REG-Custodian Property Income REIT plc Custodian Property Income REIT plc: All-share Acquisition of £22m Property Portfolio

Custodian Property Income ReitAnnouncement

Mon 07:02

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   Custodian Property Income REIT plc (CREI)
   Custodian Property Income REIT plc: All-share Acquisition of £22m Property
   Portfolio

   02-Jun-2025 / 07:00 GMT/BST

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                                                                  2 June 2025

                                        

                       Custodian Property Income REIT plc

                                        

              (“Custodian Property Income REIT” or “the Company”)

                                        

                All-share Acquisition of £22m Property Portfolio

    

     • Strategic acquisition of a highly complementary diversified  portfolio
       of small lot-size UK assets
     • Accretive transaction delivers  day one earnings  enhancement and  the
       potential for value  creation through asset  and portfolio  management
       opportunities
     • Underscores the effectiveness of  the Company’s listed REIT  structure
       facilitating the all-share acquisition of an ungeared family  property
       company:

     • Tax efficient solution for the sellers
     • Share register augmented by the sellers’ retained ownership  interests
       in the Company
     • Reduces the Company’s loan-to-value and ongoing charges ratios

    

   Custodian Property  Income REIT  (LSE: CREI),  which seeks  to deliver  an
   enhanced income return by investing in a diversified portfolio of smaller,
   regional properties with strong income  characteristics across the UK,  is
   pleased to announce the purchase of  a £22.1m portfolio via the  all-share
   acquisition of a family property company (“the Transaction”).

    

   The Transaction provides the Company with a £19.4m portfolio of 28 smaller
   lot-size regional UK  investment properties  (the “Investment  Portfolio”)
   which are highly complementary to  the Company’s existing assets, as  well
   as c. £2.7m of  newly built housing  stock, the ongoing  sale of which  is
   expected to conclude in  the next few  months, generating additional  cash
   for the Company.

    

   The Investment Portfolio, with an average lot-size of £0.7m, is  primarily
   located in the  East Midlands  and generates an  annual aggregate  passing
   rent of  £1.7m  reflecting  a  net  initial  yield  of  c.8.1%,  from  99%
   occupancy.  The Investment Portfolio is 46% weighted by income towards the
   industrial sector, in line with the Company’s existing portfolio, with the
   remaining income  spread  broadly evenly  between  generally  well-located
   offices and retail properties,  both high street and  edge of town  retail
   parks.

    

   The Investment Portfolio’s top ten assets cover c. 75% of rent and  value,
   with the top  15 occupiers  accounting for  50% of  the annual  contracted
   rental income, and no single tenant  comprising more than 5% of the  total
   rent roll.

    

   The Investment Manager has already identified a number of opportunities to
   drive further value from the  Investment Portfolio by utilising its  asset
   and portfolio management  expertise to increase  rental income from  lease
   events and improve certain properties’ environmental credentials.

    

   Transaction structure and consideration

    

   The Company  is  acquiring  the  entire issued  share  capital  of  Merlin
   Properties Limited (“Merlin”) which will be satisfied through the issuance
   of 22.9m new shares in the Company as initial consideration on an adjusted
   net asset value (“NAV”)  for NAV basis  (the “Initial Consideration”).   A
   further c. 1.7m new  shares are expected to  be issued on finalisation  of
   completion  accounts   within  the   next   six  months   (the   “Deferred
   Consideration”).  Total  expected consideration  represents  approximately
   5.6% of the Company’s current issued share capital.

    

   Commenting on the Transaction,  Richard Shepherd-Cross, Managing  Director
   of  Custodian  Capital   Limited  “Custodian   Capital”),  the   Company’s
   Investment Manager, said: “We  have been clear that  a key element of  our
   strategy is to seek opportunities to scale the business through  corporate
   and/or portfolio  acquisitions.  In  an environment  where current  market
   conditions  make  further  capital  raisings  through  the  stock   market
   challenging, this strategic transaction via an all-share acquisition on an
   adjusted NAV-for-NAV  basis allows  us to  circumnavigate that  issue  and
   continue to  grow.   In  addition  to enhancing  earnings  per  share  and
   decreasing net gearing, the Transaction provides us with a portfolio  that
   is  both  a  strong  fit  with  our  income-focused  strategy  and  highly
   complementary to our existing property portfolio, augmenting our regional,
   industrial bias and adding further diversification by tenant.

    

   “For Custodian  Property Income  REIT shareholders,  the Transaction  also
   offers compelling economic benefits for  the Company versus acquiring  the
   properties directly, demonstrating our commitment to enhancing shareholder
   value and securing economies of scale through growth.

    

   “The Transaction presented  an attractive opportunity  for the sellers  to
   solve a family succession issue, defer crystallisation of a latent capital
   gain and obtain a more liquid investment, whilst maintaining the focus  of
   their family wealth  on regional real  estate investments with  attractive
   income characteristics.

    

   “We believe  many other  family property  companies in  the UK  will  face
   similar succession and tax issues and we hope to use the Transaction as  a
   blueprint for  further  opportunities  to achieve  scale  in  the  current
   environment.”

    

   David MacLellan, Chairman of Custodian Property Income REIT, added: "I  am
   confident  the  Transaction  will  benefit  both  our  new  and   existing
   shareholders, delivering increased earnings and supporting a fully covered
   dividend.   The   property  portfolios   of   each  company   are   highly
   complementary and will  further enhance  tenant diversification,  offering
   defensiveness of income to help mitigate against downside risk, as well as
   reducing our ongoing charges ratio."

