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Tritax Big Box REIT in merger talks with UK Commercial Property REIT

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A possible £3.9bn merger of Tritax Big Box REIT (BBOX) and UK Commercial Property REIT (UKCM) was announced this morning – although UKCM’s chairman has yet to support the deal.

BBOX announced that both boards, excluding UKCM chairman Peter Pereira Gray, had “reached agreement on the key terms of a possible all-share offer” for the entire issued and to be issued share capital of UKCM at an exchange ratio of 0.444 new ordinary Tritax Big Box shares per UKCM share (which is based on their respective NAVs).

In a separate announcement from UKCM, Peter Pereira Gray said: “The board of UKCM notes the recent media speculation and confirms that it is in receipt of an indicative proposal from Tritax Big Box REIT in relation to a possible all-share offer for the company on an EPRA NTA for EPRA NTA basis at a common valuation date. The indicative proposal is the latest of a series of indicative proposals received from BBOX.”

The BBOX announcement states: “The announcement of the possible offer follows a series of proposals from BBOX to UKCM and a period of negotiation. Following careful consideration of the possible offer, the board of UKCM, having received advice from Rothschild & Co as to the financial terms of the possible offer, has confirmed to BBOX that, should a firm offer be made on the financial terms of the possible offer, the board of UKCM, excluding Peter Pereira Gray, is minded to recommend it to UKCM shareholders, subject to the agreement of other terms and conditions customary for an offer of this nature and completion of satisfactory due diligence.”

BBOX says that it has the support of UKCM’s two largest shareholders – Phoenix Life and Investec – who combined own 56.5% of the company. Therefore, a deal is likely to proceed.

Based on BBOX’s share price of 160.2p at 9 February 2024, the possible offer implies a value of 71.1p per UKCM share and around £924m for the entire issued share capital of UKCM. This represents a premium of 10.8% to UKCM’s closing share price of 64.2p on 9 February 2024 and a premium of 23.0% to its six-month volume weighted average share price of 57.8p.

This is a discount of 9.7% to UKCM’s NAV of 78.7p at 31 December 2023.

Strategic rationale

UKCM has a diversified portfolio with a large weighting to the industrial and logistics sector. BBOX says that it would sell off UKCM’s non-logistics assets to provide capital for its substantial development pipeline.

The company said the deal would:

  • bring together complementary logistics-oriented investment portfolios with a shared focus on resilient and growing income;
  • enhance the overall customer offering through a high-quality logistics portfolio across a broader range of property sizes and tenant uses, from “Mega-Boxes” to smaller, strategically located, logistics assets within key urban locations;
  • provide additional scope for asset management and capital recycling to enable the Combined Group’s specialist management team to capitalise further on new and existing investment and development opportunities, including from within BBOX’s extensive development portfolio which includes the UK’s largest logistics-focused land platform capable of delivering new, best in class logistics assets at a 6-8% yield on cost target;
  • establish a £6.3bn portfolio focused on high-quality UK logistics assets generating over £290m of rental income per annum with significant embedded and growing rental reversion potential;
  • target sustainable earnings and dividend progression with expected cost savings from aggregate management fees arising from the unification of management under BBOX’s manager, Tritax Management LLP, and additional cost savings from administrative and other operational expenses;
  • preserve a strong and conservatively leveraged balance sheet with a pro-forma loan to value ratio of 29%, significant available liquidity and no near-term debt maturities; and
  • form the fourth largest UK REIT based on market capitalisation, with a combined market capitalisation of £3.9bn, offering improved liquidity for all shareholders and expected associated cost of capital benefits.

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