Blackstone, the US private equity giant, is to buy Industrials Reit (MLI) for around £700m, including debt, after clinching the company’s recommendation for an all-cash bid.

In what could mark the start of a round of consolidation in London’s fragmented and heavily discounted listed property fund market, Industrials has accepted a 168p per ordinary share bid, valuing its equity at around £500m.

The final offer represents a premium of 42.4% to Industrials’ closing price of 118p on Friday and is 40.6% above the stock’s average price in March of 119.5p.

It is also offers a smaller 4% premium over the underlying asset value of 162p per share at 30 September, the last published by the company.

Industrials, which specialises in multi-let industrial parks used by small businesses, ended last week at a 14% discount below net asset value (NAV) of 136.1p, according to an estimate by its corporate broker Numis Securities.

The shares soared 37%, or 44p, as soon as trading resumed this morning, hitting 162p, just short of the agreed price. 

Like all UK real estate investment trusts, Industrial shares have slumped as interest rates have soared, increasing finance costs and casting a cloud over the economy. In the past year, its stock plunged 37% having traded at a 27% premium over NAV at its peak.

Formerly known as Stenprop, under chief executive Paul Arenson and managing director Julian Carey, the company switched its investments away from prime European commercial property to what they viewed as an overlooked area of UK real estate.

The shares yield 6% and have delivered a 43% total return to shareholders over three years.

Peel Hunt real estate analyst Matthew Saperia said it looked like Industrials had secured a ‘very good price’ given industrial property values had fallen 22% since September. 

‘This news provides positive read-across to other Reits owning industrial assets,’ he said, pointing to Warehouse Reit (WHR ) on a 17% discount to EPRA net tangible assets (NTA), LondonMetric Property (LMP) on a 13% discount, Sirius Real Estate (SRE ) on a 22% discount and even Harworth (HWG) on a 46% discount.

Harworth, a property regeneration specialist active in the Midlands and North of England, jumped 6% to 115p, Warehouse rose 3.8% to 106p and Urban Logistics (SHED ) gained 3% to 131.8p. Sirius and LondonMetric firmed 0.7% and 0.9% respectively. 

‘More generally, the news provides evidence of private equity’s appetite to deploy its dry powder, even while it may be dealing with challenges on other existing,’ said Saperia.

This is Blackstone’s third UK Reit acquisition in the past four years. In 2020 it paid £500m for Hansteen and a year later splashed £1.3bn on St Modwen Properties.

Liberum analyst Joachim Klement said the latest acquisition would bring Blackstone’s total industrial assets to around £1bn, giving it scale and cost-efficiencies over many listed Reits. 

‘The public market is in our view underappreciating the value inherent in industrial Reits and Blackstone is willing to pick up these smaller Reits at bargain prices. Currently, the sector trades at a 29.7% discount to NAV,’ Klement said.