LondonMetric has agreed a deal to acquire CT Property Trust (CTPT) for £198.6m to create an enlarged UK REIT with a property portfolio worth around £3.3bn.
The boards of the two companies have reached agreement on the terms of a recommended all-share offer and under the terms of the deal CTPT shareholders will be entitled to receive 0.455 new LondonMetric share for each CTPT share.
Based on the closing price on 23 May, when LondonMetric’s shares were worth 188.0p, the acquisition values each CTPT share at 85.5p and values the company at £198.6m. The acquisition represents a premium of approximately 34.3% to the closing price per CTPT share of 63.7p.
Following completion of the acquisition, LondonMetric shareholders will hold approximately 90.3% and CTPT shareholders will hold approximately 9.7% of the enlarged issued share capital of LondonMetric.
The boards of the two companies said the acquisition offered “compelling strategic and financial rationale” for shareholders, as both companies have complementary portfolios with a similar focus on income and income growth.
The deal would also unlock “operational synergies and accelerate identified asset management opportunities” and it would be “earnings accretive” for both companies thanks to economies of scale and cost efficiencies with “rental reversion and portfolio initiatives expected to deliver further benefits which are expected to lead to dividend progression over the medium term building on LondonMetric’s eight year track record of dividend growth”.
CTPT was formed in April 2013 following the merger of IRP Property Investments and ISIS Property Trust. At the time it was named F&C UK Real Estates Investments. The REIT invests in industrial, logistics and distribution assets, retail (including retail warehouses) and offices and as at 31 March this year its portfolio comprised 34 properties worth approximately £288m – 56% of the assets were industrial and logistics, 21.9% were retail warehousing, 15.7% were offices and 6.8% were high street retail assets. The company also had circa £30.8m of cash available.
CTPT has traded at an average discount to NTA of 25.3% over the last five years and the board of CTPT said that “in the context of the material and persistent discount to NTA at which the CTPT shares continue to trade, CTPT is unlikely in the short to medium term to overcome the challenges it faces as an independent UK REIT”.
The directors of CTPT said they had considered a number of different options and concluded the acquisition will address the issues of “CTPT’s scale and liquidity whilst offering CTPT shareholders continued exposure to a complementary and high quality property portfolio via a large UK REIT that has a strong record of paying growing and covered dividends”. As a result, the directors intend to unanimously recommend the acquisition to CTPT shareholders.
Davina Walter, chairman of CTPT, said: “Our company’s investment strategy has delivered strong portfolio returns for shareholders since the merger of IRP Property Investments and ISIS Property Trust in April 2013. Our manager, Columbia Threadneedle, has built an attractive UK commercial property portfolio and pivoted the balance of the portfolio in recent years to a high industrials weighting, reflecting our conviction in the ongoing strong occupier demand in the sector.
“LondonMetric also has a portfolio with a high exposure to the industrials sector and a proven track record in delivering returns from this asset class. The portfolio fit is compelling. Despite the progress made in pivoting the portfolio, excellent long term portfolio performance and regular dividend payments, CTPT has traded at a double digit discount to NAV for a number of years. We believe this is reflective of our small size and external market conditions.
“This acquisition by LondonMetric allows our shareholders to benefit from being exposed to an enlarged UK REIT with an approximately £3bn property portfolio, continuously growing dividends and an outstanding track record of shareholder value creation. The acquisition also represents a compelling premium to the CTPT share price. We therefore recommend the acquisition to shareholders.”
Patrick Vaughan, chairman of LondonMetric, added: “We believe the acquisition is compelling for both CTPT and LondonMetric shareholders. The CTPT management team has assembled a high quality platform of complementary assets, diversified by tenant base and geography and with significant reversionary potential.
“The acquisition grows the combined group’s exposure to the winning sectors of urban logistics and long income, underpinned by evolving consumer demand and delivering strong rental growth.
“In the current interest rate environment, we believe resilient cash flows, scale and liquidity will be the defining characteristics that differentiate the winners and the losers. The income and income growth characteristics of the CTPT portfolio, combined with select asset management opportunities, should enhance our total return focus, whilst enabling us to drive earnings optimisation and maintain our progressive dividend policy.”
In its full year results for the year ending 31 March 2023, LondonMetric reported the value of its portfolio had fallen to £3.0bn from £3.6bn (31 March 2022) caused by a “deterioration in macro investment backdrop”. It posted an EPRA NTA per share of 198.9p (-23.8%) and an IFRS reported loss of £506.5m (31 March 2022: £734.5m profit).
Andrew Jones, chief executive of LondonMetric, said: “The last year has seen a weaker economic backdrop, elevated inflation and a significantly higher interest rate environment. Not surprisingly, this has led to a recalibration of real estate values and conditions that have undoubtedly impacted our approach to leverage and interest rate exposure.
“Whilst risks and uncertainty remain, the outlook is improving and some confidence is returning. History teaches us that periods of uncertainty always pass and eventually inflation will be tamed and interest rates will stabilise. What is even clearer is that the strong occupational fundamentals supporting our chosen sectors remain intact.
“Broadening occupational demand and constrained supply are creating ideal conditions for continued rental growth, particularly for our urban warehouses, which remain our strongest conviction call. This has helped us to again report attractive like-for-like income growth, earnings and dividend growth as well as maintain our strong portfolio metrics.
“Looking forward, we have a strong conviction that our portfolio is firmly positioned on the right side of the long term structural shifts and that it will continue to generate reliable, repetitive and growing income to deliver on our progressive dividend policy.”
