The proposed and recommended merger of abrdn Property Income Trust (API) and Custodian Property Income REIT (CREI) is off after not receiving enough support from shareholders.
Just over 60% of votes cast were in favour of the merger, below the 75% threshold to sanction the deal.
The API board will now take steps to implement a managed wind-down subject to the approval of API shareholders at another general meeting. More information on this process will be set out in due course.
[QD comment: As we said last week, we did not believe the terms of the Custodian bid presented good enough value for API shareholders, even accounting for a potential discount in the price that can be achieved for the assets in a managed wind down. We believe the portfolio and the management team are strong and should be given the opportunity to carry on, but it seems that a wind down will now be the course taken (subject to shareholder approval). If, as appears to be the case, the investment market picks up over the next two years, we are confident that the manager can achieve good value on asset disposals.]
James Clifton-Brown, chairman of API, said:
“The API board independently elected to undertake a comprehensive review of API’s strategic options which resulted in a number of opportunities to deliver an uplift in value for API shareholders.
“While the CREI merger gained the support of 61% by value of API shareholders voting and approximately 79% by number, the former falls short of the 75% threshold required.
“In view of these results and the challenges that API would continue to experience as a standalone company, the API board will now take steps to implement a managed wind-down, subject to API shareholder approval, building upon the work already undertaken by the API board and the company’s investment manager and advisers, with the objective of delivering enhanced returns for API shareholders.”
Commenting on the outcome, David MacLellan, chairman of CREI, added:
“Having heeded clear calls from the market regarding the need for consolidation amongst the listed REITs, we worked with our investment manager and the API board of directors to negotiate what we believe to be a fair deal for all shareholders of both API and CREI. Our proposal was fully aligned with the existing investment strategies of both companies and structured on an NTA-to-NTA basis to ensure that the exchange ratio was based upon the latest respective underlying property valuations. Furthermore, it was unanimously recommended by the API board and allowed both API and CREI shareholders to benefit from the long-term benefits of being invested in a combined business which brought together two highly complementary portfolios, with a growing and fully covered dividend.
“We are therefore disappointed that despite the majority of votes cast being in favour of the transaction at the API meetings today, this was not enough to meet the 75% threshold required to approve the transaction. In fact, shareholders accounting for just 14% of API’s register proved sufficient to prevent the resolutions passing. These votes were, we understand, primarily from institutional investors who believe a ‘managed wind-down’ of API’s portfolio will better protect shareholder value, despite the API board clearly and publicly setting out the flaws in this conclusion. CREI wishes API and its shareholders every success in the future as API continues as an independent business.
“The CREI board believes it is important to note that it viewed the transaction as an augmentation of, rather than critical to, the strategy that CREI has pursued successfully over the 10 years since it launched in 2014. Instead of gaining a jump in scale via the recommended merger, CREI will maintain its strategy of incremental growth and, most importantly, continue to offer CREI shareholders an attractive dividend from a highly diversified portfolio, significant rental growth potential, low costs relative to its peers, as well as a strong balance sheet with a low cost of debt.
“We also maintain our conviction as to the merits of the company’s income-focused investment strategy with an emphasis on regional, below-institutional sized assets that are well-positioned to deliver rental growth. These types of assets provide a clear yield advantage over larger properties with similar tenant profiles and allow us to generate higher income returns and capital growth for CREI shareholders. In addition, the company remains committed to fully covered dividends which the CREI board will seek to increase on a sustainable basis going forward.”