UK Commercial Property REIT (UKCM) has announced that it is in discussions with Picton Property Income (PCTN) in relation to a possible all-share merger.
PCTN’s board has made the proposal to UKCM, with the merger discussions centring on an EPRA net tangible asset (NTA) for EPRA NTA basis. PCTN said the possible combined company would be internally managed.
UKCM’s unaudited NAV at 30 September 2023 was 80.7p per share and its share price was trading at a 31% discount yesterday (7 November 2023).
PCTN is due to release its NAV for 30 September next week in half year results. On 30 June 2023 its NAV/EPRA NTA per share was 99.4p. It was trading at a 33% discount to this NAV yesterday.
UKCM is the larger of the two companies with net assets of £1.05bn (at 30 September) and a portfolio value of £1.27bn. PCTN has net assets of £541.9m (at 30 June) and a portfolio value of £744.1m.
A merger would create a company with net assets of around £1.6bn and a portfolio worth around £2bn.
Both companies have low leverage with UKCM’s gearing of 16.7% and PCTN’s LTV at 27.1%.
Both companies have diversified portfolios of UK property, with a weighting towards the industrial sector. UKCM’s portfolio is weighted 58.8% to industrial, with 14.2% in retail and 12.2% in office and 14.8% in alternatives (hotel, student accommodation and leisure).
PCTN’s portfolio has a 58.0% weighting to industrial, but has a larger exposure to offices at 31.2%. Retail and leisure makes up 10.8% of the portfolio.
UKCM has said that there can be no certainty either that an offer will be made nor as to the terms of any such offer and will make a further announcement in due course.
Wide discounts has been a common theme in the property sector, with the impact of high interest rates on valuations weighing on investor sentiment.
The Bank of England’s decision to hold interests rates for a second consecutive month last week boosted the narrative that interest rates may have peaked, which would give confidence that valuations will stabilise.
The wide discounts that most property companies trade on has resulted in heightened merger and acquisition (M&A) activity in recent months. LondonMetric completed its merger with CT Property Trust last month, while Ediston Property Investment Company’s portfolio was acquired by US REIT Income Realty.
[QD comment: Both UKCM and PCTN have strong reputations as very well run property companies, with strong management teams that have built up resilient portfolios focused on income generation and income growth. The complementary portfolios make this potential deal very interesting and the creation of a large REIT (with £1.6bn net assets) is just what the sector needs. We will keep a close eye on any developments in the talks.]
UKCM : PCTN : UK Commercial Property REIT in merger discussions with Picton Property