LONDON: Tritax Big Box REIT (BBOX) and UK Commercial Property REIT Limited (UKCM) have announced a definitive all-share merger agreement. Under the terms of the deal, BBOX will acquire all the issued and to be issued ordinary share capital of UKCM.

Shareholders of UKCM are set to receive 0.444 new BBOX shares for each UKCM share they hold, based on an EPRA Net Tangible Assets (NTA) exchange ratio. This ratio references BBOX’s EPRA NTA of 177.2 pence per share and UKCM’s EPRA NTA of 78.7 pence per share as of 31 December 2023.

Upon completion of the merger, UKCM shareholders will possess approximately 23.3% of the combined entity, while current BBOX shareholders will retain around 76.7%. The transaction values UKCM’s share capital at roughly £924 million, or 71.1 pence per share, based on BBOX’s closing price of 160.2 pence per share on 9 February 2024.

This valuation represents a 10.8% premium over UKCM’s undisturbed closing price and a 23.0% premium over the volume-weighted average price for the six months preceding the offer period.

The merger is poised to create a powerhouse in the commercial property market, with a diverse portfolio and enhanced scale that could redefine the landscape for REITs in the region.

Aubrey Adams, Chairman of BBOX said: “The Board of BBOX believes the Combination has compelling strategic and financial rationale for both BBOX and UKCM Shareholders. UKCM has assembled a high-quality logistics-oriented portfolio with a South-East and Midlands focus and significant embedded rental reversion potential, all characteristics which are complementary to BBOX’s current portfolio.

The Combination grows BBOX’s exposure to “last mile” and urban logistics assets which have the potential to enhance returns of the existing portfolio. This Combination represents a continuation of the highly successful strategy that BBOX has delivered since IPO and which over recent years has included acquiring selected “last mile” and urban logistics assets.

Shareholders in the Combined Group will benefit from immediately identifiable cost savings creating increased scope to deliver higher earnings and dividends, while capital recycling and asset management opportunities in the UKCM portfolio represent significant further opportunities to enhance total shareholder returns.”

Margaret Littlejohns, Senior Independent Director of UKCM said: “The UKCM Recommending Directors believe this transaction allows all UKCM shareholders to benefit from continued investment in a REIT, but with significantly larger scale and improved share liquidity, as well as addressing the factors we believe have contributed to the persistent discount at which UKCM’s shares have traded for many years.

The combined business will be invested in a high-quality UK logistics portfolio, where BBOX has a strong track record of delivering attractive, sustainable returns which will drive improved earnings for UKCM shareholders and support a fully covered dividend.

By combining the businesses on an EPRA NTA-to-EPRA NTA basis, shareholders will be able to share fully in the future potential valuation upside whether that is delivered from asset management initiatives, rental growth, the potential of the BBOX development pipeline or a broader improvement in real estate sector sentiment. These factors together with the compelling strategic and financial rationale of the transaction lead us to recommend this deal to all shareholders.”

Tritax Big Box REIT proposes to acquire UK Commercial Property REIT for £924 million