Hot on the heels of Tritax and Blackstone’s moves to consolidate the UK logistics market, Urban Logistics REIT PLC has announced that it has approached the Board of abrdn Property Income Trust Limited (“API”) and its advisers regarding an indicative share-for-share offer for the entire issued and to be issued share capital of API. Urban Logistics has been provided access to certain API due diligence materials and a number of discussions have taken place with API and its advisers.
On Friday 16 February 2024, the Company tabled an indicative proposal to API and its advisers comprising an Indicative Offer exchange ratio of 0.469 Urban Logistics shares for each API share (the “Indicative Offer”). The Indicative Offer exchange ratio was predicated on, prior to completion of any transaction:
- Urban Logistics paying a dividend to its existing shareholders of 2.45p per Urban Logistics share in respect of the period up to 31 December 2023 (the “Urban Logistics Special Dividend”; and
- API paying a dividend to its existing shareholders of 1p per API share in respect of the quarter ended 31 December 2023.
Following completion of the proposed transaction, all shareholders of the enlarged group would rank pari passu for any dividends subsequently declared by the Company.
The Indicative Offer represents an offer value of approximately 59.2p per API share based on the Company’s share price of 128.6p as at close on 19 February 2024 (being the last business day prior to this announcement) adjusted downwards for the Urban Logistics Special Dividend. This compares to the current value of the Custodian Property Income REIT plc (“Custodian”) offer which stands at approximately 52.4p per API share based on the Custodian share price of 67.2p as at close on 19 February 2024. On the basis of the foregoing, the Indicative Offer represents a premium of approximately 13% to the Custodian offer.
Urban Logistics believes that there are compelling reasons for an Urban Logistics-API combination and further believe that the Indicative Offer represents a superior proposal for API shareholders as well as an attractive strategic acquisition for the Company.
In accordance with paragraph 4(c) of Appendix 7 of the Code the Panel will set the date by which the Company must clarify its intentions with regard to any offer for API.
Urban Logistics duly considered this position prior to making this announcement and decided on balance that the announcement should still be made so that API shareholders had the opportunity to review its contents.
The Board of Urban Logistics believes that a potential combination between the two companies would be attractive to both API and Urban Logistics shareholders, affording them exposure to a specialist last mile / urban logistics listed company of scale benefitting from substantial opportunities for rental growth and targeting secure, sustainable, high quality earnings growth. A combination of the two businesses would create a strong FTSE 250 constituent with a combined pro forma market capitalisation of approximately £830m.
The combined group would focus on the last-mile / last-touch mid-box area of UK logistics which the Urban Logistics Board believes exhibits strong growth prospects in contrast with the API-Custodian combination which the Company understands would pursue a generalist strategy across a number of segments of UK real estate, many with, in the view of the Company’s Directors, less attractive prospects than logistics. Urban Logistics has built a high quality portfolio of assets occupied by tenants with good covenants giving Urban Logistics a diversified and it believes secure income base. The Company actively discusses its general acquisition strategy with its institutional and wealth management shareholders during its ongoing investor relations programme. The proposed acquisition of API is in line with that strategy.
The enlarged Urban Logistics group would continue to benefit from the Company’s highly experienced advisory team, which has produced very strong returns for shareholders delivering a cumulative total accounting return of 111.6% over the period from its flotation in April 2016 to 30 September 2023. Urban Logistics shareholders recently voted to extend the Company’s external asset management arrangements and Urban Logistics is served by a very experienced property team. The Company has also benefitted from a high number of off-market acquisitions sourced through the advisory team’s strong property sector relationships including the M1 Agency.
In light of the relative merits of the combination of Urban Logistics and API summarised below, the Company has today written to API requesting the postponement of API’s forthcoming shareholder vote in respect of the proposed Custodian transaction to allow for Urban Logistics and API to complete their respective due diligence and to give the opportunity for a firm Urban Logistics proposal to be put to both Urban Logistics and API shareholders. Given the focused business strategy and strong asset management track record of Urban Logistics, the Company’s Directors believe that API shareholders should be given the opportunity to compare the two propositions in detail.
