Custodian Property Income REIT acquires €26m property portfolio

Custodian Property Income REIT (CREI) has acquired a £22.1 mln (€26.2 mln) property portfolio from a family-owned company in a tax-efficient, all-stock transaction. 

Eurocentral - Custodian Property Income REIT

The portfolio comprises 28 smaller commercial properties across the UK, primarily in the East Midlands, valued at £19.4 mln (€23.0 mln). It also includes £2.7 mln (€3.2 mln) worth of recently constructed residential units slated for quick sale.
These properties, each averaging £0.7 mln (€0.8 mln) in value, collectively generate £1.7 mln (€2.0 mln) in annual rent, boasting an 8.1% yield and 99% occupancy. Industrial properties account for 46% of the income, mirroring CREI's existing portfolio, with the rest coming from well-located offices and various retail spaces.
The ten largest properties generate about 75% of the total rent and value, and the top 15 tenants contribute 50% of the contracted rent. No single tenant accounts for more than 5% of the total rental income.
This acquisition is expected to immediately increase CREI's earnings, improve CREI's portfolio and reduce its debt ratios. The sellers, in turn, receive CREI shares, maintaining an investment in the company. CREI's management believes it can further enhance the portfolio's value through active management.
To complete the purchase of Merlin Properties Limited, CREI will issue approximately 22.9 million new shares upfront, with an additional 1.7 million shares to be issued within six months. In total, this represents about 5.6% of CREI's current shares.
Commenting on the transaction, Richard Shepherd-Cross, managing director of 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.”
David MacLellan, chairman of Custodian Property Income REIT, commented: "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, added: “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.”
Merlin Properties is debt-free, and after the anticipated sale of its residential units (worth about £2.7 mln), the acquisition will reduce CREI's loan-to-value ratio from 27.1% to 25.8%. Upon closing the deal, Merlin's board will step down, but its property manager, Rob Field, will join Custodian Capital.