(Alliance News) - Tritax Big Box REIT PLC on Thursday said it agreed to all terms to merge with UK Commercial Property REIT Ltd, in a deal first announced back in February.
At the time, the two FTSE 250-listed real estate investment trusts said they had reached an "agreement on the key terms" of a possible all-share merger.
UK Commercial Property investors will receive 0.444 of a new Tritax Big Box share for every UK Commercial Property share they own. Based on Tritax Big Box's closing share price on February 9, the deal would value each UK Commercial Property share at 71.1 pence and the full company's equity at GBP924 million.
Following completion of the deal, UK Commercial Property will own 23% of the combined company and Tritax Big Box will own 77%.
Shares in Tritax Big Box were up 1.9% to 153.00 pence each in London on Thursday morning, while UK Commercial Property shares were up 3.6% to 67.00p.
Tritax Big Box on Thursday said both boards believe that the combination "has a compelling strategic and financial rationale, building on Tritax Big Box's existing strategy and proven track record of delivering attractive and sustainable returns for shareholders".
This includes "significant and near-term rental growth potential" with 39% rental reversion within UK Commercial Property's GBP740 million logistics portfolios, and 24% rental reversion within UK Commercial Property's overall portfolio.
Tritax Big Box on Thursday claimed the deal would create the UK's fourth-largest real estate investment trust, with a combined EPRA net tangible assets of around GBP4.4 billion. It also expects the combination to generate "immediately identifiable" cost savings of around GBP4.0 million per year, helping to drive earnings growth and dividend progression.
Both boards consider the terms of the combination to be fair and reasonable and unanimously recommend shareholders to vote in favour of the deal at their respective general meetings.
Tritax Big Box said it has received irrevocable undertakings from around 57% of UK Commercial Property shareholders to vote in favour of the combination.
"UK Commercial Property 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 Tritax Big Box's current portfolio. The combination grows Tritax Big Box'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 Tritax Big Boxhas delivered since initial public offering and which over recent years has included acquiring selected 'last mile' and urban logistics assets," said Tritax Big Box Chair Aubrey Adams.
"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."
UK Commercial Property Senior Independent Director Margaret Littlejohns commented: "The UK Commercial Property recommending directors believe this transaction allows all UK Commercial Property 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 UK Commercial Property's shares have traded for many years.
"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 Tritax Big Box 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."
The combination scheme is expected to become effective in May, subject to the satisfaction or waiver of conditions.
The deal had been under an offer period that was extended earlier this month to Friday, by which point Tritax Big Box was required to make an offer before 1700 GMT, although UK Commercial Property noted that there was no guarantee an offer will be made.
By Greg Rosenvinge, Alliance News senior reporter
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Tritax Big Box (BBOX)
UK Commercial Property Trust (UKCM)