UK - The future of Invista Foundation Property Trust's management agreement with Schroders is in doubt after Picton Property Income - formerly ING Real Estate Income Trust - made the trust a merger offer.

Neither Invista nor Picton were today giving details of the proposed share-for-share merger proposal.

However, Picton, which has £426m (€487m) in assets under management, said it already had approval from Invista's largest shareholders for the merger discussions.

Invista's major shareholders include Legal & General and Clerical Medical.

In a note of the market, Picton said "good progress" was being made in the merger discussions.

The firm argues that the merger would deliver material benefits to shareholders, some of which have holdings in both companies.

It says they will benefit more from an efficient cost structure than from an externally managed vehicle where management fees increase in line with net assets.

The firm said it would also enhance liquidity, reduce the total expense ratio and expand the investor base.

It emerged at the end of last week that Picton had initially proposed the merger in March after Invista FPT fired Invista Real Estate Investment Management (IREIM) - which managed the trust - a year before its management contract was due to expire.

The two Invistas are currently in negotiations over a termination fee.

Back in the spring, Invista FPT decided against Picton's merger proposal and opted for a management agreement with Schroders instead - an agreement Invista FPT claims would save it around £1.8m.

Under an agreement signed last week, Schroders, which owns 11.8% of the fund, will begin managing it at the beginning of October for an annual fee of 1.1%.

If the proposed Picton merger goes ahead, the contract will not be subject to a notice period termination fee. If it does not, Schroders can expect a notice period of 9-12 months.

Meanwhile, Schroders plans to recruit IREIM senior managers who had worked on the previous contract.

If it goes ahead, the merger will be Picton's third major deal in as many years.

Last year, it acquired 33 assets with its takeover of Rugby Estates Investment Trust. Picton will also assume control of ING Real Estate Income Trust's operations in January 2012.