The board of abrdn Property Income Trust (API) has said it would not recommend the Urban Logistics REIT (SHED) proposed bid or new proposal (see details below) for the company on the current terms, reaffirming its recommendation of the Custodian Property Income REIT (CREI) bid.
SHED has until the close of play on Friday (15 March) to make its intentions known regarding a firm offer.
API’s board said that it “continues to believe that there is a compelling strategic and financial rationale for the CREI merger, notwithstanding the volatility in the CREI share price during the offer period”.
It added that a managed wind-down of the company would be likely if the merger with CREI did not progress due to a lack of shareholder support. It said: “The API board has decided that, while it continues to view a managed wind-down as a less attractive option for API shareholders than the CREI merger, it intends to pursue such an option in the event that the CREI merger is not approved by the requisite majorities of API and CREI shareholders.”
A meeting of API shareholders has been pushed back a week to 27 March 2024, to give shareholders time to assess its options.
James Clifton-Brown, chairman of API, said: “The API Board has reviewed in detail the options available to API in the interests of all shareholders, including the competing merger proposals from CREI and Urban Logistics as well as a potential managed wind-down.
“Having completed its comprehensive assessment, the API Board continues to believe that the CREI Merger represents a strategically consistent and significant enhancement to the status quo for API Shareholders. The CREI Merger offers continued exposure to a diversified, income-focused strategy as well as the growth prospects of the enlarged portfolio. Furthermore, the CREI Merger represents a premium to API’s undisturbed share price and brings an increase in dividends, full dividend cover and enhanced scale and liquidity for API shareholders.
“Accordingly, the API Board unanimously reaffirms its recommendation that API Shareholders vote in favour of the CREI Merger at the shareholder meetings which will now be held on 27 March.”
SHED’s new proposal
API’s board said that it had received a further indicative, conceptual proposal from SHED that involved a break-up of API, which would see its industrial and retail warehouses portfolios be acquired by SHED on a share-for-share basis based on the original exchange ratio and the remaining properties remain within API, with the intention that API dispose of the properties and return capital to shareholders.
The board said that it “recognises the potential merits for API shareholders of a share-based transaction with Urban Logistics” but has also taken account of a “number of drawbacks”.
It added: “The SHED possible offer would result in a reduction in earnings and dividends for API shareholders (compared to both API standalone and especially the CREI merger), with dividends also being less regular and with lower earnings cover compared to the CREI merger. While the potential earnings and dividend impact stems primarily from the lower rental yield of Urban Logistics’ portfolio, it also reflects a degree of refinancing risk.
“Furthermore, the SHED possible offer currently represents a discount to implied value of the CREI merger. More generally, the API board believes that a share-based transaction with Urban Logistics would constitute a deviation for API shareholders away from the diversified, income-focused strategy in which they have chosen to invest, to a specialised, more total return-oriented strategy.
“The API board recognises that the SHED alternative proposal represents a means of potentially returning cash directly to API shareholders. However, the API board is concerned that the alternative proposal involves Urban Logistics bilaterally acquiring for shares the most sought-after and liquid of API’s assets at an exchange ratio originally based on a merger of the entire portfolios of API and Urban Logistics. As a consequence, the API board believes that API shareholders would lose out on value in respect of the first portfolio while remaining fully exposed to the more significant risks associated with the second portfolio as a smaller and less liquid company. The alternative proposal would also be subject to greater execution risk and complexity, thereby prolonging the period of uncertainty for API shareholders.
“In light of these considerations, the API board has rejected both of Urban Logistics’ proposals and would not recommend either proposal to API shareholders, if a firm offer were made to API shareholders on those terms on or prior to the deadline set by the panel.”