The consortium involving Hines European Real Estate Partners III and Grupo Lar Inversiones Inmobiliarias, Lar España’s asset manager, has increased the offer from EUR8.10 per Lar España share to EUR8.30 per share for all shareholders following its negotiations with Vukile.
The disposal will allow Vukile, via Castellana, to achieve an internal rate of return of approximately 45% p.a. since January 2022 in ZAR terms. This represents an investment return of almost three-times in under three years from the initial Lar España investment.
Laurence Rapp, CEO of Vukile Property Fund, said: “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.”
When Vukile invested in Lar España, it was trading at approximately a 48% discount to net asset value (NAV). Vukile quickly identified this investment as a tremendous opportunity because of its asset and market alignment. The investment provided strategic optionality that, in all instances, provided significant potential for capital appreciation while receiving attractive dividends. During Vukile’s time as a significant Lar España shareholder, the share’s discount to NAV 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 strategically aligned and financially 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. “This decision reflects Vukile’s disciplined approach to capital allocation and deal-making,” notes Rapp.
The company 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 pre-funded acquisition of three shopping centres, which closed earlier this week. The transaction takes Vukile’s exposure to the Iberian Peninsula to 64% of its assets.
Following its recent capital raise for several well-progressed deals that Vukile is evaluating, and given it has a significant pipeline of opportunities with a number under active consideration in both Spain and Portugal, Vukile is confident that the proceeds from the offer will be redeployed in line with its expansion strategy in these key markets.
“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,” concludes Rapp.