Green Street Advisors



Estates Gazette: M&A opportunities: what are the chances?

From the Estates Gazette:

With the transactional market quiet (save from the odd £1bn skyscraper sale), major listed companies trading at a discount to their net asset value, and the world awash with cash, many financial advisers and those with equity are eyeing M&A opportunities.


Here, research compiled by Green Street Advisors shows which firms it believes make for the most attractive takeovers. The research does not imply that those listed are takeover targets, but shines a light on options currently being weighed up.

While many talk of discount to NAV being a key factor in a firm’s attractiveness to potential suitors, Green Street says it is not the only factor.

It bases its probabilities for takeover on NAV premium/discount to share price and overall return prospects for the portfolio, plus more qualitative issues such as scarcity level and the deemed interest level of potential investors.

The estimates are a rough guide at a point in time, and subject to change as market conditions change.

Hispania tops the table because there have already been announcements about the future of the company, and the fact it wants to sell off its assets by 2020.


The analyst’s view: Hemant Kotak, managing director, Green Street Advisors:

There is no scientific model for working out the chances of a take-out, but there are a host of considerations.

The first, and often the largest, is how big the initial discount is.

This is a good starting point, but not always the whole story.

Then you need to consider the prospects for the portfolio.

Is the company operating in a market about to face a downturn, or is it still registering positive trends?

If you have a discount but the underlying fundamentals are still healthy, that increases the odds.

Bringing together these two factors will allow you to estimate look-forward unlevered returns for the portfolio in an absolute sense.

By way of example, a REIT trading at a 20% discount to NAV could have an implied unlevered IRR of 6%, but a REIT trading at NAV may still offer higher unlevered returns if the outlook is positive enough.

Next you must consider how much of a portfolio premium should be ascribed to those assets – and here there are a whole range of factors; from

underlying scarcity, to platform efficiencies and, ultimately, the boost from currently available low-cost financing.

All of these things bring into play potential levered returns for investors, which rightly or wrongly, is perhaps the most important consideration for many deals.

Of course, the ultimate success of a takeover bid will depend on how supportive the management is and whether shareholders collectively have better uses for their capital.

However, by the time the takeover premium and fees are considered, much of the original discount to NAV may have evaporated.

For investors where gaining a controlling interest is not imperative, and there is nothing to fix per se, the alternative is to build up a position in multiple companies.

Investors prepared to do this will be of the view discounts offer genuine value, and not a precursor to a downturn.


Read the full article from Estates Gazette here.