie investment manager Cromwell says a potential acquisition of RDI is in line with its strategy to work with capital partners to grow funds and expand its footprint in the UK and Europe.

RDI may be a good strategic fit for Cromwell as it owns property in the UK and Germany, which are Europe’s two largest and liquid property markets.

‘The company [RDI] has been focusing on recycling capital into higher quality assets and sectors supported by structural change such as distribution warehouses, and reducing leverage,’ says broker Numis.

UK RETAIL WOES

Among RDI’s top 20 assets are properties located in Charing Cross Road in London and Grand Arcade shopping centre in Manchester, as well as the Bahnhof Centre in Hamburg, Germany.

The investment trust was trading at a 40% discount to net asset value (NAV) based on Tuesday’s closing price.

'Cromwell may think this represents a bargain, despite the risks posed by RDI's retail exposure, modest GDP growth in the UK and what Brexit may (or may not) mean for sterling and the British economy,' says AJ Bell investment director Russ Mould.

Mould argues there is some scepticism by investors that a deal will be struck, pointing to two failed bid for Intu Properties (INTU) and an abandoned approach for Hammerson (HMSO).

As consumers are increasingly shunning the high street and shopping more online, the value of UK retail assets has been heavily marked down.

UK retail currently accounts for a significant proportion of RDI’s portfolio market value.

Numis adds: 'UK Shopping Centres comprise 18% of the portfolio and in a recent trading update, the company noted that there was considerable uncertainty over their valuations.'

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Issue Date: 27 Mar 2019