The boards of directors of Tritax Big Box REIT (BBOX) and UK Commercial Property REIT (UKCM) have reached a preliminary agreement for a potential all-share merger, creating the UK's fourth-largest REIT, with £4.4 bn (€5.1 bn) of combined assets.
As agreed earlier, the possible offer would involve UKCM shareholders receiving 0.444 new BBOX shares for each UKCM share they currently hold. This translates to a value of 71.1 pence per UKCM share, representing a 10.8% premium compared to the stock's closing price on the offer date of February 9th.
If finalized, this merger would result in UKCM shareholders owning 23.3% of the combined company's issued shares, while existing BBOX shareholders would hold the remaining 76.7%.
Aubrey Adams, chairman of BBOX, said: ‘The Board of BBOX believes the Combination has compelling strategic and financial rationale for both BBOX and UKCM Shareholders. UKCM 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 BBOX's current portfolio. The Combination grows BBOX's exposure to "last mile" and urban logistics assets which have the potential to enhance returns of the existing portfolio.’
Margaret Littlejohns, senior independent director of UKCM, added: ‘The UKCM Recommending Directors believe this transaction allows all UKCM 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 UKCM's shares have traded for many years. The combined business will be invested in a high-quality UK logistics portfolio, where BBOX has a strong track record of delivering attractive, sustainable returns which will drive improved earnings for UKCM shareholders and support a fully covered dividend.’
The UKCM board of directors unanimously recommends shareholder approval for the deal at the upcoming general meeting. The scheme is expected to become effective in May 2024.
The joint company will provide a wider range of logistics property sizes and locations, catering to both mega-warehouse needs and strategically located urban logistics facilities.
UKCM's portfolio offers a 39% rental reversion for its logistics assets alone, valued at £740 mln (€867 mln), further bolstered by a 24% overall portfolio increase. The non-logistics assets, valued at £475 mln (€557 mln), offer opportunities for asset management and capital reallocation. This frees up resources for BBOX's development pipeline, aiming to deliver logistics facilities leased under triple net agreements and generating a 6-8% yield on cost (with a targeted 7% yield for 2024 developments).
The merger is expected to generate immediate cost savings of £4 mln (€4.7 mln) annually. The combined balance sheet includes a reduced loan-to-value ratio of 29%, a net debt-to-EBITDA ratio of 7.4x, significant available liquidity, and no near-term debt maturities.
