Custodian REIT (CREI) is in discussion over a possible securities exchange offer for the entire issued share capital of Drum Income Plus REIT (DRIP).
The possible offer is at a ratio of 0.535 CREI ordinary shares for each DRIP ordinary share, giving an implied value for the entire issued and to be issued share capital of DRIP of around £21.6m (based on a closing price of 105.80 pence per CREI share on 3 August 2021).
This represents a premium of around 8.8% to the closing price of 52.00 pence per DRIP share on 3 August 2021; and a 11.2% to the volume weighted average price for DRIP shares of 50.85 pence over the 12 month period ended on and including 3 August 2021.
The Board of DRIP has said that the possible offer is at a value that it would be minded to recommend, and has provided CREI with access to due diligence materials.
DRIP’s largest shareholder, Seven Investment Management (which owns 68.76% of the shares) will support the offer, should a formal offer be made.
CREI said that if the deal was to go through, DRIP shareholders would benefit from gaining exposure to a larger portfolio with more diversity by sector and geography with a property strategy consistent with that of DRIP, and a holding in a significantly larger company offering accessible liquidity and lower ongoing charges as a percentage of net asset value. Whilst current CREI shareholders would benefit from exposure to DRIP’s portfolio with low purchaser’s costs.
CREI is required to announce a firm intention to make an offer for the company by 1 September 2021.
Both companies have similar investment strategies, targeting properties in different commercial sectors with a small lot size that have value-add asset management potential. CREI’s portfolio is worth £575.4m (30 June 2021) and is 51% weighted to industrial assets by value. DRIP’s portfolio, meanwhile, is made up of mainly offices and is worth £48.825m (at 31 March 2021).
[QD view: The possible deal seems to make sense from both party’s point of view. DRIP has suffered from a lack of liquidity in its shares (with its largest shareholder owning almost 70% of shares), which has hampered its ability to grow. Its NAV (at 31 March 2021) was £26.3m and given the issues the company has been having during the pandemic with falling values, the price of £21.6m seems fair. DRIP shareholders will benefit from CREI’s larger portfolio that has been performing well in recent months (its portfolio increased in value by 3.4% in the quarter to June 2021 – helped by its focus on industrial assets).]
CREI : Custodian REIT in talks to buy Drum Income Plus REIT