UK’s Picton, UK Commercial Property REIT in €2.3b merger talks

Picton, a UK diversified property company that was first launched on the London Stock Exchange in 2005 as ING UK Real Estate Income Trust, might be about to merge, adding around £1.27 bn (€1.46 bn) to its £766 mln of assets if successful.

The company is in talks with UK Commercial Property REIT (UKCM) over a possible all-share merger of the two companies.

Under the terms of Picton's proposal to UKCM, the combined company would be internally managed and would have assets of around £2 bn (€2.3 bn).

It has until 5pm on 6 December to either announce a firm intention to make an offer or to scrap the deal.

Picton’s CEO is Michael Morris, who has been with the company since inception.

Morris said in a corporate video earlier this year how Picton continued to deliver strong property returns outperforming MSCI quarterly index for the 10th consecutive year. It also saw stable earnings, and it has paid out slightly increased dividends.

It has been able to grow passing rent and the underlying rental portfolio, and is collecting 99% of its rent, while occupancy stands at around 91%.

‘Clearly there was a repricing in property values at the end of 2022,’ he said. ‘More recently, we've seen stability coming back into the market and that's in part driven by the resilience of the occupational markets.’

‘In terms of the sector's we think returns are going to be much more convergent than they have been in recent years, very much driven by individual assets and leasing activity, rather than perhaps the themes we've seen in previous years.’

‘In terms of emerging market trends, there is the general move towards more sustainable buildings. And that's something that we've been spending time on in terms of improving the efficiency of our buildings, upgrading them and working with occupiers to reduce emissions. That's a theme we think will continue.’

‘Secondly, in respect of the office sector, we've been looking at adapting and repurposing some of those assets, recognising where demand is and how trends have changed post-covid.’

The company recently introduced a flexible leasing proposition for occupiers that has proved popular. But its portfolio remains biased towards the industrial sector.

Morris said: ‘We're still seeing strong occupational demand coming through. We're seeing better growth currently still in that industrial sector, but we're seeing stability in the retail sector, which I think is a very good place. And that sector generally offers a higher yield to a different total return component.’

UKCM is a company managed by abrdn. It has industrial, retail warehousing, offices, leisure, student accommodation, hotels, and supermarkets.

Some 57% of UKCM's portfolio is industrial. Its smallest exposure is to offices in the West End of London. Retail warehouses account for 12.5% 


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