The merged entity would be externally managed by Tritax, with cost savings coming from the unification of management under Tritax Management.
Real estate investment trust Tritax Big Box (BBOX) has reached an agreement to take over UK Commercial Property REIT (UKCM) in an all-share offer, creating the UK’s fourth-largest REIT with a combined £3.9bn market capitalisation.
In a stock exchange notice today (12 February), the trusts said the net asset value for NAV all-share deal values UKCM at £924m, a 10.7% premium to the closing price last Friday (9 February).
As part of the deal, UKCM shareholders will receive 0.444 new ordinary BBOX shares for each UKCM share held. The possible offer, subject to shareholder approval, would result in UKCM shareholders holding approximately 23.3% of the combined entity.
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The merged entity would be externally managed by Tritax, with cost savings coming from the unification of management under Tritax Management.
Both the Tritax and UKCM boards said the offer has "compelling strategic and financial rationale", bringing together complementary logistics orientated portfolios worth a combined £6.3bn with an income focus.
The move follows on from collapsed merger talks between Picton Property Income and UKCM last November, after UKCM's largest shareholder, Phoenix Life, said it would not back the deal on the proposed terms.
Non-binding letters of intent have been received by the two largest shareholders, Phoenix and Investec W&I, who hold a combined 56.5% of UKCM's issued share capital.
Phoenix's letter of intent states that the firm plans, under the condition that BBOX makes a formal offer with terms at least as favourable as the exchange ratio, to commit to an irrevocable undertaking, or binding agreement between BBOX and Phoenix.
In a research note, Stifel analysts Denese Newton and John Cahill said that while the firm is "generally positive" on the strategy of REIT growth through mergers within the listed space, there will "nevertheless be some obstacles to overcome".
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Stifel noted 60% of UKCM's portfolio comprises 17 mainly urban industrial assets, while Tritax has "increasingly moved away" from its original core focus on big boxes, with much of the recent development focused on smaller assets with greater potential for rental growth.
"It may well be that 60% of the portfolio is logistics, but 40% comprises a diverse selection of other assets which would be non-core to Tritax. This will all have to be dealt with," the analysts said.
"Following the announcement of the LondonMetric and LXi merger, the bar has now been set high," they said.
"Bigger is no doubt better, but is particularly appealing with a 7%-8% cost ratio and complementary portfolios. BBOX will have to demonstrate the rationale for the deal, beyond simply size matters."
