Abrdn Property Income Trust agrees merger with Custodian Property Income

Abrdn Property Income Trust (API) announced a recommended all-share merger agreement with Custodian Property Income REIT (CREI) on Friday.

The London-listed firm said the merger would see CREI acquire the entire issued and to-be-issued share capital of API through a court-sanctioned scheme of arrangement.

Under the terms of the merger, scheme shareholders would receive 0.78 new CREI shares for each scheme share.

The exchange ratio was based on the rolled-forward unaudited EPRA net tangible asset value (NTA) of both CREI and API as of 31 December 2023.

Following the merger, existing CREI shareholders would hold 59.7%, and API shareholders 40.3% of the combined group.

The merger valued each API Share at 62.1p, with the entire issued and to be issued share capital of API estimated at £237m, representing a premium of 29.4% to the closing price of API shares on 18 January.

Both the boards of both CREI and API agreed to retain their current dividend policies until the effective date.

API shareholders would receive and retain a quarterly final dividend of up to 1p per share for the quarter ended 31 December, while CREI shareholders would receive and retain a quarterly interim dividend of up to 1.375p per CREI share for the same period.

Custodian Capital would provide investment management, administrative, and advisory services to the combined group following the merger.

The companies said Custodian Capital would waive its management fee for the net asset value attributable to API for the first nine months after the merger, with reduced management fees for CREI during a two-year transition period.

They added that the CREI board had agreed to extend Custodian Capital's appointment term accordingly.

On completion of the merger, the CREI board was expected to comprise eight directors, including two existing API directors.

Further reviews of the board's composition and size were planned to ensure it aligned with market and industry practices and remained in the best interests of shareholders.

The merger was intended to create a diversified REIT with a substantial portfolio, enhanced diversification, and share liquidity.

They said the combined group would consist of around 200 assets with a combined property value exceeding £1bn as of 31 December.

API and CREI said the transaction was also expected to bring significant cost savings, meaningful reversionary potential, and a strong balance sheet, allowing the combined group to address future refinancing events.

The merger was subject to shareholder approval, and was expected to become effective in early April.

“API has always sought to focus on delivering attractive, income-driven returns for shareholders,” said the company’s chairman James Clifton-Brown.

“Over the years, API's manager, Abrdn Fund Managers, has assembled an attractive portfolio on the company's behalf, with a weighting to more favoured areas of the market, a diversified tenant base and a focus on ESG.

“The board of API would like to thank the management team for the important role they have played in assembling and managing the portfolio.”

Clifton-Brown said the merger would enable API shareholders to retain exposure to the portfolio and its growth prospects at a significant premium to API's share price, with the prospect of superior share liquidity and an enhanced and fully covered dividend.

“The API board believes that, with increased scale and an enhanced capital structure, the combined group will be well positioned for the future.

“The API board is therefore pleased to recommend the merger to API shareholders.”

At 1029 GMT, shares in Custodian Property Income REIT were down 9.55% at 72p, while those in Abrdn Property Income Trust were up 11.52% at 53.53p.

Reporting by Josh White for Sharecast.com.