Kennedy Wilson Europe investors see profit build quickly

Cantillon: London-listed property company to be absorbed into parent in all-share deal

Investors who snapped up Kennedy Wilson Europe (KWE) shares when the London-listed property company was tipped last month as a takeover candidate stand to make a tidy profit.

The company's parent, US-based Kennedy Wilson, which floated the business in 2014 and retained a minority stake, announced on Monday that it plans to reabsorb KWE – which has almost a third of its assets in Ireland – in an all-share deal valuing it at £11.74. It marks a 20 per cent premium to KWE's close on Friday and is 23 per cent above where the stock was changing hands seven weeks ago as Merrion Capital said it was ripe for a takeover.

A dull share performance by Irish real-estate investment trusts (Reits) on Monday suggests there are no similar trades on this side of the Irish Sea. It stands to reason.


KWE shares were trading at a 20 per cent discount to their net asset value (NAV) before the announcement, weighed down Brexit-related fears over the UK commercial property, where 56 per cent of its assets are based. KWE wrote down the value of its UK portfolio last year even as Irish assets, including Stillorgan Shopping Centre, Portmarnock Hotel and Golf Links and numerous office and apartment blocks in Dublin, appreciated.


Meanwhile, Green Reit, Ireland’s first reit to float, in 2013, is trading at just a 10 per cent discount to its 2016 NAV. Hibernia Reit’s discount is 4 per cent, while Irish Residential Properties Reit, the country’s largest private owner of apartments, commands a 13 per cent premium.

For Goodbody Stockbrokers analyst Colm Lauder, it's only right Irish reits are trading better than their UK peers. "Unlike the UK, capital values and rents are still rising in the Irish market, and with developments completing (like Hibernia Reits's Windmill Lane and Green Reit's One Molesworth Street), there is a degree of certainty for NAV growth from these projects for both office reits," he said.

But for takeover targets, it’s best to look to London, according to Lauder, where many smaller UK reits are trading at deep discounts to NAV and may prove attractive to “larger investment houses, particularly sovereign wealth funds”.