Urban Logistics is a highly experienced business in respect of the acquisition of property portfolios and preparing shareholder documentation in a public company context. It would seek to move quickly to finalise due diligence and complete shareholder documentation to minimise the time period between this announcement and the publication of a formal offer to API shareholders.
Under the Custodian proposals, there would be some reduction in aggregate asset management fees going forward and two of the API directors would be invited to join the board of the combined group. The Company confirms that it would address the combined group governance and the efficiency of management arrangements going forward with the Board of API prior to the announcement of any formal offer to API shareholders.
Urban Logistics’ rationale for a combination of the two companies is as follows:
Attractive API portfolio of c. £315m of assets in Industrial and Retail Warehouses
- Urban Logistics knows these assets well from its day-to-day market appraisals and would have bid on all or any one of them had they come up for sale privately;
- The two portfolios are highly complementary given Industrials represents API’s largest asset allocation.
Only approximately 9% of the combined portfolio will be outside Logistics and Retail Warehouses
- The combined group would be a focused, specialist REIT operating in a UK real estate sector which benefits from a marked supply-demand imbalance and favourable economic tailwinds.
- Urban Logistics has a value optimisation plan for all of the assets falling outside Logistics and Retail Warehouses and a management team with the experience to execute on those plans.
The Board of Urban Logistics believes it is in a strong position strategically and operationally to optimise total shareholder return for combined group shareholders
- The macro backdrop for logistics real estate in the UK is positive including a favourable demand versus supply dynamic and continued rental growth well ahead of other real estate sectors. These factors are structurally driven as long-term investment into logistics infrastructure continues.
- Urban Logistics sees last mile / last touch assets as a particularly strong area within UK logistics. The Company benefits from a portfolio which it considers to be a good balance of longer, secure income and shorter-term asset management opportunities.
The combined group would offer shareholders substantial scale, growth and liquidity
- The Company’s Board and advisory team have built a FTSE 250 REIT with the benefit of a strong institutional shareholder following and support from wealth management and other retail investor channels.
- As a focused, specialist REIT operating in one of the most attractive segments of UK real estate, the combined business would offer shareholders exposure to a specialist vehicle of scale and liquidity with substantial opportunities for rental growth and secure, sustainable high-quality earnings:
- The only listed entity which has a focus on last mile single-let urban logistics assets – a strategy carefully selected aiming to deliver superior returns;
- Income and capital growth driven by active asset management and asset recycling;
- Strong ESG proposition supported by characteristics of single let logistics which lend themselves to ease of adoption of ESG. The majority of the Company’s existing properties are currently rated with an EPC of A/B
Urban Logistics has delivered significant shareholder value since inception
- The Company’s board has a balanced experience set and has prudently managed the balance sheet:
- Nigel Rich was chairman of Segro for 10 years
- The board contains a wealth of broader experience including, inter alia, banking, retail, ESG
- The board has prudently managed leverage:
- Urban Logistics has a strong debt position with c.97% of debt fixed/hedged and a low LTV of 29%; and
- The Company’s balance sheet management means it is not in the position of selling down assets to pay down debt
- The Company’s investment adviser is led by Richard Moffitt, who has some 25 years experience in the sector, supported by a full finance, property and investment team
- Urban Logistics has delivered cumulative total accounting returns of 111.6% since its IPO in April 2016
The combination would be attractive for both sets of shareholders
- API shareholders, through the Indicative Offer, would be offered access to one of the UK's leading mid box, last mile / last touch real estate portfolio
- at a 20+ per cent discount to Urban Logistics' net asset value
- at an Indicative Offer which is (based on the Urban Logistics share price of 128.6p as at close on 19 February 2024 adjusted downwards for the Urban Logistics Special Dividend):
- a circa 23% premium to the API share price of 48.0p as at close on 18 January 2024 (the day prior to the announcement of the Custodian offer); and
- a circa 13% premium to the Custodian offer value based on the Custodian share price of 67.2p as at close on 19 February 2024;
- with an opportunity for continued income growth and growing, sustainable high-quality
- earnings delivered through active asset management; and
- with a strengthening debt position for API shareholders c.87% fixed/hedged versus c.61% fixed standalone
This announcement has been made without the consent of API and its advisers ahead of its release.
As an aside, the Evening Standard recently reported on the formation of a new company – Urban Logistics REIT Bidco…
