LondonMetric and CT Property Trust (CTPT) have reached agreement on the terms of a recommended all-share offer that will see LondonMetric acquire the entire share capital of CTPT.
Under the terms of the acquisition, CTPT shareholders will receive 0.455 new LondonMetric shares per share. On the basis of the closing price of LondonMetric of 188.0 pence last night (23 May 2023), the acquisition values each CTPT share at 85.5 pence and the company at £198.6m.
This represents a premium of 34.3% to the closing price of CTPT of 63.7 pence on 23 May and a premium of 33.2% to the three-month volume weighted average.
On a NTA-for-NTA basis, the acquisition price is a discount of 6.3% to CTPT’s last reported EPRA NTA per CTPT share of 96.6 pence as at 31 March 2023 based on LondonMetric’s last reported EPRA NTA per LondonMetric share of 198.9 pence as at 31 March 2023.
The boards of both CTPT and LondonMetric believe that the acquisition will have compelling strategic and financial rationale for shareholders in both LondonMetric and CTPT. In particular:
- both companies have complementary and high quality property portfolios with a similar focus on income and income growth;
- the acquisition will create a larger and more resilient combined group with gross property assets (including shares in joint ventures) of approximately £3.3bn, comprising 71.5% distribution and industrial assets, resulting in a combined property portfolio of 313 properties with greater income diversification and total contracted rental income of £163.4m per annum;
- by combining the two complementary property portfolios, LondonMetric anticipates that it will be able to unlock operational synergies and accelerate identified asset management opportunities; and
- the acquisition is expected to be earnings accretive for the combined group through economies of scale and cost efficiencies with rental reversion and portfolio initiatives expected to deliver further benefits which are expected to lead to dividend progression over the medium term.
Information on CTPT (formerly BMO Real Estate Investments – BREI)
As at 31 March 2023, CTPT’s property portfolio comprised 34 properties valued at £288.3m, 56.0% of which comprised industrials, logistics and distribution assets, 21.9% retail warehousing, 15.7% offices and 6.4% high street retail assets. CTPT also had £30.8m of cash available as at 31 March 2023.
It has generated an NTA total return of 99.4% over 10 years (LondonMetric has delivered a total accounting return of 156.0% over 10 years).
However, despite the performance of the underlying portfolio, CTPT, along with other diversified UK-REITs, faces a number of headwinds. CTPT is seen as being sub-scale and not sufficiently differentiated to attract new long-term investors and therefore has traded at a double digit discount to NTA for a number of years now.
CTPT shares have traded at an average discount to NTA of 25.3% in the last five years and were trading at a 34.1% discount to NTA on 23 May (LondonMetric, in comparison, has traded on an average premium of 11.7% over five years and was trading at a 5.5% discount on 23 May).
The board of CTPT says that it is unlikely in the short to medium term to overcome the challenges it faces as an independent UK REIT.
The CTPT directors have therefore concluded that the acquisition will address the issues of CTPT’s scale and liquidity whilst offering CTPT shareholders continued exposure to a complementary and high quality property portfolio via a large UK REIT that has a strong record of paying growing and covered dividends.
As such the CTPT directors intend to recommend unanimously the acquisition to CTPT shareholders.
The board goes on to say that CTPT shareholders will benefit from LondonMetric’s enhanced scale, enjoying better and cheaper access to financing, an internal management structure with strong alignment to the performance of the combined group resulting from significant executive share ownership, an efficient cost structure with a low EPRA cost ratio and significantly improved liquidity in the trading of its shares.
Recommendation
CTPT directors intend to recommend unanimously that CTPT shareholders vote in favour of the acquisition and will do so in respect of their own beneficial holdings totalling in aggregate 211,689 CTPT shares, representing 0.1% of the issued share capital.
CTPT shareholders TR Property Investment Trust plc and Ravenscroft Limited (which together own 26,284,331 shares representing 11.3% of the company) have also given the acquisition their support.
Commenting on the acquisition, Davina Walter, chairman of CTPT, said:
“Our Company’s investment strategy has delivered strong portfolio returns for shareholders since the merger of IRP Property Investments Limited and ISIS Property Trust Limited in April 2013. Our manager, Columbia Threadneedle, has built an attractive UK commercial property portfolio and pivoted the balance of the portfolio in recent years to a high industrials weighting, reflecting our conviction in the ongoing strong occupier demand in the sector.
“LondonMetric also has a portfolio with a high exposure to the industrials sector and a proven track record in delivering returns from this asset class. The portfolio fit is compelling.
“Despite the progress made in pivoting the portfolio, excellent long term portfolio performance and regular dividend payments, CTPT has traded at a double digit discount to NAV for a number of years. We believe this is reflective of our small size and external market conditions.
“This Acquisition by LondonMetric allows our shareholders to benefit from being exposed to an enlarged UK-REIT with an approximately £3 billion property portfolio, continuously growing dividends and an outstanding track record of shareholder value creation. The Acquisition also represents a compelling premium to the CTPT Share Price. We therefore recommend the Acquisition to shareholders.”
Comments
Patrick Vaughan, chairman of LondonMetric, said: “We believe the Acquisition is compelling for both CTPT and LondonMetric Shareholders. The CTPT management team has assembled a high quality platform of complementary assets, diversified by tenant base and geography and with significant reversionary potential.
“The Acquisition grows the Combined Group’s exposure to the winning sectors of urban logistics and long income, underpinned by evolving consumer demand and delivering strong rental growth.
“In the current interest rate environment, we believe resilient cash flows, scale and liquidity will be the defining characteristics that differentiate the winners and the losers. The income and income growth characteristics of the CTPT portfolio, combined with select asset management opportunities, should enhance our total return focus, whilst enabling us to drive earnings optimisation and maintain our progressive dividend policy.”
LMP : CTPT : LondonMetric to buy CT Property Trust