LondonMetric and Schroder Real Estate move towards firm bid for Picton

LondonMetric Property PLC and Schroder Real Estate Investment Trust Ltd on Tuesday noted progress towards a firm takeover bid for Picton Property Income Ltd, following an indicative all-share proposal disclosed in May.

Picton is a Guernsey-registered real estate investment trust. Its shares were up 0.9% to 71.10 pence on Tuesday morning in London, giving a market capitalisation of £364.3 million.

Shares in London-based peer SREIT, which is managed by Schroders PLC, were up 1.1% to 47.80p each, giving it a £228.9 million market cap. LondonMetric stock was up 0.1% to 185.40p for a market cap of £4.35 billion.

The consortium’s offer is for 0.190 of a LondonMetric share and 0.881 of a SREIT share for each Picton share. Based on Monday’s closing prices, which were 185.2p for LondonMetric and 47.3p for SREIT, the offer values Picton at 76.9p per share, or £396 million in total. This is 9.1% higher than Picton’s closing price of 70.50p on Monday.

Should a firm offer proceed, Picton shareholders will also be entitled to a dividend of 0.95p per Picton share for the quarter ended in March.

LondonMetric noted that due diligence ‘is advancing well’, with the consortium currently finalising documentation for a potential offer. The UK Takeover Panel has granted LondonMetric and SREIT an exemption from the usual 28-day deadline required for a firm offer.

The consortium says the deal would deliver an immediate 46% uplift in dividend income for Picton shareholders and earnings accretion of 38%. It sees ‘marginal earnings accretion for LondonMetric and earnings accretion for SREIT in the first full year’.

The consortium also expects SREIT’s EPRA cost ratio to be lower on a pro-forma basis and below SREIT and Picton’s standalone cost ratios. SREIT’s net loan-to-value ratio is forecast around 32% once the deal closes, in line with its 25% to 35% target range.

LondonMetric will acquire 46% of Picton’s property assets, which are subject to a debt facility with Canada Life, and have an estimated value of £320 million as of March 31, alongside £24 million net cash assets. The properties to be acquired by LondonMetric are mainly industrial sites.

For its part, SREIT would take a mix of industrial, office and retail warehouse properties, representing 54% of Picton’s assets, and also subject to debt facilities with Aviva PLC and Natwest Group PLC. The properties SREIT will acquire were worth about £380 million at the end of March.

Both Canada Life and Aviva ‘have indicated preliminary support’ for the potential takeover, according to the consortium, and have shown they are willing to provide a pre-emptive change of control waiver for their respective debt facilities.

Picton’s largest shareholder, TR Property Investment Trust PLC, which holds 11.4% of Picton’s voting rights, has submitted a letter of intent to vote in favour of the deal.

In May, Picton’s board said it would be minded to unanimously recommend the acquisition, should a firm offer be made.

Additionally, SREIT’s manager, Schroder Real Estate Investment Management Ltd, has agreed to a one-year fee waiver spread over 24 months on the share of Picton NAV to be taken by SREIT. There would be a fee reduction of 10 basis points across all tiers with the revised fee tiering based 50% on NAV and 50% on the lower of NAV and market capitalisation.

SREIT is working on succession planning for Nick Montgomery, its fund manager, saying he ‘remains fully committed to the proposed offer and will continue to lead SREIT for as long as is necessary to ensure a smooth transition.’

‘Identifying a new, market facing, fund manager to replace Nick, with the experience and track record of successfully managing comparable strategies is a strategic priority for both the SREIT Board and Schroders,’ SREIT added.

Back in February, Schroders itself agreed to an all-cash takeover offer from Pantheon LLC, a newly incorporated subsidiary of Chicago-based asset manager Nuveen LLC. The deal values Schroders at up to £9.9 billion on a fully diluted basis.

Montgomery and LondonMetric Chief Executive Andrew Jones commented: ‘We have made steady progress and are advancing towards a [takeover] announcement. The transaction is expected to deliver a material and immediate uplift in dividend income for Picton shareholders, while allocating assets to the platforms that we believe are best positioned to unlock their full value and providing exposure to two enlarged, more liquid and complementary UK-listed REITs.’

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