Green Reit’s shares fell on Thursday amid fears over the property group’s planned €1.34 billion sale as, its UK suitor faces an unforeseen tax bill, estimated at up to €65 million, following measures introduced by in Budget 2020 this week.
The Dublin-listed company’s shares fell by as much as 2.5 per cent to €1.856 amid the highest level of trading activity since the takeover deal was first announced in mid-August.
However, sources familiar with the deal said that Henderson Park is locked in, as key deal conditions have been met, including competition authority approval and a nod from Green Reit shareholders, which was secured at an extraordinary general meeting on Monday, the eve of the budget. The sale is scheduled to be completed in November.
Shares
Henderson Park reached an accord on August 14th to buy Green Reit shares at €1.9135 a piece. It marked a 25 per cent increase on the stock’s closing price in mid-April, just before the Irish company put itself up for sale, claiming the market had persistently failed to appreciate its proper value.
Stock traders said that activity in the market on Thursday was driven by hedge funds that specialise in trading shares in companies involved in takeover situations. These merger arbitrage funds are pricing in an outside risk of the deal falling through, they said.
The level of Green Reit shares traded equated to more than 7 per cent of its entire stock count and represented about 10 times the average daily volume since the August announcement. The shares ended Thursday’s session down 1.2 per cent at €1.88.
Spokesmen for Green Reit and Henderson Park declined to comment.
Henderson Park faces an immediate €13.4 million stamp duty bill after the Green Reit deal goes through, after the Minister targeted the structure of the takeover deal – a so-called scheme of arrangement involving the cancellation of existing shares and issue of fresh stock by the seller – which previously got around a 1 per cent levy that applied to share transactions.
Tax
Market sources estimate that the UK firm will also likely be hit by a capital gains tax (CGT) charge of more than €50 million as a result of an additional crackdown on Reits that exit the market within 15 years of floating. Green Reit was the first such trust to list on the Dublin market within months of enabling legislation being passed in 2013 to encourage investors into long-term focused property investment vehicles.
While Reits are normally exempt from CGT on value increases of property within their portfolios, that relief evaporates if they are bought and cease to be a trust within 15 years of being established, according to new rules introduced within 12 hours of Budget 2020 being unveiled.
Documents relating to the planned Green Reit takeover do not disclose termination fees that would apply if Henderson Park walks away from the deal. However, such fees typically amount to about 1 per cent of the size of the transaction – the same level as the new stamp duty that the UK firm now faces.
Meanwhile, the budget also cracked down – without warning – on other vehicles used by overseas investment firms and high-net-worth individuals to hold property bought in Ireland following the crash.
“Ireland’s a less friendly place for property investors to put their money than it was,” said one market source, who declined to be named.
