Brookfield gazumps Segro in £1.1bn battle for warehouse giant

Brookfield, one of the world’s biggest investment groups, has gazumped a rival and struck a £557 million deal for Tritax EuroBox, the warehouse landlord.
The bid works out at 69p in cash for each EuroBox share, ahead of the original 68.4p all-share offer that Segro, Europe’s largest owner of sheds, tabled last month. At the time, Segro’s bid equated to £552 million, although its share price has since fallen, reducing the value of its offer to about £525 million.
EuroBox, which owns £1.2 billion of warehouses, mostly in Holland and Germany, originally recommended that shareholders accept Segro’s offer but the directors have now swung behind Brookfield’s higher, all-cash offer.
Some saw a chance that Brookfield could make a higher bid, but most in the industry thought Segro had the deal sewn up. One fund manager said he was “very surprised” that Brookfield had outbid Segro. Including debt, Brookfield’s offer values EuroBox at £1.1 billion.
Segro, which has a near-£20 billion portfolio of warehouses, data centres and delivery depots around Europe, has not yet said whether it will sweeten its offer, saying only that it “notes the competing offer” and will make a further statement “if appropriate”.
However, the stock market seems to be expecting it to come back: EuroBox shares rose by 2p, or 2.1 per cent, on Thursday to close at 71¼p, a shade above Brookfield’s offer.
Brookfield, whose investments include a 50 per cent stake in Canary Wharf Group, said it had “for some time tracked and admired” EuroBox. The two companies had been in takeover discussions for several months before Segro gatecrashed the talks at the beginning of September.
“Tritax EuroBox has a high-quality portfolio of logistics assets in strategic locations across Europe,” Brad Hyler, Brookfield’s head of real estate in Europe, said. “These assets are complementary to our existing portfolio and we will actively manage these assets, provide access to capital, help build new relationships with our network of tenants and support the overall growth of the platform.”
Robert Orr, EuroBox’s chairman, said the board had decided to back Brookfield’s offer instead of Segro’s because “it represents a premium to the current value of the Segro offer and ensures that Tritax EuroBox shareholders will benefit from a significant uplift over the undisturbed value of their investment”.
Because Brookfield’s offer is in cash, it gives EuroBox shareholders “the flexibility to reinvest as they see fit”, he added.
Although Brookfield’s bid is higher than Segro’s and above where EuroBox’s shares were trading before either of the suitors’ interest came to light, it remains 12 per cent below EuroBox’s net asset value per share.
Effectively, that means if this deal goes through Brookfield will be buying EuroBox’s portfolio for 12 per cent less than an independent valuer’s most recent estimate.
That discount reflects uncertainty among investors about the trajectory of commercial property values. Even warehouses, which have outperformed most other parts of the market, have fallen in value by 25 per cent or so over the past two and a half years.
There is a growing sense in the industry that values have stabilised now that interest rates are trending down. David Sleath, Segro’s chief executive, effectively called the bottom of the two-year commercial property market downturn back in the spring when he convinced investors to arm the group with another £900 million.
A landlord with a portfolio worth more than £1 billion, like Tritax EuroBox, may seem like a big company, but major investors do not see it that way (Tom Howard writes).
This explains in part why the stock market has shown little love to EuroBox shares, which had more than halved in value in the two years before Brookfield’s interest emerged in June.
Bankers have been saying for some time that trying to convince big institutions to invest in listed property companies worth less than £2 billion is getting ever tougher.
Their concern is that selling shares in so-called “subscale” companies is harder, because there are fewer investors ready to step in and buy. One fund manager likens them to a “lobster pot; the lobster can get in, but it’s hard to get out”.
Robert Orr, EuroBox’s chairman, pointed out last month, when he was still recommending Segro’s offer, that selling out to a much larger rival would allow his shareholders to “[take] advantage of Segro’s significantly greater trading liquidity”.
It is this fear of being seen as too small that is, partly, driving a wave of consolidation among listed UK property owners. Others point to further economies of scale, such as reducing running costs and providing access to cheaper debt.
LondonMetric, for example, has been catapulted into the FTSE 100 after it merged with LXi Reit, a smaller rival that owned the land on which Thorpe Park and Alton Towers sit.
In total, there have been 25 mergers and acquisitions in the sector over the past five years. “We expect to see further public mergers and privatisations in the coming years,” Matt Saperia, a real estate analyst at Peel Hunt, said.
As well as mergers, there have been several big take-private deals as private equity firms take advantage of the chunky discount between many landlords’ share prices and their net asset values.
Effectively, the stock market has told the companies that it expects the value of their buildings will continue to decline; the likes of Brookfield and Blackstone, which generally take a longer-term view than stock market punters, have bet otherwise.
Blackstone, for example, paid £511 million last year for Industrials Reit, a warehouse owner, and now Brookfield has taken aim at EuroBox. Those American giants have been lured by a combination of low share prices and the cheap pound, which is what also prompted Shurgard, the US self storage group, to pay almost £400 million for Lok’nStore this summer.