LondonMetric and Urban Logistics REIT have reached agreement on the terms of a recommended cash and share offer in which LondonMetric will acquire Urban Logistics for £698.9m.

Each Urban Logistics share will be entitled to receive 0.5612 new LondonMetric shares and 42.8p in cash.

On the basis of LondonMetric’s closing price of 191.5p, the acquisition values each Urban Logistics share at 150.3p, which represents:

• a 21.8% premium to Urban Logistics share price before the proposed offer was made of 123.4 pence;
• a premium of 27.2% to the three-month volume weighted average Urban Logistics share price of 118.1p;
• a premium of 31.5% to the six-month volume weighted average Urban Logistics share price of 114.3p; and
• an implied EPRA NTA discount of approximately 3% based on each of LondonMetric’s and Urban Logistics’ EPRA NTAs per share as at 30 September 2024.

In addition, Urban Logistics shareholders will receive an interim dividend for the second half of the financial year ended 31 March 2025, currently expected to be 4.35p.

Following completion of the acquisition, existing LondonMetric shareholders will hold 89% and Urban Logistics shareholders will hold 11% of the enlarged group.

Highlights of the acquisition

LondonMetric said that it believes the deal would result in:

• a combined group with a pro forma market capitalisation of £4.4bn, making LondonMetric one of the largest UK REITs by market capitalisation and consolidating its position as the UK’s leading triple net lease REIT and a FTSE 100 company, providing enhanced access to capital and increasing share liquidity;
• a £7.3bn portfolio aligned to logistics, convenience, healthcare, entertainment and leisure;
• a logistics platform with a value of £4.0bn representing 54.5% of the combined group’s portfolio on a pro forma basis, of which £2.9bn, or 40.3% is in higher growth urban logistics assets;
• an enhanced competitive position for pursuing opportunities of scale and competing with large private equity investors on substantial transactions;
• a sector-leading WAULT of 17 years, 97% occupancy and a 98% gross to net income ratio, supported by high quality occupier covenants;
• synergies and an improved cost structure further enhancing LondonMetric’s sector-leading EPRA cost ratio and superior EPRA earnings growth which underpins a fully covered, progressive dividend policy, with LondonMetric currently in its tenth consecutive year of dividend progression;
• a highly attractive dividend uplift for Urban Logistics shareholders equivalent to 24% based on LondonMetric’s FY25 target dividend of 12.0p per share and the Urban Logistics’ expected FY25 dividend of 7.6p per share;
• earnings accretion anticipated in the next two years delivered by capturing external and internal opportunities, including recycling assets, accessing larger development fundings, capturing embedded rental reversion and delivering economies of scale with greater cost efficiency; and
• a pro forma LTV of approximately 36%, a weighted average cost of debt of 4.0%, a weighted average debt maturity of 4.8 years and £624m of undrawn debt facilities.

[QD comment: Rumours of corporate activity had been circling Urban Logistics for a while, but this is probably the best outcome that shareholders could have wished for. In LondonMetric, they will be getting exposure to a seasoned real estate team led by the impressive Andrew Jones. The company is one of the largest listed property companies in the UK and has ambitions to grow further. Since 2019, LondonMetric has pursued a strategy of acquisitive growth and has acquired A&J Mucklow plc in 2019, CT Property Trust Limited in 2023 and LXi REIT plc in 2024. It is also progressing a recommended all-share acquisition of Highcroft Investments plc which is expected to complete this month.

The deal would also be a quick and positive outcome for Achilles Investment Trust, which launched earlier this year with the purpose of targeting companies that it believes are underperforming. It invested in the company in March and pushed for the replacement of the chairman and other directors before the LondonMetric offer.]

Recommendations

Urban Logistics directors intend to recommend unanimously that shareholders vote in favour of the scheme at the Court Meeting and vote in favour of the Urban Logistics resolution to be proposed at the General Meeting. Directors have irrevocably undertaken to do so in respect of their shareholding of around 0.5%.

LondonMetric has also received irrevocable undertakings to vote in favour of the scheme from Achilles Investment Company Limited, North Atlantic Smaller Companies Investment Trust PLC and TR Property Investment Trust Plc in respect of a total of 26,633,283 shares, representing 5.73% of Urban Logistics.

LondonMetric has also received irrevocable undertakings to vote in favour from the principals of the investment adviser in respect of 674,290 Urban Logistics shares, representing 0.14% of the company.

In total, therefore, LondonMetric has received irrevocable undertakings representing 6.37%.

Timetable

In order to become effective, the scheme must be approved by at least 75% of shareholders at the Court Meeting and General Meeting, whether in person or by proxy.

It is expected that the scheme document, containing further information about the acquisition and notices of the Court Meeting and the General Meeting, will be published on or around 23 May 2025 and the scheme to become effective by 30 June 2025.

Comments

Andrew Jones, chief executive of LondonMetric, said: “This is an excellent transaction that grows our urban logistics platform and supports our triple net strategy. Urban warehousing remains our strongest conviction call for organic rental growth across the UK real estate market. The portfolio is well located, highly reversionary and our asset management focus will ensure that it delivers reliable, repetitive and growing income-led returns.

“We have a demonstrable track record of successfully executing on M&A and we expect the transaction will deliver substantial synergies, cost savings and accelerated earnings growth. Our scale will continue to deliver enhanced access to capital, more debt optionality, increased share liquidity and larger investment opportunities.”

Nigel Rich, chairman of Urban Logistics, said: “Since its IPO in 2016, Urban Logistics has assembled an exceptional portfolio of single-let, ‘last mile’ assets and has outperformed the UK REIT sector and other relevant benchmarks. I would like to congratulate Richard Moffitt and the rest of the management team on this achievement and to thank them for their commitment and dedication.

“The Board of Urban Logistics believes that the Acquisition offers Urban Logistics shareholders a premium price for their shares, an attractive combination of cash and share consideration and ongoing exposure to the logistics sector via a company of greater scale and liquidity.”