abrdn Property Income sells duo of assets at book value – casting doubt on merger

abrdn Property Income Trust (API) has sold two assets for a combined £16.55m, reflecting a very slight discount of 0.3% to their 31 December 2023 valuations.

The sales cast doubt on the merits of Custodian Property Income REIT’s (CREI’s) merger proposal, which as it stands values API at a 28.2% discount to NAV.

API’s board said last week that it still recommends the CREI merger, adding that the alternative would likely be a managed wind-down of the fund – and this week dismissed Urban Logistics REIT’s proposals.

CREI shareholders, yesterday, voted in favour of a resolution to allow directors to allot shares in the company in connection with the merger – although just 34% of the issued share capital voted.

[QD comment: We are not sure why API shareholders would vote for a merger with CREI at this current price when these sales prove that a managed wind-down would be of far greater value – even before the positive impact of any potential drop in interest rates later this year and into 2025. API shareholders will get the chance to vote on the CREI merger next Wednesday (27 March). Today’s news makes it hard to get behind a case for voting for it, in our view. 

In January, the boards of CREI and API set out the terms of a recommended merger that would see API shareholders receive 0.78 new CREI shares. At the time, this valued API at £237m and 62.1p per share – an already chunky 20.8% discount to its 31 December 2023 NAV of 78.4p, albeit also a sizable premium to its share price. However, CREI’s share price dropped following the announcement (from 79.6p to 72.2p at last night’s market close), which now values API shares at 56.3p – a very substantial 28.2% discount to NAV. These latest sales expose the ridiculous discount that API was trading on before this, but also the lowball offer from CREI.

We have been long time admirers of API and its manager Jason Baggaley and believe it would be a shame for it to wind-down, but it appears that this is the best course versus a merger with CREI. As things stand, a managed wind down that delivered NAV less 0.3% would put almost 38% more in investors’ pockets than the CREI bid. We believe it would take around two years to sell its portfolio – hopefully into an improving investment market.]

Sales details

API has exchanged contracts on the sale of the multi-let office building 15 Basinghall Street in London for £9.8m (with completion expected on 22 March). The 17,500 sq ft building has a low WAULT of 1.5 years.

The agreed sales price reflects a net initial yield of 8.25% and a 7.1% discount to the September 2023 valuation.

The company has also completed the sale of Opus 9, a 53,100 sq ft industrial asset in Warrington. The sales price of £6.75m reflected a net initial yield of 5.9% and was a 5.5% premium to the September 2023 valuation.

Mark Blyth, deputy fund manager of API, commented: “These two sales continue the disposal strategy that was implemented at the end of last year, and follows the sale in December of the industrial asset in Livingston. They demonstrate the continued appeal of the API assets to investors at prices close to NAV.”