European Event-Driven Analyst

Jesus Rodriguez Aguilar

Jesús is an Insight Provider (Event-driven) on the Smartkarma network, where he looks across sectors at opportunities arising from securities mispricing (both credit and equity), share classes, bid announcements, prospective bids, and special situations. He has served as Economic and Business Advisor at the Spanish Congress in Madrid. Prior to that, he has worked in the City of London: as a Credit Analyst at Bloomberg; Event-driven associate at former boutique European Research; and doubled as Special Situations and Equity-linked VP (convertible bonds) at Merrill Lynch. Jesús has an MBA from the London Business School, a BA (Hons.) degree in Economics from the Complutense University in Madrid, and a BA (Hons.) in Law from U.N.E.D., also in Madrid.

CA Immo: Raised Offer, Aggregate's Potential Competing Offer

RDI REIT - Starwood: Expectations of a Bumped-Up Offer

Event-Driven

On 8 January, SOF-11 Klimt CAI S.à r.l., an affiliate of Starwood Capital, announced its intention to launch a takeover offer to acquire the remaining 70% of <a href="https://www.smartkarma.com/entities/ca-immobilien-anlagen-ag" target="_blank" data-smartkarma-citation="entities:22540:1" rel="noopener">Ca Immobilien Anlagen Ag (CAI AV)</a> it does not already own.
Consideration is €34.44, in cash, equivalent to CA Immo's undiluted EPRA NNNAV, with no minimum acceptance condition.
<ul>
<li>1.1x P/ 2021e BV, 25.8x deal value/est. FFO and 91.14% deal value/consensus NAV, per share (assuming a NAV estimate per share of €37.79, source: S&amp;P MI).</li>
<li>
10.2% discount to EPRA NAV.</li>
</ul>
Starwood is a bargain hunter and distressed investor, so it must see value at the offer price.
<ul>
<li>The offer price is 17.7% below the closing price of 14 February 2020, when the pandemic started to hit the markets.</li>
<li>Therefore Starwood is betting on the recovery of the German office market. CA Immo has prime buildings in Berlin, Munich, Frankfurt and other German cities, and a big land bank in Berlin.</li>
<li>CA Immo is planning to invest €710 million that should add c. 45 mn to FFO if all is occupied at a 6% gross yield on cost.</li>
</ul>
The shares have shot up by c. 14.6% vs last close and are trading at €35.30,
<ul>
<li>
c. 2.5% above the offer price.</li>
<li>Volume negotiated on 11 January is close to €40 mn.</li>
</ul>
The market is thinking of either a sweetened bid or that the company is now in play (again) and there could be another bidder.
<ul>
<li>I believe that the Board of CA Immo will press for a better offer, considering that the current offer from Starwood is below where the shares were trading in February (€41.85).</li>
<li>The 30% stake held by Starwood represents a barrier to any other bidder, plus there will be no minimum acceptance condition.</li>
</ul>
Considering the resilience of the German prime office sector, and the pipeline of CA Immo, an improved offer representing a 10% premium to current EPRA NNNAV could be justified, or €38.34 per share, 11% premium to the current bid, and c. 4% 21e FFO yield (Capital IQ).
<ul>
<li>On this basis, recommendation is LONG CA Immo, TP €38.34.</li>
<li>The downside is that Starwood does not improve its bid, but the share price should be supported by  FFO yield, in the absence of a worsening pandemic scenario.</li>
</ul>

On 8 January, SOF-11 Klimt CAI S.à r.l., an affiliate of Starwood Capital, announced its intention to launch a takeover offer to acquire the remaining 70% of Ca Immobilien Anlagen Ag (CAI AV) it does not already own.
Consideration is €34.44, in cash, equivalent to CA Immo's undiluted EPRA NNNAV, with no minimum acceptance condition.

1.1x P/ 2021e BV, 25.8x deal value/est. FFO and 91.14% deal value/consensus NAV, per share (assuming a NAV estimate per share of €37.79, source: S&amp;P MI).

10.2% discount to EPRA NAV.

Starwood is a bargain hunter and distressed investor, so it must see value at the offer price.

The offer price is 17.7% below the closing price of 14 February 2020, when the pandemic started to hit the markets.
Therefore Starwood is betting on the recovery of the German office market. CA Immo has prime buildings in Berlin, Munich, Frankfurt and other German cities, and a big land bank in Berlin.
CA Immo is planning to invest €710 million that should add c. 45 mn to FFO if all is occupied at a 6% gross yield on cost.

The shares have shot up by c. 14.6% vs last close and are trading at €35.30,


c. 2.5% above the offer price.
Volume negotiated on 11 January is close to €40 mn.

The market is thinking of either a sweetened bid or that the company is now in play (again) and there could be another bidder.

I believe that the Board of CA Immo will press for a better offer, considering that the current offer from Starwood is below where the shares were trading in February (€41.85).
The 30% stake held by Starwood represents a barrier to any other bidder, plus there will be no minimum acceptance condition.

Considering the resilience of the German prime office sector, and the pipeline of CA Immo, an improved offer representing a 10% premium to current EPRA NNNAV could be justified, or €38.34 per share, 11% premium to the current bid, and c. 4% 21e FFO yield (Capital IQ).

On this basis, recommendation is LONG CA Immo, TP €38.34.
The downside is that Starwood does not improve its bid, but the share price should be supported by  FFO yield, in the absence of a worsening pandemic scenario.


CA Immobilien Anlagen AG

CA Immo - Starwood: Mandatory Offer