A deal between Hansteen and Warehouse REIT, in which the latter would have paid £460m for a 180-estate industrial portfolio, has fallen through.
The deal would have been transformational for both; it would have doubled the size of Warehouse REIT and diminished Hansteen’s assets by nearly 70%. But separate stock market announcements from both parties have confirmed that negotiations are at an end.
Questions could now arise about the future of Hansteen, which has been winding down its assets steadily for the past four years, and whether it will be sold or taken over.
Rumours circulating
Neither company explained why the deal had been called off, and rumours have circulated regarding the quality of the portfolio, its pricing, and Warehouse REIT’s ability to raise the money. It could also have been a decision taken by both sides that a deal would not be in their best interests.
Although the logistics market is booming, there are concerns that it is reaching its peak (see box, below).
In a stock exchange announcement, Hansteen said: “The parties have been unable to agree terms and consequently the discussions have been terminated.”
The portfolio of 180 UK industrial estates totalled 9.5m sq ft and was largely multi-let to around 2,000 tenants. The price reflected a yield of just above 7%. Most of the assets previously were part of the Ashtenne Industrial Fund, of which Hansteen took full control in 2016.
A toppy logistics market
A tidal wave of capital has flooded into the UK and European logistics property market as investors seek to take advantage of rising rents and values fuelled by the expansion of online retailers.
The feeding frenzy for both big-box warehouses and last-mile distribution units has attracted private equity firms such as Blackstone, which has built up a €4bn (£3.6bn) portfolio of last-mile assets; industrial specialist M7; and new listed firms such as Tritax EuroBox, which raised £300m earlier this year in a listing that was “significantly oversubscribed”.
However, the market is toppy and the growth will not last forever.
According to IPD, yields for industrial assets are now lower – at 5.4% at the headline level – than offices or retail, when five years ago they were the highest-yielding asset class by a considerable margin.
IPF predicts that returns from industrial assets will fall from around 10% in 2018 to 5% over the next few years, as capital growth flatlines (see table, below).
But although some listings and deals have failed to emerge, analysts continue to tip the sector. Green Street Advisors said in a note last month: “Sector fundamentals remain healthy; absolute and relative REIT premiums are justified by attractive risk-adjusted REIT return potential over the medium term.”
Hansteen’s sell off
Hansteen has steadily been decreasing its assets under management over the past four years, having undertaken a series of major disposals. In 2014 it sold the £146.1m Hansteen UK Industrial Property Unit Trust to Brockton Capital and Dunedin Property, and then followed this by selling HPUT II to the same buyers for £192.1m.
It sold almost its entire European business, comprising €1.3bn (£1.2bn) of German and Dutch assets, in June 2017 to Blackstone and M7 Real Estate. Then in February 2018 it agreed to the £116m sale of the Industrial Multi Property Trust portfolio to an entity owned by Warehouse REIT.
That said, it recently bought a £53.7m portfolio of mixed industrial assets from St Modwen at a yield of 9.2% and is not adverse to making acquisitions on certain opportunistic plays.
Now what
Hansteen’s founders and chief executives, Ian Watson and Morgan Jones, have been looking for an exit, and the portfolio has been steadily wound down over the past four years (see box, above).
The pair, aged 58 and 60 respectively, are significant minority shareholders in the company. A long-term investment plan due at the end of the year will, according to an estimate in the company’s last annual report, pay them a combined £19.1m in shares.
Another buyer could be sought for the portfolio, and it is well known that Hansteen is not averse to opportunistic deals if the price is right.
However, there is also a strong likelihood of a takeover or takeout; some commentators believe this may now be the most likely course.
As part of research for EG last year, Green Street Advisors put Hansteen at a 20% chance of takeover.
Current discount to NAV – according to a September spot check from Jefferies – is around 11%, and although a takeover would send prices up by 20%, it is not beyond the realm of possibility.
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