- Combined group's portfolio would be 44 per cent warehouses
- 'We've heard the call for consolidation' says Custodian CEO
Custodian Reit (CREI) will snap up Abrdn Property Income Trust (API) in an all-share takeover to create a real estate investment trust (Reit) with a £1bn portfolio, the boards of both property companies have agreed. This is the latest in a string of deals as the sector looks to cut down discounts.
"There have been calls for consolidation in the sector. We understand why, and we've heard those calls," Richard Shepherd-Cross, chief executive of Custodian, told Investors' Chronicle, adding that "where there has been consolidation, it has broadly been met with positive news".
The £237mn deal values API at 62.1p per share, a 29.4 per cent premium to its share price before the deal announcement but at a 24.5 per cent discount to its net asset value (NAV). The enlarged group would own over 200 assets around the UK (44 per cent warehouses, 20 per cent offices, 18 per cent retail parks, and 18 per cent other assets) valued at around £5mn to £15mn each.
API investors will receive 0.78 new CREI shares for each API share they hold. Existing CREI shareholders will own around 60 per cent and API shareholders 40 per cent of the merged company. API and CREI's share prices surged and slumped in early trading to match the values implied by the deal.
UK commercial property values have sunk since interest rates started climbing at the end of 2022.
The discounts to NAV on offer have been the catalyst for several take-private acquisitions and Reit mergers since, with LondonMetric and LXi in the final stages of agreeing to form the UK's fourth largest Reit.
When asked if Custodian would look to acquire more assets considering the current discounts to NAV on offer and the stabilisation of interest rates, Shepherd-Cross said: "It's difficult to think beyond this deal at the moment. We're in the eye of the storm."
However, Shepherd-Cross said he wouldn't be surprised if there were more Reit mergers from other companies over the coming year, adding that many property boards are under pressure due to the continued market slump.
The deal will see management fees and administration expenses come down for the combined group, saving around £500,000 a year in expenses. Custodian Capital will remain investment manager, and Custodian will pay £350,000 as a "one-off project fee" for completing the merger.
