Urban Logistics REIT’s board has agreed an internalisation proposal with the principals of Logistics Asset Management (LAM), its investment adviser, to be effected via the acquisition by the company of the management vehicle.

The initial consideration will be £6.8m to be paid in shares, with added payments that will vest over time depending on the share price performance.

If shareholders vote in favour of the proposal, Richard Moffitt will become chief executive and Justin Upton and Jamie Waldegrave will join the board of the company as chief investment officer and chief financial officer respectively.

This is the second REIT that has proposed an internalisation of the management this week, after Supermarket Income REIT announced similar plans.

Benefits of the proposed internalisation

• Reduction in the ongoing annual operating costs of the company by an estimated c. £1.4m per annum;
• Enhancement in EPRA earnings;
• Continue benefit from the investment adviser’s strong track record and expertise in the logistics sub-sector;
• A transfer its listing to the “equity shares (commercial company)” listing category, that will potentially open the company up to a wider pool of investors;
• Strengthen the alignment of interests between the company’s management and its shareholders, with part of payment being linked to the company’s share price performance.

[QD comment: As with the Supermarket Income REIT announcement earlier this week, internalising the management arrangement seems to be an avenue to free themselves from the unfair nature of cost disclosure imposed on investment trusts, where their costs look artificially high which in turn precludes a number of investors from buying their shares. It would appear that a number of other REITs may explore similar actions if the cost disclosure rules are not dealt with adequately.]

Payment details

• Initial consideration of £6.8m payable on completion of the proposed internalisation to be satisfied in shares in Urban Logistics;
• Contingent consideration of up to £5.6m, which vests depending on the average closing share price of Urban Logistics over the three months prior to the first anniversary of completion:
  • Contingent consideration shall vest 20% at an anniversary share price of 130 pence;
  • Contingent consideration vesting shall rise on a straight-line basis from 20% at an anniversary share price of 130 pence to 100% at an anniversary share price of 158 pence;
  • If the anniversary share price is less than 130 pence, the contingent consideration shall be £nil;
• In each case, the number of Urban Logistics shares to be issued as part of the initial consideration and the contingent consideration shall be based on an issue price of 114.3 pence share;
• All shares to be issued shall be subject to a two-year minimum hold period from the date of their issuance.

Shareholder consultation and further information

The board said: “The directors believe that the terms of the proposed internalisation would create a strong alignment of interests between the company and its management team, secure the medium to longer term future of the company.”

As part of this process a specialist, independent remuneration advisor was engaged by the board to carry out an independent remuneration benchmarking review to appraise the proposed remuneration packages of the key individuals in LAM who would take up executive positions in the company.

A circular setting out the full details of the proposed internalisation, along with a notice convening a General Meeting, is expected to be published in due course. If approved, the proposed internalisation is expected to become effective in the second calendar quarter of 2025.

Nigel Rich, chair of Urban Logistics, commented:

“The board strongly believes that the company is exceptionally well positioned in what is a highly attractive segment of the UK real estate market. The proposed internalisation will strengthen the alignment of interests between the management and shareholders as we look to deliver on the strong potential returns available to the company in both the short and long term.”