Custodian Property Income (CREI ) has urged shareholders in Abrdn Property Income (API ) to back its ‘superior’ all-share merger offer, which won the recommendation of API’s board last month, saying a rival approach from Urban Logistics (SHED ) was riskier and would require a dividend cut.

Based on Friday’s closing prices, Custodian said its offer of 0.78 CREI shares for every API share was worth 56.7p per share, 6% more than Urban Logistics’ all-share offer which was worth 53.5p per share.

Custodian chair David MacLellan sought to sway Abrdn Property shareholders ahead of a vote on 20 March, saying Urban Logistics’ wish to sell 41% of API’s assets outside of logistics and retail warehouses would be challenging, particularly given the depressed market conditions in offices.

While a merger with fellow property generalist Custodian offered API investors a 7.3% rise in their fully covered quarterly dividends, the offer from Urban Logistics implied a 10.9% cut that would still leave the payout uncovered by earnings, Custodian said.

Urban Logistics’ refinancing requirements also posed a risk to API shareholders, Custodian claimed. While Custodian’s 6.4% net initial yield (NIY) at 30 September was comfortably above its 4.2% finance rate and would enhance earnings, Urban’s 5% NIY had a smaller margin over its 4.1% debt costs meaning there would be insufficient earnings to meet the current dividend.

Also, while Custodian could afford to renew its £20m fixed rate loan expiring in 2025 based on current UK government bond yields, Urban had a £151m term loan and associated interest rate swaps maturing in 2025, which the Custodian board said it was unlikely to be able to refinance below 5%, presenting a risk to earnings.

‘The recommended merger provides API shareholders with a superior income proposition offering a 7.3% uplift in their annual dividend, a fully covered quarterly dividend and an aim of a growing dividend on a sustainable basis as the earnings of the combined group grow,’ MacLellan said.

If its merger went ahead, Custodian also promised to buy back the enlarged trust’s shares to remove a discount that has seen CREI trade an average of 11% below net asset value in the past year. By contrast, Urban shares have gapped out to a 27% discount over the past year, it said.

Abrdn Property Income shares were 0.4% firmer at 54p, while Custodian slipped 1.1% to 71,9p and Urban Logistics was basically unchanged at 116.7p.