Blackstone, the US alternative assets group that won the bid battle for Warehouse REIT (WHR) in August, has struck a deal to take an 8.7% stake in rival bidder Tritax Big Box (BBOX).
Confirming a Sky News report at the weekend, Tritax Big Box said it was buying a £1bn logistics portfolio from Blackstone in return for £632m cash and £375m new shares at 161p, which is 13.5% above the Friday closing price of 141.6p.
BBOX rose 2.4% or 3.4p to 145p in early trading, narrowing their 26% discount to net asset value.
Meanwhile, Big Yellow Group (BYG) shares jumped 19% after Blackstone also confirmed it was considering a cash offer for the £2.3bn UK self-storage group.
The £3.5bn Tritax Big Box REIT did not specify which UK properties it was buying but said the addition of 32 urban logistics and smaller “last mile” depots alongside nine big distribution centres would strengthen its position in key formats, including multi-let industrial estates, as well as in the South East and Midlands.
The 6.5m sq ft portfolio consists of 409 units that are 95% let with total annual rent of £53m on average unexpired leases of 5.9 years.
It said there was a significant opportunity to grow rents with an estimated £67m rental value that was 28% above current passing rent, offering a 6.4% net reversionary yield.
The acquisition would increase Tritax Big Box’s income by 17% from £311m to £364m and estimated rental value from £397m to £464m. It would also add around 5% to earnings per share in the first year and be “meaningfully accretive” in the following years to support sustainable dividend growth.
The transaction also broadens the company’s tenant base with only 28% of the portfolio rented by Tritax Big Box’s existing clients.
BBOX chief executive Colin Godfrey said it was an “exceptional portfolio” that delivered immediate financial benefits.
Welcoming Blackstone as a new shareholder, he said “their investment at a material share price premium demonstrates confidence in our team, our leading position in UK logistics, the strong attributes of the transaction and positive outlook for both our business and the market.”
James Seppala, chair of Blackstone Europe, said: “This transaction reflects our conviction in BBOX and its market-leading positions, as well as our continued conviction in the UK logistics sector.”
The deal is dependent on Tritax Big Box agreeing a £650m loan facility with Santander bank with interest at 0.8% over Sonia for an initial term of 12 months that can be extended by 18 months.
Blackstone will provide a £20m rental reversion “bridge” to cover the gap between current rent and future estimated rental value. This payment combined with actual rent should deliver an extra £66m-£68m of earnings over the next three financial years.
Our view
Richard Williams, property analyst at QuotedData, said: “Having missed out on Warehouse REIT, this appears on many metrics a better deal for Tritax Big Box. The shares are being issued at a discount to net asset value of around 16.3%, which looks high but can be justified by earnings accretion – mid-single digits in the first year helped by the reversion bridge and meaningful future earnings growth thereafter with a potential rental reversion of 28%, most of which is set to be captured by 2028. The deal also cements BBOX as one of the largest logistics landlords in the UK and further increases its exposure to the smaller end of the logistics sector, spreading risk and returns away from large, single-let warehouses.”
