LONDON, UK: Custodian Property Income REIT plc (CREI) and abrdn Property Income Trust Limited (API) have agreed to merge in an all-share deal that values API at £237 million.

The merger will be implemented by a Court-approved scheme of arrangement, under which API shareholders will receive 0.78 new CREI shares for each API share they own.

The exchange ratio is based on the net tangible asset value of both companies as of 31 December 2023, with some adjustments for asset disposals, debt and derivatives, dividend cover and merger costs.

The combined group will have CREI shareholders owning 59.7% and API shareholders owning 40.3% of the enlarged company. The merger is expected to create a larger and more diversified property income trust with enhanced liquidity and scale.

CREI and API share an income-focused investment strategy with an emphasis on regional, below-institutional sized assets that are well-positioned to capture the rental growth and yield advantage available in order to generate higher income returns and capital growth for shareholders.

The CREI Board and the API Board believe that the Merger would bring together two complementary portfolios to create a differentiated REIT with enhanced diversification and share liquidity and a fully covered and sustainable dividend for the Combined Group’s shareholders.

Commenting on the merger, David MacLellan, Chairman of CREI said: “The Board is pleased to announce the merger of CREI and API which it firmly believes will benefit both our existing and new shareholders. This transaction creates a well-positioned REIT of significant scale, giving the Combined Group’s shareholders the opportunity to participate in the returns from the complementary API and CREI portfolios, with a fully covered and sustainable dividend and a focus on ESG.

In the current interest rate environment, security and resilience of cash flows, scale and liquidity, supported by a clear and compelling strategic direction are the defining characteristics of a successful REIT. The challenges the wider listed property sector has faced over the last 18 months highlight the merits of CREI’s differentiated approach and operational robustness, which contribute to CREI’s strong rating relative to its peers. The income and income growth characteristics of the API portfolio should enable the merged entity to optimise earnings and maintain CREI’s progressive dividend policy.

Shareholders in the Combined Group will benefit from material cost savings and efficiencies along with benefitting from significant future growth opportunities to enhance shareholder returns”.

James Clifton-Brown, Chair of API said: “API has always sought to focus on delivering attractive, income-driven returns for shareholders. Over the years, API’s manager, abrdn Fund Managers, has assembled an attractive portfolio on the company’s behalf, with a weighting to more favoured areas of the market, a diversified tenant base and a focus on ESG. The board of API would like to thank the management team for the important role they have played in assembling and managing the portfolio.

The Merger will enable API Shareholders to retain exposure to the portfolio and its growth prospects at a significant premium to API’s share price, with the prospect of superior share liquidity and an enhanced and fully covered dividend. The API Board believes that, with increased scale and an enhanced capital structure, the Combined Group will be well positioned for the future. The API Board is therefore pleased to recommend the Merger to API Shareholders.”

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