Trust property duo accept bids as consolidation gathers pace

In what has already been a record year for investment trust mergers the latest trusts to announce corporate activity are Balanced Commercial Property (LSE:BCPT) and Tritax EuroBox (LSE:BOXE).

The real estate investment trust (REIT) duo have both accepted bids. BCPT, managed by Columbia Threadneedle, has accepted a £673.5 million cash bid from US private assets firm Starwood.

Meanwhile, Tritax EuroBox has accepted an all-share offer from Segro (LSE:SGRO), a UK REIT that develops and manages warehouses and industrial properties. The offer was valued at around £552 million.

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BCPT invests in prime UK commercial property, while Tritax EuroBox specialises in continental warehouses. In common with other property funds, both trusts have suffered as interest rates have risen, which causes bond yields to rise. This means income-seeking investors have had more choice and many have opted to take advantage of lower-risk bonds, such as UK gilts, rather than other asset classes.  

In April, we reported that BCPT was considering its future, which could result in a sale, as it looks to “enhance value for shareholders”. As part of a strategic review, the REIT said it will consider all options including winding down the portfolio, changing investment strategy or fund firm, and whether to take further action to tackle its wide discount. Following the announcement of the review, the ii analyst team removed BCPT from ii's Super 60 list of fund ideas.

If given the green light, BCPT shareholders will receive 96 pence per share. Its share price soared this morning on the back of the announcement, rising by 9.4% to 94.3p (as at 10:15am).

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Commenting on the proposed acquisition, Paul Marcuse, chair of BCPT, said: “Following careful consideration, and having taken independent third-party advice, we believe that the proposed transaction with Starwood offers a successful outcome for our shareholders, offering a full cash exit at a significant premium to BCPT’s undisturbed share price.”

Robert Orr, chair of Tritax EuroBox, acknowledged that it’s been a “difficult macroeconomic environment for the property sector”.

He added: “The transaction with Segro represents a compelling opportunity for Tritax EuroBox shareholders to achieve a significant and immediate uplift in the value of their investment and stronger total shareholder returns, with the option either to retain exposure to the European industrial and logistics sector through holding shares in the largest and most liquid REIT in Europe, or to sell their new Segro shares for cash, taking advantage of Segro’s significantly greater trading liquidity.”

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Both proposed transactions will require the approval of at least 75% of shareholders who cast their votes.

Investment trust mergers are at a record yearly high, driven by wide discounts and boards being more mindful about size.

Arguably the most eye-catching proposed merger is Alliance Trust (LSE:ATST) and Witan (LSE:WTAN), which could create a company big enough for inclusion in the FTSE 100 index.

Consolidation is picking up because there are a lot of potentially sub-scale investment trusts. For a wealth manager to consider an investment trust, the assets need to be around £300 million for it to have a sufficient amount of liquidity.

Of course, retail investors can consider investment trusts with assets below £300 million, and some are potentially hidden gems. But do bear in mind that some small investment trusts have higher costs, including potentially higher dealing spreads.