Custodian Property Income REIT (LSE: CREI) has completed the £22.1m all-share acquisition of Merlin Properties Limited, a private family-owned property company. The transaction brings with it a £19.4m portfolio of 28 small regional UK assets and a further £2.7m in new-build housing stock, expected to be sold in the coming months.
The acquisition, which adds 22.9m new shares to Custodian’s issued capital, is accretive from day one, delivering earnings enhancement and lowering both the group’s loan-to-value ratio and ongoing charges. A further c.1.7m shares are expected to be issued as deferred consideration following completion accounts.
The acquired investment portfolio – 99% let and yielding around 8.1% – is heavily weighted to industrial assets (46% by income), with the remainder in well-located offices and a mix of high street and out-of-town retail. The average lot size is £0.7m, consistent with Custodian’s existing strategy. No single tenant contributes more than 5% of the rental income, and the top 15 occupiers make up 50% of the total.
The transaction structure, which involved acquiring the shares of Merlin Properties directly, avoids SDLT stamp duty land tax (SDLT) and Land and Buildings Transaction Tax (LBTT), saving an estimated £0.2m. The portfolio is ungeared, and post-disposal of the housing stock, Custodian’s pro-forma LTV is expected to fall from 27.1% to 25.8%.
The deal also bolsters the company’s shareholder base, with the sellers retaining a significant interest in Custodian. Rob Field, Merlin’s Property Manager, will join Custodian Capital to help manage the new assets.
The board believes the transaction provides a strong platform for further value creation and offers a scalable blueprint for future deals with similar privately held property vehicles.
[QD comment MR: This deal looks like a sensibly structured transaction by Custodian Property Income REIT that not only delivers immediate earnings accretion but also sidesteps property transaction taxes, preserving capital. The addition of a well-let, industrial-weighted portfolio that complements the existing assets should strengthen the company’s income profile while improving tenant and sector diversification. In the current environment, where public equity raises are challenging, this kind of opportunistic, tax-efficient growth – through all-share transactions – offers another opportunity for listed REITs to scale if they can find suitable assets for sale. The fact that the sellers are rolling over into shares suggests some confidence in the CREI and its strategy.]
