The Cromwell Property Group Ltd (ASX: CMW) share price has opened flat this morning as the company announced that its offer to acquire RDI REIT P.L.C. was rejected by the RDI board.
What did Cromwell announce this morning?
Cromwell announced that in relation to a possible offer for the entire issued and to be issued ordinary share capital of RDI by Cromwell, following a period of due diligence, it submitted a conditional proposal subject to RDI Board and regulatory approvals.
The RDI Board considered the proposal to undervalue RDI and its prospects, and, as a result, the RDI Board has taken the decision not to support a further period of due diligence for Cromwell.
Cromwell confirmed that it no longer intends to make an offer for RDI.
Management said that it remains focused on its "Invest to Manage" strategy and will continue to leverage its ability to originate value enhancing opportunities across its businesses in Australia, Singapore and Europe.
The company has identified several accretive value-add developments across the existing Australian balance sheet portfolio and is actively pursuing other opportunities across its funds platform in both Australia and Europe.
Over half of Cromwell's $11.5 billion in assets under management (AUM) as at calendar year-end are concentrated in Europe and the company is continually looking to expand its UK and European footprint with capital partner support.
Are Cromwell shares in the buy zone?
The Australian real estate investment trust (A-REIT) has seen its unit price climb 13% so far this year despite potential headwinds continuing to build for the commercial real estate (CRE) sector.
I personally think Cromwell is well-positioned to deal with potential capital declines for the A-REIT sector given its significant exposure to offices which generally have robust, non-cyclical earnings.
However, the property group also has a sizeable chunk of its portfolio invested in hotels which is one area the most sensitive to changes in economic conditions as consumers decide to spend less on travel and tighten the belt.
On balance, the 7.25% annual dividend yield for investors is hard to look past in terms of value and the unfranked nature of REIT distributions could be particularly valuable should Labor introduce sweeping franking credit reforms.
For those who want to look elsewhere for growth, this top-rated stock could boost portfolio gains as it continues to soar in a $22 billion industry.
