The proposed takeover of Warehouse REIT raises some intriguing questions

The listed REIT sector is coming to life with potential opportunistic takeover offers and I am particularly intrigued by the latest approach for Warehouse REIT.

As I pen this article, the world has of course changed, but the fundamentals have not. As I understand it, the board are minded to recommend Blackstone’s offer of 115p, which will include the dividend of 1.6p and which would equate to £489m.

In the last reported accounts, the value of the properties was stated to be £811m, with an EPRA NTA of £541.6m or 127.5p per share. Thus, it looks like shareholders are selling the family silver for 89p in the pound, or are they?

There has been no statement from the company on one aspect. If the proposed buyers were just acquiring the properties, they would be paying Stamp Duty Land Tax (SDLT) of 5% on £811m, equating to £40.55m. However, as they will be buying the company, they will only pay 0.5% of the share value of circa £489m which is £2.45m, so they will be saving £38.1m, which is equivalent to 9p per share.

Unless my calculations are incorrect, the proposed buyers should actually pay 124p to include the dividend, or they will effectively be paying 83p in the pound for a company not in trouble. I am disregarding any compensation to the investment manager, if they are not retained by the proposed buyers, which might be equivalent to a few pence per share.

We must bear in mind that when the properties were last valued, the valuation took into account that any purchaser would pay SDLT, but in this case it will not be paid.

In the Financial Times on 28 March last, Matthew Norris quite rightly pointed out that REIT takeovers should focus on future value, not the historical price of the shares. This is not happening and is classic institutional short termism, which I have experienced in the past.

I was truly fortunate to be at the Master Investors Show on Saturday 29 March watching a presentation by Hamish Maxwell from Baillie Gifford during which he explained how through taking the long-term view, they have produced outstanding returns for their investors. The room was packed and how encouraging it is that in the UK we still have investors with this mindset.

My only conclusion with Warehouse REIT is that the shareholders need to sell, which would surprise me, or there is a lack of optimism in the property sector, which is misplaced as we are seeing increased opportunities. If neither of those two are the case, I am missing something.