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UKCPT trust takeover creates $2.5 billion property firm
June 9, 2010 / 6:27 AM / in 8 years

UKCPT trust takeover creates $2.5 billion property firm

LONDON (Reuters) - UK Commercial Property Trust (UKCM.L) (UKCPT) is taking over F&C Commercial Property Trust (FCPTL.L) (FCTP) to create Britain’s sixth-largest listed property company, worth about 1.6 billion pounds ($2.5 billion).

UKCPT’s move follows the sale in April of a 16.5 percent stake in FCPT to the Phoenix Group, the parent company of UKCPT manager Ignis Asset Management Limited, from key FCTP shareholder Friends Provident.

Friends Provident and Phoenix, which have a combined 50.3 percent stake in FCPT, agreed on the deal, which is subject to approval from the trust’s independent shareholders.

Under terms of the deal, designed to boost investor pulling power as Britain fights to ward off a second property slump, UKCPT will offer new UKCPT shares for FCPT shares so investors ultimately get the same net asset value (NAV) per share.

There is a cash alternative of 91 pence per FCPT share, valuing the company at about 620 million pounds, FCPT said in a statement detailing the deal.

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 Reuters.

“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.”

Shares in UKCPT gained 0.2 percent to trade at 77.1 pence by 1109 GMT.

The boards of both trusts have agreed to appoint Ignis to manage the enlarged trust, and have given FCPT’s manager, F&C REIT, six months notice of their intentions to terminate its management contract.

“We are disappointed to have been served with notice given the continued strong performance of the portfolio under F&C REIT,” parent company F&C Asset Management said.

“F&C REIT has been seeking to develop an alternative proposal with the Board of FCPT which would benefit all shareholders in the company and will continue to do so,” it said.

By 1109 GMT, FCPT shares were up 1 percent at 92.3 pence.


The combined portfolio would have a 60.5 percent weighting to London and the South East, with 27 percent of assets located in the capital’s popular West End business district, research from UKCPT advisor Execution Noble showed.

On a sector basis, the portfolio would be weighted 51 percent to retail, 36 percent to offices and 14 percent to industrial real estate, closely mirroring weightings in the Investment Property Databank benchmark index.

    The deal is also expected to reduce the total expense ratio -- the costs borne by investors as a percentage of their investment -- to 0.7 percent, from 0.9 percent in the UKCPT and 1.1 percent in FCPT, largely due to reduced management fees.

    The combined group intends to pay a dividend of 5.25 pence, in line with UKCPT’s existing payout, which implies a dividend yield of 6.8 percent based on last night’s closing price for UKCPT shares.

    The increase in market capitalization is also seen to enhance liquidity for investors and improve the enlarged trust’s access to debt thanks to UKCPT’s higher cash reserves.

    Hutcheson said he expected the majority of independent shareholders in FCPT to back the deal even though the 91 pence per share cash alternative represented a small discount to the closing price of 92.55 pence on Tuesday.

    “We don’t expect the cash take-up to be substantial at all. Frankly, we feel that most shareholders will and have already seen the merit in the transaction,” he said.

    Ignis has about 69 billion pounds of assets under management, of which about 3.3 billion pounds is commercial property assets.

    ($1=.6465 Pound)

    (Editing by Claire Milhench, Karen Foster and Andrew Macdonald)

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