Abrdn PIT agrees merger with Custodian PI, creates £1bn REIT

Custodian Property Income REIT and Abrdn Property Income Trust are to merge, creating a new REIT with a portfolio worth approximately £1 billion.

In a deal which values API at approximately £237 million, CREI will acquire API’s share capital and once the merger is complete CREI shareholders will hold approximately 59.7% and API shareholders approximately 40.3% respectively in the combined group.

API cited as a reason for the merger, “the significant challenges” facing the real estate sector, including rising inflation and interest rates, compounded by the relatively small scale of the company and the need to refinance its debt facility in late 2022.

David MacLellan.

Custodian Capital will provide investment management, administrative and advisory services to the enlarged REIT the board of which will comprise eight directors with the addition of two of the existing API Directors, Jill May and Sarah Slater.

The two companies said that they share “an income-focused investment strategy with an emphasis on regional, below-institutional sized assets that are well-positioned to capture rental growth and yield advantage”.

Their boards believe the merger will combine complementary portfolios to create a differentiated REIT with enhanced diversification and share liquidity and the enlarged portfolio will be better diversified in terms of asset types, geographical spread and tenant type. The average lot size of assets will be approximately £5.1 million.

CREI was established in 2014 and has a portfolio valued at £602 million. The REIT’s strategy has been to target smaller sized properties, with individual values of less than £10 million.

API, established in 2003, is a UK real estate investment trust investing in a diversified portfolio of UK commercial properties in the industrial, office, retail and “other” sectors valued at £439 million as at 31 December 2023.

David MacLellan, chairman of CREI said: “In the current interest rate environment, security and resilience of cash flows, scale and liquidity, supported by a clear and compelling strategic direction are the defining characteristics of a successful REIT.”

API chair James Clifton-Brown added: “The API Board believes that, with increased scale and an enhanced capital structure, the combined group will be well positioned for the future.”