SCA Property Group has Moelis & Co in its corner as it weighs options for Charter Hall Retail REIT (CQR).
SCA revealed that it owned a 4.9 per cent stake in its listed rival on Friday morning, which it had bought on market over the past five weeks for an average price of $4.19 a security.
While SCA chief executive Anthony Mellowes said the stake was about redeploying capital from the recent New Zealand portfolio sale, analysts and fund managers were quick to question whether there is more to it.
Putting the two together would create a listed shopping centre owner with $4 billion in assets and more than $400 million annual rental income.
SCA trades at a much tighter earnings yield and has a much lower cost of capital than CQR, which means SCA should be able to make the numbers stack up.
And as is often the case in real estate M&A; deals, SCA's interest would likely be about management rights.
CQR is externally managed by Charter Hall Group. It means SCA could CQR and internalise the management rights, extracting significant synergies from the combination and make the transaction extremely accretive for both company's sets of unitholders.
While the pendulum often swings between internal vs external management models, internalised management teams seem to be in favour with institutional investors and analysts who argue that the fee structures of externally managed REITs is often too high and restricts growth.
SCA has been a steady performer since it was spun-out of Woolworths four years ago.
The stock has delivered total unit holder return of about 26 per cent a year, while CQR is tracking at about 16 per cent a year over the same timeframe.
SCA's move comes soon after CQR's shareholder register was blown open by The Gandel Group, which sold its 5.6 per cent stake in the REIT. CQR's other substantial holders include parent Charter Hall Group, with about a 15 per cent stake, and institutions including BlackRock Group, Legg Mason Asset Management and Vanguard.
