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Commercial Property News
Commercial Property Trusts propose £1.6 billion merger deal
An agreed merger was announced today between F&C Commercial Property Trust Ltd ("FCPT") and UK Commercial Property Trust Ltd ("UKCPT"), which if approved will form the sixth largest UK listed property company with a market capitalisation of approximately £1.6 billion.
The current plan is for Ignis' managed UK Commercial Property Trust to roll F&C Commercial Property trust into its own structure with Ignis gaining the management contract. But this deal is not in the bag and whether the fat lady will sing and for whom will be decided in the coming weeks.
For those disenchanted F&C shareholders who want to accept the 91p per share cash alternative, there is a catch; if they are in the majority the proposed merger will be abandoned.
FCPT is majority (50.3%) owned by Friends Provident and Phoenix Group, and Friends Provident has indicated a wish to unwind it's position. Phoenix, who through it's subsidiary Ignis Investment Services Limited manges the portfolio. Ignis currently has approximately £69 billion of assets under management, of which approximately £3.3 billion are commercial property assets. Ignis will reduce it's management fees to the enlarged group as part of the deal. Ignis, which currently controls 16.17% of F&C Commercial Property and 38.23% of UK Commercial Property trust has backed the deal as has Friends Provident which controls 34% of the F&C trust.
There are doubts about whether Ignis will be able to vote its stake or whether related party rules will prevent it and there are rumours that F&C Asset Management may make a counter proposal. They are desparate to avoid losing the management contract on their portfolio and would require a concession on this point to back the scheme.
The merger will be effected by a solvent liquidation of FCPT, the issue of new ordinary shares by UKCPT and the offer of a cash alternative of 91 pence for each FCPT share.
The cash alternative in the offer is being funded primarily by Phoenix having agreed to buy new UKCPT shares by investing no less than £88 million and no more than £130 million. Phoenix Group will become the largest shareholder in the enlarged fund.
For existing shareholders the deal is being treated as a rollover by HMRC for Capital Gains purposes, if they take the shares on offer.
The FCPT Property Portfolio comprises 31 properties with an aggregate market value as at 31 March 2010 of approximately £770 million. The FCPT Property Portfolio generates a current net annual rent of approximately £51 million, being an income return of 6.6%. The majority of the properties are in London.
The UKCPT Property Portfolio comprises 38 properties with an aggregate market value as at 31 March 2010 of approximately £860 million. The UKCPT Property Portfolio generates a current net annual rent of approximately £61 million, being an income return of 7.1%. The
majority of the properties are in the south of England, with a further 20% in London.
Gary Hutcheson, investment director (property) at Ignis, said the trust's property portfolios were an "excellent strategic fit."
"They both bring something to the party. UKCPT has longer lease lengths and a better income and covenant profile, while FCPT brings better London and South Eastern exposure and better potential for short-term performance," Hutcheson told reporters.
"The increased market capitalization brings both trusts into new territory in terms of investor and broker perception, and it gives the enlarged trust the opportunity to tap bigger and more strategic assets in the market to build out the portfolio."
The current plan is for Ignis' managed UK Commercial Property Trust to roll F&C Commercial Property trust into its own structure with Ignis gaining the management contract. But this deal is not in the bag and whether the fat lady will sing and for whom will be decided in the coming weeks.
For those disenchanted F&C shareholders who want to accept the 91p per share cash alternative, there is a catch; if they are in the majority the proposed merger will be abandoned.
FCPT is majority (50.3%) owned by Friends Provident and Phoenix Group, and Friends Provident has indicated a wish to unwind it's position. Phoenix, who through it's subsidiary Ignis Investment Services Limited manges the portfolio. Ignis currently has approximately £69 billion of assets under management, of which approximately £3.3 billion are commercial property assets. Ignis will reduce it's management fees to the enlarged group as part of the deal. Ignis, which currently controls 16.17% of F&C Commercial Property and 38.23% of UK Commercial Property trust has backed the deal as has Friends Provident which controls 34% of the F&C trust.
There are doubts about whether Ignis will be able to vote its stake or whether related party rules will prevent it and there are rumours that F&C Asset Management may make a counter proposal. They are desparate to avoid losing the management contract on their portfolio and would require a concession on this point to back the scheme.
The merger will be effected by a solvent liquidation of FCPT, the issue of new ordinary shares by UKCPT and the offer of a cash alternative of 91 pence for each FCPT share.
The cash alternative in the offer is being funded primarily by Phoenix having agreed to buy new UKCPT shares by investing no less than £88 million and no more than £130 million. Phoenix Group will become the largest shareholder in the enlarged fund.
For existing shareholders the deal is being treated as a rollover by HMRC for Capital Gains purposes, if they take the shares on offer.
The FCPT Property Portfolio comprises 31 properties with an aggregate market value as at 31 March 2010 of approximately £770 million. The FCPT Property Portfolio generates a current net annual rent of approximately £51 million, being an income return of 6.6%. The majority of the properties are in London.
The UKCPT Property Portfolio comprises 38 properties with an aggregate market value as at 31 March 2010 of approximately £860 million. The UKCPT Property Portfolio generates a current net annual rent of approximately £61 million, being an income return of 7.1%. The
majority of the properties are in the south of England, with a further 20% in London.
Gary Hutcheson, investment director (property) at Ignis, said the trust's property portfolios were an "excellent strategic fit."
"They both bring something to the party. UKCPT has longer lease lengths and a better income and covenant profile, while FCPT brings better London and South Eastern exposure and better potential for short-term performance," Hutcheson told reporters.
"The increased market capitalization brings both trusts into new territory in terms of investor and broker perception, and it gives the enlarged trust the opportunity to tap bigger and more strategic assets in the market to build out the portfolio."
Wed, 9th Jun 2010