Urban Logistics REIT (SHED) has approached the board of abrdn Property Income Trust (API) regarding an indicative share-for-share offer for the company.
The indicative offer exchange ratio is 0.469 SHED shares for each API share (and was reached on the basis that both companies will pay existing shareholders dividends due for the final quarter of 2023).
The offer values API’s shares at 59.2p (based on SHED’s share price of 128.6p on 19 February 2024 – adjusted downwards for its special dividend). This compares to the current value of the Custodian Property Income REIT offer which stands at around 52.4p per API share based on the Custodian share price of 67.2p on 19 February 2024, and represents a premium of around 13% to the Custodian offer.
At the announcement of Custodian’s offer for API, the deal valued API shares at 62.1p. A subsequent drop in the value of its share price has seen the value of the deal fall.
SHED’s offer price is a 23% premium to the API share price of 48.0p as at close on 18 January 2024 (the day prior to the announcement of the Custodian offer), but also a 28% discount to API’s most recent reported NAV of 82.2p (for 30 September 2023).
SHED said that it believes that there are compelling reasons for a combination of the companies and further believes that the offer represents a superior proposal for API shareholders as well as an attractive strategic acquisition for the company.
The company has written to API requesting the postponement of API’s forthcoming shareholder vote in respect of the proposed Custodian transaction to allow for SHED and API to complete their respective due diligence and to give the opportunity for a firm SHED proposal to be put to both sets of shareholders.
Rationale for bid
SHED’s board said that it believes that a potential combination between the two companies would be attractive to both sets of shareholders, “affording them exposure to a specialist last mile / urban logistics listed company of scale benefitting from substantial opportunities for rental growth and targeting secure, sustainable, high quality earnings growth”.
A combination of the two businesses would create a FTSE 250 constituent with a combined pro-forma market capitalisation of around £830m.
The combined group would focus on the last-mile / last-touch mid-box area of UK logistics which the SHED board believes exhibits strong growth prospects. An API-Custodian combination would keep a ‘generalist’, diversified property strategy across a number of segments of UK real estate.
API’s portfolio is worth around £315m, mainly focused on industrial and retail warehouses. SHED said that the portfolio’s assets are of good quality and “would have bid on all or any one of them had they come up for sale privately”.
Around 9% of the combined portfolio will be outside logistics and retail warehouses. The company said that it has a value optimisation plan for all of the assets falling outside Logistics and Retail Warehouses and a management team with the experience to execute on those plans.
The company added: “The macro backdrop for logistics real estate in the UK is positive including a favourable demand versus supply dynamic and continued rental growth well ahead of other real estate sectors. These factors are structurally driven as long-term investment into logistics infrastructure continues. [The company] sees last mile / last touch assets as a particularly strong area within UK logistics. The company benefits from a portfolio which it considers to be a good balance of longer, secure income and shorter-term asset management opportunities.”