Custodian Property Income REIT’s (CREI) proposed all-share merger with abrdn Property Income Trust (API) has collapsed after API failed to secure sufficient shareholder support for the deal at its AGM held earlier today.
In January this year, the boards of the two companies agreed the terms of the all-share merger, which would see CREI acquire the entire issued and to be issued share capital of API creating a REIT with a combined portfolio value in excess of £1bn. However, at API’s AGM the proposed merger failed to attract sufficient shareholder votes in favour of the resolution.
As a result, the API board said it would now take steps to implement a managed wind-down of the business, subject to the approval of API shareholders.
James Clifton-Brown, chair of API, said: “The API board independently elected to undertake a comprehensive review of API’s strategic options which resulted in a number of opportunities to deliver an uplift in value for API shareholders. While the CREI merger gained the support of 61% by value of API shareholders voting and approximately 79% by number, the former falls short of the 75% threshold required.
“In view of these results and the challenges that API would continue to experience as a standalone company, the API board will now take steps to implement a managed wind-down, subject to API shareholder approval, building upon the work already undertaken by the API board and the company’s investment manager and advisers, with the objective of delivering enhanced returns for API shareholders.”
David MacLellan, chairman of CREI, added: “Having heeded clear calls from the market regarding the need for consolidation amongst the listed REITs, we worked with our investment manager and the API board of directors to negotiate what we believe to be a fair deal for all shareholders of both API and CREI. Our proposal was fully aligned with the existing investment strategies of both companies and structured on an NTA-to-NTA basis to ensure that the exchange ratio was based upon the latest respective underlying property valuations.
“Furthermore, it was unanimously recommended by the API board and allowed both API and CREI shareholders to benefit from the long-term benefits of being invested in a combined business which brought together two highly complementary portfolios, with a growing and fully covered dividend.
“We are therefore disappointed that despite the majority of votes cast being in favour of the transaction at the API meetings today, this was not enough to meet the 75% threshold required to approve the transaction. In fact, shareholders accounting for just 14% of API’s register proved sufficient to prevent the resolutions passing. These votes were, we understand, primarily from institutional investors who believe a ‘managed wind-down’ of API’s portfolio will better protect shareholder value, despite the API board clearly and publicly setting out the flaws in this conclusion. CREI wishes API and its shareholders every success in the future as API continues as an independent business.
“The CREI board believes it is important to note that it viewed the transaction as an augmentation of, rather than critical to, the strategy that CREI has pursued successfully over the 10 years since it launched in 2014. Instead of gaining a jump in scale via the recommended merger, CREI will maintain its strategy of incremental growth and, most importantly, continue to offer CREI shareholders an attractive dividend from a highly diversified portfolio, significant rental growth potential, low costs relative to its peers, as well as a strong balance sheet with a low cost of debt.
“We also maintain our conviction as to the merits of the company’s income-focused investment strategy with an emphasis on regional, below-institutional sized assets that are well-positioned to deliver rental growth. These types of assets provide a clear yield advantage over larger properties with similar tenant profiles and allow us to generate higher income returns and capital growth for CREI shareholders. In addition, the company remains committed to fully covered dividends which the CREI board will seek to increase on a sustainable basis going forward.”
