LondonMetric and Schroder Real Estate eye all-share takeover of Picton
LondonMetric Property PLC and Schroder Real Estate Investment Trust Ltd on Tuesday said they had agreed on the terms of a non-binding offer for Picton Property Income Ltd.
It is an all-share bid, which sees Picton investors receiving 0.190 LondonMetric shares and 0.881 SREIT shares for every Picton share held.
The offer values the Guernsey-registered real estate investment trust at roughly £403.4 million, or 78.2 pence per share based on the offerors’ closing share prices on Monday.
Picton shares fell 1.1% to 72.30p on Tuesday morning in London, for a market capitalisation of £371.5 million.
Shares in London-based peer SREIT, which is managed by Schroders PLC, fell 2.8% to 46.95p each, giving it a £229.7 million market cap. LondonMetric stock was down 1.9% to 184.10p for a market cap of £4.31 billion.
The board of Picton has said it would be minded to unanimously recommend the acquisition, should a firm offer be made.
As it stands, the non-binding offer is 7.0% higher than Picton’s closing share price of 73.1p on Monday, but implies a 5.6% discount to Picton’s portfolio value at the end of December.
The proposal sees LondonMetric and SREIT acquiring 46% and 54% respectively of Picton. Upon completion, Picton shareholders are expected to hold 4.0% of LondonMetric’s enlarged share capital and 48.2% of SREIT’s enlarged capital.
LondonMetric currently owns 11.1% of SREIT’s voting rights, which would drop to 5.8% should the deal proceed.
The prospective buyers expect the sector weightings of their portfolios to be broadly unchanged following the deal, based on the planned allocation of Picton’s assets.
News of the offer follows Picton’s announcement in January that it had launched a strategic review and was considering ‘a merger with other UK REITs’. At the time, Picton said its financial foundations were sound, but that ‘the board believes it is important to be proactive’. Picton in March disclosed that it had shortlisted the LondonMetric/SREIT consortium for takeover discussions.
The consortium on Tuesday added that the offer ‘retains Picton’s good quality portfolio in the UK-listed arena and... provides Picton shareholders with the opportunity to crystallise a premium to the share price at the undisturbed date whilst reinvesting into two enlarged, UK-listed REITs that will enjoy the various benefits of enhanced scale’.
Going forward, SREIT sees the deal reducing its loan-to value ratio to rest within the 25% to 35% target range. Both SREIT and LondonMetric expect the acquisition to be earnings accretive, and to offer ‘a very material, immediate increase in dividend income for Picton’s shareholders’.
‘As part of the proposed offer, LondonMetric has agreed in principle to enter into a 6 month lock-up commencing upon completion of the transaction, restricting the disposal of its current shareholding in SREIT,’ LondonMetric noted.
‘In addition, Schroders has agreed to a 10-basis point reduction in the SREIT management fee rate across all tiers.’
The consortium has received a letter of intent to vote in favour of the deal from TR Property Investment Trust PLC, which holds around 11.4% of Picton’s voting rights.
Picton stressed that there is no certainty a firm offer will be made, and that it will provide an update when appropriate.
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