    

   Hubert  Lynch,  Founder  Director  of  Merlin  Properties  Limited,  said:
   “Operating the Merlin portfolio, which our family has compiled and managed
   over the  last 40  years,  has become  increasingly demanding  in  today’s
   complex environment. We have undertaken the Transaction in a tax efficient
   manner to ensure  our family’s continued  exposure to property  investment
   both currently and for future generations through a professionally managed
   fund with  a  strong  track record.  As  already  significant,  supportive
   shareholders  of  Custodian  Property  Income   REIT  we  have  a   strong
   relationship with the Investment Team which we look forward to  continuing
   for many years.”

    

   Gearing

    

   Merlin has no borrowings and once the expected sale of c. £2.7m of housing
   stock completes during  the coming months,  the Transaction will  decrease
   the Company’s pro-forma net gearing from 27.1% LTV to 25.8%.

    

   Directors and employees

    

   On completion  of  the  Transaction,  the  Merlin  Board  will  resign  as
   directors with immediate  effect.  Rob Field,  Merlin’s Property  Manager,
   will be retained and transfer to the Custodian Capital team, allowing  the
   Company to  benefit from  his wealth  of expertise  and knowledge  of  the
   Investment Portfolio, whilst providing further experience and strength  in
   depth for Custodian Capital.

   Rationale

    

   The Custodian Property Income  REIT Board believes  there is a  compelling
   strategic rationale for the Transaction:

    

     • Merlin's portfolio is  complementary to  the Company’s,  based on  its
       smaller lot-size, diversified property strategy and current sector and
       geographical weightings;
     • The Transaction is expected to enhance earnings per share and dividend
       cover, increase tenant diversification  and reduce both the  Company’s
       ongoing charges ratio and net gearing.
     • Opportunity for further value  creation from the Investment  Portfolio
       through  asset  and  portfolio   management  by  utilising   Custodian
       Capital’s experience.
     • As the Transaction is structured  as a corporate acquisition,  neither
       SDLT in England  and Northern Ireland,  nor LBTT in  Scotland will  be
       payable on acquiring the Investment  Portfolio, leading to savings  of
       approximately £0.2m (net of stamp duty  payable by the Company on  the
       acquisition of the Merlin shares)  compared to an equivalent  property
       acquisition.

    

   Issue of equity

    

   An application  has  been  made  for 22,928,343  New  Ordinary  Shares  in
   relation to  the  Initial Consideration  to  be admitted  to  the  premium
   segment of  the  Official  List,  and  to  trading  on  the  London  Stock
   Exchange's  Main  Market  for  listed  securities  ("Admission").   It  is
   expected that  Admission will  become effective  and dealings  in the  New
   Ordinary Shares will  commence at 8am  on 4 June  2025.  The New  Ordinary
   Shares will rank pari passu with the ordinary shares already in issue.

    

   Following Admission, the  Company's issued share  capital will consist  of
   463,778,741 ordinary shares. Therefore, the total number of voting  rights
   of the Company is 463,778,741 and this figure may be used by  shareholders
   as the denominator for  the calculations by which  they will determine  if
   they are required to  notify their interest  in, or of  a change to  their
   interest in,  the  Company under  the  FCA's Disclosure  and  Transparency
   Rules.

    

                                    - Ends -

    

   Further information:

    

   Further information regarding the  Company can be  found at the  Company's
   website  1 custodianreit.com or please contact:

    

   Custodian Capital Limited                                             
   Richard Shepherd-Cross – Managing Director

   Ed Moore – Finance Director                   Tel: +44 (0)116 240 8740

   Ian Mattioli MBE DL – Chairman
                                               2 www.custodiancapital.com

    

   Numis Securities Limited                             
   Hugh Jonathan / George Shiel Tel: +44 (0)20 7260 1000
                                     www.numis.com/funds

    

   FTI Consulting                                                            
   Richard Sunderland / Ellie Sweeney /              Tel: +44 (0)20 3727 1000
   Andrew Davis / Oliver Parsons
                                            3 custodianreit@fticonsulting.com

    

   Notes to Editors

    

   Custodian Property Income REIT plc is  a UK real estate investment  trust,
   which listed on the main market of  the London Stock Exchange on 26  March
   2014.  Its   portfolio   comprises   properties   predominantly   let   to
   institutional  grade  tenants  throughout   the  UK  and  is   principally
   characterised by smaller, regional, core/core-plus properties. 

    

   The Company  offers  investors the  opportunity  to access  a  diversified
   portfolio of UK commercial  real estate through  a closed-ended fund.   By
   principally targeting  smaller, regional,  core/core-plus properties,  the
   Company seeks to provide investors with an attractive level of income with
   the potential for capital growth.

    

   Custodian Capital Limited is the  discretionary investment manager of  the
   Company.

    

   For     more      information     visit       4 custodianreit.com      and
    5 custodiancapital.com.

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   Dissemination of a Regulatory Announcement that contains inside
   information in accordance with the Market Abuse Regulation (MAR),
   transmitted by EQS Group.
   The issuer is solely responsible for the content of this announcement.

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   ISIN:           GB00BJFLFT45
   Category Code:  MSCH
   TIDM:           CREI
   LEI Code:       2138001BOD1J5XK1CX76
   OAM Categories: 3.1. Additional regulated information required to be
                   disclosed under the laws of a Member State
   Sequence No.:   391231
   EQS News ID:    2148458


    
   End of Announcement EQS News Service

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References

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